<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
X EXCHANGE ACT OF 1934
- ------
For the quarterly period ended June 30, 1998
OR
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. .
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(Exact name of Registrant as specified in its Charter)
Delaware 11-3223246
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
538 Broadhollow Road
Melville, New York 11747
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(Address of principal executive offices)
(516) 694-1666
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(Registrant's telephone number)
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(Former Name, Former Address and Former Fiscal Year, if changed since last
Report)
Check 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 report(s), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
- -
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of August 10, 1998
- -------------------------------------- ----------------------------------
Common Stock, par value $.01 per share 25,782,437
Transitional Small Business Disclosure Format (Check one): Yes No X .
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<PAGE>
ITEM 1.
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INTRODUCTORY COMMENT
The condensed consolidated financial statements included herein
have been prepared by Family Golf Centers, Inc. (the "Company"), without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although management of the Company believes that the disclosures
are adequate to make the information presented not misleading. These condensed
consolidated financial statements should be read in conjunction with the notes
thereto. In the opinion of the management of the Company, the condensed
consolidated financial statements include all adjustments, consisting of only
normal recurring adjustments, necessary to fairly present the results for the
interim periods to which these financial statements relate.
The results of operations of the Company for the six months ended June 30, 1998
are not necessarily indicative of the results to be expected for the full
year.
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<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1998 1997
====== ---- ----
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $4,093,000 $ 6,042,000
Restricted cash 325,000 390,000
Short-term investments 7,000 55,846,000
Inventories 22,729,000 14,855,000
Prepaid expenses and other current assets 13,703,000 9,298,000
Prepaid income taxes 82,000
------------------------ -----------------------
Total current assets 40,939,000 86,431,000
Property, plant and equipment (net of accumulated depreciation) 306,582,000 235,875,000
Loan acquisition costs (net of accumulated amortization) 5,643,000 5,738,000
Other assets 11,798,000 9,279,000
Excess of cost over fair value of assets acquired
(net of accumulated amortization) 41,078,000 25,713,000
------------------------ -----------------------
TOTAL $406,040,000 $363,036,000
============ ============
LIABILITIES
Current liabilities:
Accounts payable, accrued expenses and other current liabilities $22,160,000 $11,247,000
Income taxes payable 2,626,000
Short term loan payable-bank 92,000 63,000
Current portion of long-term obligations 6,595,000 10,877,000
------------------------ -----------------------
Total current liabilities 28,847,000 24,813,000
Convertible subordinated notes 115,000,000 115,000,000
Long-term obligations (less current portion) 69,403,000 32,110,000
Subordinated debentures 5,150,000 4,981,000
Redeemable equity securities 2,805,000
Deferred tax liability 4,196,000 4,196,000
Other liabilities 856,000 858,000
------------------------ -----------------------
Total liabilities 223,452,000 184,763,000
------------------------ -----------------------
Minority interest 214,000
Commitments, contingencies and other matters
STOCKHOLDERS' EQUITY
Preferred stock - authorized 1,000,000 shares, none outstanding
Common stock - authorized 50,000,000 shares, $.01 par value;
21,143,017 and 20,500,448 shares outstanding at
June 30, 1998 and December 31, 1997, respectively 211,000 204,000
Additional paid-in capital 181,517,000 171,542,000
Retained earnings 979,000 6,549,000
Accumulated other comprehensive income:
foreign currency translation adjustment 197,000 195,000
Unearned compensation (483,000) (170,000)
Treasury shares (47,000) (47,000)
------------------------ -----------------------
Total stockholders' equity 182,374,000 178,273,000
------------------------ -----------------------
TOTAL $406,040,000 $363,036,000
============ ============
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
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<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- -----------------------------------
1998 1997 1998 1997
------------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
Operating revenues $43,051,000 $20,820,000 $26,314,000 $13,946,000
Merchandise sales 13,070,000 8,557,000 8,310,000 5,730,000
------------------- ----------------- --------------- -----------------
Total revenue 56,121,000 29,377,000 34,624,000 19,676,000
Operating expenses 29,285,000 13,796,000 15,534,000 7,766,000
Cost of merchandise sold 8,909,000 5,692,000 5,669,000 3,760,000
Selling, general and
administrative expenses 6,673,000 5,132,000 3,011,000 2,793,000
Merger, acquisition, integration
and other related charges 7,752,000 7,752,000
------------------- ----------------- --------------- -----------------
Income from operations 3,502,000 4,757,000 2,658,000 5,357,000
Interest expense (5,375,000) (700,000) (2,746,000) (392,000)
Other income 1,190,000 760,000 234,000 294,000
------------------- ----------------- --------------- -----------------
Income (loss) before income taxes (683,000) 4,817,000 146,000 5,259,000
Income tax expense 4,887,000 2,837,000 4,027,000 2,492,000
------------------- ----------------- --------------- -----------------
Net income (loss) $(5,570,000) $1,980,000 $(3,881,000) $2,767,000
============ ========== ============ ==========
Basic earnings (loss) per share (0.27) 0.11 (0.19) 0.15
====== ==== ====== ====
Diluted earnings (loss) per share (0.27) 0.10 (0.19) 0.15
====== ==== ====== ====
Weighted average shares outstanding
- Basic 20,844,000 18,673,000 20,856,000 18,711,000
========== ========== ========== ==========
Effect of dilutive securities 285,000 285,000
Weighted average shares outstanding
- Dilutive 20,844,000 18,958,000 20,856,000 18,996,000
========== ========== ========== ==========
</TABLE>
The accompany notes to financial statements are an integral part hereof.
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<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------------
1998 1997
---------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $(5,570,000) $1,980,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,156,000 2,474,000
Non-cash merger, acquisition, integration and other
related charges 2,969,000
Non-cash operating expenses 199,000 807,000
(Increase) in inventories (7,874,000) (5,168,000)
(Increase) in prepaid expenses and other current assets (4,405,000) (635,000)
(Increase) in prepaid income taxes (82,000) (1,104,000)
(Increase) decrease in other assets (2,519,000) (3,961,000)
Increase in accounts payable and accrued expenses 7,982,000 5,791,000
Increase (decrease) in other liabilities (2,000) 344,000
Income taxes payable (2,626,000)
------------------ --------------
Net cash (used in) provided by operating activities (6,772,000) 528,000
------------------ --------------
Cash flows from investing activities:
Acquisitions of property and equipment (63,720,000) (37,971,000)
Acquisitions of goodwill (12,498,000) (977,000)
Restricted cash deposits 65,000 (33,000)
Net proceeds from sale of short-term investments 55,839,000 29,170,000
------------------ --------------
Net cash (used in) investing activities (20,314,000) (9,811,000)
------------------ --------------
Cash flows from financing activities:
(Increase) in loan acquisition costs (299,000) (470,000)
Proceeds from subordinated debentures 6,500,000
Proceeds from loans, banks and others 39,375,000 647,000
Repayment of bank loans (16,718,000) (238,000)
Net proceeds from issuance of common stock 38,000 3,643,000
Proceeds from the exercise of options and warrants 2,741,000 255,000
------------------ --------------
Net cash provided by financing activities 25,137,000 10,337,000
------------------ --------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,949,000) 1,054,000
Cash and cash equivalents - beginning of period 6,042,000 5,143,000
------------------ --------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $4,093,000 $6,197,000
========== ==========
Supplemental and noncash disclosures:
Acquisition of property in exchange for common stock $6,403,000 $2,492,000
Acquisition of goodwill in exchange for mortgages and notes 3,953,000 305,000
Acquisition of property subject to mortgage and notes 6,642,000
Issuance of stock for services rendered 53,000
Property additions accrued but not paid 15,000 130,000
Interest paid 3,228,000 605,000
Taxes paid 7,641,000 1,381,000
</TABLE>
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The accompanying notes to financial statements are an integral part hereof.
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(NOTE A) THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
[1] THE COMPANY:
The Company (as defined below), designs, constructs, operates, and
manages golf centers. The golf centers offer golf lessons and a
wide variety of practice opportunities, including facilities for
practicing driving, pitching, putting, chipping and sand play. In
addition, most centers have a pro shop, miniature golf course,
snack bar and electronic video games. The Company has recently
acquired Family Sports Supercenters consisting of ice rinks and
other indoor recreational activities and intends to acquire or open
additional supercenters and ice rinks in the future.
Through an agreement with Golden Bear Golf, Inc. ("GBGI"), the
Company is licensed to use the name "Golden Bear" for certain of
the Company's golf centers. In July 1998, the Company acquired
fourteen golf centers from Golden Bear Golf, Inc. and the original
license agreement was terminated and replaced with a new license
agreement pursuant to which the Company has agreed to operate its
seven existing "Golden Bear" Golf Centers and the 14 acquired golf
centers under the name "Golden Bear" (See Note D).
[2] PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of
Family Golf Centers, Inc. and its wholly owned and majority owned
subsidiaries (excluding Eagle Quest, defined below) herein referred
to as "FGCI" and together with Eagle Quest referred to herein as
the "Company". All significant intercompany transactions and
accounts have been eliminated. Minority interests in the Company's
operations were insignificant.
On June 30, 1998, FGCI issued 1,384,735 shares of its common stock
in exchange for all outstanding common stock, options and warrants
of Eagle Quest Golf Centers, Inc. ("Eagle Quest"). Eagle Quest,
which was incorporated in British Columbia, Canada on February 5,
1996, acquires, develops and operates golf practice centers
incorporating a driving range, a retail golf shop, and a learning
academy and, in some locations, a short/executive course. This
exchange, which qualified as a tax-free reorganization for federal
income tax purposes, has been accounted for as a
pooling-of-interests combination and, accordingly, the consolidated
financial statements for periods prior to the combination have been
restated to include the combined results of operations, financial
position and cash flows of Eagle Quest as though it had been a part
of the Company since inception. Under the pooling of interests
method, the assets and liabilities of Eagle Quest are carried at
their historical amounts and the historical operating results of
Eagle Quest are combined with those of Family Golf Centers, Inc.
for all periods presented. The results of operations previously
reported by the separate companies and the combined amounts
presented in the consolidated financial statements follow.
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<PAGE>
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
------------------------------------------- --------------------------------------------- ----
1998 1997 1998 1997
-------------------- ---------------------- ---------------------------- -----------------------
<S> <C> <C> <C> <C>
Total revenues:
FGCI $ 50,090,000 $ 26,557,000 $ 30,920,000 $ 17,542,000
Eagle Quest 6,031,000 2,820,000 3,704,000 2,134,000
==================== ====================== ============================ =======================
Consolidated $ 56,121,000 $ 29,377,000 $ 34,624,000 $ 19,676,000
==================== ====================== ============================ =======================
Net income(loss)
FGCI $ 5,697,000 $ 4,630,000 $ 4,351,000 $ 4,068,000
Eagle Quest (11,267,000) (2,650,000) (8,232,000) (1,301,000)
==================== ====================== ============================ =======================
Consolidated $ (5,570,000) $ 1,980,000 $(3,881,000) $ 2,767,000
==================== ====================== ============================ =======================
</TABLE>
The consolidated financial statements include merger, acquisition,
integration and other related fees and expenses of $7.8 million,
of which $2.0 million is included in the FGCI net income and $5.8
million in the net loss of Eagle Quest.
[3] STOCK SPLIT:
In May 1998, the Company effected a 3 for 2 stock split. The
financial statements give retroactive effect to this transaction.
(NOTE B) INVENTORIES:
Inventory consists of merchandise for sale in the pro shop at each
facility and is valued at the lower of cost on a first-in,
first-out basis or market.
(NOTE C) ACQUISITIONS:
On June 30, 1998, the Company completed the acquisition of Eagle
Quest and issued 1,384,735 shares of the Company's Common Stock in
exchange for all Eagle Quest's outstanding common stock, options
and warrants. This transaction was accounted for as a
pooling-of-interests business combination and, accordingly, the
consolidated financial statements (including those for prior
periods) have been restated to include the accounts of Eagle Quest
for all periods presented. Eagle Quest was the second largest
operator of golf driving ranges in North America, with 20 golf
centers in Texas, Washington and Canada. All amounts discussed
herein, except as otherwise specifically indicated, include the
consolidated results and balances of the Company and its
subsidiaries, including Eagle Quest.
In addition to the acquisition of Eagle Quest, also during the
second quarter of 1998, the Company acquired a golf facility in
Carlsbad, California and the right to operate existing golf
facilities in Overland Park and Evergreen, Colorado under
concession agreements with the City of Denver. In addition, the
Company entered into a concession license with the City of New York
to build a golf center in Brooklyn, New York, a long-term lease to
construct and operate a golf facility in Shelton, Connecticut and a
concession license to construct and operate a golf facility in
Green Valley Ranch, Colorado.
In addition to golf facilities the Company signed a long-term lease
to construct and operate an ice rink facility with two sheets of
ice and a family entertainment center in Woodbridge, New Jersey.
During the first quarter of 1998 the Company acquired: MetroGolf
Incorporated ("Metro"), the operator of eight golf facilities,
through the successful completion of a tender offer; Blue Eagle
Golf Centers,
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<PAGE>
Inc., the operator of three golf facilities; an ice rink
facility in Raleigh, North Carolina; and a golf facility in
Holbrook, Massachusetts. In addition, in March 1998, the Company
signed a long-term lease to construct and operate an ice rink
facility consisting of two NHL regulation-size ice rinks and family
entertainment center in New Rochelle, New York.
The acquisitions made during the first and second quarter, other
than Eagle Quest, have been accounted for under the purchase method
of accounting and, accordingly, the results of operations have been
included from the date of acquisition.
The following unaudited pro forma information assumes that certain
acquisitions in 1998 had taken place at the beginning of 1998 and
that certain acquisitions in 1998 and 1997 had taken place at the
beginning of 1997:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------------------- ------------------
1998 1997
----------------------- -------------------
<S> <C> <C>
Total revenue $56,028,000 $92,342,000
Net income (loss) (6,186,000) 160,000
Net income (loss) per share - basic $(0.30) $0.01
- diluted $(0.30) $0.01
</TABLE>
(NOTE D) SUBSEQUENT EVENTS:
On July 17, 1998 the Company increased its credit facility with the
Chase Manhattan Bank ("Chase") from $20 million to $44.3 million in
order to fund the acquisition of Golden Bear Golf Centers, Inc. The
additional $24.3 million is due on October 12, 1998 and bears
interest at LIBOR plus a margin of 1% per annum.
On July 20 and July 21, 1998, the Company acquired Golden Bear Golf
Centers, Inc. and a related subsidiary for $32.0 million, minus
certain indebtedness, capital leases and other liabilities
(currently estimated at $9.0 million), subject to certain
post-closing adjustments (the "Golden Bear Acquisition"). The
Company believes that, prior to the acquisition, Golden Bear was
the third largest operator of golf driving ranges in North America
with 14 golf centers in California, Florida, Maryland, Michigan,
New Jersey, New York, Ohio, Oregon, Pennsylvania and Texas.
The Company entered into new license agreements with respect to the
existing Golden Bear Golf Centers and the newly acquired centers.
This transaction will be accounted for as a purchase in accordance
with APB No. 16.
Also on July 20, 1998, the Company entered into a Term Loan
Agreement with ORIX USA Corporation ("ORIX") providing for a $10.0
million loan secured by a mortgage on five of the Company's
existing properties. The loan bears interest at either (i) the
Prime Rate or (ii) LIBOR plus a margin of 2.25% per annum. The loan
matures on July 19, 2003. As a condition to obtaining this loan,
ORIX required that the Company enter into an interest rate
protection agreement. Accordingly, the Company entered into a Swap
Transaction Agreement with Chase on July 20, 1998, which, in
effect, fixes the LIBOR rate under the Term Loan Agreement at
5.93%. In the event LIBOR exceeds such fixed rate, Chase is
required to pay such excess to the Company, and in the event that
LIBOR is less than such fixed rate, the Company is required to pay
Chase such difference. The Company has drawn down the full $10.0
million under the ORIX Term Loan Agreement.
On July 27, 1998, the Company completed a public offering of
4,600,000 shares of Common Stock. The net proceeds to the Company
were approximately $106.0 million.
In August 1998, the Company obtained a commitment from Chase to
replace the existing $44.3 million credit facility with a
syndicated $100,000,000 secured two (2) year revolving credit
facility converting to a four (4) year term loan. Chase has agreed
to serve as the administrative agent for this new credit facility
and to lend up to $45,000,000 as a participant in the Facility. As
with the Company's current
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<PAGE>
credit facility with Chase, the new credit facility is to be
secured by the pledge of the stock of most of the Company's
subsidiaries and such subsidiaries will also guarantee such
obligations. Interest under the new credit facility is to be either
(i) the greater of Chase's prime rate or the federal funds rate
plus .5% per annum plus a margin of .25% per annum or (ii) the
LIBOR rate, plus between 1% and 2% per annum (depending on the
Company's ratio of Consolidated Funded Debt to Consolidated EBITDA
(as such terms are defined in the commitment letter)). To date, the
Company has not entered into a definitive loan agreement with
respect to such commitment.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction the
Company's Financial Statements and the notes thereto appearing elsewhere in the
Report. This Report contains statements which constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements appear in a number of places in the Report and
include statements regarding the intent, belief or current expectations of the
Company with respect to (i) the Company's acquisition and financing plans, (ii)
trends affecting the Company's financial condition or results of operations,
(iii) the impact of competition and (iv) the expansion and integration of
certain operations. The Company cautions that forward-looking statements are
not guarantees of future performance and involve risks and uncertainties, and
that actual results may differ materially from those in the forward-looking
statements as a result of various factors. The information contained in this
Report, including, without limitation, the information under "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations", and the information contained in the Company's Annual Report on
Form 10-K for the year ended 1997 under "Risk Factors" and "Business"
identifies important factors that could cause or contribute to such
differences.
GENERAL
The Company is the leading consolidator and operator of golf centers in
North America. The Company's strategy is to continue to build upon its
leadership position in the golf center industry and expand its concept of
family-oriented sports entertainment through: (i) consolidation within the golf
center industry, (ii) enhancement of facilities and customer service, (iii)
leveraging centralized operations and (iv) developing complementary sports and
family entertainment facilities. The Company's golf centers are 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 full-line pro shops, golf lessons instructed by
PGA-certified golf professionals and other amenities such as miniature golf and
snack-bars to encourage family participation. The Company has a proven track
record of successfully identifying, acquiring and integrating golf centers,
having grown from one golf facility in 1992 to 97 in operation or under
construction as of June 30, 1998.
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 facilities open
from period to period, the seasonality of operations, the timing of
acquisitions, the completion of various debt and equity financings and the
expansion of the Company's business to include ice rinks and Family Sports
Supercenters, 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 and debit cards 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 courses from
golf club membership fees, fees for rounds of golf and golf lessons. It derives
revenues from its ice rink facilities, pro-shop merchandise, by renting rinks to
hockey leagues, charging admissions to its skating facilities for public
skating, providing lessons through USFSA-certified instructors, skate equipment
rental, as well as from food and beverage sales and video games. The Company
derives revenues from its Family Sports Supercenters from substantially the
same sources as described above. The Company currently operates two Family
Sports Supercenters, and two stand alone ice rinks and is adding a family
entertainment center and two ice rinks to its Denver, Colorado center to make
such facility a Family Sports Supercenter.
EAGLE QUEST MERGER
On June 30, 1998, the Company completed the acquisition of Eagle Quest for
1,384,735 shares of the Company's common stock for all of the outstanding
common stock, options and warrants of Eagle Quest. This transaction was
accounted for as a pooling-of-interests business combination. Eagle Quest was
the second largest operator of golf driving ranges in North America, with 18
golf centers in Texas, Washington and Canada. Accordingly, financial statements
for prior period have been restated to include the accounts of Eagle Quest. All
amounts discussed herein, except as otherwise specifically indicated, include
the consolidated results and balances of the Company and its subsidiaries
including Eagle Quest. These financial statements represent the first
presentation by the Company on a pooled restated basis.
-10-
<PAGE>
The differences between the Company's previously reported historical results
and the restated results discussed below are due to the combination of Eagle
Quest's revenues, expenses and losses with the historical revenues, expenses
and income of the Company. The restated results of operations for the Company
are not necessarily indicative of the results of operations of the consolidated
entity in the future.
Eagle Quest began operations in February 1996 and opened or acquired its
facilities at varying times commencing in 1996. Eagle Quest's strategy was to
establish the infrastructure to manage and operate a large number of facilities
and then to open or acquire such facilities. The Company believes that the
expenses of establishing and maintaining the infrastructure to service the
planned increase in facilities owned, leased and managed by Eagle Quest
contributed to Eagle Quest's losses and the level of its expenses as a
percentage of revenues.
For the period from its inception to June 30, 1998, Eagle Quest generated net
losses of $13.6 million before one-time merger, acquisition integration and
other related charges associated with Eagle Quest's acquisition by the Company.
For the six months ended June 30, 1998, restated for the pooling-of-interest,
the Company's total revenue and earnings before one-time merger, acquisition,
integration and other related charges was $56.1 million and $2.2 million,
respectively. FGCI contributed $50.1 million in total revenue and $7.6 million
in earnings (before the one-time charges of $2.0 million), while Eagle Quest
contributed $6.0 million in total revenue and $5.5 million in net losses
(before the one-time charges of $5.8 million).
For the three months ended June 30, 1998, restated for the pooling-of-interest,
the Company's total revenue and earnings before one-time merger, acquisition,
integration and other related charges was $34.6 million and $3.9 million,
respectively. FGCI contributed $30.9 million in total revenue and $6.3 million
in net income (before the one-time charges of $2.0 million). Eagle Quest
contributed $3.7 million in total revenue and $2.4 million in losses (before
the one-time charges of $5.8 million) in the three months ended June 30, 1998.
As of June 30, 1998, the Company owned, leased or managed 97 golf facilities
(located in 21 states, the Canadian Provinces of British Columbia and Alberta).
Twelve of the golf centers are currently under construction.
GOLDEN BEAR ACQUISITION
As of June 30, 1998, seven of the golf centers were operated under the name
"Golden Bear Golf Centers", licensed from Jack Nicklaus' licensing company,
Golden Bear Golf, Inc. In July 1998, the Company acquired fourteen golf centers
from Golden Bear Golf, Inc. and the original license agreement was terminated
and replaced with a new license agreement pursuant to which the Company has
agreed to operate its seven existing "Golden Bear" Golf Centers and the 14
acquired golf centers under the name "Golden Bear" (See Note D to the financial
statements).
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<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>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------- -------------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenues 76.7% 70.9% 76.0% 70.9%
Merchandise sales 23.3 29.1 24.0 29.1
-------------- -------------- ------------ --------------
Total revenue 100.0 100.0 100.0 100.0
Operating expenses 68.0 66.3 59.0 55.7
Cost of merchandise sold 68.2 66.5 68.2 65.6
Selling, general and
admin. expenses 11.9 17.5 8.7 14.2
Merger, acquisition,
integration and other related
charges 13.8 -- 22.4 --
Income from operations 6.2 16.2 7.6 27.2
Interest expense 9.6 2.4 4.6 2.0
Other income 2.1 2.6 0.7 1.5
Income (loss) before income taxes
(1.2) 16.4 0.4 26.7
Income tax expense 8.7 9.7 11.6 12.7
Net income (loss) (9.9) 6.7 (11.2) 14.1
</TABLE>
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<PAGE>
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Results for the six months ended June 30, 1998 reflect the operations of 70
golf centers for the full period, three golf centers for five months, eight
golf centers for approximately four months, one golf center for three months,
one golf center for approximately two months and two golf centers for one month
or less and also include two Family Sports Supercenters and two stand alone ice
rink facilities for six months or less. Results for the six months ended June
30, 1997 reflect the operations of 37 golf centers for the full period,
operations of three golf centers for approximately five months, operations of
five golf centers for approximately four months, operations of four golf
centers for about three months, operations of one golf center for two months
and operations of thirteen golf centers for one month or less. As a result of
the change in the number of golf centers open from period to period, the
comparison between the 1998 and 1997 periods may not necessarily be meaningful.
Total revenue for the six months ended June 30, 1998 was $56.1 million as
compared to $29.4 million for the same period in 1997, an increase of $26.7
million (91%). The overall increase in revenue was attributable to having
additional golf centers in operation during the 1998 period, as well as the
revenue generated by the Company's ice rink and Family Sports Supercenters.
Total revenue for the 36 golf centers operating for the full six months ended
June 30, 1998 and 1997 increased 7% to $26.0 million in the 1998 period from
$24.0 million in the 1997 period. The increase in revenue for these 36 golf
centers was primarily due to stronger merchandise and golf instruction sales
and better winter weather conditions in the Northeast and Southeast regions
partially offset by adverse weather attributed to the El Nino effect on the
West Coast. Revenue for the 4 golf centers operated by Eagle Quest for the full
six month period decreased by 21%, while revenue for the 32 golf centers
operated by Family Golf increased by 11%.
Operating revenue, consisting of all sales except merchandise sales, amounted
to $43.1 million for the six months ended June 30, 1998, as compared to $20.8
million for the comparable 1997 period, an increase of $22.3 million (107%).
The increase in operating revenue was primarily attributable to having
additional golf centers in operation during the 1998 period, as well as the
revenue generated by the Company's ice rinks and Family Sports Supercenters.
Total operating revenue for the 36 golf centers operating for the full six
months ended June 30, 1998 and 1997 increased 4% to $16.6 million in the 1998
period from $15.9 million in the 1997 period. Operating revenue for the 4
Eagle Quest golf centers decreased by 3% while operating revenue for the 32
Family Golf centers increased by 5%. Non-golf revenue from the Company's Sports
Supercenters and ice rinks totaled $9.1 million for the six months ended June
30, 1998. The Company had no non-golf revenue in the comparable 1997 period.
Merchandise sales, consisting of golf clubs, balls, bags, gloves, videos,
apparel and related accessories, amounted to $13.1 million for the six months
ended June 30, 1998 as compared to $8.6 million for the comparable 1997 period,
an increase of $4.5 million (52%). The increase in merchandise sales was
primarily due to the contribution of new locations. Total merchandise sales for
the 36 golf centers operating for the full six months ended June 30, 1998 and
1997 increased 16% to $9.4 million in the 1998 period from $8.1 million in the
1997 period, due to the increased emphasis placed by the Company on improving
pro shop sales, improved purchasing procedures and increased promotion.
Merchandise sales for the 4 Eagle Quest golf centers decreased by 46% primarily
due to lack of pro shop inventory as a result of Eagle Quest's working capital
shortage. Merchandise sales for the 32 Family Golf centers increased by 24% for
the six month period.
Operating expenses, consisting of operating wages and employee costs, land
rent, depreciation of golf driving range facilities and equipment, utilities
and all facility operating costs, increased to $29.3 million (68% of
operating revenue) in the 1998 period from $13.8 million (66% of operating
revenue) in the 1997 period, an increase of $15.5 million (112%). The increase
in operating expenses was primarily due to the operating costs of locations
that were operated by the Company during the 1998 period which were not owned
in the 1997 period.
-13-
<PAGE>
The cost of merchandise sold increased to $8.9 million (68% of merchandise
sales) in the 1998 period from $5.7 million (67% of merchandise sales) in the
comparable 1997 period. The overall increase in the cost of merchandise sold of
$3.2 million (57%) was primarily due to the higher level of merchandise sales.
The increase in cost of merchandise sold as a percentage of merchandise sales
is primarily due to the higher cost of goods sold at the Eagle Quest locations.
Selling, general and administrative expenses for the six months ended June 30,
1998 amounted to $6.7 million (12% of total revenue) compared to $5.1 million
(17% of total revenue) in the comparable 1997 period, an increase of $1.6
million (30%), primarily due to the expenses associated with opening and
operating additional golf centers. Selling, general and administrative expenses
declined to 12% of total revenue in 1998 from 17% in 1997 primarily due to the
substantial increase in revenues and a relatively low corresponding incremental
increase in certain selling, general and administrative costs.
The Company incurred $7.8 million (14% of total revenues) of merger,
acquisition, integration and other related charges relating to the acquisition
of Eagle Quest by the Company on June 30, 1998. Included in these costs were:
$3.7 million of fees and professional expenses, $1.4 million of severance and
compensation expenses and $2.7 million of other integration expenses and asset
write-offs.
Interest expense increased to $5.4 million for the six months ended June 30,
1998 from $700,000 in the comparable 1997 period. Other income, primarily
interest income, increased to $1.2 million in the 1998 period from $760,000 in
the 1997 period. The increase in interest expense was primarily due to the
increase in debt in the first half of 1998 from the sale of $115 million of
convertible notes in October 1997.
Excluding the one-time merger, acquisition, integration and other related
expenses, the Company had income before income taxes of $7.1 million for the
six months ended June 30, 1998, as compared to income of $4.8 million in the
comparable 1997 period. Inclusive of the one-time charges, loss before income
taxes for the six months ended June 30, 1998 was $683,000. Earnings, excluding
one-time merger, acquisition, integration and other related expenses, for the
six months ended June 30, 1998 amounted to $2.2 million, as compared to $2.0
million in the comparable 1997 period. Inclusive of the one-time charges, the
Company has a net loss of $5.6 million for the six months ended June 30, 1998.
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Results for the three months ended June 30, 1998 reflect the operations of 83
golf center for the full period, one golf center for approximately two months
and one golf centers for one month or less and also include the results of
two Family Sports Supercenters and two stand alone ice rink facilities. Results
for the three months ended June 30, 1997 reflect the operations of 45 golf
centers for the full period, two golf centers for two months and operations
of 12 golf centers for one month or less. As a result of the change in the
number of golf centers open from period to period, the comparison between the
1998 and 1997 periods may not necessarily be meaningful.
Total revenue for the three months ended June 30, 1998 was $34.6 million as
compared to $19.7 million for the same period in 1997, an increase of $14.9
million (76%). The overall increase in revenue was primarily attributable to
having additional golf facilities in operation during the 1998 period as well
as the revenue generated by the Company's ice rinks and Family Sports
Supercenters. Total revenue for the 44 golf centers operating for the full
three months ended June 30, 1998 and 1997 increased 7% to $18.4 million in the
1998 period from $17.3 million in the 1997 period. The increase in revenues for
these 44 golf centers was primarily due to stronger merchandise and golf
instruction sales, partially offset by adverse weather attributed to the El Nino
effect on the West Coast. Total revenue for the four Eagle Quest golf centers
in operation for the full second quarter of 1997 and 1998 decreased by 25%,
while total
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<PAGE>
revenues for the 40 Family Golf centers in operation for the full quarter of
both years increased by 10%.
Operating revenue, consisting of all sales except merchandise sales, amounted
to $26.3 million for the three months ended June 30, 1998, as compared to $13.9
million for the comparable 1997 period, an increase of $12.4 million (89%). The
increase in operating revenue was primarily attributable to having additional
golf facilities in operation during the 1998 period. Total operating revenue
for the 44 golf centers operating for the full three months ended June 30, 1998
and 1997 increased 4% to $12.2 million in the 1998 period from $11.7 million in
the 1997 period. Operating revenue for the four Eagle Quest golf centers
decreased by 8% while operating revenue for the 40 Family Golf centers
increased by 5%. Non-golf revenue from the Company's Family Sports Supercenters
and ice rink facilities totaled $4.0 million for the three months ended June
30, 1998. The Company had no non-golf revenue in the comparable 1997 period.
Merchandise sales, consisting of golf clubs, balls, bags, gloves, videos,
apparel and related accessories, amounted to $8.3 million for the three months
ended June 30, 1998 as compared to $5.7 million for the comparable 1997 period,
an increase of $2.6 million ( 45%). The increase in merchandise sales was
primarily due to the contribution of new locations and the continuing emphasis
placed by the Company on improving pro shop sales, improved purchasing
procedures and increased promotion. Total merchandise sales for the 44 golf
centers operating for the full three months ended June 30, 1998 and 1997
increased 11% to $6.1 million in the 1998 period from $5.5 million in the 1997
period. Merchandise sales for the four Eagle Quest golf centers decreased by
53% due to a lack of pro shop inventory attributed to its working capital
deficiency. Merchandise sales for the 40 Family Golf centers increased by 19%
in the 1998 quarter compared to the 1997 quarter.
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 $15.5 million (59% of
operating revenue) in the 1998 period from $7.8 million (56% of operating
revenue) in the 1997 period, an increase of $7.7 million (100%). The increase
in operating expenses was primarily due to the operating costs of locations
that were not owned by the Company during the 1997 period.
The cost of merchandise sold increased to $5.7 million (68% of merchandise
sales) in the 1998 period from $3.8 million (66% of merchandise sales) in the
comparable 1997 period. The overall increase in this cost of $1.9 million (51%)
was primarily due to the higher level of merchandise sales. The increase in
cost of merchandise sold as a percentage of merchandise sales was primarily due
the higher cost of goods sold at the Eagle Quest locations.
Selling, general and administrative expenses for the three months ended June
30, 1998 amounted to $3.0 million (9% of total revenue) compared to $2.8
million (14% of total revenue) in the comparable 1997 period. The increase of
$0.2 million (8%) was primarily due to expenses associated with opening and
operating additional golf facilities. Selling, general and administrative
expenses declined as a percent of total revenue primarily due to the
substantial increase in revenue and a relatively low corresponding incremental
increase in certain selling, general and administrative costs.
The Company incurred $7.8 million (22% of total revenues) of merger,
acquisition, integration and other related costs relating to the acquisition of
Eagle Quest by the Company on June 30, 1998. Included in these costs were: $3.7
million of fees and professional expenses, $1.4 million of severance and
compensation expenses and $2.7 million of asset write-offs.
Interest expense increased to $2.7 million for the three months ended June 30,
1998 from $392,000 in the comparable 1997 period. The increase in interest
expense was due primarily to the $115 million convertible debt
-15-
<PAGE>
outstanding in the 1998 period and additional debt outstanding. Other income,
primarily interest income, decreased to $234,000 in the 1998 period as compared
to $294,000 in the 1997 period.
Excluding the one-time merger, acquisition, integration and other related
expenses, the Company had income before income taxes of $7.9 million for the
three months ended June 30, 1998, as compared to income of $5.3 million in the
comparable 1997 period. Inclusive of the one-time charges, income before income
taxes for the three months ended June 30, 1998 was $146,000. Earnings,
excluding one-time merger, acquisition, integration and other related expenses,
for the three months ended June 30, 1998 amounted to $3.9 million, as compared
to $2.8 million in the comparable 1997 period. Inclusive of the one-time
charges, the Company has a net loss of $3.9 million for the three months ended
June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had working capital of $12.1 million compared to
$61.6 million at December 31, 1997. The decrease was principally due to the
acquisition of thirteen facilities including Metro and construction
expenditures.
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 financing. The Company
continually explores raising additional capital through such means. However,
there can be no assurance that such financing will be available in the future
on terms acceptable to the Company or at all.
The Company's outstanding indebtedness as of June 30, 1998 including the Notes
(defined below) and Eagle Quest indebtedness of $196.1 million bears interest
at fixed and variable rates currently ranging from 5.25% to 42%. On June 30,
1997, the Company entered into a Credit Agreement (the "Agreement") with The
Chase Manhattan Bank (the "Bank") providing for a two-year $20 million
revolving credit facility converting to a four-year term loan at the end of two
years (the "Credit Facility"). As of June 30, 1998, outstanding borrowings
under the Credit Facility were $18.7 million. On July 17, 1998, Chase increased
the Credit Facility by, and the Company borrowed, an additional $24.3 million
to fund the Golden Bear Acquisition. The additional $24.3 million is due on
October 12, 1998 and bears interest at LIBOR plus a margin of 1% per annum.
In August 1998, the Company obtained a commitment from Chase to replace the
existing $44,250,000 Credit Facility with a syndicated $100,000,000 secured two
(2) year revolving credit facility converting to a four (4) year term loan.
Chase has agreed to serve as the administrative agent for this new credit
facility and to lend up to $45,000,000 as a participant in the new credit
facility. As with the Company's current credit facility with Chase, the new
credit facility is to be secured by the pledge of the stock of most of the
Company's subsidiaries and such subsidiaries will also guarantee such
obligations. Interest under the new credit facility is to be either (i) the
greater of Chase's prime rate or the federal funds rate plus .5% per annum plus
a margin of .25% per annum or (ii) the LIBOR rate, plus between 1% and 2% per
annum (depending on the Company's ratio of Consolidated Funded Debt to
Consolidated EBITDA (as such terms are defined in the commitment letter)). To
date, the Company has not entered into a definitive loan agreement with respect
to such commitment.
-16-
<PAGE>
On July 20, 1998, the Company entered into a Term Loan Agreement with ORIX USA
Corporation ("ORIX") providing for a $10.0 million loan secured by a mortgage
on five of the Company's existing properties. The loan bears interest at either
(i) the Prime Rate or (ii) LIBOR plus a margin of 2.25% per annum. The loan
matures on July 19, 2003. As a condition to obtaining this loan, ORIX required
that the Company enter into an interest rate protection agreement. Accordingly,
the Company entered into a Swap Transaction Agreement with Chase, on July 20,
1998, which, in effect, fixes the LIBOR rate under the Term Loan Agreement at
5.93%. In the event LIBOR exceeds such fixed rate, Chase is required to pay
such excess to the Company, and in the event that LIBOR is less than such fixed
rate, the Company is required to pay Chase such difference. The Company has
drawn down the full $10.0 million under the ORIX Term Loan Agreement.
In connection with the acquisition of Eagle Quest on June 30, 1998, the Company
incurred additional outstanding indebtedness of $23.2 million which bears
interest at fixed and variable rates currently ranging from 6% to 42%.
Eable Quest had a $16 million credit facility bearing interest at LIBOR plus 4%
per annum. The loan is payable in monthly installments of approximately $15,700
plus interest through maturity in September 2002. The loan is secured by the
assets of certain U.S. subsidiaries of Eagle Quest. As of June 30, 1998 the
Company had $10.4 million outstanding under this facility.
In connection with the Golden Bear Acquisition, the Company incurred additional
outstanding indebtedness of approximately $9.0 million which bears interest at
fixed and variable rates currently ranging from 8% to 9.8%.
On July 23, 1998 the Company completed a public offering of 4,600,000 shares of
common stock. The net proceeds to the Company were approximately $106.0
million. The Company intends to pay down a portion of the Eagle Quest
indebtedness with the proceeds of the offering.
The Company anticipates making substantial additional expenditures in
connection with the acquisition and operation of new facilities and capital
improvements to existing facilities. Facility opening expenditures primarily
relate to projected facility construction and opening costs, associated
marketing activities and the addition of personnel. In many cases, the Company
acquires, rather than leases, the land on which its facilities 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 ranges from approximately $1.0 million to
$4.0 million (exclusive of land costs). The Company also intends to acquire or
construct additional ice rink facilities and Family Sports Supercenters which,
on a per facility basis, are expected to cost more than the Company's golf
centers. The Company believes that the cost of opening or acquiring ice rink
facilities will range from approximately $2.0 million to $4.0 million and the
cost of opening or acquiring a Family Sports Supercenter to range from $8.0
million to $12.0 million. However, there can be no assurance that facility
opening or acquisition costs will not exceed the amounts estimated above.
Facility opening and acquisition costs vary substantially depending on the
location and status of the acquired property (i.e. whether significant
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.
-17-
<PAGE>
TRENDS
The Company plans to open or acquire additional golf centers. As the additional
golf centers acquired by the Company commence operations, total revenue should
continue to increase. In addition, the Company believes that as its currently
opened golf centers mature, revenue and operating income from its centers
should increase due to customer awareness, programs marketing the golf centers
to various special interest groups, expanding ties to the local business and
golfing community, marketing programs, and the growing popularity of golf. Any
increases may be partially offset by initial losses from pre-opening costs and
initial operating losses associated with new or newly acquired golf centers.
The Company has identified the ice rink industry as having a number of industry
and operational dynamics similar to those of the golf center industry. The
Company is applying the skills and resources it has used in the golf center
industry to capitalize on such similarities by selectively constructing, or
acquiring and enhancing, ice rinks. In addition, the Company expects to
selectively augment certain of its existing golf centers with sports and
entertainment amenities including ice rinks, video and virtual reality games,
children's rides, batting cages and other entertainment activities to create
Family Sports Supercenters. The Company believes that the addition of these
facilities expands on the Company's concept of family-oriented sports
entertainment, improves utilization by adding additional sources of revenues,
attracts a more diversified base of customers, increases visitation and per
capital spending and has the added benefit of being counter-seasonal to the
Company's core golf business. The additional revenue attributed to these Family
Sports Supercenters will be partially offset by initial losses from
acquisition, construction and other pre-opening costs and initial operating
losses associated with new supercenters.
SEASONALITY
Historically, the second and third quarters have accounted for a greater
portion of the Company's revenues 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 driving ranges, 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,
Florida, Georgia, North Carolina, South Carolina, Texas and Virginia) where
inclement weather may not limit the outdoor season as much as such weather
limits the outdoor playing season at the Company's golf facilities in Northern
states. In addition, the ice rink facilities and the Family Sports Supercenters
are expected to generate a greater portion of their revenues in the first
and fourth quarters of the years and accordingly, may partially offset such
seasonality. The timing of new 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 the six months ended June 30, 1998.
YEAR 2000 ISSUES
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<PAGE>
Certain of the Company's computers systems and software interpret the year 2000
as the year 1980 or some other date. The operating system generally employed by
the Company is Windows 95, which is year 2000 compliant. The networking,
general ledger and accounts payable and facility point-of-sale and pro shop
software programs require software updates or modifications to address the year
2000 problems. DMS, Inc., which provides certain of the Company's software and
systems under contract, particularly the general ledger and accounts payable
software programs, will be installing modifications to address the year 2000
issue at no charge to the Company. The Company is further addressing the matter
by replacing certain older computers and installing off-the-shelf and other
third-party software that is year 2000 compliant, at an estimated cost of less
than $50,000. The Company anticipates that installation of year 2000 compliant
software and hardware will be completed by the end of 1998. The Company does
not believe that the year 2000 problem will have a material affect on the
Company's operations; however, no assurance can be given that the software
updates and new computers will resolve the problem as scheduled or at all.
-19-
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS NONE
ITEM 2. CHANGE IN SECURITIES
During the quarter ended June 30, 1998, the Company
issued a aggregate of 1,483,979 shares of Common Stock
as part of the consideration for five separate
acquisitions, consisting of the acquisition of Pardoc
Vending Corp., Blue Line Pro Shop, Eagle Quest Golf
Centers, Inc., a long term lease to construct and
operate a golf center in Shelton, Connecticut and the
right to construct and/or manage the golf facilities
located at Overland Park, in Overland, Colorado, the
Evergreen Golf Course, in Evergreen, Colorado and the
Green Valley Ranch Golf Course, in Green Valley Ranch,
Colorado from the owners, lessees or stockholders of
such assets, properties or entities. Such shares were
issued in the amounts, on the dates and for the
securities or assets listed below: (i) May 15, 1998,
10,118 shares, the acquisition of all of the
outstanding securities of Pardoc Vending Corp.; (ii)
May 15, 1998, 750 shares, the acquisition of certain
assets of the Blue Line Pro Shop; (iii) June 30, 1998,
1,384,735 shares, the acquisition of all of the
outstanding securities of Eagle Quest Golf Centers,
Inc.; (iv) May 21, 1998, 3,000 shares, to enter a long
term lease to construct and operate a golf center in
Shelton, Connecticut; and (v) May 1, 1998, 85,376
shares, the acquisition of the right to construct
and/or manage the golf facilities located at Overland
Park, in Overland, Colorado, the Evergreen Golf Course,
in Evergreen, Colorado and the Green Valley Ranch Golf
Course, in Green Valley Ranch, Colorado. Such issuances
were not registered under the Securities Act of 1933
(the "Act") in reliance on the exemption provided by
Section 4(2) except for certain of the shares issued in
the acquisition of Eagle Quest Golf Centers, Inc., which
issuance was made in reliance on the exemption provided
by Section 3(a)(10) of the Act. None of such issuances
involved any general solicitation and each of the
recipients of the Common Stock (other than the
shareholders of Eagle Quest Golf Centers, Inc.) 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 restrictive legend to such
effect.
ITEM 3. DEFAULT UPON SENIOR SECURITIES NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 26, 1998, the Company held its Annual Meeting
of Stockholders. At such meeting Dominic Chang,
Krishnan P. Thampi, James Ganley, Jimmy C.M. Hsu and
Yupin Wang were elected to continue to serve as
directors of the Company by a plurality of the votes
cast in person or by proxy at the Meeting. In addition,
the following matters were voted upon by the
Stockholders: (i) there were 14,065,018 votes cast for,
124,204 votes cast against and 74,890 abstentions with
respect to the ratification of the appointment of
Richard A. Eisner & Company, LLP, certified public
accountants, as auditors of the Company for the fiscal
year ending December 31, 1998; and (ii) there were
10,107,333 votes cast
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<PAGE>
for, 6,329,457 votes cast against and 30,408
abstentions with respect to the adoption of the
Company's 1998 Stock Option and Award Plan.
ITEM 5. OTHER INFORMATION
In August 1998, the Company obtained a commitment from
Chase to replace the existing $44,250,000 Credit
Facility with a $100,000,000 syndicated secured two (2)
year revolving credit facility converting to a four (4)
year term loan. Chase has agreed to serve as the
administrative agent for this new credit facility and
to lend up to $45,000,000 as a participant in the
Facility. As with the Company's current credit facility
with Chase, the new credit facility is to be secured by
the pledge of the stock of most of the Company's
subsidiaries and such subsidiaries will also guarantee
such obligations. Interest under the new credit
facility is to be either (i) the greater of Chase's
prime rate or the federal funds rate plus .5% per annum
plus a margin of .25% per annum or (ii) the LIBOR rate,
plus between 1% and 2% per annum (depending on the
Company's ratio of Consolidated Funded Debt to
Consolidated EBITDA (as such terms are defined in the
commitment letter)). To date, the Company has not
entered into a definitive loan agreement with respect
to such commitment.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
--------
EXHIBIT 27 FINANCIAL DATA SCHEDULE
(B) REPORTS ON FORM 8-K
-------------------
1. CURRENT REPORT ON FORM 8-K, DATED APRIL 2, 1998 AND
FILED APRIL 7, 1998.
2. CURRENT REPORT ON FORM 8-K/A,
DATED JANUARY 30, 1998 AND FILED MAY 14, 1998.
3. CURRENT REPORT ON FORM 8-K, DATED JUNE 16, 1998 AND
FILED JULY 8, 1998.
4. CURRENT REPORT ON FORM 8-K, DATED JUNE 30, 1998 AND
FILED JULY 13, 1998.
5. CURRENT REPORT ON FORM 8-K, DATED JULY 20, 1998 AND
FILED JULY 31, 1998.
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<PAGE>
SIGNATURE
In accordance with the requirements of the Securities Exchange Act
of 1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: __________, 1998
Melville, NY
FAMILY GOLF CENTERS, INC.
(Registrant)
By:________________________
KRISHNAN P. THAMPI
President,
Chief Operating Officer,
Assistant Secretary,
and Treasurer
By:________________________
JEFFREY C. KEY
Chief Financial Officer
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<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 PERIOD ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<CASH> 4,418,000
<SECURITIES> 7,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 22,729,000
<CURRENT-ASSETS> 40,939,000
<PP&E> 306,582,000
<DEPRECIATION> 5,156,000
<TOTAL-ASSETS> 406,040,000
<CURRENT-LIABILITIES> 28,847,000
<BONDS> 0
0
0
<COMMON> 211,000
<OTHER-SE> 182,163,000
<TOTAL-LIABILITY-AND-EQUITY> 406,040,000
<SALES> 56,121,000
<TOTAL-REVENUES> 56,121,000
<CGS> 8,909,000
<TOTAL-COSTS> 52,619,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,375,000
<INCOME-PRETAX> (683,000)
<INCOME-TAX> 4,887,000
<INCOME-CONTINUING> (5,570,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,570,000)
<EPS-PRIMARY> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
