<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities and Exchange Act of 1934
Date of Report (Date of Earliest Event Reported):
December 2, 1998
FAMILY GOLF CENTERS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 0-25098 11-3223246
- ----------------- ---------------- -------------------
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
incorporation)
538 Broadhollow Road
Melville, New York 11747
--------------------------------------
(Address of principal executive offices)
Registrant's Telephone Number, including
area code: (516) 694-1666
(Former Address, if changed since last report)
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
-------------------------------------------------------------------
By Current Report on Form 8-K, dated December 2, 1998 (the "Original
Form 8-K"), Family Golf Centers, Inc. (the "Company") reported, among other
things, the completion of its acquisition, through its wholly-owned subsidiary,
of all of the issued and outstanding shares of capital stock of SkateNation
Inc. ("SkateNation"). At the time of the filing of the Original Form 8-K with
the Securities and Exchange Commission it was impractical to file the financial
statements as required by Item 7 (a) and 7 (b) of Form 8-K. The financial
information required by Item 7 (a) and 7 (b) of Form 8-K with respect to
SkateNation is now available. Accordingly, Items 7 (a), 7 (b) and 7 (c) are
supplemented by the addition of the following:
(a) Financial Statements of Businesses Acquired.
In accordance with Item 7 (a) of Form 8-K, attached hereto as Exhibit
1 are the financial statements of SkateNation Inc. prepared pursuant to
Regulation S-X.
(b) Pro Forma Financial Information.
In accordance with Item 7 (b) of Form 8-K, attached hereto as Exhibit
2 are the pro forma financial statements of the Company.
(c) Exhibits.
1. Audited Financial Statements of SkateNation Inc. for the fiscal
years ended September 30, 1998 and September 30, 1997.
2. Pro Forma Financial Statements of the Company.
-2-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: January 14, 1999.
Family Golf Centers, Inc.
By: /s/ Jeffrey C. Key
-----------------------
Jeffrey C. Key
Chief Financial Officer
-3-
<PAGE>
INDEX TO EXHIBITS
Exhibit
- -------
1. Audited Financial Statements of the SkateNation Inc. for the fiscal
years ended September 30, 1998 and September 30, 1997.
2. Pro Forma Financial Statements of the Company.
-4-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of SkateNation:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, changes in shareholders' equity
and of cash flows present fairly, in all material respects, the financial
position of SkateNation Inc. and its subsidiaries (the "Company") at September
30, 1998 and 1997, and the results of their operations and their cash flows for
each of the years then ended, in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PriceWaterhouse Coopers LLP
Richmond, Virginia
November 23, 1998, except as to the
information in Note 12, for which
the date is December 2, 1998
1
<PAGE>
SKATENATION INC.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................................... $ 463,759 $ 699,857
Accounts receivable, net of allowance for doubtful accounts .................. 448,997 473,167
Inventories .................................................................. 765,182 443,127
Prepaid expenses and other assets ............................................ 341,556 373,363
------------ ------------
Total current assets ....................................................... 2,019,494 1,989,514
Restricted cash ............................................................... 300,000 1,710,000
Property and equipment, net ................................................... 27,673,302 27,932,294
Goodwill and other intangibles ................................................ 1,192,991 28,320
------------ ------------
Total assets ............................................................... $ 31,185,787 $ 31,660,128
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................. 1,547,750 541,817
Accrued liabilities .......................................................... 873,675 1,741,225
Deferred revenue ............................................................. 440,199 650,544
Current portion of long-term debt ............................................ 771,266 1,217,264
Due to parent ................................................................ -- 1,222,000
------------ ------------
Total current liabilities .................................................. 3,632,890 5,372,850
Long-term debt ................................................................ 11,158,721 11,762,656
Deferred revenue .............................................................. 178,360 212,265
------------ ------------
Total liabilities .......................................................... 14,969,971 17,347,771
------------ ------------
Commitments and contingencies
Shareholders' equity:
Common stock:
Class A (23,998 and 16,590 shares issued and outstanding, respectively) 23,998,000 16,590,000
Class B (550 and 750 shares issued and outstanding, respectively) .......... 550,000 750,000
Contributed surplus ........................................................ 1,253,611 2,483,771
Accumulated deficit ........................................................ (5,926,658) (3,400,542)
Deferred income tax benefit available to parent ............................ (3,659,137) (2,110,872)
------------ ------------
Total shareholders' equity ................................................ 16,215,816 14,312,357
------------ ------------
Total liabilities and shareholders' equity ................................ $ 31,185,787 $ 31,660,128
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
SKATENATION INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------------- ---------------
<S> <C> <C>
Revenues:
Ice rink operations and management ..................... $ 10,054,551 $ 6,828,801
Merchandise sales ...................................... 2,228,329 1,128,374
------------ ------------
Total revenues ....................................... 12,282,880 7,957,175
------------ ------------
Cost of revenues:
Ice rink operations and management ..................... 10,613,226 7,172,948
Cost of merchandise sold ............................... 1,945,246 995,218
------------ ------------
Total cost of revenues ............................... 12,558,472 8,168,166
General, marketing and administrative expenses .......... 2,717,741 3,756,490
------------ ------------
Loss from operations ................................. (2,993,333) (3,967,481)
Interest expense, net ................................... (1,081,048) (906,486)
------------ ------------
Loss before income tax benefit ....................... (4,074,381) (4,873,967)
Deferred income tax benefit available to parent ......... 1,548,265 1,866,730
------------ ------------
Net loss ............................................. $ (2,526,116) $ (3,007,237)
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
SKATENATION INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------------------
CLASS A CLASS B TOTAL
------------- ------------- -------------
<S> <C> <C> <C>
BALANCE, October 1, 1996 .............. $ 4,200,000 $ 750,000 $ 4,950,000
Contributed surplus ...................
Contributed surplus exchanged
for common stock ..................... 12,390,000 12,390,000
Net loss for the year .................
Deferred income tax benefit
available to parent ..................
----------- ---------- ------------
BALANCE, September 30, 1997 16,590,000 750,000 17,340,000
Contributed surplus ...................
Contributed surplus exchanged
for common stock ..................... 6,658,000 6,658,000
Acquisitions of class B common shares
by parent ............................ 750,000 (750,000)
Issued in acquisition of business ..... 550,000 550,000
Net loss for the year .................
Deferred income tax benefit
available to parent ..................
----------- ---------- ------------
BALANCE, September 30, 1998 $23,998,000 $ 550,000 $24,548,000
=========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
DEFERRED
INCOME
TAX BENEFIT
CONTRIBUTED ACCUMULATED AVAILABLE
SURPLUS (DEFICIT) TO PARENT TOTAL
--------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, October 1, 1996 .............. $ 6,925,884 $ (393,305) $ 11,482,579
Contributed surplus ................... 7,947,887 7,947,887
Contributed surplus exchanged
for common stock ..................... (12,390,000)
Net loss for the year ................. (3,007,237) (3,007,237)
Deferred income tax benefit
available to parent .................. $ (2,110,872) $ (2,110,872)
------------ ------------ ------------ ------------
BALANCE, September 30, 1997 2,483,771 (3,400,542) (2,110,872) 14,312,357
Contributed surplus ................... 5,427,840 5,427,840
Contributed surplus exchanged
for common stock ..................... (6,658,000)
Acquisitions of class B common shares
by parent ............................
Issued in acquisition of business ..... 550,000
Net loss for the year ................. (2,526,116) (2,526,116)
Deferred income tax benefit
available to parent .................. (1,548,265) (1,548,265)
------------ ------------ ------------ ------------
BALANCE, September 30, 1998 $ 1,253,611 $ (5,926,658) $ (3,659,137) $ 16,215,816
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
SKATENATION INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss .................................................. $ (2,526,116) $ (3,007,237)
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation ............................................ 1,432,427 891,213
Amortization ............................................ 47,857 54,546
Deferred income tax benefit available to parent ......... (1,548,265) (1,866,730)
Change in operating assets and liabilities:
Accounts receivable ..................................... 271,694 (350,716)
Inventories ............................................. (322,055) (144,449)
Prepaid and other assets ................................ 31,807 (219,637)
Accounts payable and accrued liabilities ................ (186,469) 1,284,252
Deferred revenue ........................................ (244,250) 300,252
------------ ------------
Net cash used by operating activities .................. (3,043,370) (3,058,506)
------------ ------------
INVESTING ACTIVITIES:
Capital expenditures .................................... (1,263,870) (7,508,101)
Construction accounts payable ........................... -- (2,026,327)
Acquisition of facilities management company,
net of cash acquired ................................... (224,046) --
Purchase of ice rink, net of cash acquired .............. -- (3,504,551)
Disposition of ice rink under construction .............. -- 6,544,959
Disposal of property and equipment ...................... 145,281 --
------------ ------------
Net cash used in investing activities .................. (1,342,635) (6,494,020)
------------ ------------
FINANCING ACTIVITIES:
Bank borrowings ........................................... -- 2,385,000
Loan principal repayments ................................. (1,465,933) (616,563)
Contributed surplus from parent ........................... 5,427,840 7,947,887
Advances from parent ...................................... (1,222,000) 590,344
Change in restricted cash ................................. 1,410,000 (330,000)
------------ ------------
Net cash provided by financing activities ............... 4,149,907 9,976,668
------------ ------------
Net increase (decrease) in cash ......................... (236,098) 424,142
Cash, beginning of year .................................... 699,857 275,715
------------ ------------
Cash, end of year ....................................... $ 463,759 $ 699,857
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
SKATENATION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES
GENERAL
SkateNation Inc. (the "Company") is incorporated under the laws of the
State of Delaware, and commenced operations on December 21, 1995. The Company
operates solely in the United States and its activities include the
acquisition, development and operation of commercial ice rinks. At September
30, 1998, the Company owned and operated six ice rinks and had no additional
rinks under development. During fiscal 1998, the Company acquired a facilities
management company, and at September 30, 1998, provided management services to
14 ice rinks and two other facilities.
All of the Company's Class A common voting shares are owned by TrizecHahn
(USA) Corporation (the "Parent") which is indirectly owned by TrizecHahn
Corporation, a Canadian public real estate corporation.
The financial statements of the Company have been prepared in accordance
with generally accepted accounting principles ("GAAP") in the United States.
The consolidated financial statements are presented in U.S. dollars. Certain
amounts in the accompanying financial statements have been reclassified to
conform to the current presentation.
CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and all of its subsidiaries. The major subsidiaries of the Company are
SkateNation of Richmond West, L.L.C.; SkateNation of Richmond South, L.L.C.;
SkateNation of Piney Orchard, L.L.C.; SkateNation of Prince William, L.L.C.;
SkateNation of Reston, L.L.C.; International Skating Center of Connecticut,
L.L.C. ("ISCC"); and Recreational Management Services Corporation ("RMSC"). The
aforementioned entities are 100% owned by the Company. All significant
intercompany accounts and transactions are eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Cash includes cash and short-term, highly liquid investments with original
maturities of three months or less.
INVENTORIES
Inventories primarily consist of retail sporting goods. Inventories are
valued at the lower of cost or market, with cost being determined using the
average cost method.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and accounts
receivable. The Company restricts its cash and cash equivalents to financial
institutions with high credit ratings and credit risk is minimized due to the
diverse geography and customer base covered by the Company's operations.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. The costs of property
additions include interest capitalized on significant capital projects during
their construction periods. Expenditures for renewals and betterments are
capitalized, and expenditures for repairs and maintenance are expensed as
incurred.
6
<PAGE>
SKATENATION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Depreciation and amortization of property and equipment are provided by the
straight-line method over the estimated useful lives of the assets, or in the
case of property situated on leased land, the lesser of the term of the lease
plus one renewal period or the estimated useful life, as follows:
<TABLE>
<CAPTION>
<S> <C>
Buildings .......................................... 35-40 years
Leasehold improvements ............................. 16 years
Land improvements .................................. 20 years
Equipment .......................................... 15 years
Furniture, fixtures and office equipment ........... 3-5 years
</TABLE>
GOODWILL
Goodwill, the cost in excess of fair value of net assets acquired in
business combinations, is being amortized on a straight-line basis over five
years.
DEFERRED REVENUE
The Company records amounts received in advance for participation in
shows, skating lessons, hockey leagues, camps, clinics and ice rentals as
deferred revenue. These amounts are transferred to revenue at the time of
utilization.
In addition, the Company has entered into numerous agreements with
sponsors for advertising in connection with the facilities. Generally, the
Company receives payment in full for the advertising at the time the contracts
are executed and revenue is recognized over the term of the contracts, which
range from one to eight years.
Deferred revenue of $618,559 at September 30, 1998 consists of $440,199 to
be recognized in fiscal 1999. The remaining balance of $178,360 is classified
as long term and will be recognized over the remaining terms of the contracts.
INCOME TAXES
Income taxes are determined pursuant to Financial Accounting Standards
Board ("FASB") Statement No. 109, "Accounting for Income Taxes." Deferred tax
assets and liabilities are determined based on differences between financial
statement carrying amounts and tax bases of assets and liabilities using
enacted tax rates in effect for years in which the differences are expected to
reverse.
ESTIMATES
The preparation of financial statements in accordance with GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
COMPUTER SOFTWARE
Purchased software and related implementation costs are capitalized in
furniture and equipment and amortized over its estimated useful life. Such
costs amounted to $42,000 for fiscal 1998 and $201,000 for fiscal 1997.
ADVERTISING EXPENSES
Advertising costs are expensed when incurred and approximated $802,100 for
fiscal 1998 and $715,500 for fiscal 1997.
7
<PAGE>
SKATENATION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities," establishes a new model for accounting for derivatives and hedging
activities and is effective for fiscal years beginning after June 15, 1999. The
Company is currently evaluating the impact of this standard.
2. ACQUISITIONS
A. RECREATIONAL MANAGEMENT SERVICES CORPORATION: Effective July 31, 1998,
the Company acquired the outstanding common stock of Recreational Management
Services Corporation and its two affiliates (collectively, "RMSC") for an
aggregate consideration of $1,390,000, consisting of $540,000 cash (of which
$240,000 is included in accounts payable at September 30, 1998), notes
aggregating $300,000 and 550 shares of Class B Common Stock. The purchase price
is subject to adjustment upon the occurrence of certain events through January
2000. RMSC provides management services to ice skating and other recreational
facilities. Concurrent with the acquisition, the previous owner of RMSC was
employed as the Company's President.
The consideration for this purchase acquisition was allocated to the
assets acquired and liabilities assumed, including $323,000 for current assets,
$201,000 for current liabilities, $55,000 for property and equipment and
$1,213,000 for the excess purchase price ("goodwill") of RMSC. The operating
results of RMSC have been reflected in the consolidated financial statements
since August 1, 1998. Had the acquisition of RMSC occurred as of the beginning
of the years ended September 30, 1998 and 1997, respectively, unaudited pro
forma consolidated revenue would have increased by $532,000 for fiscal 1997 and
$443,000 for fiscal 1998, with no material effect on the Company's consolidated
net loss.
8
<PAGE>
SKATENATION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. ACQUISITIONS (CONTINUED)
B. RESTON ICE FORUM, L.P.: On April 30, 1997, the Company purchased the
commercial ice rink of Reston Ice Forum, L.P. The acquisition, which was
accounted for by the purchase method, is summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash ..................................... $ 117,231
Other current assets ..................... 136,463
Fixed assets ............................. 3,676,300
Other noncurrent assets .................. 190
----------
Total assets .......................... 3,930,184
Current liabilities ...................... 308,402
----------
Net assets ............................ $3,621,782
==========
Consideration:
Cash ................................... $3,536,504
Closing costs .......................... 85,278
----------
$3,621,782
==========
Supplemental cash flow information:
Details of acquisition:
Fair value of assets acquired ......... $3,930,184
Less liabilities assumed .............. 308,402
----------
Cash paid ........................... 3,621,782
Less cash acquired .................... 117,231
----------
Net cash flow ....................... $3,504,551
==========
</TABLE>
The results of operations for the Reston Ice Forum, L.P. have been
included in the Company's results of operations since the acquisition date. Had
the acquisition occurred on October 1, 1996 consolidated revenue would have
increased by $1,640,000 and the Company's net loss would have decreased by
$155,000.
The Company had initially included the contingent issuance of 250 shares
of its Class B Common Stock as part of the consideration for the July 15, 1996
acquisition of U.S. Ice Forums. The contingent consideration was reflected in
current liabilities, and during fiscal 1998, was paid in cash rather than in
the form of Class B Common Stock. Pursuant to the agreement to acquire U.S. Ice
Forums, the Parent met its obligations to fund the cost to complete the Prince
William Ice Forum and SkateNation -- West during fiscal 1997. Under the same
agreement, during fiscal 1998 the Parent fulfilled its obligation to fund the
working capital requirements of the Company (see Note 12).
3. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following items:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
Trade ................................... $ 541,950 $ 466,517
Other ................................... -- 30,000
Allowance for doubtful accounts ......... (92,953) (23,350)
--------- ---------
$ 448,997 $ 473,167
========= =========
</TABLE>
9
<PAGE>
SKATENATION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. ACCOUNTS RECEIVABLE (CONTINUED)
The provision for doubtful accounts, included in general and
administrative expenses, was $69,583 for fiscal 1998 and $23,350 for fiscal
1997.
4. RESTRICTED CASH
The Company is required to maintain certain cash balances pursuant to the
collateral requirements of its bank loans.
5. PROPERTY AND EQUIPMENT
The Company's property and equipment are primarily related to commercial
ice rinks located in Maryland, Virginia and Connecticut. Property and equipment
are comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
Land and improvements ............................. $ 2,721,947 $ 2,726,110
Buildings and improvements ........................ 17,328,264 17,094,329
Leasehold improvements ............................ 3,426,709 3,219,002
Equipment ......................................... 5,058,054 4,909,268
Furniture and fixtures ............................ 1,584,760 1,012,367
------------ ------------
30,119,734 28,961,076
Accumulated depreciation and amortization ......... (2,446,432) (1,028,782)
------------ ------------
Property and equipment, net .................... $ 27,673,302 $ 27,932,294
============ ============
</TABLE>
On January 31, 1997, the Company sold its interest in a twin pad skating
center under development in Coral Springs, Florida for $6,544,959 which
represented the book value of the ice rink.
6. LONG-TERM DEBT
Effective October 1, 1997, the Company completed a Master Loan Agreement
that modified the loan agreements related to Prince William, Piney Orchard,
Richmond South and Richmond West (collectively the "Master Loans"). ISCC has a
separate mortgage note agreement. The summary of the Company's long-term debt
as of September 30, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
INTERNATIONAL SKATING CENTER OF CONNECTICUT, L.L.C. ("ISCC")
$3,600,000 mortgage payable in equal monthly installments of
$10,417 (plus interest) through August 9, 1997, then
increasing by $2,083 per month on each subsequent
one-year anniversary date, until August 8, 2001, when the
remaining balance is due, bearing interest at a variable rate
(see Note 6b) and collateralized by a first leasehold
mortgage on the property, accounts receivable, inventory,
equipment and a bank deposit totaling $350,000 ................ $ 3,060,416 $ 3,462,499
$200,000 note payable in equal monthly installments of $1,083
(interest only) through August 1, 2001, when the balance is
due in full, bearing interest at 6.5% and collateralized by a
mortgage on the property ...................................... 200,000 200,000
</TABLE>
10
<PAGE>
SKATENATION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
SKATENATION OF PRINCE WILLIAM, L.L.C.
$2,960,000 mortgage payable in monthly installments of
$16,550 (plus interest) at prime plus .75% (9.25% at
September 30, 1997). Effective October 1, 1997 the terms
of the note were modified, and require monthly
installments of $29,623 (including interest) through
March 1, 2001, when the remaining balance is due in full,
bearing interest at LIBOR plus 3.25% (8.895% at
September 30, 1998). The note is collateralized by the real
property and improvements, equipment, inventory and
accounts receivable .......................................... $ 2,653,685 $ 2,763,670
SKATENATION OF PINEY ORCHARD, L.L.C.
$1,565,000 mortgage payable in monthly installments of
$8,694 (plus interest) at prime plus .75% (9.25% at
September 30, 1997). Effective October 1, 1997 the terms
of the note were modified, and require monthly
installments of $15,004 (including interest) through
March 1, 2001, when the remaining balance is due in full,
bearing interest at LIBOR plus 3.25% (8.895% at
September 30, 1998). The note is collateralized by the real
property and improvements, equipment, inventory and
accounts receivable .......................................... 1,344,129 1,399,807
$202,000 note which was paid off in October 1997 and was
collateralized by a bank deposit of $202,000 that was
released in October 1997 ..................................... -- 180,676
SKATENATION OF RICHMOND SOUTH, L.L.C.
$2,030,000 mortgage payable in monthly installments of
$11,278 (plus interest) at prime plus .75% to September 30,
1997. Effective October 1, 1997 the terms of the note were
modified, and require monthly installments of $19,638
(including interest) through June 1, 2001, when the
remaining balance is due in full, bearing interest at LIBOR
plus 3.25% (8.895% at September 30, 1998). The note is
collateralized by the real property and improvements,
equipment, inventory and accounts receivable ................. 1,778,273 1,849,558
$262,000 note payable in monthly installments of $1,456 (plus
interest) was paid off in October 1997, bearing interest at
LIBOR plus 200 basis points (7.47% at September 30,
1997) and collateralized by a bank deposit totaling $262,000
that was released in October 1997 ............................ -- 238,710
</TABLE>
11
<PAGE>
SKATENATION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
SKATENATION OF RICHMOND WEST, L.L.C.
$2,555,000 mortgage payable in monthly installments of
interest only at prime plus 1% through September 30, 1997,
when the balance was converted to a 59 month note,
bearing interest at LIBOR plus 3.25% (8.895% at
September 30, 1998) and collateralized by the real property
and improvements, equipment, inventory and accounts
receivable ................................................... $ 2,471,685 $ 2,555,000
$330,000 note payable in equal monthly installments of
$1,833, bearing interest at LIBOR plus 200 basis points and
collateralized by a bank deposit of $330,000 that was
released in October 1997 ..................................... -- 330,000
RECREATIONAL MANAGEMENT SERVICES CORPORATION
Outstanding borrowing under a $125,000 line of credit
agreement expiring April 1, 1999 with interest at prime plus
2% (10.25% at September 30, 1998, collateralized by the
cash, receivables and other assets of RMSC ................... 121,799 --
SKATENATION INC.
Notes payable to former stockholder of RMSC, bearing
interest at 5.56%, payable $150,000 in each of July 1999
and 2000 ..................................................... 300,000 --
----------- ------------
11,929,987 12,979,920
Less current portion ........................................... (771,266) (1,217,264)
----------- ------------
$11,158,721 $ 11,762,656
=========== ============
</TABLE>
A. The Master Loans are cross-collateralized with all other loans of the
four borrower subsidiaries. Substantially all of the subsidiaries' assets
collateralize the Master Loans. The Master Loans contain various restrictive
covenants and provisions, including maintaining a minimum ratio of total
liabilities to tangible net worth of not more than 1.5 to 1; the maintenance of
a minimum fixed charge coverage ratio, as defined by the Master Loan agreement,
of 1 to 1 through June, 1998 and 1.25 to 1 through the remaining terms of the
loans, and limitations on additional indebtedness and payment of dividends or
distributions with respect to capital stock. At September 30, 1998, the Company
was in violation of the fixed charge coverage ratio (see Note 12).
The ISCC loan contains various restrictive covenants and provisions. The
financial covenants are calculated for ISCC only and include the following:
current ratio of at least .5 to 1, ratio of total liabilities to tangible net
worth of not more than 2.85 to 1, and a ratio of earnings before interest,
taxes, depreciation and amortization to current maturities of long-term debt
plus interest expense of at least 1.60 to 1. At September 30, 1998, the Company
was in violation of the fixed charge coverage ratio (see Note 12).
B. On October 16, 1997 the Company entered into an interest rate swap
agreement with a commercial bank to reduce the impact of changes in the
interest rate on its floating rate Master Loans. The interest rate swap
agreement is for a notional amount of $6,000,000 and calls for the Company to
pay interest at 6.24% and to receive interest at LIBOR. The interest rate swap
agreement matures on October 16, 2000.
The Company also has entered into an interest rate swap agreement to
reduce the impact of changes in the interest rate on its floating rate ISCC
mortgage loan. The swap agreement with a commercial bank
12
<PAGE>
SKATENATION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. LONG-TERM DEBT (CONTINUED)
had an initial notional amount of $3,600,000, which declines over the term of
the ISCC loan and expires on August 9, 2001 when the debt matures. Under this
agreement, the Company pays a fixed rate of 8.5% and receives interest at a
variable rate of LIBOR plus 1.75%.
The Company is exposed to credit loss in the event of nonperformance by
the counter parties to the interest rate swap agreements; however, the Company
believes that all parties will perform under the terms of the contracts. The
payments made or received by the Company related to the interest rate swap
agreements are included in interest expense, net.
C. A summary of the scheduled principal payments for debt outstanding at
September 30, 1998 (based upon variable interest rates in effect at that date)
is as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending September 30:
1999 ................. $ 771,266
2000 ................. 748,013
2001 ................. 8,251,005
2002 ................. 2,159,703
-----------
$11,929,987
===========
</TABLE>
D. Interest expense, net consists of:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Interest cost, gross .................................. $1,097,980 $1,004,647
Capitalized for properties under development .......... -- (56,568)
---------- ----------
Interest expense ...................................... 1,097,980 948,079
Interest income ....................................... (16,932) (41,593)
---------- ----------
Interest expense, net ................................. $1,081,048 $ 906,486
========== ==========
</TABLE>
During the years ended September 30, 1998 and 1997, interest paid amounted
to $1,129,675 and $1,025,696, respectively.
7. SHAREHOLDERS' EQUITY
A. COMMON STOCK: The Company's authorized common stock consists of two
classes.
COMMON STOCK -- CLASS A: Authorized -- 100,000 shares at stated value.
During fiscal 1997 and 1998, a total of 19,798 shares were issued to the
Parent under the agreement described in Note 7b. As of September 30, 1998,
there were 23,998 Class A shares issued and outstanding.
COMMON STOCK -- CLASS B: Authorized -- 20,000 shares at no par value.
The Company issued 750 shares of Common Stock -- Class B as part of the
1996 acquisition of U.S. Ice Forums. These shares, which were subject to a
stockholders' agreement, were restricted as to resale and were nonvoting. At
September 30, 1997, these were the only Class B shares issued and outstanding.
These shares were acquired by the Parent during fiscal 1998 and, pursuant to
the stockholders' agreement, were converted to Class A Common Stock.
In connection with the July 31, 1998 acquisition of RMSC, the Company
issued 550 shares of its Common Stock -- Class B. These shares are nonvoting
and are subject to a stockholders' agreement which provides certain
restrictions on the resale of the shares. At the end of a three year period
ending
13
<PAGE>
SKATENATION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. SHAREHOLDERS' EQUITY (CONTINUED)
July 31, 2001, the Company has the option to call the Common Stock -- Class B
stock at the then fair market value. Likewise, the Common Stock -- Class B
stockholder can require the Company to redeem the shares at the end of the
three-year period or at any point thereafter. The Company may also be required
to redeem this stock at an earlier date under certain circumstances, including
a change in the controlling shareholder.
B. CONTRIBUTED SURPLUS: Pursuant to a stockholders' agreement between the
Company, the Parent and the holders of the Common Stock -- Class B, advances
from the Parent or other affiliates are to be considered contributed surplus
and converted to Class A shares on a quarterly basis at a ratio of one Class A
share for every $1,000 advanced by the Parent. Accordingly, the Company issued
7,408 and 12,390 of Common Stock -- Class A shares in connection with the
conversion of contributed surplus during the years ended September 30, 1998 and
1997, respectively.
C. DUE TO PARENT: As part of the funding agreement between the Company and
the Parent, the Parent advances money to the Company as checks clear the bank.
The amounts captioned "Due to Parent" represent the amount of in-transit items
at September 30, 1997.
D. STOCK OPTIONS: The Company awarded a stock option during fiscal 1998
that allows one executive the option to buy Class B shares up to a maximum of
1.5% of the total value of the Class A shares issued to the Parent or its
affiliates at an exercise price of $1,000 per share. The options vest over
three years and expire seven years after the grant date. Similar options, which
provided the option holders the option to purchase Class B shares up to a
maximum of 4.2% of the total value of Class A shares issued after fiscal 1996
were granted in fiscal 1997 and lapsed unexercised during fiscal 1998. The
following table summarizes the activity and terms of the outstanding options at
September 30, 1998 and 1997 and for the years then ended:
<TABLE>
<CAPTION>
OPTIONS EXERCISE CONTRACTUAL
GRANTED PRICE LIFE
--------- ---------- ------------
<S> <C> <C> <C>
Outstanding at October 1, 1996 ............ --
Granted ................................... 516 $1,000 7
Exercised .................................
Cancelled/forfeited ....................... ----
Outstanding at September 30, 1997 ......... 516 $1,000 7
Granted ................................... 8 1,000 7
Exercised .................................
Cancelled/forfeited ....................... (516) 1,000 7
----
Outstanding at September 30, 1998 ......... 8 7
====
</TABLE>
There were 0 and 129 options exercisable at September 30, 1998 and 1997,
respectively.
The Company's net loss for fiscal 1997 does not include unrecorded stock
compensation expense (net of tax benefit) of approximately $25,000. The
weighted average fair value of options granted in fiscal 1997 was $403.28. The
fair value of each option was estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions: dividend
yield of zero, expected volatility of zero, risk-free interest rates between
7.0% and 8.15% and expected lives of seven years. The options granted in fiscal
1997 were forfeited during fiscal 1998. Since only eight options were granted
in fiscal 1998, the effect of any unrecorded compensation cost was deemed to be
insignificant to the Company's net loss.
14
<PAGE>
SKATENATION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. INCOME TAXES
The Company is part of a consolidated group for federal (and certain
state) income tax purposes. The Company has recognized a deferred income tax
benefit for its net operating losses using a tax rate of approximately 38%, the
effective tax rate of the group, reflecting a 34% federal rate and a
weighted average state tax rate of 4%. The deferred tax benefits of net
operating losses of $3,659,137 and $2,110,872 as of September 30, 1998 and
1997, respectively, which can be carried forward until 2011 through 2013, are
expected to be utilized by the Parent. Accordingly, the cumulative deferred
income tax benefit of the Company's net operating losses has been reported as a
reduction of shareholders' equity because the Parent has indicated it has no
plans (and no tax sharing agreement) to transfer cash to the Company upon the
ultimate realization of the net operating loss carryforwards.
No amount was paid for income taxes in the years ended September 30, 1998
and 1997.
The Company has allocated fair value to the assets and liabilities of the
facilities management company acquired in fiscal 1998 and of the ice rinks
acquired during fiscal 1997 and 1996. As the fair value of the assets and
liabilities approximated the tax basis, no deferred income tax assets or
liabilities were recorded at the dates of acquisition.
9. LEASE COMMITMENTS
Three ice rinks and land improvements carried at an approximate net book
value of $13,200,000 are situated on land held under operating leases which
expire in the years 2003 to 2025, prior to exercising renewal rights.
Future minimum land rental payments, under non-cancelable leases, for each
of the next five years and thereafter are as follows. In addition to the
minimum land rental payment, additional rental payments based on gross revenue
may be required.
<TABLE>
<CAPTION>
<S> <C>
Year ending September 30:
1999 ................. $ 426,895
2000 ................. 435,202
2001 ................. 443,758
2002 ................. 452,570
2003 ................. 461,646
Thereafter ........... 2,801,690
----------
$5,021,761
==========
</TABLE>
Rental expenses for other operating leases, including both cancelable and
some immaterial noncancelable leases, was $283,852 for fiscal 1998 and $112,508
for fiscal 1997.
10. CONTINGENCIES AND OTHER MATTERS
The Company and its subsidiaries are parties to various matters of
litigation and claims which are incidental to the conduct of its business.
Management believes that the Company's insurance coverages are adequate to
provide for alleged damages by customers claiming injury while utilizing
facilities owned or managed by the Company. Management also believes that the
ultimate outcome of other litigation or claims will not result in a material
adverse effect on the Company's results of operations or financial position. A
subsidiary of the Company is under audit by state and local tax authorities
which have indicated an intent to make assessments for sales and use taxes
allegedly not paid on materials purchased primarily during the construction of
an ice skating rink. The ultimate outcome of any such assessment is not
presently known, but management believes that the amount could range up to
$400,000. In connection with this matter, the Company recorded a $175,000
provision for additional taxes that may be assessed.
15
<PAGE>
SKATENATION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. RELATED PARTY TRANSACTIONS
The Company's Parent provides certain administrative and other services to
the Company, including financial management, risk management and insurance, and
other related functions. The amounts paid by the Company to the Parent for
these services amounted to $374,000 for fiscal 1998 and $553,000 for fiscal
1997.
In addition, the Company's employees are eligible to participate in a
401(k) defined contribution retirement plan sponsored by an affiliate of the
Parent. The Company's contributions to the retirement plan were $64,499 for
fiscal 1998 and none for fiscal 1997.
12. SUBSEQUENT EVENT
On December 2, 1998, the Company's Parent entered into a definitive
agreement to sell and completed the sale of the Company to Family Golf Centers,
Inc. Pursuant to the terms of a Stock Purchase Agreement, Family Golf Centers,
Inc. acquired all of the outstanding capital stock of the Company for
approximately $29 million in cash and liabilities, subject to certain
post-closing adjustments.
As discussed in Notes 2 and 6, the Parent has generally provided the
funding of the Company's working capital requirements through September 30,
1998. Family Golf Centers, Inc. has represented to the Company that it will
provide debt and equity capital financing as necessary to enable the Company to
continue its operations as planned in the fiscal 1999 operating budget, which
support will enable the Company to continue as a going concern through December
31, 1999. Further, Family Golf Centers, Inc. has informed the Company that in
the event any of its outstanding long-term debt borrowings is deemed to be in
default (see Note 6), Family Golf Centers, Inc. would repay such debt through
borrowings available under its credit facilities or would arrange to replace
the debt with long-term obligations having similar terms and provisions.
16
<PAGE>
<TABLE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
PRO FORMA UNAUDITED CONDENSED BALANCE SHEET
AT SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
<CAPTION>
PRO FORMA
REFLECTING THE
SKATENATION PRO FORMA SKATENATION
THE COMPANY ACQUISITION ADJUSTMENTS ACQUISITION
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 10,831 $ 464 $ - $ 11,295
Restricted cash deposits 314 - 314
Short-term investments 40,706 - (17,000) (A) 23,706
Inventories 25,115 765 - 25,880
Prepaid expenses and other current assets 9,165 791 - 9,956
--------- -------- --------- ---------
Total current assets 86,131 2,020 (17,000) 71,151
Restricted cash 300 300
Property, plant and equipment 383,284 27,673 - 410,957
Loan acquisition costs 5,668 - 5,668
Other assets 9,050 - 9,050
Excess of cost over fair value of assets acquired 45,084 1,193 784 (A) 47,061
--------- -------- --------- ---------
Total $ 529,217 $ 31,186 $ (16,216) $ 544,187
========= ======== ========= =========
LIABILITIES
Accounts payable accrued expenses and
other current liabilities $ 16,990 $ 2,422 $ - $ 19,412
Income taxes payable 3,550 3,550
Deferred revenue 440 440
Current portion long-term obligations 26,886 771 - 27,657
--------- -------- --------- ---------
Total current liabilities 47,426 3,633 - 51,059
Convertible subordinated notes 115,000 - - 115,000
Long-term obligations (less current portion) 70,516 11,159 - 81,675
Deferred revenue 178 178
Deferred rent 1,003 - - 1,003
Deferred tax liability 2,989 - - 2,989
Other liabilities 4,038 - - 4,038
--------- -------- --------- ---------
Total liabilities 240,972 14,970 - 255,942
Minority interest 214 - - 214
Stockholders' equity:
Common stock 258 24,548 (24,548) (A) 258
Additional paid in capital 287,190 1,254 (1,254) (A) 287,190
Retained earnings/(Deficit) 785 (5,927) 5,927 (A) 785
Deferred income tax benefit available to parent (3,659) 3,659 (A) -
Foreign currency translation adjustment 283 - 283
Unearned compensation (438) - (438)
Treasury stock (47) - - (47)
--------- -------- --------- ---------
Total stockholders' equity 288,031 16,216 (16,216) 288,031
--------- -------- --------- ---------
Total liabilities and stockholders' equity $ 529,217 $ 31,186 $ (16,216) $ 544,187
========= ======== ========= =========
</TABLE>
1
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA UNAUDITED CONDENSED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(A) To reflect the acquisition of SkateNation accounted for as a purchase in
accordance with Accounting Principles Board Opinion No. 16 as follows:
<TABLE>
<CAPTION>
DEFERRED
INCOME TAX
BENEFIT
AVAILABLE
COMMON PAID-IN TO PARENT
TOTAL STOCK CAPITAL DEFICIT OF SKATENATION GOODWILL
---------- ------------- ------------ ------------ ---------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Purchase Price:
Preliminary allocation of
Value of SkateNation
assets acquired .............. $16,216 $ 24,548 $ 1,254 $ (5,927) $ (3,659) --
Excess of cost over fair
value of assets acquired ..... 784 -- -- -- $784
------- --------- -------- -------- ----
Cash paid .................... $17,000 $ (24,548) $ (1,254) $ 5,927 $ 3,659 $784
======= ========= ======== ======== ======== ====
</TABLE>
2
<PAGE>
<TABLE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
PRO FORMA UNAUDITED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<CAPTION>
PRO FORMA
REFLECTING THE
OTHER SKATENATION PRO FORMA ACQUIRED
THE COMPANY ACQUISITIONS(1) ACQUISITION(2) ADJUSTMENTS COMPANIES(3)
----------- --------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 54,599 $ 35,304 $ 6,829 $ (880) (A) $ 95,852
Merchandise sales 18,398 36 1,128 - 19,562
-------- --------- -------- ------- --------
Total revenues 72,997 35,340 7,957 (880) 115,414
Operating expenses 37,386 39,898 7,173 301 (A) 83,385
(1,373) (A)
Cost of merchandise sold 12,366 1,177 995 - 14,538
Selling, general, and
administrative expense 12,630 4,323 3,757 - 20,710
-------- --------- -------- ------- --------
Operating income (loss) 10,615 (10,058) (3,968) 192 (3,219)
Interest expense 3,863 4,682 906 380 (A) 9,042
789 (A)
Other income (expense) 1,659 149 (1,893) (A) (85)
-------- --------- -------- ------- --------
Income (loss) before income taxes 8,411 (14,591) (4,874) (1,292) (12,346)
Income tax expense (benefit) 5,142 (761) (1,867) (5,702) (B) (3,188)
Minority interest in (income) loss - 100 - 100
======== ========= ======== ======= ========
Net income (loss) $ 3,269 $ (13,730) $ (3,007) $ 4,410 $ (9,058)
======== ========= ======== ======= ========
</TABLE>
(1) Represents operations from January 1, 1997 through date of acquisitions, or
for the full year ended December 31, 1997, of Leisure Complexes, Inc.,
MetroGolf Incorporated, Golden Bear Golf Centers, Inc. and certain other
individually insignificant acquisitions, which were previously required
to be reported during the years 1997 and 1998. Information for certain
other insignificant acquisitions is not included.
(2) Represents operations for the year ended September 30, 1997
(3) Pro forma for the acquisitions in 1997 and 1998 as if they had been
consummated on January 1, 1997
3
<PAGE>
NOTES TO PRO FORMA
UNAUDITED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
(A) Expense adjustments for the period ended December 31, 1997 to
reflect the acquisition of the Acquired Companies as if the
acquisitions had taken place at the beginning of the year:
<TABLE>
<CAPTION>
OTHER
OTHER FINANCING
INTEREST DEPRECIATION OPERATING (INCOME) CHARGE OPERATING
ADJUSTMENT ADJUSTMENT EXPENSES EXPENSE ADJUSTMENT REVENUE
---------------- -------------- ----------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Other Acquisitions .......... $ (980)(1) $301 $ (1,373) 1,893 $ (789) $ (880)
SkateNation Acquisition ..... 1,360 (2) -- -- -- -- --
-------- ---- -------- ----- ------ ------
$ 380 $301 $ (1,373) $1,893 $ (789) $ (880)
======== ==== ======== ====== ====== ======
</TABLE>
------------
(1) Assumes reduction of borrowings at the Company's average interest
rate.
(2) Assumes borrowings at an average interest rate of 8.00% per annum.
(B) To reflect the income tax effect arising from the losses of all the
acquisitions.
4
<PAGE>
<TABLE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
PRO FORMA UNAUDITED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
<CAPTION>
PRO FORMA
REFLECTING THE
OTHER SKATENATION PRO FORMA ACQUIRED
THE COMPANY ACQUISITIONS(1) ACQUISITION(2) ADJUSTMENTS COMPANIES(3)
----------- --------------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Operating revenues $72,592 $ 7,724 $ 8,019 $ (216)(A) $ 88,119
Merchandise sales 22,142 2,285 1,782 26,209
------- -------- -------- ------- --------
Total revenue 94,734 10,009 9,801 (216) 114,328
Operating expenses 46,395 12,632 7,863 306 (A) 67,196
Cost of merchandise sold 15,089 1,482 16,571
Selling, general and administrative
expenses 9,187 1,262 1,721 12,170
Merger,acqusition,integration, and
other related charges 7,752 7,752
------- -------- -------- ------- --------
Operating income (loss) 16,311 (3,885) (1,265) (522) 10,639
Interest expense 7,764 736 813 486 (A) 9,799
Other income (expense) 1,805 1 (870)(A) 936
------- -------- -------- ------- --------
Income before income taxes 10,352 (4,620) (2,078) (1,878) 1,776
Income tax expense 9,191 (796) (2,594)(B) 5,801
Minority Interest in loss 18 18
------- -------- -------- ------- --------
Income (loss) before extraordinary
item and cumulative effect of a
change in accounting principle $ 1,161 $ (4,602) $ (1,282) $ 716 $ (4,007)
======= ======== ======== ======= ========
</TABLE>
(1) Represents operations from January 1, 1998 through date of acquisitions of
MetroGolf Incorporated and Golden Bear Golf Centers, Inc. acquired during
the nine month period ended September 30, 1998. Information for certain
other individually insignificant acquisitions is not included.
(2) Represents operations for the nine months ended June 30, 1998.
(3) Pro forma for the acquisitions in 1998 as if they had been consummated
on January 1, 1998.
5
<PAGE>
NOTES TO PRO FORMA
UNAUDITED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
(A) Adjustments for the period ended September 30, 1998 to reflect the
acquisition of the Acquired Companies as if the acquisitions had
taken place at the beginning of the period:
<TABLE>
<CAPTION>
OTHER
INTEREST OPERATING DEPRECIATION (INCOME) OPERATING
ADJUSTMENT EXPENSES ADJUSTMENT EXPENSE REVENUE
------------ ----------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Other Acquisitions .............. $ 486(1) $251 $55 $ 232 $ (216)
SkateNation Acquisition ......... -- -- -- 638(2) --
-------- ---- --- -------- ------
$ 486 $251 $55 $ 870 $ (216)
======== ==== === ======== ======
</TABLE>
------------
(1) Assumes reduction of borrowings at the Company's average interest
rate.
(2) Assumes reduction of interest income upon acquisition of SkateNation
at the rate of 5.00% per annum.
(B) To reflect the income tax effect arising from the losses of all the
acquisitions.
6
