<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Commission File Number: 0-24970
SAINT ANDREWS GOLF CORPORATION
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(Exact name of small business issuer as specified in its charter)
Nevada 88-0203976
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(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
5325 South Valley View Boulevard, Suite 10, Las Vegas, Nevada 89118
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(Address of principal executive offices including zip code)
(702) 798-7777
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No___
As of August 8, 1996, 3,000,000 shares of common stock were outstanding.
Transitional Small Business Disclosure Format (check one): Yes___ No X
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SAINT ANDREWS GOLF CORPORATION
FORM 10-QSB
INDEX
PART I: FINANCIAL INFORMATION Page No.
Item 1. Financial Information:
Unaudited Condensed Consolidated Balance Sheets 3
Unaudited Condensed Consolidated Statements of Income 4
Unaudited Condensed Consolidated Statements of Cash Flows 5
Notes to Unaudited Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis or
Plan of Operations 7-8
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 8
Item 2. Changes in Securities 8
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 10
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<PAGE>
SAINT ANDREWS GOLF CORPORATION
UNAUDITED CONDENSED BALANCE SHEETS
ASSETS
June 30, December 31,
1996 1995
----------- -----------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 126,000 $ 125,000
Accounts receivable from franchises, net 298,000 304,000
Lease termination receivable 3,000,000 3,000,000
Inventories 62,000 57,000
Prepaid expenses and other 33,000 443,000
Total current assets 3,519,000 3,929,000
FURNITURE, EQUIPMENT AND
LEASEHOLD IMPROVEMENTS, NET 922,000 1,147,000
OTHER ASSETS 1,000 1,000
$4,442,000 $5,077,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 686,000 $1,199,000
Deferred franchise fees 143,000 120,000
Other payables 277,000 3,000
Total current liabilities 1,106,000 1,322,000
STOCKHOLDERS' EQUITY:
Common stock 3,000 3,000
Additional paid-in capital 3,495,000 3,495,000
Common stock purchase warrants 187,000 187,000
Retained earnings (deficit) (349,000) 70,000
Total stockholders' equity 3,336,000 3,755,000
$4,442,000 $5,077,000
NOTE: The balance sheet at December 31, 1995 has been taken from the audited
financial statements at that date and condensed.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<PAGE>
SAINT ANDREWS GOLF CORPORATION
UNAUDITED CONDENSED
STATEMENTS OF INCOME
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------- ----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
REVENUES:
Franchise fees $ 40,000 $ 83,000 $ 120,000 $ 125,000
Royalties 373,000 375,000 613,000 594,000
Wholesale 0 7,000 0 7,000
Other 56,000 1,000 99,000 46,000
Total revenues 469,000 466,000 832,000 772,000
EXPENSES:
Cost of sales 29,000 2,000 35,000 31,000
Selling, general and
administrative 525,000 421,000 1,015,000 857,000
Golf centers and driving
range development costs 107,000 0 201,000 0
Unreimbursed lease
expenditures 0 37,000 0 37,000
Total expenses 661,000 460,000 1,251,000 925,000
INCOME (LOSS) BEFORE
PROVISION FOR INCOME
TAXES (192,000) 6,000 (419,000) (153,000)
PROVISION FOR INCOME TAXES 0 0 0 0
NET INCOME (LOSS) $(192,000) $ 6,000 $ (419,000) $(153,000)
NET INCOME (LOSS) PER
COMMON SHARE: $ (.06) $ .00 $ (.14) $ (.05)
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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SAINT ANDREWS GOLF CORPORATION
UNAUDITED CONDENSED
STATEMENTS OF CASH FLOWS
For the Six Months
Ended June 30,
--------------------
1996 1995
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (419,000) $ (153,000)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 10,000 11,000
Changes in assets and liabilities:
Decrease in accounts receivable 6,000 67,000
Increase in lease termination receivable 0 (2,983,000)
(Increase) decrease in inventory (5,000) 17,000
(Increase) decrease in prepaid expenses
and other 410,000 (216,000)
Increase (decrease) in accounts payable (59,000) 520,000
Increase in deferred franchise fees 23,000 30,000
Increase (decrease) in other payable 274,000 (227,000)
Net cash provided (used) by operating activities 240,000 (2,934,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (324,000) 0
Refund development costs 85,000 0
Net cash used by financing activities (239,000) 0
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,000 (2,934,000)
CASH AND CASH EQUIVALENTS - Beginning of period 125,000 3,242,000
CASH AND CASH EQUIVALENTS - End of period $ 126,000 $ 308,000
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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SAINT ANDREWS GOLF CORPORATION
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 1. CONDENSED FINANCIAL STATEMENTS
The accompanying financial statements have been prepared by the Company
without audit. In the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows at June 30, 1996 and for all
periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's December 31, 1995
audited financial statements. The results of operations for the periods ended
June 30, 1996 and 1995 are not necessarily indicative of the operating results
for the full year.
NOTE 2. SUBSEQUENT EVENTS
On July 29, 1996, Saint Andrews Golf Corporation (the "Company") sold 200,000
shares of its newly designated Series A Convertible Preferred Stock to Three
Oceans Inc. ("TOI"), an affiliate of Sanyo North America Corporation, for
$2,000,000 in cash. The sale was made pursuant to an Investment Agreement
between the Company and TOI dated July 29, 1996 (the "Agreement"). The
Agreement provides that TOI will purchase an additional 200,000 shares of
Series A Convertible Preferred Stock for an additional $2,000,000 by September
12, 1996, and an additional 100,000 shares of Series A Convertible Preferred
Stock for an additional $1,000,000 by October 27, 1996. The Company will use
the proceeds of these sales for the SportPark segment of its business. Costs
of approximately $200,000 will be associated with the issuance of this 500,000
shares of Series A Convertible Preferred Stock.
Each share of the Series A Convertible Preferred Stock issued to TOI is
convertible into one share of the Company's Common Stock at any time. The
Series A Convertible Preferred Stock has a liquidation preference of $10 per
share and the holder is entitled to receive dividends equal to any declared on
the Company's Common Stock. Under certain circumstances, the Company may
redeem the Series A Convertible Preferred Stock at a redemption price of
$12.50 per share. Each share of Series A Convertible Preferred Stock is
entitled to one vote and will vote along with the holders of the Company's
Common Stock.
Pursuant to the term of the Agreement, TOI also received an option to purchase
up to 250,000 shares of the Company's Common Stock at $5.00 per share at any
time until July 29, 2001.
The Agreement provides for certain demand and piggyback registration rights
with respect to the shares of Common Stock issuable upon the conversion of the
Series A Convertible Preferred Stock and the exercise of the option.
Pursuant to the Agreement, the Company expanded the number of Directors of the
Company from four to five, and elected Hideki Yamagata as an additional
Director of the Company. Mr. Yamagata is President of Three Oceans Inc.
In connection with the initial closing of the Agreement, the Company granted
TOI certain first refusal rights with respect to debt and/or equity financing
arrangements for SportParks developed by the Company and any arrangements to
obtain electrical and electronic equipment for such SportParks. In addition,
the Company granted TOI and its designees certain signage rights at the
Company's first two SportParks.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
SEASONALITY
Saint Andrews Golf Corporation's (the "Company") business is seasonal. The
Company typically experiences sales peaks in the Spring and pre-Christmas
seasons. Accordingly, the results of interim periods may not be indicative of
results for the full year.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996, COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Total revenues increased $60,000 (8%) compared to 1995. The increase in
revenues was attributable primarily to an increase in royalties and
advertising income. Since franchise fees are recognized essentially when the
applicable franchised store is opened, the decrease in franchise fees reflects
a decrease in stores opened in 1996 as compared to 1995. There were 3
franchise stores under development at June 30, 1996.
Selling, general and administrative expenses increased by $322,000 (36%) in
1996 as compared to 1995, primarily as a result of development expenses
associated with the All-American SportPark.
In May of 1994, the Company entered into a Ground Lease (the "Lease") for
approximately 33 acres of land on Las Vegas Boulevard which it intended to use
for the development of a golf/sports park. The lease contained provisions
which allowed the lessor to terminate the lease within the first 6 years of
the 15 year lease term in the event that the lessor entered into a sale of the
property.
In June 1995 the lessor notified the Company that it had entered into a sale
agreement for the parcel and that it was exercising its right of termination.
Pursuant to cancellation provisions contained within the Lease the Company was
entitled to reimbursement of unamortized construction costs which it incurred,
based upon criteria contained within the lease, up to an aggregate amount of
$3.5 million.
Upon notification of the Lease termination the Company ceased construction
activities and submitted substantiation for construction costs totaling
approximately $3.9 million. Utilizing applicable formulas derived from the
Lease the Company believes that, based on the maximum expenditures available
for reimbursement of $3.5 million, $3,279,465 in costs are reimbursable by the
purchaser. The purchaser has reviewed such support and has indicated that it
believes that only a portion of the construction costs submitted are
reimbursable within the context of the Lease agreement.
No settlement was reached regarding the disputed amount and on February 27,
1996 the Company filed a complaint with the District Court, Clark County,
Nevada, against the purchaser of the parcel seeking an unspecified amount of
compensatory damages, punitive damages, attorney fees and costs.
Management believes, and legal counsel concurs, that a recovery of $3,000,000
is probable with regards to this litigation and that the amount will be
collected in 1996. The Company has, accordingly, recorded the lease
termination receivable as a current asset in the accompanying balance sheet as
of June 30, 1996.
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<PAGE>
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
Total revenues increased $3,000 (1%) compared to 1995. The increase in
revenues was attributable primarily to an increase in advertising income which
was offset in part by a decrease in franchise fees. Since franchise fees are
recognized essentially when the applicable franchised store is opened, the
decrease in franchise fees reflects a decrease in stores opened in 1996 as
compared to 1995. There were 3 franchise stores under development at June 30,
1996.
Selling, general and administrative expenses increased by $174,000 (38%) in
1996 as compared to 1995, primarily as a result of development expenses
associated with the All-American SportPark.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had working capital of approximately $2,413,000
as compared to working capital of approximately $2,607,000 at December 31,
1995. The decline in working capital was primarily due to the net loss for
the six month period. Cash increased from $125,000 at December 31, 1995, to
$126,000 at June 30, 1996. This increase in cash was primarily attributable
to a decrease in prepaid expenses of $410,000, an increase in other payables
of $274,000, an increase in deferred franchise fees of $23,000 and an $85,000
refund of development costs. These amounts were offset by the net loss of
$419,000, a $59,000 decrease in accounts payable, and $324,000 of capital
expenditures which were related to the All-America SportPark.
The Company's sources of working capital are cash flows from operations and
the issuance of 500,000 shares of Series A Convertible Preferred Stock. On
July 29, 1996, Saint Andrews Golf Corporation (the "Company") sold 200,000
shares of its newly designated Series A Convertible Preferred Stock to Three
Oceans Inc. ("TOI"), an affiliate of Sanyo North America Corporation, for
$2,000,000 in cash. The sale was made pursuant to an Investment Agreement
between the Company and TOI dated July 29, 1996 (the "Agreement"). The
Agreement provides that TOI will purchase an additional 200,000 shares of
Series A Convertible Preferred Stock for an additional $2,000,000 by September
12, 1996, and an additional 100,000 shares of Series A Convertible Preferred
Stock for an additional $1,000,000 by October 27, 1996. The Company will use
the proceeds of these sales for the SportPark segment of its business. (See
Part II, Item 5 below.)
Management believes that these sources of cash will be adequate to fund
operations through the balance of 1996. The Company has, in the past, funded
a portion of its cash needs through loans from its Parent, however, there is
no assurance that the Parent will be able to make any loans in the future.
The Company expects to have significant capital expenditures when construction
of the first SportPark is commenced.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
See "Results of Operations" above for a discussion of the lawsuit filed on
February 27, 1996.
Item 2. CHANGES IN SECURITIES.
None.
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<PAGE>
Item 3. DEFAULTS UPON SENIOR SECURITIES.
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
Item 5. OTHER INFORMATION
(a) SALE OF SERIES A CONVERTIBLE PREFERRED STOCK.
On July 29, 1996, Saint Andrews Golf Corporation (the "Company") sold 200,000
shares of its newly designated Series A Convertible Preferred Stock to Three
Oceans Inc. ("TOI"), an affiliate of Sanyo North America Corporation, for
$2,000,000 in cash. The sale was made pursuant to an Investment Agreement
between the Company and TOI dated July 29, 1996 (the "Agreement"). The
Agreement provides that TOI will purchase an additional 200,000 shares of
Series A Convertible Preferred Stock for an additional $2,000,000 by September
12, 1996, and an additional 100,000 shares of Series A Convertible Preferred
Stock for an additional $1,000,000 by October 27, 1996. The Company will use
the proceeds of these sales for the SportPark segment of its business. Costs
of approximately $200,000 will be associated with the issuance of this 500,000
shares of Series A Convertible Preferred Stock.
Each share of the Series A Convertible Preferred Stock issued to TOI is
convertible into one share of the Company's Common Stock at any time. The
Series A Convertible Preferred Stock has a liquidation preference of $10 per
share and the holder is entitled to receive dividends equal to any declared on
the Company's Common Stock. Under certain circumstances, the Company may
redeem the Series A Convertible Preferred Stock at a redemption price of
$12.50 per share. Each share of Series A Convertible Preferred Stock is
entitled to one vote and will vote along with the holders of the Company's
Common Stock.
Pursuant to the term of the Agreement, TOI also received an option to purchase
up to 250,000 shares of the Company's Common Stock at $5.00 per share at any
time until July 29, 2001.
The Agreement provides for certain demand and piggyback registration rights
with respect to the shares of Common Stock issuable upon the conversion of the
Series A Convertible Preferred Stock and the exercise of the option.
Pursuant to the Agreement, the Company expanded the number of Directors of the
Company from four to five, and elected Hideki Yamagata as an additional
Director of the Company. Mr. Yamagata is President of Three Oceans Inc.
In connection with the initial closing of the Agreement, the Company granted
TOI certain first refusal rights with respect to debt and/or equity financing
arrangements for SportParks developed by the Company and any arrangements to
obtain electrical and electronic equipment for such SportParks. In addition,
the Company granted TOI and its designees certain signage rights at the
Company's first two SportParks.
(b) LEASE FOR LAS VEGAS SPORTPARK SITE.
On July 12, 1996, the Company entered into a lease covering approximately 65
acres of land in Las Vegas, Nevada, on which the Company intends to develop
its first All-American SportPark. The project is expected to include a golf
driving range; a pro shop/clubhouse; a par 3 golf course; a 27-hole putting
course; a
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Major League Baseball Slugger Stadium; a NASCAR Speed Park; an off-ice hockey
complex; and other facilities. The land is adjacent to McCarron International
Airport and in the vicinity of the new Circus Circus multi-billion dollar
hotel resort development referred to as "The Millennium Project". The lease
will be for an initial term of 15 years, and the Company will have two options
to extend for five years each. The landlord may cancel the lease if the
SportPark is not completed by July 12, 1998.
The lease provides for a minimum rental during the first five years of
$625,000 per year. The minimum rental will begin to accrue when the SportPark
opens or 12 months after the lease period commences, whichever occurs first.
The minimum rental will be increased 10% at the end of each five years during
the term of the lease. The Company will be required to pay additional rent to
the extent that percentages ranging from 3% to 10% of gross receipts,
depending on the type of revenue, exceeds the minimum rental. In connection
with the signing of the lease, the Company paid a deposit of $500,000 which
will be applied to minimum rental payments, and to a security deposit of
approximately $104,000 which will be applied to minimum rental payments at the
end of the fourth year of the lease.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SAINT ANDREWS GOLF CORPORATION
By:/s/ Ronald Boreta
Ronald Boreta, President
and Chief Financial Officer
Date: August 9, 1996
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EXHIBIT INDEX
EXHIBIT METHOD OF FILING
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27. Financial Data Schedule Filed herewith electronically
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited condensed balance sheets and unaudited condensed statements of
income found on pages 3 and 4 of the Company's Form 10-QSB for the year to
date, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 126,000
<SECURITIES> 0
<RECEIVABLES> 3,298,000
<ALLOWANCES> 0
<INVENTORY> 62,000
<CURRENT-ASSETS> 3,519,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,442,000
<CURRENT-LIABILITIES> 1,106,000
<BONDS> 0
<COMMON> 3,000
0
0
<OTHER-SE> 3,333,000
<TOTAL-LIABILITY-AND-EQUITY> 4,442,000
<SALES> 0
<TOTAL-REVENUES> 469,000
<CGS> 29,000
<TOTAL-COSTS> 29,000
<OTHER-EXPENSES> 632,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (192,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (192,000)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
