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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 September 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 November 11, 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 6-7
Item 2. Management's Discussion and Analysis or
Plan of Operations 8-9
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
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SAINT ANDREWS GOLF CORPORATION
UNAUDITED CONDENSED BALANCE SHEETS
ASSETS
September 30, December 31,
1996 1995
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(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $3,351,000 $ 125,000
Accounts receivable from franchises, net 283,000 304,000
Stock subscriptions receivable 1,000,000 0
Lease termination receivable 3,123,000 3,000,000
Inventories 0 57,000
Prepaid expenses and other 36,000 443,000
Total current assets 7,793,000 3,929,000
FURNITURE, EQUIPMENT AND
LEASEHOLD IMPROVEMENTS, NET 1,578,000 1,147,000
OTHER ASSETS 1,000 1,000
$9,372,000 $5,077,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 677,000 $1,199,000
Deferred franchise fees 183,000 120,000
Other payables 462,000 3,000
Total current liabilities 1,322,000 1,322,000
STOCKHOLDERS' EQUITY:
Preferred stock 4,838,000 0
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 (473,000) 70,000
Total stockholders' equity 8,050,000 3,755,000
$9,372,000 $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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SAINT ANDREWS GOLF CORPORATION
UNAUDITED CONDENSED
STATEMENTS OF INCOME
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
---------------------- ----------------------
1996 1995 1996 1995
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REVENUES:
Franchise fees 40,000 40,000 160,000 165,000
Royalties 290,000 326,000 903,000 920,000
Wholesale 0 0 0 7,000
Other 48,000 81,000 147,000 127,000
Total revenues 378,000 447,000 1,210,000 1,219,000
EXPENSES:
Cost of sales 99,000 0 134,000 31,000
Selling, general and
administrative 397,000 443,000 1,412,000 1,337,000
Golf centers and driving
range development costs 6,000 0 207,000 0
Total expenses 502,000 443,000 1,753,000 1,368,000
INCOME (LOSS) BEFORE PRO-
VISION FOR INCOME TAXES
AND MINORITY INTEREST (124,000) 4,000 (543,000) (149,000)
PROVISION FOR INCOME TAXES 0 0 0 0
NET INCOME (LOSS) (124,000) 4,000 (543,000) (149,000)
NET INCOME (LOSS) PER
COMMON SHARE: $ (.03) $ .00 $ (.15) $ (.04)
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 Nine Months
Ended September 30,
--------------------
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (543,000) $ (149,000)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 16,000 16,000
Changes in assets and liabilities:
Decrease in accounts receivable 21,000 105,000
Increase in lease termination receivable (123,000) (2,484,000)
Decrease in inventory (57,000) 7,000
(Increase) decrease in prepaid expenses
and other 407,000 (137,000)
Increase in other assets 0 (617,000)
Increase (decrease) in accounts payable (68,000) 411,000
Increase in deferred franchise fees 63,000 30,000
Increase (decrease) in other payable 459,000 (227,000)
Net cash provided (used) by operating activities 289,000 (3,045,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (986,000) 0
Refund development costs 85,000 0
Net cash used by financing activities (901,000) 0
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from preferred stock 4,000,000 0
Preferred stock issuance costs (162,000) 0
Net cash provided by financing activities 3,838,000 0
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 3,226,000 (3,045,000)
CASH AND CASH EQUIVALENTS - Beginning of period 125,000 3,242,000
CASH AND CASH EQUIVALENTS - End of period $ 3,351,000 $ 197,000
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 September 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
September 30, 1996 and 1995 are not necessarily indicative of the operating
results for the full year.
NOTE 2. LEASE
On July 22, 1996, All-American SportPark, Inc., a wholly-owned subsidiary of
Saint Andrews Golf Corporation, executed a 15 year (two 5 year options) ground
lease for 65 acres of vacant land for the development of the company's first
All-American SportPark project. Future minimum lease payments for the next
five years follow:
Year 1 $625,000
2 625,000
3 625,000
4 625,000
5 625,000
NOTE 3. PREFERRED STOCK ISSUANCE
On July 29, 1996, Saint Andrews Golf Corporation (the "Company") sold 500,000
shares of its newly designated Series A Convertible Preferred Stock to Three
Oceans Inc. ("TOI"), an affiliate of Sanyo North America Corporation, for
$5,000,000. As of September 30, 1996, TOI has paid $4,000,000 for 400,000
shares. The additional 100,000 shares were issued and paid on October 27,
1996. The Company is using these proceeds, less the $162,000 estimated cost
of issuance, to develop its subsidiary, All-American SportPark, Inc.
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.
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SAINT ANDREWS GOLF CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED
FINANCIAL STATEMENTS
NOTE 3. PREFERRED STOCK ISSUANCE (Continued)
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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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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
NINE MONTHS ENDED SEPTEMBER 30, 1996, COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995
During the nine months ended September 30, 1996, the Company had a net loss of
$543,000 as compared to a net loss of $149,000 for the same period in 1995.
Total revenues for the first nine months of 1996 decreased by approximately
$9,000 (1%) as compared to the same period in 1995. The decrease in revenues
was primarily attributable to a decrease in royalties which declined $17,000
to $903,000, primarily due to lower sales at the franchisee level in the third
quarter. Management believes the lower sales in the third quarter of 1996
were temporary declines due to poor weather during September in the Canadian
province, the relocation of two Canadian stores, and an unexpected sales
decline during the three weeks of the Olympic Games. In addition, franchise
fees decreased by $5,000 as a result of fewer store openings, and wholesale
sales were down by $7,000 as a result of the discontinuance of sales of
computers to franchisees. These reductions were partially offset by an
increase in other revenues due primarily to a new advertising program for
franchisees.
Expenses increased by $385,000 (28%) compared to 1995. The increase in
expenses included a $103,000 increase in costs of sales which in part was due
to a $29,000 increase in computer costs as a result of obsolete inventory
associated with the discontinued computer sales to franchisees, a $74,000
increase in advertising costs for the new advertising program for franchisees,
a $75,000 increase in selling and administrative cost due to costs incurred in
a new wholly-owned subsidiary, All-American SportPark, Inc., and a $207,000
increase in development expenses for a golf center to be operated by this
subsidiary.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1995
During the three months ended September 30, 1996, the Company had a net loss
of $124,000 as compared to a net profit of $4,000 for the same period in 1995.
Total revenues for the third quarter of 1996 decreased by approximately
$69,000 (15%) compared to 1995. The decrease in revenues was the result of a
$36,000 decrease in royalties due to lower sales at the franchisee level which
is attributed to poor weather in Canada, two Canadian store relocations, and a
slow down in sales during the 1996 summer Olympic Games. In addition, the
Company had a $33,000 reduction in other income.
Expenses increased by $59,000 (13%) as compared to 1995. The increase in
expenses included a $99,000 increase in cost of sales which was primarily due
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to a $61,000 increase in computer costs as a result of obsolete inventory
associated with the discontinued computer sales to franchisees, and a $38,000
increase in advertising costs for the new advertising program for franchisees.
Selling, general and administrative expenses for the current quarter decreased
by $46,000 as compared to 1995. The reduction was due to a $123,000
reclassification of legal fees expensed in 1995, in anticipation of the
settlement on October 1, 1996 of the ground lease lawsuit. Also, selling,
general and administrative expenses were decreased by a $46,000
reclassification of advertising expenses to cost of sales as a result of a new
advertising program for franchisees.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had working capital of approximately
$6,471,000 compared to $2,607,000 at December 31, 1995. This increase was
primarily due to the sale of preferred stock by the Company.
Cash increased from $125,000 at December 31, 1995 to $3,351,000 at September
30, 1996. This increase in cash was primarily attributable to financing
activities with a $3,838,000 increase coming from the issuance of preferred
stock. These financing activities were augmented by $289,000 of cash provided
by operations primarily due to a decrease in prepaid expenses and an increase
in other payables.
Cash flows from investing activities used $901,000 as a result of $986,000 of
capital expenditures during the nine months which were primarily related to
the All-American SportPark, Inc. subsidiary. This was slightly offset by a
$85,000 refund for returned items on the development of the golf/sports park
development (referred to under "Legal Proceedings" in this Report).
The Company's sources of working capital include its current cash balance and
cash flows from operating activities. On July 29, 1996, the Company sold
500,000 shares of its newly designated Series A Convertible Preferred Stock to
Three Oceans Inc. ("TOI"), an affiliate of Sanyo North America Corporation,
for $5,000,000. AS of September 30, 1996, TOI had paid $4,000,000 for 400,000
shares. The additional 100,000 shares were issued for $1,000,000 on October
27, 1996. The Company is using these proceeds, less the $162,000 estimated
cost of issuance, to develop its subsidiary, All-American SportPark, Inc.
Management believes that these sources of cash will be adequate to fund
operations throughout the balance of 1996.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
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 as long as the intended use of the property after the sale was
not a golf/sports park as contemplated by the Company.
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
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was entitled to reimbursement of unamortized construction costs which it
incurred, based upon the criterion 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 totalling
approximately $3.9 million. Utilizing applicable formulas derived form the
Lease, the Company believed that, based on the maximum expenditures available
for reimbursement of $3.5 million, $3,279,465 in costs were reimbursable by
the purchaser. The purchaser reviewed such support and indicated that he
believed that only a portion of the construction costs submitted were
reimbursable within the context of the Lease agreement.
On February 27, 1996 the Company filed a complaint against the purchaser 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.
In October 1996, a settlement of $3,217,500 was reached and paid to the
Company.
ITEM 2. CHANGES IN SECURITIES - None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None.
ITEM 5. OTHER INFORMATION - None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit 27 - Financial Data Schedule: Filed herewith electronically
(b) Reports on Form 8-K.
The Company filed one report on Form 8-K dated July 29, 1996, reporting
information under Item 5 - "Other Events" concerning the sale of preferred
stock to Three Oceans Inc.
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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: November 18, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1996
<CASH> 3,351,000
<SECURITIES> 0
<RECEIVABLES> 4,406,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,793,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,372,000
<CURRENT-LIABILITIES> 1,322,000
<BONDS> 0
<COMMON> 3,000
0
4,838,000
<OTHER-SE> 3,209,000
<TOTAL-LIABILITY-AND-EQUITY> 9,372,000
<SALES> 0
<TOTAL-REVENUES> 1,210,000
<CGS> 134,000
<TOTAL-COSTS> 134,000
<OTHER-EXPENSES> 1,619,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (543,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (543,000)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
