1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
-----------
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the Quarterly Period Ended September 30, 1996
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 (No fee required)
For the transitional period from to
--------- ----------
Commission File No. 1-13362
-------
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
-------------------------------------
(Name of Small Business Issuer as specified in its charter)
Nevada 04-3226365
------ ----------
(State or other jurisdiction (I.R.S. Employer Identification Number)
incorporation or organization)
266 Beacon Street, Boston, MA 02116
-----------------------------------
(Address of principal executive offices)(Zip Code)
(617) 266-3600
--------------
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the issuer was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes x No
----- -----
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
2,933,333 Shares of Common Stock, as of November 12, 1996
Transitional Small Business Issuer Format (check one):
Yes No x
----- -----
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
UNAUDITED
====================================================================================
September 30
1996
====================================================================================
ASSETS
CURRENT:
Cash and cash equivalents $ 376,104
Interest and other receivables 72,456
Inventories 162,455
Prepaid expenses and other current assets 49,939
-----------
Total current assets 660,954
-----------
PROPERTY AND EQUIPMENT:
Property and equipment, net of accumulated depreciation 11,021,290
Construction in progress 2,318,801
-----------
Property and equipment, net 13,340,091
-----------
OTHER ASSETS:
Restricted cash 18,848
Water rights 1,051,992
Other assets 266,871
-----------
Total other assets 1,337,711
-----------
$15,338,756
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 941,297
Current portion of long term debt 298,035
Current portion of obligation under water-rights agreement 76,766
Deferred revenues 197,230
-----------
Total current liabilities 1,513,328
-----------
LONG TERM LIABILITIES:
Obligation under water rights agreement 882,965
Long term debt 7,883,387
STOCKHOLDERS' EQUITY:
Preferred stock, $.10 par value; 5,000,000 shares authorized 0
Common stock, $.001 par value; 15,000,000 shares authorized;
2,933,333 shares issued and outstanding 2,933
Additional paid-in capital 7,545,040
Management options 1,805,600
Accumulated deficit (4,294,497)
-----------
Total stockholders' equity 5,059,076
-----------
$15,338,756
===========
The accompanying notes are an integral part of these
consolidated financial statements.
3
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTERLY PERIODS ENDED SEPTEMBER 30, 1996 & 1995
UNAUDITED
=========================================================================================================
Three Month Three Month
Period Ended Period Ended
Sept 30, 1996 Sept 30, 1995
=========================================================================================================
NET REVENUES $ 1,035,017 $ 469,069
COSTS AND EXPENSES:
Operating, general and administrative 1,481,284 776,652
Noncash compensation charge (credit) (1,111,100) 0
----------- ----------
Operating income (loss) 664,833 (307,583)
INTEREST INCOME 5,847 15,729
INTEREST EXPENSE (231,416) (89,112)
----------- ----------
Net Income (Loss) $ 439,264 $ (380,966)
=========== ==========
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE $0.12 $(0.13)
===== ======
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING 3,621,164 2,933,333
----------- ----------
The accompanying notes are an integral part of these
consolidated financial statements.
4
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 & 1995
UNAUDITED
=================================================================================================================================
Nine Month Nine Month
Period Ended Period Ended
Sept 30, 1996 Sept 30, 1995
=================================================================================================================================
NET REVENUES $4,160,845 $1,213,138
COSTS AND EXPENSES:
Operating, general and administrative 4,135,747 1,870,526
Noncash compensation charge (credit) - management stock options (694,400) 0
---------- ----------
Operating income (loss) 719,498 (657,388)
INTEREST INCOME 16,777 110,639
INTEREST EXPENSE (680,502) (267,478)
---------- ----------
Net income (loss) $ 55,773 $ (814,227)
========== ==========
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE $0.02 $(0.28)
===== ======
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING 3,621,164 2,933,333
---------- ----------
The accompanying notes are an integral part of these
consolidated financial statements.
5
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE QUARTERLY PERIODS ENDED SEPTEMBER 30, 1996 & 1995
UNAUDITED
=============================================================================================================================
Three Month Three Month
Period Ended Period Ended
Sept 30, 1996 Sept 30, 1995
=============================================================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 439,264 $ (380,966)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 137,747 84,629
Noncash compensation charge (credit) (1,111,100) 0
Changes in assets and liabilities:
Interest and other receivables 15,256 36,854
Prepaid expenses and other assets 21,201 (116,933)
Deposits (17,179) 115,485
Inventories (38,288) 1,252
Deferred revenue 27,293 (39,874)
Accounts payable and accrued expenses 269,210 82,767
----------- -----------
Cash (used in) operating activities (256,596) (216,786)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of short-term investments 0 242,901
Purchases of property and equipment (6,319) (520,548)
Golf course development costs capitalized (648,931) (1,653,705)
Cash (restricted) released from escrow (4,188) 392,865
----------- -----------
Net cash (used in) investing activities (659,438) (1,538,487)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long term debt 597,755 1,746,311
Repayment of long term debt (50,886) (12,720)
----------- -----------
Net cash provided by financing activities 546,869 1,733,591
----------- -----------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (369,165) (21,682)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 745,269 521,720
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 376,104 $ 500,038
=========== ===========
The accompanying notes are an integral part of
these consolidated financial statements.
6
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 & 1995
UNAUDITED
=================================================================================================================================
Nine Month Nine Month
Period Ended Period Ended
Sept 30, 1996 Sept 30, 1995
=================================================================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 55,773 $ (814,227)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 483,635 317,342
Noncash compensation charge (credit) (694,400) 0
Changes in assets and liabilities:
Interest and other receivables 25,204 17,563
Prepaid expenses and other assets 45,769 (124,379)
Deposits (9,079) 51,844
Inventories (83,204) 7,632
Deferred revenue 36,405 (73,171)
Accounts payable and accrued expenses 61,697 (481,023)
----------- -----------
Cash (used in) operating activities (78,200) (1,098,419)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of short-term investments 0 994,555
Purchases of property and equipment (39,544) (605,870)
Golf course development costs capitalized (1,983,227) (5,813,228)
Investment in partnership and management contract 0 (269,740)
Increase in other assets (50,000) 0
Cash (restricted) released from escrow (6,283) 5,005,617
----------- -----------
Net cash (used in) investing activities (2,079,054) (688,666)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long term debt 1,334,053 1,922,525
Repayment of long term debt (274,079) (39,016)
----------- -----------
Net cash provided by financing activities 1,059,974 1,883,509
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,097,280) 96,424
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,473,384 403,614
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 376,104 $ 500,038
=========== ===========
The accompanying notes are an integral
part of these consolidated financial statements.
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SENIOR TOUR PLAYERS DEVELOPMENT, INC.
AND SUBSIDIARY
STATEMENT OF STOCKHOLDERS' EQUITY
UNAUDITED
Preferred Stock Common Stock Additional Retained Total
For The Period January 1, 1995 --------------- ------------ Paid-In Management Earnings Stockholders'
Thru September 30, 1996 Shares Amount Shares Amount Capital Options (Deficit) Equity
================================================================================================================================
Balance, December 31, 1994 - - 2,933,333 $2,933 $7,545,040 $0 $ (324,862) $ 7,223,111
Net Income (Loss) (4,025,408) (4,025,408)
Noncash compensation charge 2,500,000 - 2,500,000
---------- -----------
Balance, December 31, 1995 - - 2,933,333 $2,933 $7,545,040 $2,500,000 $(4,350,270) $ 5,697,703
Net Income (Loss) 55,773 55,773
Noncash compensation credit (694,400) (694,400)
---------- -----------
Balance, September 30, 1996 - - 2,933,333 $2,933 $7,545,040 $1,805,600 $(4,294,497) $ 5,059,076
========= ====== ========== ========== =========== ===========
See accompanying summary of accounting policies
and notes to financial statements.
8
SENIOR TOUR PLAYERS DEVELOPMENT, INC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
Senior Tour Players Development, Inc. ("the Company") was organized as a
Nevada corporation on April 6, 1994 for the purposes of developing,
acquiring, and managing semi-private, private, and public golf courses and
golf practice facilities throughout the United States.
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, The Badlands Golf Club, Inc.
("The Badlands"), which was established during 1995, and is located in Las
Vegas, Nevada. The Company also owns a majority (53.5%) interest in the
Forest Lakes Limited Partnership which owns The Forest Lakes Golf Club in
Sarasota, Florida ("Forest Lakes") and accordingly, the financial
information presented herein includes the assets, liabilities, and revenue
and expense of Forest Lakes. All significant intercompany transactions and
balances have been eliminated in consolidation.
INTERIM FINANCIAL STATEMENTS
The accompanying financial statements have been prepared and presented by
the Company without audit in accordance with generally accepted accounting
principles for interim financial statements and with the instructions to
Form 10QSB. Accordingly, these interim financial statements do not include
all information and footnotes required by generally accepted accounting
principles for complete financial statements. The financial statements
reflect all adjustments and accruals which management considers necessary
for a fair presentation in financial position as of September 30, 1996, and
results of operations for the three and nine month periods ended September
30, 1996 and 1995. The results for the interim periods presented are not
necessarily indicative of results to be expected for any future period.
CASH AND CASH EQUIVALENTS
For the purpose of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
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INVENTORIES
Inventories are stated at the lower of cost or market, and consist of food
& beverage, golf equipment, clothing, and accessories, and course
maintenance inventories consisting of chemicals, fertilizer, and seed.
PROPERTY, EQUIPMENT, AND DEPRECIATION
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
REVENUE
Revenue consists primarily of greens fees, membership dues, golf cart
rental fees, golf course management fees, food, beverage, and pro shop
merchandise sales. Deferred revenues consists of prepaid membership dues
which are recognized ratably over the term of the membership.
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Net income per common and common equivalent share is computed using the
weighted average number of common and common equivalent shares outstanding
during each period in accordance with the treasury stock method. The
weighted average number of common shares does not include the effect of
certain out-of-the-money warrants outstanding as their effect is
antidilutive. Net loss per share is computed using the weighted average
number of common shares outstanding during each period.
2. GOLF COURSE DEVELOPMENT COSTS
CONSTRUCTION IN PROGRESS
During October, 1996 the Company completed construction of the clubhouse
facilities at The Badlands. At September 30, 1996 construction in progress
consisted of construction, design, and other costs incurred in connection
with the construction of the clubhouse and other structures at The Badlands
as well as preliminary design and planning costs incurred in connection
with the Company's planned golf course development project in McKinney,
Texas, and the planned development of an additional nine holes at The
Badlands. These costs will be depreciated over the estimated useful lives
of the assets once the assets are placed in service.
LAND LEASE AGREEMENT - THE BADLANDS
The Badlands is situated on approximately 186 acres of leased land in Las
Vegas, Nevada, which land is leased for a term of 49 years expiring July,
2045. The lease agreement contains four 10-year options to extend the term
of the lease based on certain terms as defined. The lease requires rental
payments of $240,000 per annum, commencing July 1, 1995, with an increase
every three years based on the increase in the Consumer Price Index. The
lease also contains a contingent rental clause requiring the Company to pay
an
10
amount equal to the amount by which 6% of annual gross receipts at The
Badlands exceeds the minimum annual rental of $240,000. The lease also
requires the Company to pay real estate taxes, assessments, and other
charges in connection with the leased land.
LAND LEASE AGREEMENT - THE BADLANDS - DEVELOPMENT OF ADDITIONAL NINE HOLES
During June, 1996 the Company executed an agreement to lease an additional
67 acres abutting The Badlands which land will be used to develop an
additional nine holes. The term of the new lease will be coterminous with
the existing lease, expiring July 2045, with four (4) ten-year extension
options. The annual rental will be the greater of 6% of annual gross
receipts or $120,000, with rentals commencing on the earlier of : (i) the
opening of the additional nine holes to the general public; or (ii)
November 1, 1998. The lease also requires the Company to pay real estate
taxes, assessments, and other charges in connection with the leased
property.
WATER RIGHTS AGREEMENT - NEVADA
The Company has purchased 399 acre-feet of water rights under a water
rights agreement (the "Agreement") for use at The Badlands. The Agreement
requires the Company to pay $13,300 per month commencing on July 1, 1995
and continuing for ten years through July 2005. The obligation under the
water rights agreement has been capitalized in the accompanying
consolidated balance sheet. The capitalized water rights will not be
amortized since the asset has an indefinite and indeterminable life span,
and is transferable by the Company subject to certain restrictions in the
Agreement.
CONSTRUCTION AND TERM LOAN AGREEMENT - THE BADLANDS ORIGINAL 18 HOLES &
CLUBHOUSE
In December, 1995, the Company entered into a $6,700,000 loan agreement. At
the closing, the loan provided the Company with $3,384,000 which was used
to pay off the then outstanding Badlands construction loan, returned
approximately $1,200,000 in cash to the Company, and provided an additional
$1,616,000 to complete construction of the clubhouse and other structures
at The Badlands.
In addition to the $3,384,000 at closing and the $1,616,000 provided for
clubhouse construction, the loan provides for the availability to the
Company of an additional $1,700,000 in "Earnout Advances". The earnout
funds will be made available to the Company over a period of thirty months
following the loan closing so long as certain operating results are
achieved at The Badlands, including minimum debt service coverage ratios,
and other revenue and cash flow criteria, as defined in the loan agreement.
This earnout provision will be eliminated upon the closing of a new
$5,000,000 construction and term loan agreement which is described herein
and which will be used for development of an additional nine holes at The
Badlands.
The loan is subject to a 20-year amortization with the interest rate fixed
at 10.78%. The loan term is five years with a maturity date of December 26,
2000, however the Company may extend the term for an additional five years
upon payment of an extension fee of .5% and assuming the Company meets
certain terms and conditions as defined in the
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agreement. Borrowings are collateralized by a Deed of Trust and a security
interest in substantially all assets of The Badlands. The agreement also
contains certain covenants, including those of a financial nature, which
the Company must meet and maintain.
CONSTRUCTION AND TERM LOAN AGREEMENT - THE BADLANDS - 9-HOLE EXPANSION
During September 1996 the Company accepted a loan commitment in the amount
of $5,000,000 for development of an additional nine holes at The Badlands.
The loan provides for up to $4,000,000 for construction and other indirect
costs associated with the development, and also provides for the
availability of up to $1,000,000 in "Earnout Advances". The earnout funds
will be made available to the Company over a period of thirty months
following the loan closing so long as certain operating results are
achieved, including minimum debt service coverage ratios, and other revenue
and cash flow criteria, as defined in the loan agreement. This $1,000,000
earnout provision will supersede and serve to replace the earnout provision
contained in the existing $6,700,000 construction and term loan agreement
as discussed herein. The term of the new $5,000,000 loan will be five years
with a five-year extension option, and will be amortized over twenty years.
3. LONG TERM DEBT
Long-term debt consists of the following at September 30, 1996:
Mortgage note payable to NationsCredit, secured by The Badlands $4,537,942
Mortgage note payable to Textron Financial, secured by the golf course
at Forest Lakes, interest is at the prime rate plus 2%, principal and
interest of approximately $21,000 due monthly, maturing 1-31-2002 1,996,920
Mortgage note payable to sellers of the clubhouse at Forest Lakes,
interest only payable monthly at 9.25%, with principal due at maturity
on January 7, 2000 1,000,000
Capital lease obligations for FF&E, turf maintenance and other equipment,
principal and interest payments of approximately $14,000 due monthly,
final maturity date of September 30, 1999 513,683
Collateralized note payable, due October 15, 1998, with monthly
principal and interest payments of $1,654, interest at the prime rate
plus 2.0% 35,391
Unsecured revolving line of credit, payable on demand with interest at
the prime rate plus 2.0% 45,000
Note payable to a bank, due February 3, 2000, with monthly principal
payments of $1,000 together with interest at the prime rate plus 2.0% 41,000
Various collateralized notes payable to a bank with monthly principal and
interest payments of $904, with interest rates ranging from 9.0% to 9.25%
and maturity dates from July 1997 to September 1998 11,486
----------
$8,051,672
Less-current portion 298,035
----------
LONG TERM DEBT $7,883,387
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4. STOCKHOLDERS' EQUITY
COMMON STOCK
In November 1994, the Company sold 1,600,000 shares of common stock and
warrants at a price of $5.00 per common share and $.10 per warrant through
an initial public offering. Each warrant entitles the holder to purchase
one share of the Company's common stock at an exercise price of $5.50,
subject to adjustment, at any time until November 16, 1999, at which time
the warrants expire. The warrants can be redeemed by the Company at a price
of $5.10 per warrant on 30 days' written notice, provided the average of
the closing bid prices of the common stock of the Company equals or exceeds
$8.00 for 20 consecutive trading days ending 3 days before the date the
notice of redemption is given.
UNDERWRITER'S WARRANTS
In connection with the Company's initial public offering in November 1994,
the Company issued 160,000 warrants to the underwriter (the "Underwriter's
Warrants"). Each Underwriter's Warrant entitles the Underwriter to purchase
one share of common stock for $7.25 and one warrant for $.15.
OVERALLOTMENT OPTION
In addition to the Underwriter's Warrants, the Company granted an
overallotment option (the "Option") to the Underwriter. The Option entitled
the Underwriter to purchase additional shares of common stock and/or
additional warrants at the public offering price less the underwriting
discounts and commissions, as defined. In December 1994, the Underwriter
exercised its option and purchased 153,200 warrants for $13,351 net of
discounts and commissions.
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of preferred stock with
such designations, voting, and other rights and preferences as may be
determined from time to time by the Board of Directors.
STOCK OPTION PLAN
On June 20, 1994, the Company adopted a Stock Option Plan which provides
for the granting of non-qualified and incentive stock options, as defined
by the Internal Revenue Code, to key employees at prices as determined by
the Compensation Committee of the Board of Directors. Under the plan,
options for a maximum of 350,000 shares of common stock may be granted over
a period not to exceed ten years. As of September 30, 1996, 195,000 options
have been authorized to be granted under this plan.
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MANAGEMENT STOCK OPTIONS
Effective June 20, 1994, the Company entered into employee stock option
agreements with certain officers and key employees granting them options to
acquire up to 1,111,111 shares of the Company's common stock for an
exercise price of $1.00 per share. Under these agreements, each employee's
options vest and become exercisable based on the Company achieving certain
financial benchmarks, as defined in the agreements. During the fourth
quarter of 1995, in accordance with Accounting Principles Board Opinion No.
25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, the Company recorded a
noncash compensation charge for $2,500,000 based on its estimate of the
value related to the probable future vesting of stock options granted to
these individuals. The noncash compensation charge at December 31, 1995 was
calculated based on the market price of the Company's common stock on
December 31, 1995 ($3.25), less the exercise price of $1.00 per share,
multiplied by the number of shares subject to the options (1,111,111). This
amount is subject to further adjustment in future periods through the date
the options vest based on changes in the market price of the Company's
stock.
During the first and second quarter of 1996 the Company recorded noncash
compensation charges of $278,000 and $138,700 respectively. During the
third quarter of 1996 the Company recorded a credit adjustment of
$1,111,100 and reduced the accrued non-cash compensation costs. The
adjustment reflected a change in the market price of the Company's common
stock. Thru September 30, 1996 and subsequent to this credit adjustment,
the Company had accrued $1,805,600 based on the market price of the
Company's Common Stock on September 30, 1996 of $2.625 per share.
5. INCOME TAXES
At December 31, 1995, the Company had a N.O.L. carryforward available for
federal tax purposes of approximately $1,442,000 with expiration dates
beginning in 2009. The Company has provided a valuation allowance equal to
100% of the gross deferred tax asset since it is more likely than not that
the deferred tax asset will not be realized.
6. RELATED PARTY TRANSACTION - LOAN GUARANTY
During July 1996 the Company entered into an agreement with Golftown, Inc.,
a Massachusetts corporation which owns and operates a driving range
facility in Saugus, Massachusetts (the "Project"). The Company has agreed
to guaranty a loan in an amount of $295,000 made to Golftown, in exchange
for a 25% equity interest in the Project. Under the terms of the agreement
with Golftown and its lender, the Company has the opportunity to cure any
default under the loan, and in the event of a default, the Company may
assume day-to-day management of the Project and receive a management fee
for such services in addition to its 25% interest in the Project profits.
In addition, the Company has entered into an agreement for a pledge of
voting rights to a majority of the voting interest of Golftown, which
pledge becomes effective in the event of a default under the loan being
guaranteed by the Company. The President and majority stockholder of
Golftown is Jeffrey Abrams, the son of Stanton V. Abrams, the President and
Chairman of the Board of Directors of Senior Tour Players Development, Inc.
The driving range opened to the general public during August, 1996.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RISK FACTORS AND CAUTIONARY STATEMENTS
- --------------------------------------
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results could differ materially from those
projected, anticipated, or implicit, in the forward-looking statements as a
result of the risk factors set forth below and elsewhere in this report.
The industry in which the Company competes is highly competitive and
capital intensive. The Company's future growth and profitability will be
dependent upon future developments and/or acquisitions of additional golf
courses and golf practice facilties. The number of attractive acquisitions and
development opportunities may be limited and the Company may compete with other
potential buyers whose financial and management resources are substantially
greater than those of the Company. There can be no assurance that the Company
will be successful in developing or acquiring any particular project or that any
projects acquired or developed by the Company will be profitable. Additionally,
the Company will be dependent upon third-party funding in the form of equity
participation and/or debt to finance its development and acquisition of future
golf courses and golf practice facilities. Until funding is obtained for new
golf courses and golf practice facilities, the Company will be unable to proceed
with those projects.
In addition to competing with the Company at the acquisition and
development stage, competitors could also acquire and/or develop golf courses
and/or golf practice facilities in the same market as a Company facility and put
the Company at a competitive disadvantage with respect to pricing and costs of
operation. The Company's revenues will be largely dependent on industry factors
which are beyond its control such as the availability of discretionary income
for golf, a sustained level of popularity for golf, and shifting consumer
preferences.
LIQUIDITY AND CAPITAL RESOURCES.
- --------------------------------
The Company estimates that is has sufficient cash, operating revenues,
working capital and leasing lines of credit, and committed financing, which are
expected to enable the Company to meet its current operating needs, including
the development of an additional nine holes at The Badlands.
At September 30, 1996, the Company had $376,104 in cash and cash
equivalents and the Company had borrowed $4,537,942 under its $6,700,000
construction and permanent loan agreement, the terms of which are summarized
herein and in the notes to the consolidated financial statements included in
Part I of this report. The Company has received a seasonal working capital line
of credit in the amount of $500,000. There were no borrowings under the line as
of September 30, 1996.
It is the Company's practice to lease golf carts under operating leases,
and to lease maintenance equipment, office, and golf equipment under capital
leases at its owned golf facilities. The Company is leasing substantially all of
its turf maintenance equipment and all of the clubhouse FF&E at The Badlands,
and has secured $750,000 in leasing lines of credit for these purposes. As of
September 30, 1996 the Company had $513,683 outstanding under the leasing lines
of credit. The Company has leased its golf cart fleet at The Badlands under an
operating lease.
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PLAN OF OPERATION.
- ------------------
The Company's plan of operation for the next twelve months will involve the
completion of the clubhouse at The Badlands and operation of that golf course;
the planning, design, and commencement of construction of an additional nine
holes at The Badlands; continuing management of New England Country Club in
Bellingham, Massachusetts which the Company operates under a management
contract; completion of due diligence and the planning and design of
construction of the proposed golf course at Stonebridge Ranch in McKinney, Texas
as more fully described herein; fund raising efforts for debt and equity to
finance the proposed new development project in McKinney, Texas; and the
continuing search for opportunities for the acquisition, lease, and development
of golf course and golf practice facilities and golf course management
opportunities throughout the United States, with a particular focus on golf
practice facilities.
Depending on its success in identifying and entering into additional
development, lease, and acquisition opportunities, the Company will seek
additional financing and equity sources to fund potential transactions or
projects. Accordingly, the Company is presently participating in active
discussions concerning additional golf course and practice facility development
and acquisition projects.
Notwithstanding the Company's efforts and plans for new acquisitions and
development, except for the properties described herein, as of the date of this
report, the Company has no binding commitments, agreements, or understandings to
acquire, lease, or develop any additional golf courses or golf practice
facilities; however, additional acquisitions, developments, leases, or
management agreements may be negotiated or entered into at any time.
PROPOSED GOLF COURSE DEVELOPMENT - STONEBRIDGE RANCH - MCKINNEY, TEXAS
During March, 1996 the Company signed a purchase and sale agreement and
related documents with Stonebridge Ranch Development Corporation, a residential
development group of the Mobil Land organization, an affiliate of Mobil
Corporation, for the proposed development of an 18-hole championship golf
facility located within the Stonebridge Ranch Development in McKinney, Texas,
approximately 25 miles north of Dallas.
It was initially projected that course construction would commence in the
Fall of 1996 with an opening targeted for late 1997. However, several issues
have arisen which have delayed the start of construction. The primary reasons
for the delay include the announced sale of the Mobil Land Development
Corporation by Mobil Corporation to Westbrook Partners, LLC, a real estate
investment company. The Stonebridge Ranch Community is owned by Mobile Land
Development. The pending sale has caused delays in the Company's due diligence
undertakings as well as delays in the permitting timetable.
Notwithstanding the Company's desire to do so, the Company's ability to
develop a golf course at Stonebridge Ranch in McKinney, Texas is dependent on a
number of factors, including, but not limited to, the ability of the Company to
raise the necessary joint venture equity and debt to finance the project; the
requirement to receive all necessary approvals and permits for the
16
construction of the golf course and related facilities; and the ability to
negotiate a postponement of the construction start date with Mobil Land
Development.
THE BADLANDS - LAS VEGAS, NEVADA
The construction of the Badlands clubhouse has been completed and the
Company moved into its new facilities during October, 1996. Since opening in
October, 1995 the Company had been operating its pro shop and limited clubhouse
operations from temporary trailers.
During June, 1996 the Company executed an agreement to lease an additional
67 acres abutting The Badlands Golf Club which land will be used to develop an
additional nine holes. The term of the new land lease will be coterminous with
the existing Badlands land lease, namely 50 years expiring July 2045, with four
(4) ten-year extension options. The annual rental will be the greater of 6% of
annual gross receipts or $120,000, with rentals commencing on the earlier to
occur of (i) the opening of the additional nine holes to the general public; or
(ii) November 1, 1998. The lease also requires the Company to pay real estate
taxes, assessments, and other charges in connection with the leased property.
The nine hole expansion is being designed by Johnny Miller Design, Ltd.
with construction scheduled to commence in November to permit an opening by
September, 1997. The Company has received a loan commitment to fund 100% of the
construction costs.
GOLFTOWN DRIVING RANGE - SAUGUS, MASSACHUSETTS
During July 1996, the Company entered into an agreement with Golftown,
Inc., a Massachusetts corporation that owns and operates a driving range
facility in Saugus, Massachusetts, approximately eight miles north of Boston
(the "Project"). The Company has agreed to guaranty a loan in an amount not to
exceed $295,000 made to Golftown, in exchange for a 25% equity interest in the
Project. Under the terms of the agreement with Golftown and its lender, the
Company has the opportunity to cure any default under the loan, and in the event
of a default, the Company may assume day-to-day management of the Project and
receive a management fee for such services, which fee would be in addition to
its 25% interest in the Project profits. In addition, the Company received a
pledge of voting rights to a majority of the voting interests of Golftown, which
pledge becomes effective in the event of a default under the loan being
guaranteed by the Company. The President and majority owner of Golftown is
Jeffrey Abrams, who is the son of Stanton V. Abrams, President and Chairman of
the Board of Directors of Senior Tour Players Development, Inc. The driving
range opened during August, 1996.
RESULTS OF OPERATIONS
- ---------------------
THREE MONTH PERIOD ENDED SEPTEMBER 30, 1996 VS.THREE MONTH PERIOD ENDED
- -----------------------------------------------------------------------
SEPTEMBER 30, 1995
- ------------------
The Company was organized in April, 1994 and generated its initial operating
revenues during the first quarter ended March 31, 1995 when it acquired a 53.5%
interest in the Forest Lakes Golf Club in Sarasota, Florida. The Company was
deemed to be a development stage company as described in FAS-7 "Accounting and
Reporting by Development Stage Enterprises" until the fourth quarter of 1995,
when the Badlands Golf Club, the Company's initial development project, opened
for public play. During the three month period ended September 30, 1995 the
Company's
17
revenues were limited to Forest Lakes operating revenues and management fees
from a management agreement with New England Country Club.
NET REVENUES during the three month period ended September 30, 1996 totalled
$1,035,017 compared to $469,069 during the same period in 1995, an increase of
$565,947. Substantially all of the increase relates to revenues generated at The
Badlands Golf Club during the third quarter of 1996 which posted revenues of
$801,064 versus $0 during the same period in 1995. The revenue increase from the
Badlands was offset by $232,189 which represents revenues received by the
Company during the third quarter of 1995 from operations at Hidden Hills Golf
Club in northern New Jersey while it was in possession of the course for
purposes of conducting due diligence in contemplation of a proposed acquisition.
The Company subsequently withdrew its offer to purchase and vacated the property
during the third quarter of 1995. Revenues during the third quarter of 1996 at
Forest Lakes were down 5.5% or $10,935 compared to the same period in 1995.
Revenues from management fees during the quarter totalled $48,469, an increase
of $8,007 compared with the same period in 1995.
OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES were $1,481,284 for the three
month period ended September 30, 1996 compared to $776,652 for the corresponding
period in 1995, an increase of $704,632 which is primarily attributable to the
opening of The Badlands. Operating expenses at The Badlands during the third
quarter of 1996 totalled $942,243 versus $0 in 1995. During the third quarter of
1996, operating expenses relating to the Hidden Hills Golf Club were $0 versus
$244,872 during the third quarter of 1995.
NONCASH COMPENSATION CREDIT. During the third quarter of 1996 the Company
recorded a noncash credit adjustment of $1,111,100 representing an adjustment to
the accrual initially established in 1995 for the probable future vesting of
stock options granted to executive officers and key employees of the Company.
During 1994 the Company entered into employee stock option agreements with
certain key employees under which such employees have been granted options to
acquire up to 1,111,111 shares of Common Stock of the Company for an exercise
price of $1.00 per share. Under the agreements, the options vest and become
exercisable in the following amounts when and if the Company achieves the
following benchmarks: (i) the Company has, for the year ending December 31, 1996
earnings before interest, taxes, depreciation, and amortization ("EBITDA") of at
least $1,000,000 (50% of the shares subject to the options become immediately
exercisable); and (ii) the Company has, for the year ending December 31, 1997,
EBITDA of at least $1,500,000 (50% of the shares subject to the options become
immediately exercisable). The reserve of $1,805,600 at September 30, 1996
assumes that all of the shares subject to the options vest on the dates
indicated herein.
The calculation by the Company of the $1,805,600 accrual at September 30, 1996
is based on the market price of the Company's Common Stock on September 30, 1996
($2.625), minus the exercise price of $1.00 per share, multiplied by the number
of shares subject to the options (1,111,111). Under current accounting
guidelines, if the EBITDA benchmarks are achieved as called for under the option
agreements, the charge or cost to recognize the vesting of the options will be
calculated by multiplying the number of shares that become exercisable, by the
market price of the Company's Common Stock on the "Measurement Date" minus the
exercise price of $1.00 per share. The "Measurement Date" in the Company's
instance, are the dates on which the benchmarks are, (or may be) achieved,
namely December 31, 1996 and 1997. The amount accrued as of September 30, 1996
is subject to further adjustment, up or down, in future periods through the date
the options vest based on changes in the market price of the Company's stock.
18
INTEREST EXPENSE totalled $231,416 for the third quarter ended September 30,
1996 compared to $89,112 during the quarter ended September 30, 1995. The
increase relates primarily to The Badlands Golf Club. Forest Lakes interest
totalled $81,720 during the third quarter of 1996 compared to $87,021 during the
third quarter of 1995 and represents interest payments on a first mortgage on
the golf course, a separate clubhouse mortgage, and various maintenance
equipment financing agreements. The remaining interest expense of $149,696
during the third quarter of 1996 relates to The Badlands Golf Club and includes
interest on the NationsCredit first mortgage on the golf course, equipment and
FF&E capital leases, and interest on financed water rights.
INTEREST INCOME totalled $5,847 during the third quarter of 1996 compared to
$15,729 during the corresponding period in 1995. Interest income relates
primarily to interest earned on funds invested in U.S. Government agency
obligations and U.S. Treasury bills.
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996 VS. NINE MONTH PERIOD ENDED
- ----------------------------------------------------------------------
SEPTEMBER 30, 1995
- ------------------
NET REVENUES during the nine month period ended September 30, 1996 totalled
$4,106,845 compared to $1,213,138 during 1995, an increase of $2,947,707.
Substantially all of the increase relates to revenues at The Badlands Golf Club
which opened in October 1995 and which totalled $3,183,299 during the nine month
period ended September 30, 1996 versus $0 during the same period in 1995. Forest
Lakes revenues during the nine months ended September 30, 1996 were up 1.5% or
$13,530 compared to the same period in 1995. The revenue increase from the
Badlands and Forest Lakes was offset by $232,189 from revenues received by the
Company during the third quarter of 1995 from operations at Hidden Hills Golf
Club. There were no revenues from Hidden Hills in 1996 as the Company vacated
the property in September, 1995.
OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES were $4,135,746 for the nine
month period ended September 30, 1996 compared to $1,870,526 for the
corresponding period in 1995, an increase of $2,265,220, due primarily to the
opening of The Badlands. Operating expenses at The Badlands during the nine
months ended September 30, 1996 totalled $ 2,508,609 versus $0 in 1995. The
Badlands operating expenses were offset by a decrease in operating expenses at
Forest Lakes and zero expenses at Hidden Hills Golf Club during 1996. Operating
expenses at Hidden Hills Golf Club totalled $244,872 in 1995 versus $0 in 1996,
and operating expenses at Forest Lakes during the nine months ended September
30, 1996 were $723,677, a decrease of $129,180 compared to the same period in
1995. Corporate overhead expenses were up $130,663 or 17% during the nine month
period ended September 30, 1996 compared to the same period during 1995.
NON-CASH COMPENSATION CREDITS totalled ($694,400) during the nine month period
ended September 30, 1996 representing net adjustments to the accrual established
in 1995 for the probable future vesting of stock options granted to executive
officers and key employees of the Company in 1994. Refer to the notes to the
consolidated financial statements included herein for a more detailed
explanation of non-cash compensation charges and credits.
INTEREST EXPENSE totalled $680,502 during the nine month period ended September
30, 1996 compared to $267,478 during 1995, an increase of $413,024 which is
primarily due to the opening of The Badlands. Interest expense relating to The
Badlands Golf Club totalled approximately $433,670 during the nine month period
ended September 30, 1996 versus $0 during the corresponding period in 1995 and
includes interest on the NationsCredit first mortgage on the golf course,
capital leases, and interest on financed water rights.
19
INTEREST INCOME totalled $16,777 during the nine month period ended September
30, 1996 compared to $110,639 during the corresponding period in 1995. Interest
relates primarily to interest earned on funds invested in U.S. Government agency
obligations and U.S. Treasury bills.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not currently involved in any legal proceedings which could have
a material effect on the Company's financial condition.
ITEM 2. CHANGES IN SECURITIES None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
No matter was submitted during the third quarter of the fiscal year covered by
this report to a vote of security holders, whether through the solicitation of
proxies or otherwise.
ITEM 5. OTHER INFORMATION
RISK FACTORS AND CAUTIONARY STATEMENTS
When used in this Form 10QSB and in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases, and in oral
statements made with the approval of an authorized executive officer, the words
or phrases "will likely result", "are expected to", "will continue", "is
anticipated", "estimate", "project", and similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements are subject to certain
risks and uncertainties, including those discussed under the caption "Risk
Factors and Cautionary Statements" at the beginning of Item 2 of this report.
These risks and uncertainties could cause actual results to differ materially
from historical results and those results and events anticipated or projected.
The Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. The Company
also wishes to advise readers that the factors contained in this report could
affect the Company's financial performance and could cause the Company's actual
results and financial position to differ materially from any opinions or
statements expressed with respect to future periods in any current statements.
The Company will NOT undertake and specifically declines any obligation to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
20
PENDING ACQUISITION - LAS VEGAS GOLF CENTER
During November, 1996 the Company entered into an agreement for the acquisition
of a non-controlling ownership interest in the Las Vegas Golf Center, a golf
practice facility presently under construction in Las Vegas, Nevada. The Center
is situated on approximately 42 acres leased from Clark County, Nevada. It is
anticipated that the Company will be responsible for marketing and day-to-day
management of the facility. The first phase of development at the Center is
expected to be completed in December, 1996 and will include a driving range with
130 tee stations on two tiers, a golf school, and a clubhouse containing
approximately 6,500 sq ft. Future development plans for the site are expectd to
include a variety of family entertainment amenities, a 20,000+ sq ft retail golf
store, and food and beverage facilities. The acquisition - expected to close
during December, 1996 - is subject to the execution of a definitive purchase and
sales agreement, approval by the Company's Board of Directors, and certain
municipal approvals.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K None.
SIGNATURES
In accordance with requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
Dated: November 13, 1996 By: /s/ Lawrence P. Butler
--------------------------------
Lawrence P. Butler
Chief Financial Officer