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PLANNING
STRATEGY
DEVELOPMENT
Annual Report 1996
Senior Tour Players
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Development, Inc.
NASDAQ: SRTR
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STRATEGY
LAS VEGAS INTERNATIONAL GOLF CENTER
LAS VEGAS, NEVADA
Open 24 hours a day
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A Senior Tour Players Development and its partners, Lodwrick
S Cook and Paul Fireman acquired the Las Vegas International
Golf Center in December of 1996 from Golf Centers of America,
Inc. Located on the corner of Tropicana and Paradise Road,
adjacent to the McCarran International Airport and minutes
from the Las Vegas Strip, the Las Vegas International Golf
Center is Las Vegas' newest and largest golf practice
facility.
The Golf Center offers 120 tee stations, 39 natural grass tees
and 81 artificial turf tees, 26 of which are on the second
tier. Over 50 of the tees are shaded and equipped with misters
and heaters for comfortable year-round use. The hitting area
is over 300 yards long by 200 yards wide, and features eight
target greens, including a replica of the 17th Island Green at
the TPC Sawgrass, complete with water hazards and sand
bunkers. Additional amenities include a 10,000 sq. ft. putting
FRONT COVER: green and short game practice area, enclosed instructional
18TH HOLE AT rooms equipped with state-of-the-art video analysis, a VIP
THE BADLANDS GOLD lounge, and a 20,000 sq. ft. retail store.
CLUB,
LAS VEGAS, NEVADA The Golf Center is home of the UNLV Rebel Golf Team. A private
lounge, locker room and grass hitting area is available for
the UNLV Rebel Golf Team, which is headed by Coach Dwaine
Knight.
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International Golf Center
DEVELOPMENT
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PRESIDENT'S MESSAGE
Dear Fellow Shareholders:
1996 was a pivotal building and positioning year for Senior Tour Players
Development, and one that brought tangible results from our years of planning
and development. 1996 was the first full operating year for The Badlands, our
flagship championship course in Las Vegas, and the public response was
resounding with over 51,000 rounds of golf. The golf course was selected as Las
Vegas' number one golf course by the readers of Las Vegas' leading newspaper,
the folks who play the most, and know best about Las Vegas golf.
Based on our early success at The Badlands, we are developing an additional nine
holes which are scheduled to open in early September of 1997. We will benefit
financially from our ability to efficiently operate from the existing
club-house, cart storage facility, and maintenance facility, in addition to
realize the economies of scale by having to increase the existing core
management staff. Perhaps the biggest economic advantage of operating 27 holes
is our ability to maximize tee times during the highest demand time, early
mornings and weekends, thereby helping us achieve the highest green fees per
round for the most amount of golf rounds. With 27 holes, our ability to start
players from three different tees at the same time, and permitting two "shotgun"
rounds per day, when daylight and player demand permit, should help us maximize
the facility.
In my message to you last year I reported that we planned to widen our golf
interests by entering the fast growing golf practice facility business - to
include driving ranges and related family entertainment products. We launched
our golf practice center business by expanding our presence in Las Vegas. Over
30 million visitors came to Las Vegas in 1996, and once again, Las Vegas was the
fastest growing city in the U.S. Having a major golf presence in Las Vegas
assisted STPD to gain an ownership opportunity in a golf practice facility that
we believe will become the top golf center in the country. On December 31, 1996,
the Company and Paul Fireman, CEO and Chairman of Reebok International, bought
the interests of movie star, Tom Selleck's family, in the Las Vegas
International Golf Center ("LVIGC"). LVIGC comprises 43 acres of land in central
Las Vegas on the block next to the MGM Grand Hotel, the world's largest hotel.
Our partner in the Las Vegas International Golf Center, Mr. Lodwrick Cook,
Chairman Emeritus of ARCO, was largely responsible for allowing us to enter the
LVIGC, limited liability company, in which Mr. Cook was already a member.
On January 18, 1997, the LVIGC opened with a 25 acre, two-tiered, 120 tee
station driving range, and on April 1, 1997 we opened a 10,000 square foot
putting green, together with a chipping and sand bunker practice area. We
recently hosted a Grand Opening with Chi Chi Rodriguez, Johnny Miller, Bob
Goalby, Tom Selleck, and Governor Miller of Nevada, along with a host of local
business people, officials, lenders, and representatives from McCarran Airport
and the University of Nevada, Las Vegas. The event not only helped cement our
position as an established golf operator in the Las Vegas community, but also
opened the door to expansion of the center. We are about to start construction
of a 20,000 square foot retail golf store at LVIGC which is under lease to Pro
Golf of America, the operator of over 170 retail golf shops throughout the
United States. Pro Golf's emphasis will be on professional customer service and
will offer a wide variety of top name brands in golf equipment. Additional plans
at LVIGC call for family entertainment activities, a restaurant, and other
commercial uses.
On May 6, 1997, the Board of County Commissioners for Clark County (Las Vegas is
in Clark County) authorized the commencement of negotiations with LVIGC for
expanding the scope of the LVIGC lease with the County by adding 30 acres
contiguous to the LVIGC. Current plans call for an 18-hole, par-three golf
course along Tropicana Avenue, adjoining LVIGC to the west. Negotiations with
the county officials have commenced.
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Senior Tour Players
Development, Inc.
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As further evidence of our continuing commitment to significantly expand our
golf practice facility presence in 1997, we are actively pursuing several
exciting development opportunities in Rhode Island, Texas, and the Washington,
D.C. and Baltimore metro areas.
In Rhode Island, we are excited to be able to work with Brad Faxon, currently
one of the PGA TOUR's hottest golfers. The proposed Brad Faxon Golf Center in
Cranston, Rhode Island, located just outside Providence, recently received city
approval and construction could commence this summer. The planned facility is
situated on 50 acres, and will include a state-of-the-art short game practice
area, 50 tee hitting stations, pro shop, miniature golf, batting cages and
other amenities. There is perhaps no one on the PGA TOUR better equipped to
design a short game area than Brad Faxon. For a while, Brad has been ranked #1
in putting on the PGA TOUR. Our relationship with Brad calls for the development
of several Brad Faxon Golf Centers in Rhode Island, Connecticut and
Massachusetts, and we are presently looking for suitable sites.
In Texas, we recently negotiated a ground lease for 21 acres on the north side
of Houston, just minutes from I-45 and The Woodlands, for the proposed
construction and operation of The Woodlands Golf & Family Entertainment Center.
Perhaps our most exciting and ambitious plans for expansion is in the strong
Washington, D.C. and Baltimore metro areas. Management believes that Washington,
D.C. is one of the strongest, and most under served golfing areas in the
country. The Company recently completed the formation of a strategic alliance
with Public Country Clubs, Inc. ("PCC") for the joint development and
ownership of several golf practice centers around the greater Washington, D.C.
and Baltimore metropolitan area. Several of these properties include 9 or
18-hole, par-three or executive golf courses.
The recent extraordinary accomplishments of Tiger Woods, coupled with the
already strong growth of golf participation in the United States has created a
tremendous opportunity for the golf industry. Management believes that the best
way to take advantage of this overwhelming popularity is for the Company to
cultivate and encourage newly emerging segments of the population to learn and
appreciate the game of golf. Youth, women, and minorities in unprecedented
numbers are now turning to golf. Fortune Magazine reported in its May 12, 1997
issue that... "And any doubt that Woods will make golf cool for a new generation
can be eliminated with quick trip to the nearest driving range. 'Kids, kids,
kids and their parents -- that's what all of our distributors are telling me
they're seeing all over the country...'" It is now "cool" to play golf, as it
has been to play basketball, roller-blading, etc. We believe that by providing
state-of-the-art practice facilities, top instructional programs, and the latest
equipment at reasonable prices, we will be positioned to help serve this
heightened popularity in golf.
While meeting the immediate needs of providing new golfers with a comfortable,
non-intimidating atmosphere to learn the game, the Company has not lost sight of
the equally challenging, and rewarding task of creating new, user-friendly and
unique championship golf courses for the legions of existing golfers. To this
end we are pursuing golf course development opportunities in the Southwest,
Washington, D.C. metro area, and New England. These three areas are
geographically diverse and are currently experiencing a strong demand for high
end, daily fee golf courses. We plan to continue to involve some of golf's
greatest names, including Sam Snead, Chi Chi Rodriguez, Johnny Miller, and Brad
Faxon in these endeavors.
We believe the Company is strategically well positioned to take advantage of the
renewed rise in the popularity and interest in golf. From our inception we have
pursued the dual and compatible goals of establishing some of the best public
golf courses, as well as golf practice facilities in country. We intend to
vigorously pursue that endeavor with renewed energy and enthusiasm, and we
are poised and ready to ride the growing wave of golf's incredible future.
Very truly yours,
/s/ Stanton V. Abrams
Stanton V. Abrams
President and CEO
Boston, Massachusetts
May, 1997
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ORGANIZATION -------------------------------------------------------------------
Senior Tour Players Development, Inc. (the "Company") was organized as a Nevada
corporation on April 6, 1994 for the purpose of developing or acquiring and then
operating public, semiprivate, resort and private golf courses and golf practice
facilities throughout the United States. The Company may also acquire interests
in, or participate in the marketing of, golf course residential communities.
On November 16, 1994, the Company completed an initial public offering of
1,600,000 shares of common stock, $.001 par value ("Common Stock") and 1,600,000
redeemable common stock purchase warrants in a firm-commitment underwriting
managed by Dickinson & Co. On December 28, 1994, the underwriter exercised its
over-allotment option for the purchase of an additional 153,200 redeemable
common stock purchase warrants. The offering, including the exercise of the
over-allotment, raised net proceeds of $6,572,249 (gross proceeds of $8,175,320
less underwriting discounts, commissions and other expenses of $1,603,071).
On November 30, 1994, following the Company's initial public offering, the
Company commenced construction of its initial golf course development project,
The Badlands Golf Club located in Las Vegas, Nevada. The course was designed by
Johnny Miller Design, Ltd. in consultation with Chi Chi Rodriguez. The course is
situated in the middle of a mixed use development located approximately ten
miles from the Las Vegas strip at which approximately 1,200 single family
residential units have been built and sold, and an additional 3,000 residential
units, a 1.2 million square foot regional mall and destination resort
hotel-casino are being planned. The Company does not have any economic interest
in this development. The course is located on approximately 186 acres which the
Company has leased from the developer of the residential community. In November
1996, the Company commenced construction of a nine hole addition at The Badlands
which is being developed on approximately 67 acres of land abutting the existing
18 holes and which is being leased from the developer of the residential
community.
PROPERTIES AND RECENT ACTIVITY -------------------------------------------------
FOREST LAKES GOLF CLUB - SARASOTA, FLORIDA
In January 1995, the Company acquired a combined 53.5% interest in Forest Lakes
Limited Partnership which owns and operates Forest Lakes Golf Club, a
semiprivate golfing facility located in Sarasota, Florida ("Forest Lakes"). The
Company's interest comprised a 34% general partnership interest and a 19.5%
limited partnership interest. The general partnership interest was purchased
from Senior Tour Players, Inc. ("STP"), an affiliate of the Company. STP
retained a 1% general partnership interest. In addition to the partnership
interests, the Company purchased, through assignment, a management contract for
the golfing facility from STP for $91,000, which was paid at closing.
On December 17, 1996 the Company consummated the sale of its interest in Forest
Lakes. The sale was structured as a sale of substantially all of the assets of
Forest Lakes Limited Partnership. The buyer was BST Associates, an Illinois
general partnership. The cash contract purchase price was $4,000,000 payable in
full at closing. Broker commissions and closing costs relating to the sale
totaled $172,318 resulting in net sale proceeds to the Partnership of
$3,827,682. Included in the Company's consolidated net income for the year ended
December 31, 1996 is a gain on the sale of Partnership assets of approximately
$439,000. The Company received cash proceeds of approximately $149,500 in
January 1997 against its Partnership investment of $252,438.
Since its acquisition in 1995, the Company has managed the Forest Lakes Golf
Club under a management agreement. Effective December 16, 1996, the Company will
no longer manage the facility, nor have any ownership interests therein.
Under the terms of the Forest Lakes Limited Partnership Agreement, the sale of
all of the Partnership's property and the conversion of all proceeds into cash
requires that the Partnership be dissolved. Accordingly, as General Partner, the
Company has taken steps to dissolve the Partnership and cause a distribution of
all available cash proceeds to the partners.
NEW ENGLAND COUNTRY CLUB - BELLINGHAM, MASSACHUSETTS
In February 1995, the Company entered into an agreement to manage New England
Country Club in Bellingham, Massachusetts which is a championship 18-hole golf
course designed by three-time U.S. Open Champion Hale Irwin. The
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management agreement is for a five year term, and can be terminated on ninety
days' notice by either party. As compensation for the Company's services, the
Company is paid 5.0% of the Club's gross revenues and is also paid a monthly
accounting fee.
THE BADLANDS GOLF CLUB - LAS VEGAS, NEVADA
On October 14, 1995 the Company opened for public play The Badlands Golf Club,
its flagship golf course in Las Vegas, Nevada (the "Badlands"). The Badlands
includes an 18-hole championship golf course, practice range, and 7,500 sq. ft.
clubhouse and related maintenance facilities.
On December 22, 1995, the Company refinanced its $3,000,000 construction and
permanent loan for the Badlands with a $6,700,000 construction and permanent
loan with NationsCredit.
During June, 1996 the Company entered into an agreement to lease an additional
67 acres of land abutting the Badlands for purposes of developing an additional
nine holes at the Badlands. The terms of the lease are substantially the same as
the existing land lease between the parties for the Badlands' original 18 holes,
namely a 50-year lease term with four 10-year extension options. The annual
lease payments for the 67-acre parcel are equal to the greater of 6% of gross
revenues or $120,000 per year. 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.
Construction financing for 100% of the costs of construction is being provided
by a construction and term loan by NationsCredit which the Company closed during
November 1996. Construction commenced in November 1996, and an opening is
anticipated during early September, 1997.
THE LEGENDS GOLF CLUB - STONEBRIDGE RANCH, MCKINNEY, TEXAS
On March 12, 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. During November, 1996, Westerra
Holdings, LLC purchased and succeeded to the interest of Mobil Land in the
Stonebridge Ranch development.
Under the terms of the agreement, land will be conveyed to the Company for total
consideration of ten dollars ($10.00) and the Company, in turn, shall be
responsible for the costs of the design, development, and operation of an
18-hole championship golf course, clubhouse, driving range, and maintenance
facilities. The Company's ownership interest is limited to the golf facilities,
and shall have no direct interest in the residential development which is
planned for the land surrounding the course. The Company has the option to
develop a 27-hole facility, and if the Company elects to develop 27 holes,
additional land will be conveyed to the Company at no additional consideration.
In connection with the design and promotion of the golf course, the Company
intends to utilize the design and marketing services of six senior "Legends" of
golf to design three holes each and participate in the marketing and promotion
of the facility. The Company has entered into agreements with senior pros Sam
Snead, Bob Goalby, Chi Chi Rodriguez, Miller Barber, Orville Moody, and regular
PGA TOUR pro Bruce Lietzke to provide design and promotional services to the
project. Based on the permitting and design process, course construction would
commence during late Summer of 1997, with a course opening anticipated for the
Fall of 1998.
The Company's ability to successfully develop a golf course at Stonebridge Ranch
is dependent on a number of factors, including, but not limited to, the ability
of the Company to raise the necessary capital to finance the course as well as
the requirement to receive all necessary approvals and permits for the
construction of the golf course and related facilities.
GOLFTOWN PRACTICE CENTER - SAUGUS, MASSACHUSETTS
During July 1996, the Company entered into an agreement with Golftown, Inc.,
("Golftown") a Massachusetts corporation that is the majority owner and operator
of a driving range facility located in Saugus, Massachusetts, approximately
eight miles north of Boston (the "Project"). The Company has entered into an
agreement to guaranty a loan in an amount not to exceed $295,000 made to
Golftown by Danvers Savings Bank, 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
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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, the Company has entered into an agreement to receive 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 shareholder 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.
LAS VEGAS INTERNATIONAL GOLF CENTER - LAS VEGAS, NEVADA
On December 31, 1996 the Company consummated the acquisition, and simultaneous
disposition of certain ownership interests in the Las Vegas Golf Center, LLC, a
Delaware limited liability company (the "LLC"), which owns a golf practice
facility located in Las Vegas, Nevada (the "Center"). The Center is situated on
approximately 42 acres of land leased from Clark County, Nevada, located on the
corner of Tropicana and Paradise Roads, directly across the street from the
McCarran International Airport, and approximately one-half mile from Las Vegas
Boulevard (the "Strip"). Twenty-five acres shall be used for a golf driving
range and instruction center, 10,000 sq. ft. putting green, sand bunkers and
chipping area, and a 6,500 sq. ft. clubhouse containing a snack bar area, golf
school administration, and a VIP lounge and locker and meeting area for the UNLV
Rebel golf team.
The Company acquired a 21.5% interest in the LLC from individuals not affiliated
with the Company for an aggregate purchase price of $400,000 cash consideration
and 323,289 shares of the Company's Common Stock, payable to sellers as follows:
Cash Consideration $ 20,000 payable on or before December 15, 1996
$180,000 payable on or before January 15, 1997
$200,000 payable on or before January 15, 1998
Common Stock 161,645 shares due on or before January 15, 1997
161,644 shares due on or before January 15, 1998
In addition to the 21.5% interest described above, the Company also acquired a
48.5% interest in the LLC from individuals not affiliated with the Company for
an aggregate purchase price of $1,532,050 cash consideration and 369,547 shares
of the Company's Common Stock. The Common Stock was issued on February 14, 1997.
All of the shares issued or payable in connection with these transactions are
restricted securities, as defined in Rule 144 promulgated under the Securities
Act of 1933, as amended. The Company has granted the sellers of the interests
the right to demand registration of their Common Stock on a Form S-3
registration statement or similar Form at any time after May 1, 1997. The
Company has agreed to use its best efforts to cause such a registration
statement to become effective as soon as practicable thereafter. The sellers of
the 21.5% interest and 48.5% interest have agreed, pursuant to shareholder
agreements, to vote their Common Stock for the slate of directors proposed by
management of the Company through December 31, 1998 (in case of the 21.5%
interest) or the first to occur of (i) June 30, 1999, or (ii) the date on which
Stanton V. Abrams ceases to serve as the President and Chief Executive Officer
of the Company (in the case of the 48.5% interest).
Immediately after the acquisition of the 48.5% interest, the Company sold a
48.5% interest to Paul Fireman ("Fireman"), an individual investor who
beneficially owns 205,000 shares of the outstanding Common Stock of the Company
as of March 11, 1997, for cash consideration of $2,167,953. The Company also
received a $200,000 consulting fee from Fireman for certain services rendered in
connection with structuring and implementing the transaction, as well as for
arranging certain financing for the LLC. A substantial amount of the cash
received from Fireman financed a significant portion of the total cash
consideration paid by the Company in connection with the Company's acquisition
of its interest in the LLC.
In consideration of 50,000 shares of unregistered Common Stock of the Company
issued to Fireman, the Company received an option to buy back from Fireman a
13.5% interest in the LLC (the "Option"). If the Company exercises the Option on
or before December 31, 1997, the price for a 13.5% LLC interest shall be
$900,000. If the Company exercises the Option after December 31, 1997 but on or
before December 31, 1998, the price for a 13.5% LLC interest shall be
$1,075,000. If the Company exercises the Option after December 31, 1998 but on
or before December 31, 1999, the purchase price for a 13.5% LLC interest shall
be $1,350,000.
The Company has been designated the Managing Member of the LLC, and shall be
responsible for the day-to-day man-
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agement, marketing, and operation of the Center. The Company shall receive a
management fee equal to 5% of gross revenues generated by the LLC, and shall be
reimbursed for certain accounting and out-of-pocket expenses. On May 6, 1997 the
Board of County Commissioners for Clark County gave permission for negotiations
to commence with the LLC for expanding our land lease with the County. Current
plans for the expansion land call for an 18-hole, par-three golf course along
Tropicana Avenue, adjoining the Golf Center to the west. Negotiations have
commenced.
BRAD FAXON GOLF CENTER - CRANSTON, RHODE ISLAND
The Company is presently finalizing the terms of its anticipated participation
in a partnership with PGA TOUR pro Brad Faxon, and other investors, in the
development and operation of a family golf and recreation center in Cranston,
Rhode Island. The proposed complex will encompass 56 acres, the first phase of
which will include a 52-tee driving range, putting green, and 18 hole miniature
golf course. The Company has also agreed to construct two Little League baseball
fields on the site, to be donated to the City of Cranston. Subsequent
development phases are expected to include a second 18 hole miniature golf
course, batting cages, and a domed practice arena. After several public hearings
on the proposed project, on March 24, 1997 the Cranston City Council voted 9-0
to approve the project. Construction is expected to commence during 1997. The
Company hopes to operate several Brad Faxon Golf Centers in partnership with
Brad Faxon in Rhode Island, Massachusetts and Connecticut.
Recently the Company entered into a joint venture agreement with Public Country
Clubs, Inc. for the development, ownership, and operation of several golf
practice centers around the greater Washington, D.C. and Baltimore metropolitan
area. Some of the golf centers will include 9 or 18-hole, par-three or executive
golf courses.
BUSINESS STRATEGY --------------------------------------------------------------
The Company's business strategy is (i) to expand its asset base and grow
revenues by developing or acquiring golf practice facilities in or around
metropolitan areas where golfing demographics are strong and there exists an
under-supply of quality run golf practice facilities; (ii) developing new or
partially completed golf courses at locations, and in geographic regions of the
country, such as Las Vegas, the Southwest, and the mid-Atlantic regions, where
demographic and competitive analyses indicate a substantial demand for more tee
times; (iii) seeking out golf course management opportunities on a limited and
select basis in regions of the country where the Company already has a presence
such as the West, Southwest, and Northeast, or in specific situations where the
Company has an equity interest in the golf course; (iv) using the contacts and
resources of its management team to engage popular touring golf professionals in
the marketing and promotion of the Company's courses and golf practice
facilities; and (v) employing the Company's operational strategies and policies
which include professional staffing, attention to service, aggressive marketing,
tee time management, cost/cash controls, and implementation of effective capital
improvements that can generate a meaningful return on the invested capital. The
Company believes that the development of its flagship golf course in Las Vegas,
Nevada, "The Badlands Golf Club," and the recent acquisition and development of
its flagship golf practice facility, "The Las Vegas International Golf Center",
will enable it to showcase its development, marketing, and management
capabilities to investors, lenders and referral sources of new opportunities.
Management believes that its contacts within the golf industry will provide the
Company with extensive information about acquisition and development
opportunities in both the golf course and golf practice facility area. The
Company intends to draw upon touring professionals, real estate brokers and
developers, golf course vendors, and golf course lenders, among others, to
provide it with information about potential acquisition, development, and
management opportunities.
The Company will target for acquisition or lease existing golf course facilities
which are well-located, public (daily fee), semi-private, resort or private
courses in communities which offer a substantial base of tourists and/or
residents to draw upon. Management will conduct or commission demographic and
competitive analyses of target markets and consider such factors as the number
and proximity of other courses or golf practice facilities in the market, and
fees charged at nearby golf courses, or ancillary services and amenities offered
at other practice facilities; the potential for population growth in the market,
acquisition price, and the projected effect of the Company's business and
marketing strategies on the target course or practice facility. The Company will
also evaluate operating inefficiencies which can be improved and the potential
for capital improvements which may enhance golf course quality and increase
revenues. The Company will also evaluate the potential for new competition from
additional golf practice facilities being developed in areas where the Company
proposes to acquire or develop a golf practice facility.
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In addition to these general criteria, for golf course projects, the Company
will evaluate other specific factors which will vary depending upon whether the
golf course is a daily fee, resort or private course. At a daily fee course, the
Company will review potential marketing options and consider how the number of
rounds played might be increased, what fees can be charged and how increases
might be restricted, the length of any proposed lease and the potential
relationship with a landlord, particularly where a municipality is involved. At
a private country club, the Company will analyze the membership profile, how
membership and dues might be increased, potential relations with members,
whether the members currently have equity ownership, and the extent of any
deferred maintenance costs. In examining geographic markets where the Company's
management has limited experience or knowledge, the Company expects to
commission market feasibility studies to assist in determining the desirability
of a particular site.
After the desirability of a particular acquisition or development opportunity
has been determined, the Company will proceed with structuring the transaction.
The Company intends to structure each to maximize the long-term cash flow
potential of the facility. Traditional purchase money mortgages, seller carry
backs, long term leases, joint ventures and equity offerings are some of the
financing methods the Company may employ.
GOLF COURSE OPERATIONS ---------------------------------------------------------
The operating policies and practices of the Company's golf courses will be
managed, and be subject to continued reevaluation by, the Company's executive
officers.
Day to day operations at each course will be overseen by a general manager who
will be hired for each of the Company's courses. General managers will have
responsibility for golf course operations, including the practice facilities,
pro shop, and food and beverage and banquet facilities. In addition, general
managers will work with superintendents who will have responsibility for the
quality of turf conditions and the maintenance of the course. The Company will
also engage golf professionals and assistants at each of its courses.
GOLF PRACTICE FACILITY OPERATIONS ----------------------------------------------
The operating policies and practices of the Company's golf practice centers will
be managed, and be subject to continued reevaluation by the Company's executive
officers. Day to day operations at each golf practice center will be overseen by
a general manager who will be hired for each of the Company's facilities.
General managers will have responsibility for golf range operations, including
the pro shop and food and beverage facilities. The Company will also engage golf
professionals and assistants at each of its facilities to oversee golf school
operations.
MARKETING ----------------------------------------------------------------------
The Company plans to design, develop, market, and operate its golf courses in a
manner that will offer challenging, affordable play to middle and upper income,
average ability players. The Company will strive to provide the daily fee golfer
with the service a golfer expects to receive at a private course. The Company
plans to design, develop, market, and operate its golf practice centers in a
manner that will offer a state-of-the-art golf practice facility suitable for
golfers of all abilities and interest, and include at some of its facilities,
short game areas, putting greens, grass tees, and individual and group lesson
programs with video analysis available. In addition, at some of its golf
practice centers, the Company may also develop and offer other family
entertainment amenities such as miniature golf, batting cages, food and beverage
facilities, and go-cart tracks. Each of the Company's golf practice centers will
also have a fully stocked retail golf pro shop. Some golf practice centers may
include a 9 or 18 hole par 3, or executive golf course, depending on the size of
the available land parcel and local market characteristics.
MARKET INFORMATION -------------------------------------------------------------
The Company's Common Stock has been traded on the Boston Stock Exchange ("BSE")
under the symbol SEN and on the National Association of Securities Dealers
Automated Quotation System Small-Cap Market (the "NASDAQ Small-Cap
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Market") under the symbol SRTR since November 16, 1994. Prior to that time,
there was no public market for the Company's Common Stock. The table below
presents the range of high and low closing prices for the Company's Common Stock
by quarter since November 16, 1994 (the date of the Company's initial public
offering) through December 31, 1996:
1994 High Low
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Fourth Quarter (Beginning Nov. 16, 1994)............. $5.00 $2.25
1995
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First Quarter........................................ $3.25 $1.8125
Second Quarter....................................... $4.50 $2.00
Third Quarter........................................ $5.50 $3.75
Fourth Quarter....................................... $5.125 $3.00
1996
----
First Quarter........................................ $3.75 $3.00
Second Quarter....................................... $4.6875 $3.125
Third Quarter........................................ $3.75 $2.375
Fourth Quarter....................................... $2.75 $1.9375
DIVIDENDS ----------------------------------------------------------------------
The Company has paid no cash dividends since its inception on April 6, 1994. The
Company currently intends to retain future earnings, if any, to invest in new
development and acquisition opportunities and, therefore, does not anticipate
paying any cash dividends for the foreseeable future. Any future payment of
dividends will be determined by the Company's Board of Directors and will depend
on the Company's financial condition, results of operations and other factors
deemed relevant by its Board of Directors.
ISSUANCE OF COMMON STOCK -------------------------------------------------------
During the year ended December 31, 1996, the Company issued or agreed to issue a
total of 767,836 shares of Common Stock without registration under the
Securities Act of 1933, as amended. All of such shares are "restricted
securities" as defined in Rule 144 under the Securities Act. Of these shares,
742,836 were issued in connection with the Company's acquisition of its interest
in The Las Vegas Golf Center, LLC, and 25,000 were issued under an agreement for
design services being rendered at the Badlands.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
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 and events 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
prac-
6
10
tice facilities. The number of attractive and profitable acquisition and
development opportunities may be limited and the Company may have to compete
with other potential buyers whose financial and human resources may be
substantially larger 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 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 may 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 future revenue may also be significantly 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 believes that is has sufficient cash, bank and leasing lines of
credit, and committed construction financing to meet its current operating
needs, and fund the development of an additional nine holes at The Badlands.
At December 31, 1996, the Company had $1,585,611 in cash and cash equivalents.
On November 15, 1996, The Badlands Golf Club, Inc., a wholly owned corporate
subsidiary of the Company, entered into a loan agreement with NationsCredit, a
NationsBank company, for a construction and permanent loan in the amount of
$5,000,000. At closing, the loan provided the Company with $4,000,000 to fund
the costs of construction of an additional nine holes at the Badlands.
The loan has a fixed rate of interest of 10.95% and is being amortized over
twenty years. The loan has a maturity date of December 1, 2001, however the
Company has the option to extend the loan term for an additional five year term
upon payment of a .5% extension fee, and provided that no event of default
exists; and that during the 12 months immediately preceding the extension
request; (i) there has not occurred a reduction of more than 20% in net cash
flow or a reduction in gross revenues of more than 30% from Badlands operations;
and (ii) the debt service coverage ratio for the Badlands is equal to or greater
than 1.40:1 all as detailed in the loan agreement.
In addition to the $4,000,000 made available at closing, the loan provides for
the availability to the Company of an additional $1,000,000 in "Earnout
Advances". The earnout funds will be made available to the Company over a period
of thirty (30) 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 all as detailed in the loan
agreement.
It is the Company's practice to lease golf carts, turf maintenance equipment,
and other golf equipment at its owned golf facilities. The Compan is leasing
substantially all of its turf maintenance equipment and certain other furniture,
fixtures and equipment at The Badlands Golf Club under leasing lines of credit
from the Golf Capital Division of American Equipment Leasing Company. As of
December 31, 1996 the Company had $544,822 outstanding under these leasing lines
of credit. The Company has leased its golf cart fleet at the Badlands from Club
Car of Augusta, Georgia under an operating lease. See Note 7(a) of the Notes To
Consolidated Financial Statements included in this report.
PLAN OF OPERATION --------------------------------------------------------------
The Company's plan of operation for the next twelve months will include the
completion of construction of an additional nine holes at the Badlands and
ongoing operation of that 27-hole facility; the completion of construction of
the planned improvements and amenities at the Las Vegas International Golf
Center, and the continuing marketing and management of that facility; the
completion of the design and engineering, and the commencement 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 McKinney golf course project; the continuing management of New England
Country Club in Bellingham, Massachusetts which the Company operates under a
management agreement; the completion of the permitting and design process and
the commencement of construction of the proposed Brad Faxon Golf Center in
Cranston, Rhode
7
11
Island; the continuing search for acquisition, lease, and development
opportunities of golf courses and golf practice facilities, as well as
opportunities to manage existing golf course facilities in regions where the
Company already has an established presence, in situations where the Company has
an equity position in the project, and in areas in which the Company has
identified as exceptional growth opportunities, and the pursuit of interests in
the marketing of golf course residential communities.
The Company will seek additional equity and debt sources during the next twelve
months to fund the projects discussed herein as well as other potential
acquisition and development opportunities that may arise.
Notwithstanding the Company's efforts and plans for growth and new acquisitions
and development, except for the properties described herein, as of the date of
this report, the Company has no binding or definitive commitments, agreements,
or understandings to acquire, lease, or develop any additional golf courses or
golf practice facilities or to manage any additional golf course properties;
however, additional acquisition, development, lease, or management agreements
may be negotiated or entered into at any time.
RESULTS OF OPERATIONS ----------------------------------------------------------
The Company was deemed to be a development stage company as described in
Statement of Financial Accounting Standards No. 7, Accounting and Reporting by
Development Stage Enterprises, from its inception on April 6, 1994 until the
fourth quarter of 1995 when The Badlands Golf Club commenced full operations.
Development stage status was appropriate prior to the fourth quarter of 1995
since the Company's operations had generated an insignificant amount of revenue
since the date of inception and the Company had devoted most of its activities
and efforts to establishing the business, raising capital, financial planning,
and employee training.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1995
REVENUES for the year ended December 31, 1996 totaled $6,697,425 compared to
$2,070,305 for the year ended December 31, 1995, an increase of $4,627,120. The
1996 revenues include $1,935,291 in revenues from Forest Lakes operations, of
which $788,946 relate to the sale of all of assets. The Forest Lakes Golf Club
in Sarasota, Florida in which the Company acquired a 53.5% partnership interest
in January, 1995 was sold in December 1996.
The Badlands Golf Club in Las Vegas, Nevada, in its first full year of operation
in 1996, generated revenues of $4,302,370 from just over 51,000 rounds of golf,
compared to $603,496 in 1995 revenues. The Badlands Golf Club opened on October
14, 1995, while the Club's 7,500 sq. ft. clubhouse opened in September, 1996.
The clubhouse includes a full banquet-sized restaurant, pro shop, and full
service lounge with limited gaming.
Corporate revenues in 1996 totaled $414,732 and included management and
accounting fees related to the New England Country Club management agreement
($94,032); and consulting and development fees related to the Las Vegas
International Golf Center ($312,500). During 1995 corporate revenues totaled
$326,833 of which $94,661 related to the New England Country Club management
agreement, and $232,171 were nonrecurring revenues generated from operations at
the Hidden Hills Golf Club in northern New Jersey. Between July and September
1995 the Company was in possession of the Hidden Hills Golf Club for purposes of
conducting due diligence in contemplation of a proposed acquisition. The Company
subsequently withdrew its offer to purchase the golf course and vacated the
facility.
OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES for the year ended December 31,
1996 were $5,752,139 compared to $3,326,932 for the year ended December 31,
1995, an increase of $2,425,207. Badlands operating expenses totaled $3,544,640
during 1996 compared to $772,737 during 1995 when the club was in operation for
just 2 1/2 months. Forest Lakes expenses during 1996 totaled $978,660 compared
to $1,057,573 during 1995. Forest Lakes was sold by the Company on December 16,
1996.
STPD corporate expenses for the year ended December 31, 1996 totaled $1,228,839
compared to $1,496,622 during 1995, a decrease of $267,784. During 1995,
corporate expenses included $233,943 of nonrecurring expenses associated with
the operation of the Hidden Hills Golf Club, and $84,011 incurred in connection
with a proposed development of a golf course in Rhode Island.
8
12
NONCASH COMPENSATION CHARGES AND CREDITS. During the year ended December 31,
1996, the Company recorded a noncash compensation credit of $1,250,000. The
adjustment reflected a decrease in the market price of the Company's common
stock of $1.125 per share from the closing price on December 31, 1995 ($3.25)
compared to the closing price on December 31, 1996 ($2.125). For the year ended
December 31, 1996 the Company also recorded a noncash compensation charge of
$29,688 relating to stock options granted to an executive officer of the Company
during 1996. See Note 5 of Notes to Consolidated Financial Statements.
During 1994 the Company entered into employee stock option agreements with
certain key employees under which such employees were 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 original stock option agreements (the stock option
agreements were amended by the Board of Directors in March 1997 as discussed
below), the options vest and become exercisable in the following amounts when
and if the Company achieved the following benchmarks: (i) the Company had, 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 had, 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 calculation by the Company of the $2,500,000 charge recorded in 1995 was
based on the market price of the Company's Common Stock on December 31, 1995
($3.25), 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, when the EBITDA benchmarks are achieved as called for under the
option agreements, the charge or cost to recognize the vesting of the options is
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 achieved, namely December
31, 1996 and 1997. Consequently, under accounting guidelines, the noncash charge
is subject to adjustment, up or down, through the date the options vest, based
solely on changes in the market price of the Company's Common Stock. The
$1,250,000 credit adjustment as of December 31, 1996 was made due a decrease in
the market price of the Company's Common Stock during 1996. The stock option
accrual at December 31, 1996 of $1,250,000 was calculated based on the market
price of the Company's Common Stock on December 31, 1996 ($2.125), minus the
exercise price of $1.00 per share, multiplied by the number of shares subject to
the options (1,111,111).
At December 31, 1996, 555,555 (representing 50%) of the management stock options
issued in 1994 vested, as the Company achieved the financial benchmarks called
for under the option agreements for the year ended December 31, 1996. On March
19, 1997 a vote was adopted by the two members of the Company's Compensation
Committee, and then ratified by the Board of Directors, to amend the option
agreements in order to delete the "Benchmarks" as described in the option
agreements and in Note 5(f) of the Notes To Consolidated Financial Statements.
The Board voted to accept the option holders' delay of 10% of their vested
option shares and to replace the "Benchmarks" with an extended vesting schedule,
based on continued employment by the Company. Under the revised vesting
schedule, 40% or 444,445 of the options vested as of December 31, 1996, and the
remaining 666,666 options will vest at the rate of 222,222 per year on December
31, 1997, 1998, and 1999. This change will result in no further charges against
(or credits to) earnings related to the management options. At the time these
options are exercised, the proceeds will be credited to the capital accounts.
INTEREST EXPENSE for the year ended December 31, 1996 was $785,607 compared to
$380,170 during 1995. During 1996 interest expense related to Forest Lakes
totaled $313,022 compared to $347,557 in 1995. Forest Lakes was sold on December
16, 1996.
Interest expense relating to the Badlands totaled $472,568 during 1996 compared
to $24,396 in 1995. Badlands interest expense relates to a first mortgage on the
Badlands, an obligation incurred in connection with the purchase of water
rights, and interest on capital leases relating to furniture, fixtures and
equipment, turf maintenance equipment, and other golf equipment utilized at the
Badlands. The Company also incurred, and capitalized approximately $128,000 of
interest relating to construction of the clubhouse. See Note 4 of Notes to
Consolidated Financial Statements.
INTEREST INCOME for the year ended December 31, 1996 was $18,151 compared to
$111,388 in 1995, and relates to interest earned on funds invested in U.S.
Government agency obligations and U.S. Treasury bills.
9
13
- --------------------------------------------------------------------------------
ARTHUR ANDERSEN LLP
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996 AND 1995
TOGETHER WITH AUDITOR'S REPORT
Senior Tour Players
-------------------
Development, Inc.
- --------------------------------------------------------------------------------
14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Senior Tour Players Development, Inc.:
We have audited the accompanying consolidated balance sheets of Senior Tour
Players Development, Inc. (a Nevada corporation) and subsidiary as of December
31, 1996 and 1995, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years then ended. These consolidated
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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Senior Tour Players
Development, Inc. and subsidiary as of December 31, 1996 and 1995, and the
results of its operations and its cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Boston, Massachusetts
March 12, 1997 (except with respect to
the matter discussed in Note 5(f) as to
which the date is March 19, 1997)
F-1
15
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS--DECEMBER 31, 1996 AND 1995
ASSETS
1996 1995
CURRENT ASSETS:
Cash and cash equivalents $ 1,585,611 $ 1,473,384
Interest and other receivables 1,313,151 97,660
Inventories 140,976 79,252
Prepaid expenses and other current assets 59,608 96,221
------------ ------------
Total current assets 3,099,346 1,746,517
------------ ------------
PROPERTY AND EQUIPMENT:
Property and equipment, net of accumulated depreciation (Note 1) 10,373,925 11,026,874
Construction in progress 546,609 682,937
------------ ------------
Property and equipment, net 10,920,534 11.709,811
------------ ------------
RESTRICTED CASH 20,942 12,565
------------ ------------
WATER RIGHTS (Note 3) 1,051,992 1,051,992
------------ ------------
INVESTMENT IN GOLF FACILITIES 1,029,075 -
------------ ------------
OTHER ASSETS 389,956 298,422
------------ ------------
$ 16,511,845 $ 14,819,307
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,032,705 $ 879,600
Current portion of long-term debt 1,711,745 293,290
Current portion of obligation under water rights agreement 77,915 59,825
Deferred revenue 174,928 160,825
------------ ------------
Total current liabilities 2,997,293 1,393,540
------------ ------------
LONG-TERM LIABILITIES:
Obligation under water rights agreement 869,493 947,408
Other long-term liabilities 200,000 -
Long-term debt 5,269,705 6,780,656
M1NORITY INTEREST 349,946 -
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY:
Preferred stock, $. 10 par value-
Authorized--5,000,000 shares
Common stock, $.001 par value-
Authorized--l5,000,000 shares
Issued and outstanding--3,701,169 and 2,933,333 shares
at December 31, 1996 and 1995, respectively (Note 1(j)) 3,701 2,933
Additional paid-in capital 8,962,843 7,545,040
Management stock options 1,250,000 2,500,000
Deferred compensation (89,062) -
Accumulated deficit (3,302,074) (4,350,270)
------------ ------------
Total stockholders' equity 6,825,408 5,697,703
------------ ------------
$ 16,511,845 $ 14,819,307
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
16
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
NET REVENUES $ 6,697,425 $ 2,070,305
COSTS AND EXPENSES:
Operating, general and administrative expenses 5,752,139 3,326,932
Noncash compensation charge (credit) (1,220,312) 2,500,000
----------- -----------
Operating income (loss) 2,165,598 (3,756,627)
INTEREST INCOME 18,151 111,388
INTEREST EXPENSE (785,607) (380,169)
----------- -----------
Income (loss) before minority interest 1,398,142 (4,025,408)
MINORITY INTEREST IN PARTNERSHIP'S NET INCOME (349,946) --
----------- -----------
Net income (loss) $ 1,048,196 $(4,025,408)
=========== ===========
Net income (loss) per common and common equivalent share $ 0.28 $ (1.37)
=========== ===========
Weighted average number of common and common equivalent shares outstanding 3,681,661 2,933,333
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
17
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
AND SUBSIDIARY
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
PREFERRED STOCK COMMON STOCK ADDITIONAL TOTAL
NUMBER $.10 PAR NUMBER $.001 PAR PAID-IN MANAGEMENT DEFERRED ACCUMULATED STOCKHOLDERS'
OF SHARES VALUE OF SHARES VALUE CAPITAL OPTIONS COMPENSATION DEFICIT EQUITY
BALANCE, DECEMBER 31, 1994 - $ - 2,933,333 $2,933 $7,545,040 $ - $ - $ (324,862) $ 7,223,111
Noncash compensation charge - - - - - 2,500,000 - - 2,500,000
Net loss - - - - - - - (4,025,408) (4,025,408)
-- --- --------- ------ ---------- ----------- --------- ----------- -----------
BALANCE, DECEMBER 31, 1995 - - 2,933,333 2,933 7,545,040 2,500,000 - (4,350,270) 5,697,703
Noncash compensation credit - - - - - (1,250,000) - - (1,250,000)
Deferred compensation related
to issuance of stock options - - - - 118,750 - (118,750) - -
Amortization of deferred
compensation - - - - - - 29,688 - 29,688
Issuance of common stock - - 767,836 768 1,299,053 - - - 1,299,821
Net income - - - - - - - 1,048,196 1,048,196
-- --- --------- ------ ---------- ----------- --------- ----------- -----------
BALANCE, DECEMBER 31, 1996 - $ - 3,701,169 $3,701 $8,962,843 $ 1,250,000 $ (89,062) $(3,302,074) $ 6,825,408
== === ========= ====== ========== =========== ========= =========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
18
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,048,196 $(4,025,408)
Adjustments to reconcile net income (loss) to net cash used in operating
activities-
Depreciation and amortization 654,500 513,029
Noncash compensation charge (credit) (1,220,312) 2,500,000
Gain on sale of Forest Lakes Limited Partnership (788,946) --
Minority interest in Parmership's net income 349,946 --
Net proceeds from sale of Forest Lakes Limited Partnership 499,577 --
Gain on sale of fixed assets (6,761) --
Changes in assets and liabilities-
Interest and other receivables (1,215,491) (60,316)
Inventories (77,724) (40,737)
Prepaid expenses and other current assets 36,613 (85,775)
Accounts payable and accrued expenses 92,432 (304,527)
Deferred revenue 153,527 1,241
----------- -----------
Net cash used in operating activities (474,443) (1,502,493)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of short-term investments -- 994,555
Purchases of property and equipment, net (2,250,507) (5,758,395)
Golf course development costs capitalized in construction in progress (546,609) (682,937)
(Increase) decrease in restricted cash (8,377) 4,993,052
Increase in other assets (91,058) (220,177)
Proceeds from sale of fixed assets 47,500 --
Cash paid for partnership interest -- (61,527)
Cash paid for interest in the Las Vegas Golf Center, LLC (1,639,247) --
Proceeds from sale of interest in the Las Vegas Golf Center, LLC 2,167,993 --
----------- -----------
Net cash used in investing activities (2,320,305) (735,429)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 3,221,555 5,614,141
Repayment of long-term debt (314,580) (2,317,380)
----------- -----------
Net cash provided by financing activities 2,906,975 3,296,761
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 112,227 1,058,839
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,473,384 414,545
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,585,611 $ 1,473,384
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
19
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(Continued)
1996 1995
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
Deferred compensation related to issuance of stock options $ 118,750 $ -
=========== =========
Equipment acquired under capital lease $ 25,876 $ 489,939
=========== =========
Common stock issued for services $ 50,000 $ -
=========== =========
Common stock issued for Las Vegas Golf Center, LLC purchase option $ 72,000 $ -
=========== =========
In connection with the acquisition of Forest Lakes Limited Partnership in fiscal
1995 (see Note 2), the following noncash transaction occurred-
Fair value of assets acquired $ - $(252,438)
Issuance of notes payable - 117,213
Deposit applied - 73,698
- ---------
Cash paid for partnership interest $ - $ (61,527)
=========== =========
In connection with the sale of Forest Lakes Limited Partnership in fiscal 1996
(see Note 2), the following noncash transaction occurred-
Book value of assets sold $ 3,038,736 $ -
Payment of Partnership liabilities (3,328,105) -
----------- ---------
Investment (289,369) -
Net proceeds from sale of Forest Lakes Limited Partnership 499,577 -
----------- ---------
Gross gain on sale of Forest Lakes Limited Partnership (788,946) -
Minority interest 349,946 -
----------- ---------
Gain on sale of Forest Lakes Limited Partnership $ (439,000) $ -
=========== =========
In connection with the acquisition of the 21.5% and 48.5% interests in the Las
Vegas Golf Center, LLC in fiscal 1996 (see Note 2), the following noncash
transaction occurred-
Fair value of assets acquired $(3,197,068) $ -
Common stock issued 1,177,821 -
Consideration payable 380,000 -
----------- ---------
Cash paid for interest in the Las Vegas Golf Center, LLC $(1,639,247) $ -
=========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for-
Interest (net of capitalized interest of $128,971 and $55,409, respectively) $ 738,446 $ 380,169
=========== =========
Income taxes $ 456 $ 456
=========== =========
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
20
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Senior Tour Players Development, Inc. and subsidiary (the Company) was
organized as a Nevada corporation on April 6, 1994 for the purposes of
developing, acquiring, and managing semiprivate, private and public
golf courses and golf practice facilities throughout the United States.
The Company also provides golf course management services and marketing
services for golf course residential development projects.
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 in 1995, and is located in
Las Vegas, Nevada. For the period from January 1995 through December
16, 1996 (the ownership period), the Company owned a majority (53.5%)
interest in the Forest Lakes Limited-Partnership (Forest Lakes), which
owned and operated a golf course. Accordingly, the financial
information presented herein includes the revenue and expense of Forest
Lakes during the ownership period, and at December 31, 1995 the
consolidated balance sheet includes the assets and liabilities of
Forest Lakes. The Company sold its interest in Forest Lakes on December
16, 1996 (Note 2(b)). All significant intercompany transactions and
balances have been eliminated in consolidation.
The accompanying consolidated financial statements reflect the
application of certain accounting policies described in this note and
elsewhere in the accompanying notes to consolidated financial
statements.
(a) Management Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles 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.
(b) Concentrations of Risk
Statement of Financial Accounting Standards (SFAS) No. 105,
Disclosure of Information About Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk, requires disclosure of any
significant off-balance-sheet and credit risk concentrations.
The Company has no significant off-balance-sheet concentration
of credit risk, such as foreign exchange contracts, options
contracts or other foreign hedging arrangements.
F-7
21
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Cash and Cash Equivalents
The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to
be cash equivalents.
(d) Inventories
Inventories are stated at the lower of cost or market, and
consist of food and beverage, golf equipment, clothing and
accessories all sold at retail.
(e) 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. Interest costs, during the
construction period, on borrowings used to finance
construction of facilities are included in the cost of the
constructed facilities.
Property, equipment and accumulated depreciation consist of
the following at December 31, 1996 and 1995:
ESTIMATED
USEFUL
1996 1995 LIVES
Land $ - $ 932,335 -
Land improvements 7,308,935 8,149,436 15-40 Years
Buildings 2,632,228 1,179,292 31.5 Years
Golf carts and equipment 527,175 850,488 3-15 Years
Furniture, fixtures and equipment 180,461 173,705 5-7 Years
Office and computer equipment 114,651 69,515 5 Years
Leasehold improvements 12,559 - 3 Years
----------- -----------
10,776,009 11,354,771
Less-Accumulated depreciation 402,084 327,897
----------- -----------
$10,373,925 $11,026,874
=========== ===========
F-8
22
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
(f) Construction in Progress
At December 31, 1995, construction in progress consisted of
costs incurred in connection with the construction of the
clubhouse and other structures at The Badlands. Upon
completion of the clubhouse and other structures during
November 1996, these costs were transferred to property and
equipment and are being depreciated over their estimated
useful lives, as disclosed in Note 1(e). At December 31, 1996,
construction in progress consisted of design, construction,
interest and other costs incurred in connection with the
construction of an additional nine holes at The Badlands, as
well as design, engineering and planning costs incurred in
connection with the Company's planned golf course development
project in McKinney, Texas. These costs will be depreciated
over the estimated useful lives of the assets once the assets
are placed in service.
(g) Other Assets
Other assets consist of the following at December 31, 1996 and
1995:
1996 1995
Deferred debt financing costs, net of accumulated
amortization of $33,043 and $0, respectively $224,036 $165,213
Organization costs, net of accumulated amortization of
$15,353 and $44,687, respectively 18,765 61,747
Las Vegas Gold Center, LLC purchase option 72,000 -
Forest Lakes management contract, net of accumulated
amortization of $45,500 - 45,500
Other 75,155 25,962
-------- --------
$389,956 $298,422
======== ========
Deferred financing costs consist of costs incurred in
connection with the Badlands financing agreements (see Note
3(d)), which are being amortized over the five-year initial
term of the loans. Organization costs at December 31, 1996 and
1995, consist of legal and other costs incurred in connection
with the organization of the Company. These costs are being
amortized using the straight-line method over five years.
Organization costs at December 31, 1995 also include legal and
other costs incurred in connection with the organization of
Forest Lakes. These costs were fully amortized as of December
31, 1996.
F-9
23
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
(h) Net Revenues
Net revenue consists primarily of greens fees, membership dues, golf
cart rental fees, golf course management and development fees, food
and beverage sales and pro shop merchandise sales. Deferred revenues
consist of prepaid membership dues, which are recognized ratably over
the term of the membership.
(i) Net Income (Loss) Per Common and Common Equivalent Share
Net income per common and common equivalent share is computed by
dividing net income by the weighted average number of common and
common equivalent shares outstanding during the year in accordance
with the treasury stock method. The weighted average number of common
equivalent shares does not include the effect of certain
out-of-the-money warrants outstanding as their effect is antidilutive.
Net loss per common share is computed by dividing net loss by the
weighted average number of common shares outstanding during the
period. Common equivalent shares are not included in the calculation
of net loss per common share because their effect would be
antidilutive.
(j) Common Stock
Shares issued and outstanding at December 31, 1996 include 767,836
shares that will be issued as follows:
161,645 February 1997
369,547 February 1997
25,000 February 1997
50,000 June 1997
161,644 January 1998
-------
767,836
=======
These shares have either been paid for or the services related to the
issuance of these shares have been performed as of December 31, 1996.
F-10
24
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
(k) Recently Issued Accounting Standard
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets To Be Disposed Of. This statement deals with
the accounting for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to assets to be held
and used and for long-lived assets and certain identifiable
intangibles to be disposed of.
This statement requires that long-lived assets, including intangibles,
be reviewed for impairment whenever events or changes in
circumstances, such as a change in market value, indicates that the
assets' carrying mount may not be recoverable. In performing the
review for recoverability, if future undiscounted cash flows (without
interest charges) from the use and ultimate dispositions of the assets
are less than its carrying value, an impairment loss is recognized.
Impairment losses are to be measured based on the fair value of the
asset.
The Company's adoption of the statement in 1996 did not have a
material impact on the Company's financial statements.
In March 1997, the FASB issued SFAS No.128, Earnings Per Share, which
is effective for financial statements issued for periods ending after
December 15, 1997; earlier application is not permitted. This
statement requires restatement of all prior-period earnings per share
data presented. The Company has not yet determined the impact of this
statement on the earnings per share data presented.
(2) ACQUISITIONS AND SALES
(a) Purchase of Forest Lakes Partnership Interest
In January 1995, the Company acquired a combined 53.5% interest in
Forest Lakes for $252,438. Forest Lakes owns and operates a
semiprivate golfing facility located in Sarasota, Florida. The
Company's interest comprised a 34% general partnership interest and a
19.5% limited partnership interest. The general partnership interest
was purchased from Senior Tour Players, Inc. (STP), an affiliate of
the Company. STP retained a 1% general partnership interest. In
addition to the partnership interests, the Company purchased, through
assignment, a management contract for the golfing facility from STP
for $91,000, which was paid at closing. The Company has capitalized
the costs of this contract and amortized these costs over the
remaining term of the agreement, which is two years. The Company
subsequently sold its interest in Forest Lakes during December 1996,
as more fully discussed in Note 2(b).
F-11
25
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(2) ACQUISITIONS AND SALES (Continued)
(b) Sale of Forest Lakes Partnership Interest
On December 16, 1996, the Company consummated the sale of Forest
Lakes. The sale was structured as a sale of substantially all of the
assets of Forest Lakes Limited Partnership. The buyer was BST
Associates, an Illinois general partnership. The cash purchase price
was $4,000,000 paid at closing. Broker commissions and direct costs
relating to the sale totaled $172,318 and proceeds allocated to retire
Partnership liabilities totaled $3,328,105, resulting in net sale
proceeds to the Partnership of $499,577.
Under the terms of the Forest Lakes Limited Partnership Agreement, the
sale of all of the Partnership's property and the conversion of all
proceeds into cash requires that the Partnership be dissolved.
Accordingly, as General Parmer, the Company is taking steps to
dissolve the Partnership and cause a distribution of all available
cash proceeds to the partners.
(c) Proposed Golf Course Development--McKinney, Texas
During March 1996, the Company signed a purchase and sale agreement
and related documents 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.
Under the terms of the agreement, land will be conveyed to the Company
for total consideration of ten dollars ($10.00) and the Company, in
turn, shall be responsible for 100% of the costs of the design,
development and operation of an 18-hole championship golf course,
clubhouse, driving range and maintenance facilities. The Company shall
have no direct interest in the residential development, which is
planned for the land surrounding the course.
In connection with the design and promotion of the golf course, the
Company intends to utilize the design and marketing services of six
Legends of golf to design three holes each and participate in the
marketing and promotion of the facility. The Company has entered into
agreements with senior pros Sam Snead, Bob Goalby, Chi Chi Rodriguez,
Miller Barber and Orville Moody, and regular PGA tour pro Bruce
Lietzke to provide promotional services to the project.
F-12
26
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(2) ACQUISITIONS AND SALES (Continued)
(c) Proposed Golf Course Development--McKinney, Texas (Continued)
Contingent on a successful permitting and design process, course
construction is anticipated to commence in the early fall of 1997 with
a course opening in late 1998. The Company's ability to successfully
develop a golf course at Stonebridge Ranch is dependent on a number of
factors, including, but not limited to, the ability of the Company to
raise the necessary capital to finance the course as well as the
requirement to receive all necessary approvals and permits for the
construction of the golf course and related facilities. As of
December 31, 1996, the Company has capitalized $262,195 related to
this development, which is included in construction in process.
(d) Purchase and Sale of Investment in Las Vegas Golf Center, LLC
On December 31, 1996, the Company acquired a 21.5% interest and a
48.5% interest, and subsequently sold the 48.5% interest, in the Las
Vegas Golf Center (the Center), a golf practice facility located in
Las Vegas, Nevada. The Center is situated on approximately 42 acres of
land leased from Clark County, Nevada. The Center is owned by Las
Vegas Golf Center, LLC, a Delaware limited liability company (the
LLC). The Center includes a driving range with approximately 130 tee
stations on two tiers, a golf school teaching area and a 6,500 sq. ft.
clubhouse. The Center opened for business on January 17, 1997.
The Company acquired a 21.5% interest in the LLC from unrelated
individual shareholders of Golf Centers of America, Inc., a California
corporation, for an aggregate purchase price of $400,000 cash
consideration, and 323,289 shares of the Company's common stock, $.001
par value per share (STPD Shares), payable as follows:
Cash Consideration $20,000 payable on or before December 15, 1996
$180,000 payable on or before January 15, 1997
$200,000 payable on or before January 15, 1998
STPD Shares 161,645 shares on or before January 15, 1997
161,644 shares on or before January 15, 1998
As of December 31, 1996, the Company has capitalized $1,029,075
related to this investment, which is included in investment in golf
facilities on the accompanying balance sheet as of December 31, 1996.
F-13
27
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(2) ACQUISITIONS AND SALES (Continued)
(d) Purchase and Sale of Investment in Las Vegas Golf Center, LLC
(Continued)
The Company also acquired an additional 48.5% interest in the LLC from
unrelated individual shareholders of Selleck Properties, Inc., a
California corporation, for an aggregate purchase price of $1,532,050
cash consideration, and 369,547 shares of the Company's common stock,
$.001 par value per share. The common stock was issued in February
1997.
All of the shares issued or payable in connection with these
transactions are restricted securities, as defined in Rule 144
promulgated under the Securities Act of 1933, as amended. Because the
STPD Shares are restricted, the Company obtained an independent
appraisal valuing the STPD Shares at a discount from their traded fair
value at the transaction date. The Company has used a 20% discount in
recording the value of the STPD Shares issued. The Company has granted
the sellers of the interests the right to demand registration of their
common stock on a Form S-3 registration statement or similar form at
any time after May 1, 1997. The Company has agreed to use its best
efforts to cause such a registration statement to become effective as
soon as practicable thereafter. The sellers of the 21.5% interest and
48.5% interest have agreed, pursuant to shareholder agreements, to
vote their common stock for the slate of directors proposed by
management of the Company through December 31, 1998 (in the case of
the 21.5% interest) or the first to occur of (i) June 30, 1999, or
(ii) the date on which Stanton V. Abrams ceases to serve as the
President and Chief Executive Officer of the Company (in the case of
the 48.5% interest).
Immediately following the acquisition of the 48.5% interests, the
Company sold a 48.5% interest in the LLC to Paul Fireman (Fireman), an
individual investor and Company stockholder, for cash consideration of
$2,167,953. In addition, the Company received a $200,000 consulting
fee from Fireman in consideration of certain services rendered in
connection with the structuring and implementation of the transaction,
as well as for arranging certain financing for the LLC. This fee has
been included in revenue in the accompanying consolidated statement of
operations for the year ended December 31, 1996. See Note
8(b)--Related Party Transactions.
In consideration of 50,000 shares of common stock of the Company,
$.001 par value per share, the Company shall have the option to
purchase from Fireman a 13.5% interest in the LLC (the Option). If the
Company exercises the Option on or before December 31, 1997, the price
for a 13.5% LLC interest shall be $900,000. If the Company exercises
the Option after December 31, 1997 but on or before December 31, 1998,
the price for a 13.5% LLC interest shall be $1,075,000. If the Company
exercises the Option after December 31, 1998 but on or before
December 31, 1999, the price for a 13.5% LLC interest shall be
$1,350,000.
F-14
28
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 3l, 1996
(Continued)
(2) ACQUISITIONS AND SALES (Continued)
(d) Purchase and Sale of Investment in Las Vegas Golf Center, LLC
(Continued)
The Company has been designated the Managing Member of the LLC, and
shall be responsible for the day-to-day management, marketing and
operation of the Center. The Company shall receive a management fee
equal to 5% of gross revenues generated by the LLC as compensation
under the terms of the management agreement, and shall also be
reimbursed for certain accounting and out-of-pocket expenses.
(3) GOLF COURSE DEVELOPMENT COSTS
The Company is in the initial construction phase of an additional nine
holes at The Badlands, an 18-hole facility that was completed in
October 1995, and is situated on approximately 186 acres of leased
land. The 9-hole addition under construction at December 31, 1996 is
situated on 67 acres of leased land abutting The Badlands. In
connection with the construction of the additional nine holes and the
ongoing operation of the golf course, the Company has entered into the
following significant contracts and agreements:
(a) Badlands Land Lease Agreement--18 Holes
The Company leases 186 acres of land in Las Vegas, Nevada, for a term
of 50 years, expiring in July 2045. The lease agreement contains four
1 O-year options to extend the term of the lease based on certain
terms, as defined. The lease requires minimum 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 amount equal to the amount by which 6% of annual gross
receipts, as defined, 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. Base rent expense related to the land lease agreement
charged to operations in the year ended December 31, 1996 and 1995
amounted to approximately $240,000 and $120,000, respectively.
(b) Badlands Land Lease Agreements--9 Hole Addition
During June 1996, the Company leased an additional 67 acres abutting
The Badlands, which land is being used to develop an additional nine
holes. The term of the lease will be coterminous with the existing
lease, expiring in July 2045, with four ten-year extension options.
The lease requires minimum rental payments of $120,000 per annum,
commencing on the earlier of (i) the opening of the additional nine
holes to the general public; or (ii) November 1, 1998, with an
increase
F-15
29
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(3) GOLF COURSE DEVELOPMENT COSTS (Continued)
(b) Badlands Land Lease Agreements--9 Hole Addition (Continued)
every three years based on the increase in the Consumer Price Index.
Upon commencement of rental payments under this additional lease,
total contingent rent under both leases will be equal to the amount by
which 6% of annual gross receipts, as defined, at The Badlands exceeds
the minimum annual rental of $360,000. The lease also requires the
Company to pay real estate taxes, assessments and other charges in
connection with the leased property.
Minimum payments required under The Badlands two land lease agreements
are as follows:
18 HOLES 9 HOLES TOTAL
Year ended December 31,
1997 $ 240,000 $ 40,000 $ 280,000
1998 240,000 120,000 360,000
1999 240,000 120,000 360,000
2000 240,000 120,000 360,000
2001 240,000 120,000 360,000
Thereafter 10,440,000 5,220,000 15,660,000
----------- ---------- -----------
Total $11,640,000 $5,740,000 $17,380,000
=========== ========== ===========
(c) Water Rights Agreement
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 sheets. 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.
F-16
30
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(3) GOLF COURSE DEVELOPMENT COSTS (Continued)
(c) Water Rights Agreement (Continued)
As of December 31, 1996, future minimum payments under the water
rights agreement are as follows:
Year ended December 31,
1997 $ 159,600
1998 159,600
1999 159,600
2000 159,600
2001 159,600
Thereafter 558,600
----------
Total obligation under the water rights agreement 1,356,600
Less--Amount representing interest calculated at the
Company's incremental borrowing rate 409,192
----------
Present value of minimum payments 947,408
Less--Current obligation 77,915
----------
Long-term obligation $ 869,493
===========
(d) Construction and Term Loan Agreements
In December 1995, the Company entered into a $6,700,000 loan agreement
(the loan) with NationsCredit. At the closing, the loan provided the
Company with $3,384,000, which was used to (i) pay off the then
outstanding Badlands construction loan; (ii) return approximately
$1,200,000 in cash to the Company; and (iii) provide $1,616,000 to
complete construction of The Badlands clubhouse and other structures.
In November 1996, the loan was modified to run concurrently with the
construction loan discussed below. Under the modification agreement,
the lender has capped the borrowings at approximately $5,000,000. The
loan is subject to a 20-year amortization, which began on December l,
1996 and has a fixed interest rate of 10.78%.
F-17
31
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(3) GOLF COURSE DEVELOPMENT COSTS (Continued)
(d) Construction and Term Loan Agreements (Continued)
In November 1996, the Company entered into a $5,000,000 construction
and permanent loan agreement (the construction loan) with
NationsCredit for development of an additional nine holes at The
Badlands. The construction loan provided for up to $4,000,000 for
construction and other indirect costs associated with the development
of the additional nine holes at The Badlands, 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 at The Badlands are achieved, including minimum debt service
coverage ratios, and other revenue and cash flow criteria, as defined
in the loan agreement. The construction loan is subject to a 20-year
amortization, which began on December 1, 1996 and has a fixed
interest rate of 10.95%.
The loan term for each of the NationsCredit loans is five years with
the remaining principal due at maturity on December 1, 2001; however,
the Company may extend the term of each loan for an additional five
years upon payment of an extension fee of .5% of the outstanding
balance due and assuming the Company meets certain terms and
conditions as defined in the agreements. Borrowings are collateralized
by a Deed of Trust and a security interest in substantially all assets
of The Badlands. Each loan is cross-collateralized and cross-defaulted
with the other.
(4) LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1996 and 1995:
Mortgage note payable to NationsCredit, secured by The Badlands
(see Note 3(d)), interest is at 10.78%, with principal and interest
of approximately $46,400 due monthly, with the balance due at
maturity on December 1, 2001 $4,807,188 $3,384,000
Construction note payable to NationsCredit, secured by The Badlands
(see Note 3(d)), interest is at 10.95%, with principal and interest
of approximately $48,250 due monthly, with the balance due at
maturity on December 1, 2001 205,364 -
F-18
32
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(4) LONG-TERM DEBT (Continued)
1996 1995
Mortgage note payable to Textron Financial, secured by the golf
course at Forest Lakes, interest is at the prime rate (8.5% at
December 31, 1995) plus 2%, principal and interest of approximately
$21,000 due monthly, this note was repaid in 1996 in connection
with the sale of Forest Lakes $ -- $2,015,891
Mortgage note payable to sellers of the clubhouse at Forest Lakes,
interest only payable monthly at 9.25%, this note was
repaid in 1996 in connection with the sale of Forest Lakes -- 1,000,000
Capital lease obligation for tuff maintenance and other equipment,
principal and interest payments of approximately $12,660 due monthly,
final maturity date of September 30, 1999
356,729 461,027
Capital lease obligation for furniture, fixtures and other
equipment, principal and interest payments of approximately
$3,995 due monthly, final maturity date of January 1, 2002 188,093 --
Capital lease obligation for telephone equipment, principal
and interest payments of approximately $595 due monthly,
final maturity date of September 11, 2001 24,318 --
Unsecured notes payable, due to sellers of partnership
interests in Forest Lakes Limited Partnership, interest due at
maturity at 7% on January 5, 1996 -- 72,664
Collateralized note payable, due October 15, 1998, with monthly
principal and interest payments of $1,654, interest at the prime rate
plus 2.75%. This note was repaid in 1996 in connection with the sale
of Forest Lakes -- 46,772
Unsecured revolving line of credit, payable on demand with
interest at the prime rate plus 2.0%. This line was terminated
in 1996 -- 25,000
F-19
33
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(4) LONG-TERM DEBT (Continued)
1996 1995
Unsecured line of credit, payable on demand with interest at
the prime rate (8.25% at December 31, 1996) plus 1.5% $1,399,758 $ --
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%. This note was repaid in 1996 in connection with the sale
of Forest Lakes -- 50,000
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. This
note was repaid in 1996 in connection with the sale of Forest Lakes -- 18,592
---------- ----------
6,981,450 7,073,946
Less--Current portion 1,711,745 293,290
---------- ----------
Total long-term debt $5,269,705 $6,780,656
========== ==========
Future maturities of long-term debt as of December 31, 1996 are as
follows:
NOTES CAPITAL
PAYABLE LEASES TOTAL
1997 $ 1,562,041 $ 149,704 $ 1,711,745
1998 179,277 168,771 348,048
1999 128,304 150,571 278,875
2000 107,243 46,638 153,881
2001 4,435,445 49,494 4,484,939
Thereafter - 3,962 3,962
----------- --------- -----------
Total $ 6,412,310 $ 569,140 $ 6,981,450
=========== ========= ===========
F-20
34
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
AND SUBSIDIARY
NOtES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(5) STOCKHOLDERS' EQUITY
(a) 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 are subject to redemption
by the Company at a redemption 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 preceding the notice of redemption.
During 1996, the Company issued 742,836 shares of common stock in
connection with the purchase and sale of investment in the Las Vegas
Golf Center, LLC discussed in Note 2(d). In addition, the Company issued
25,000 shares to Johnny Miller Design, Ltd. for design services
rendered at The Badlands.
(b) 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.
(c) 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.
(d) 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.
F-21
35
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(5) STOCKHOLDERS' EQUITY (Continued)
(e) Stock Option Plans
On June 20, 1994, the Company adopted the 1994 Employee Stock Option
Plan (the Employee Plan) that provides for the granting of nonqualified
and incentive stock options, as defined by the Internal Revenue Code,
to key employees at prices determined by the Compensation Committee of
the Board of Directors. Under the Employee Plan, options for a maximum
of 350,000 shares of common stock may be granted over a period not to
exceed ten years. At December 31, 1996, 195,000 options have been
granted under this plan. For options granted under the Employee Plan,
95,000 options had an exercise price of $2.1875 per share, the fair
market value on the date of grant and vest in five annual equal
installments beginning in December 1997. The terms of the other 100,000
options issued under the Employee Plan are detailed in Note 5(g).
On November 10, 1996, the Board of Directors of the Company adopted,
subject to shareholder approval, the 1996 Non-Employee Director Stock
Option Plan (the Nonemployee Plan). Under the Nonemployee Plan, options
for a maximum of 200,000 shares of common stock may be granted. On
December 11, 1996, the Compensation Committee granted, subject to
shareholder approval, stock options for the purchase of 40,000 shares
of common stock to four members of the Board of Directors under the
Nonemployee Plan. The options were granted with an exercise price of
$2.1875 per share, the fair market value on the date of grant and
vested immediately.
(f) Stock Option Agreements--Management 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. The options must be
exercised by December 31, 2004.
During the fourth quarter of 1995, in accordance with Accounting
Principles Board (APB) 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).
F-22
36
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(5) STOCKHOLDERS' EQUITY (Continued)
(f) Stock Option Agreements--Management Options (Continued)
During the year ended December 31, 1996, the Company recorded a noncash
compensation credit of $1,250,000. The adjustment reflected a decrease
in the market price of the Company's common stock of $1.125 per share
from the closing price on December 31, 1995 ($3.25) compared to the
closing price on December 31, 1996 ($2.125).
At December 31, 1996, the Company's balance sheet reflected an accrual
of $1,250,000 included in stockholders' equity relating to the
management options. The $1,250,000 balance at December 31, 1996 was
calculated based on the market price of the Company's common stock on
December 31, 1996 ($2.125), less the exercise price of $1.00 per share,
multiplied by the number of shares subject to the options (1,111,111).
At December 31, 1996, 555,555 (representing 50%) of the management
stock options issued in 1994 vested, as the Company achieved the
financial benchmarks called for under the option agreements for the
year ended December 31, 1996. On March 19, 1997, a vote was adopted by
the Company's Compensation Committee, and then ratified by the Board of
Directors, to amend the option agreements in order to delete the
"Benchmarks" as described in the option agreements and in Note 5(f). The
Board voted to accept the optionholders' delay of 10% of their vested
option shares and to replace the "Benchmarks" with an extended vesting
schedule, based on continued employment by the Company. Under the
revised vesting schedule, 40% or 444,445 of the options vested as of
December 31, 1996, and the remaining 666,666 options will vest pro rata
on December 31, 1997, 1998 and 1999. This change will result in no
further charges or credits against earnings related to the management
options. At the time these options are exercised, the proceeds will be
credited to the capital accounts.
F-23
37
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(5) STOCKHOLDERS' EQUITY (Continued)
(f) Stock Option Agreements--Management Options (Continued)
The following is a summary of all stock option activity during the two
years ended December 31, 1996:
WEIGHTED
AVERAGE
NUMBER OPTION OPTION
OF SHARES PRICE PRICE
Outstanding, December 31, 1995 and
1994 1,111,111 $1.00 $ 1.00
Granted 235,000 1.00-2.19 1.68
Exercised - - -
Terminated - - -
--------- ----------- ------
Outstanding, December 31, 1996 1,346,111 $ 1.00-2.19 $ 1.12
========= =========== ======
Exercisable, December 31, 1996 498,731 $ 1.00 $ 1.10
========= =========== ======
In October 1995, the FASB issued SFAS No.123, Accounting for Stock-Based
Compensation, which requires the measurement of the fair value of stock
options or warrants to be included in the statement of income or disclosed
in the notes to the financial statements. The Company has determined that
it will continue to account for stock-based compensation for employees
under APB Opinion No.25 and elect the disclosure only alternative under
SFAS No.123 for options granted in 1996 using the Black-Scholes option
pricing model prescribed by SFAS No.123. Based on the use of the
Black-Scholes option pricing model, options granted in 1996 with an
exercise price of $1.00 had a fair value of $1.76 and options granted in
1996 with an exercise price of $2.1875 had a fair value of $1.49. The
weighted average assumptions are as follows:
1996
Risk-free interest rate 6.2%
Expected dividend yield -
Expected lives 7 Years
Expected volatility 63.5%
F-24
38
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 3l, 1996
(Continued)
(5) STOCKHOLDERS' EQUITY (Continued)
(f) Stock Option Agreements--Management Options (Continued)
Had compensation cost for these plans been determined consistent with
SFAS No. 123, the Company's net income and net income per share would
have been reduced to the following pro forma amounts:
1996
Net income As reported $ 1,048,196
Pro forma 974,284
Net income per share As reported $ .28
Pro forma .26
Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to January l, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in
future years.
(g) Deferred Compensation
Effective December 11, 1996, the Company granted stock options to an
officer of the Company granting options to acquire up to 100,000 shares
of the Company's common stock for an exercise price of $1.00 per share.
Under the stock option agreement, the options vest pro rata over seven
years beginning March 5, 1995.
At December 31, 1996, the Company recorded a charge to deferred
compensation and a corresponding credit to additional paid-in capital
in the amount of $118,750, which represents the difference between the
market price of the Company's common stock on December 11, 1996, the
date of the option grant ($2.1875) and the exercise price of $1.00 per
share, multiplied by the number of shares subject to the option
(100,000). For the year ended December 31, 1996, the Company recorded a
noncash compensation charge of $29,688 with a corresponding reduction
of deferred compensation to reflect the pro rata recognition of expense
for the 21-month period beginning March 1995 and ending December 31,
1996.
F-25
39
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(6) INCOME TAXES
At December 31, 1996, the Company had a net operating loss carryforward
available for federal tax purposes of approximately $1,347,000 with
expiration dates beginning in 2009.
The deferred tax asset consists of the following components at December 31,
1996 and 1995:
1996 1995
Net operating loss carryforwards $ 458,000 $ 490,000
Timing differences 250,000 69,000
--------- ---------
708,000 559,000
Valuation allowance (708,000) (559,000)
--------- ---------
$ - $ -
========= =========
A full valuation allowance has been provided due to the uncertainty
surrounding the realization of the deferred tax asset.
(7) COMMITMENTS AND CONTINGENCIES
The Company has entered into various leases for office space, office and
golf equipment, golf carts and telephone systems all under noncancelable
operating leases that expire at various dates through September 2001. Rent
expense under these leases was approximately $472,000 and $117,000 in 1996
and 1995, respectively. Approximate future minimum lease payments for all
operating leases as of December 31, 1996 are as follows:
1997 $ 178,000
1998 136,000
1999 125,000
2000 74,000
2001 48,000
---------
Total $ 561,000
=========
F-26
40
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(CONTINUED)
(8) RELATED PARTY TRANSACTIONS
(a) Golftown Driving Range
During July 1996, the Company entered into an agreement with Golftown,
Inc. (Golftown), a Massachusetts corporation, which is the owner and
operator of a driving range facility (the Facility) in Saugus,
Massachusetts. 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
Golftown. 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 Facility and receive a management fee for such
services in addition to its 25% interest in Facility 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, Inc. 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. As of December 31, 1996, the Company had written its
investment down to zero to reflect the Company's portion of the loss
incurred by Golftown.
(b) Las Vegas Golf Center, LLC
During December 1996, the Company acquired, and simultaneously sold,
48.5% interest in the Las Vegas Golf Center, LLC (LLC) to Paul Fireman,
a significant shareholder of the Company, who owned 205,000 shares
of the outstanding common stock of the Company at December 31, 1996. In
consideration of 50,000 shares of the common stock of the Company
payable to Mr. Fireman, the Company retained an option to repurchase up
to a maximum 13.5% interest in the LLC (see Note 2(d)). In addition,
the Company entered into a consulting agreement with Mr. Fireman for
services rendered in connection with the structuring and implementation
of the transaction, as well as for arranging certain financing for the
LLC. Included in net revenues of the Company for 1996 is $200,000
related to this consulting agreement.
F-27
41
EXHIBIT 11.1
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
AND SUBSIDIARY
COMPUTATION OF PER SHARE EARNINGS
YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
Weighted average number of shares outstanding:
Common stock 2,937,834 2,933,333
Common equivalent shares resulting from stock options issued
(treasury stock method) 743,827 -
----------- ------------
Total 3,681,661 2,933,333
=========== ============
Net income (loss) $ 1,048,196 $ (4,025,488)
=========== ============
Net income (loss) per common and common equivalent share $ .28 $ (1.37)
=========== ============
42
Senior Tour Players
-------------------
Development, Inc.
- --------------------------------------------------------------------------------
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
43
PLANNING
- --------
[GOLF GREEN GRAPHICS AND BACKGROUND PHOTO]
The Badlands Golf Club now offers "Heligolf" through
Sundance Helicopters, enabling golfers to experience the
excitement of Las Vegas, scenic views of the Red Rock
CORPORATE PROFILE Canyon and a true desert golf experience
-----------------------------------------------------------------------
EXECUTIVE OFFICERS AND TRANSFER AGENT & REGISTRAR
BOARD OF DIRECTORS
AMERICAN STOCK TRANSFER & TRUST
STANTON V. ABRAMS COMPANY
President, Chief Executive Officer 40 Wall Street
Chairman of the Board of Directors New York, NY 10005
Tel: (212) 936-5100
RICHARD B. ROGERS STOCK PROFILE AND ACTIVITY
Senior Vice President, Director
The Company's Common Stock, par value $0.001
MICHAEL J. MELUSKEY per share, has been traded on the Boston Stock
Executive Vice President, Secretary, Exchange ("BSE") under symbol SEN and on the
Treasurer and Director National Association of Securities Dealers Automated
Quotation System Small-Cap Market (the "NASDAQ
LAWRENCE P. BUTLER Small-Cap Market") under the symbol SRTR since
Chief Financial Officer November 16, 1994. Prior to that time, there was
no public market for the Company's Common Stock.
INDEPENDENT DIRECTORS The table below represents the range of high and
low closing prices for the Company's Common Stock
STANLEY BERNSTEIN from the date of the inital public offering through
Chairman of the Board and Chief December 31, 1996:
Executive Officer, The Biltrite Corporation
ROBERT SEELERT High Low
President and Chief Executive Officer 1994 --------------------------------------
Cordiant plc 4th Qtr. $ 5.00 $ 2.25
ARNOLD MULLEN 1995 --------------------------------------
President and CEO 1st Qtr. $ 3.25 $1.8125
PFP Associates, Inc. 2nd Qtr. $ 4.50 $ 2.00
3rd Qtr. $ 5.50 $ 3.75
ALAN L. STANZLER, ESQ. 4th Qtr. $ 5.125 $ 3.00
Davis, Malm & D'Agostine P.C.
1996 --------------------------------------
INDEPENDENT AUDITORS 1st Qtr. $ 3.75 $ 3.00
2nd Qtr. $4.6875 $ 3.125
ARTHUR ANDERSEN LLP 3rd Qtr. $ 3.75 $ 2.375
One International Place 4th Qtr. $ 2.75 $1.9375
Boston, MA 02110-2604
SEC FORM 10-KSB
CORPORATE COUNSEL
A copy of the Company's 1996 Form 10-KSB as filed
Davis, Malm & D'Agostine P.C. with the Securities and Exchange Commission, is
One Boston Place available without charge upon written request to:
Boston, MA 02108
Senior Tour Players Development, Inc.
266 Beacon Street, Boston, MA 02116
Attn: Investor Relations
- ------------------------------------------------------------
ANNUAL MEETING
CORPORATE HEADQUARTERS The annual meeting of shareholders will be
266 Beacon Street held on Friday, June 27, 1997 at 10:00 a.m.
Boston, MA 02116 at the Harvard Club, 324 Massachusetts
Tel: (617) 266-3600 Fax: (617) 266-1343 Avenue, Boston, Massachusetts 02115.
44
[BACK COVER PHOTO]
266 Beacon Street
Boston, MA 02116