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| GTA > SEC Filings for GTA > Form 10-Q on 3-Nov-2009 | All Recent SEC Filings |
3-Nov-2009
Quarterly Report
Overview
Golf Trust of America, Inc. was incorporated in Maryland on November 8, 1996. We had been engaged in a liquidation of our assets pursuant to a plan of liquidation approved by our stockholders. As of November 3, 2009, our only remaining real estate asset is the undeveloped land obtained in the settlement of certain litigation formerly known as the Young complaints. However, as previously announced and described more fully below, we have recently entered in to an Agreement and Plan of Merger with Pernix Therapeutics, Inc. ("Pernix") as a strategic option to maximize stockholder value.
Termination of the Plan of Liquidation
The Board adopted a resolution declaring the termination of the Plan of Liquidation, or the POL, advisable and the Company's stockholders approved such proposal to terminate the POL on November 8, 2007. Therefore, financial statements subsequent to this date are presented under the going concern basis as an operating company rather than under the liquidation basis of accounting.
The Board believes that the termination of the POL affords the Company flexibility in maximizing value for its stockholders. Operating the Company as a going concern outside of the POL allows the Company to pursue alternative business strategies, including a merger, capital stock exchange, asset acquisition or other growth initiative which resulted in the execution of the Agreement and Plan of Merger noted above. The Board was still permitted to pursue the sale of the Company's last golf course asset, Stonehenge (which closed on January 23, 2009 and is discussed in further detail in Note 1 of Item 1 in this Quarterly Report) and/or consider the liquidation of the Company in the event that it is unable to affect a viable alternative, but it would no longer be required to do so by the terms of the POL. Subsequent to the termination of the POL, we had continued to own and operate Stonehenge, which had approximately 880 members, until the closing of the sale of Stonehenge on January 23, 2009. Concurrently, we placed renewed emphasis on initiatives to resume corporate growth in an effort to create value for stockholders. The Board has not limited the types of alternative growth strategies it has considered. Emphasis was placed on areas of our historical expertise, as well as that of our management and board of directors.
On October 6, 2009, we entered into an Agreement and Plan of Merger with Pernix. Under the Agreement, a wholly owned subsidiary of the Company will merge with Pernix and we will issue 41,800,000 shares of our common stock to Pernix's stockholders, representing approximately 84% of the combined company's outstanding common stock on a fully diluted basis. On the closing date of the Agreement, (i) Pernix will become a wholly owned subsidiary of the Company, (ii) the President of Pernix will be appointed President and Chief Executive Officer of the Company and (iii) our Board will be reconstituted, with three Board members selected by Pernix and two of our existing directors will be retained.
The transaction is subject to approval by the Company's stockholders, regulatory approvals and other customary closing conditions. Upon closing, it is anticipated that the combined company will adopt the name Pernix Therapeutics Holdings, Inc. The Company will pursue approval from NYSE Amex for continued listing status, which is a condition to closing.
There can be no assurance that we will successfully close this transaction. We have limited financial and management capacity, are competing with organizations possessing far greater resources, and are subject to specific industry and macro economic factors, many of which may prove outside of our control or sphere of influence.
Discontinued Operations
On January 23, 2009, the Company completed the sale of the business and the related assets of the Country Clubs of Wildewood and Woodcreek Farms, or Stonehenge, representing two private golf courses operating under one club structure located in South Carolina. The sale was made to WCWW Committee, LLC, pursuant to the Purchase and Sale Agreement dated September 26, 2008 (the "Agreement"). The rights of the WCWW Committee, LLC were assigned to The Members Club at Woodcreek and Wildewood, which completed the transaction as Purchaser.
The purchase price received by us from the Purchaser was (a) approximately $4,100,000 in cash subject to certain credits, adjustments and prorations pursuant to the Agreement, (b) the assumption of certain liabilities and
The Company's outstanding balance of $4,100,000 on its revolving credit line with Textron Financial Corporation ("Textron") was paid in full concurrent with the closing of this sale. This loan was collateralized by a security interest in Stonehenge. With the retirement in full of the Textron revolving credit line, the Company has no outstanding corporate indebtedness.
The operations of Stonehenge are accounted for as discontinued operations as of the signing of the purchase and sale agreement on September 26, 2008. The title to Stonehenge was held by Golf Trust of America, L.P., a Delaware limited partnership and the Company's operating partnership.
At September 30, 2009, the Company's only remaining real estate asset is the undeveloped land obtained in the legal settlement of a matter referred to as the Young Complaints (Note 4).
Other Matters
On March 3, 2009, the Company received certification of inadvertent acquisition from Odyssey Value Advisors, LLC, pertaining to Company shares acquired in excess of a threshold described in the Shareholder Rights Agreement of 1999. On March 9, 2009, the Company board of directors, with William Vlahos recused due to his position as general partner of Odyssey, unanimously approved a resolution to accept the certification of inadvertent acquisition from Odyssey. Aforementioned resolution incorporates modification to vesting schedule for stock options originally issued on January 23, 2008, to Mr. Vlahos for service as a member of the board of directors. This modification specifies that said options will vest upon the later to occur of (a) the date on which such vesting would not cause Odyssey to become an Acquiring Person under the Rights Agreement, and (b) the date on which such options would have vested in accordance with the original vesting schedule.
On October 9, 2009, in consideration of the Company's minimal number of employees and the pending merger with Pernix, the Company's Board voted to terminate its 401k plan as an employee benefit.
Stock Repurchase Authorization
On November 11, 2008, the Company's Board of Directors authorized the repurchase of up to $500,000 in shares of the Company's common stock. Stock repurchases under this authorization may be made through open market and privately negotiated transactions at times and in such amounts as management deems appropriate. The timing and actual number of shares repurchased will depend on a variety of factors, including price, cash balances, general business and market conditions, the dilutive effects of share-based incentive plans, alternative investment opportunities and working capital needs. The stock repurchase authorization does not have an expiration date and may be limited or terminated at any time without prior notice. The purchases will be funded from available cash balances and repurchased shares will be returned to the status of authorized but un-issued shares of common stock. No shares have been repurchased under this authorization as of November 3, 2009.
Executive Summary
We reported net losses of approximately $383,000 ($0.05 per basic share) and $675,000 ($0.09 per basic share) for the three months ended September 30, 2009 and 2008, respectively, and net losses of approximately $41,000 ($0.01 per basic share) and $131,000 ($0.02 per basic share) for the nine months ended September 30, 2009 and 2008, respectively.
The net loss for the three months ended September 30, 2009 is primarily due to approximately $402,000 in public company operating costs of the corporate office and costs associated with identifying a merger with Pernix as a viable strategic alternative and executing the related agreement. These costs were offset by interest income of approximately $19,000. The net loss for the three months ended September 30, 2008 is a result of $412,000 in public company operating costs of the corporate office and the net loss from the discontinued operations of Stonehenge of approximately $300,000 offset by interest income of approximately $37,000.
The net loss for the nine months ended September 30, 2009 of approximately $41,000 is primarily due to approximately $1,146,000 in public company operating costs of the corporate office and costs associated with identifying a merger with Pernix as a viable strategic alternative and executing the related agreement and the net loss from the discontinued operations of Stonehenge of approximately $130,000 offset by the gain on the sale of the discontinued operations of Stonehenge of approximately $1,158,000 plus interest income of approximately $77,000.
Results of Operations
For the three months ended September 30, 2009, operating expenses from the
continuing operations of the Company totaled approximately $402,000 consisting
of approximately $1,000 in depreciation expense and $401,000 in operating
expenses of the corporate office. The Corporate office expenses primarily
consisted of approximately (i) $14,000 in tax, audit and accounting consulting
fees, (ii) $103,000 in salary and benefits, (iii) $39,000 in insurance,
(iv) $46,000 in stock option expense (see Note 7 of Item 1 to this Quarterly
Report), (v) $22,000 for shareholder related expenses such as shareholder
transfer agent fees, NYSE AMEX fees, board fees and printing costs for SEC
required reports, (vi) $27,000 in other fees and operating expenses such as rent
and utilities, travel and other miscellaneous operating expenses and (vii)
$150,000 in expenses related to efforts to identify and qualify potential
merger/acquisition candidates including legal, travel, consulting, fairness
opinion fee and other miscellaneous expenses.
For the three months ended September 30, 2008, operating expenses from the continuing operations of the Company totaled approximately $412,000 in operating expenses consisting of approximately $1,000 in depreciation expense and $411,000 in operating expenses of the corporate office. The corporate office expenses primarily consisted of approximately (i) $47,000 in tax, audit and accounting consulting fees, (ii) $100,000 in salary and benefits, (iii) $16,000 in legal fees, (iv) $48,000 in insurance, (v) $37,000 in stock option expense (see Note 7 of Item 1 to this Quarterly Report), (vi) $15,000 for shareholder related expenses such as shareholder transfer agent fees, NYSE AMEX fees, board fees and printing costs for SEC required reports, (vii) $140,000 in settlement fees to resolve certain ligation, (viii) $32,000 in other fees and operating expenses such as rent, utilities, technology support, certain annual taxes and fees and other miscellaneous operating expenses offset by (ix) the reimbursement of taxes paid with the Company's filing of its extension for its corporate income tax return of approximately $24,000.
For the nine months ended September 30, 2009, operating expenses from the
continuing operations of the Company totaled approximately $1,147,000 consisting
of approximately $3,000 in depreciation expense and $1,144,000 in operating
expenses of the corporate office. The Corporate office expenses primarily
consisted of approximately (i) $125,000 in tax, audit and accounting consulting
fees, (ii) $310,000 in salary and benefits, (iii) $47,000 in legal fees,
(iv) $117,000 in insurance, (v) $132,000 in stock option expense (see Note 7 of
Item 1 to this Quarterly Report), (vi) $111,000 for shareholder related expenses
such as shareholder transfer agent fees, NYSE AMEX fees, board fees and printing
costs for SEC required reports, (vii) $84,000 in other fees and operating
expenses such as rent, utilities, technology support, travel and other
miscellaneous operating expenses and (viii) $218,000 in expenses related to
efforts to identify and qualify potential merger/acquisition candidates
including legal, travel, consulting, fairness opinion fee and other
miscellaneous expenses.
For the nine months ended September 30, 2008, operating expenses from the
continuing operations of the Company totaled approximately $1,344,000 in
operating expenses consisting of approximately $2,000 in depreciation expense
and $1,342,000 in operating expenses of the corporate office. The corporate
office expenses primarily consisted of approximately (i) $230,000 in tax, audit
and accounting consulting fees, (ii) $364,000 in salary and benefits,
(iii) $93,000 in legal fees, (iv) $146,000 in insurance, (v) $108,000 in stock
option expense (see Note 7 of Item 1 to this Quarterly Report), (vi) $104,000
for shareholder related expenses such as shareholder transfer agent fees, NYSE
AMEX fees, board fees and printing costs for SEC required reports, (vii)
$183,000 in settlement fees and expenses to resolve certain claims, (viii)
$138,000 in other fees and operating expenses such as rent, utilities,
technology support, travel and other miscellaneous operating expenses offset by
(ix) the reimbursement of taxes paid with the Company's filing of its extension
for its corporate income tax return of approximately $24,000.
The Company had pre-tax net losses of approximately $41,000 and $131,000 for the nine months ended September 30, 2009 and 2008, respectively. Included in deferred income tax assets as of September 30, 2009 and December 31, 2008 are Federal and state operating loss carryforwards of approximately $85 million for both periods. The Company recorded a valuation allowance for these carryforwards. These net operating losses expire at various dates beginning with the 2021 tax year and ending with the 2029 tax year.
While a final determination has yet to occur, the contemplated Pernix transaction may limit the Company's ability to utilize the NOLs.
Liquidity and Capital Resources
At September 30, 2009, our cash balance was approximately $7,012,000. No cash proceeds were retained from the sale of Stonehenge as the purchase price was $4,100,000 and the outstanding balance under our Textron revolving line of credit for which Stonehenge served as collateral was $4,100,000 (see further discussion below). The promissory note that was executed in the settlement of the Young Complaints has scheduled payments as follows: (a) $100,000 principal due and paid on May 31, 2008; (b) approximately $133,000 principal due on January 1, 2009 which was paid December 31, 2008; (c) approximately $133,000 principal due on January 1, 2010; and (d) approximately $134,000 principal due on January 1, 2011. In the event these installments are not received timely, the note provides for an additional installment of approximately $3,377,000 principal, plus interest. Also, the Board continues to assess future plans for the land that we obtained title to in the settlement of the Young Complaints (approximately 117 acres of undeveloped land in Charleston County, South Carolina) which could provide additional liquidity. Due to the current low interest rates, we realize only a nominal amount of interest income on our cash balances at the present time.
We had a $4,200,000 revolving credit line with Textron Financial Corporation ("Textron"), which was scheduled to mature on March 18, 2009. This loan was collateralized by a security interest in Stonehenge. The interest rate was the prime rate in effect on the first business day of the month plus 1.75% per annum paid monthly. This line of credit had an outstanding balance of $4,100,000 that was paid in full concurrent with the closing of the sale. With the retirement in full of the Textron revolving credit line, the Company has no outstanding corporate indebtedness.
We currently intend to pay corporate overhead in 2009 from current cash balances. During 2008, several cost reduction initiatives were implemented at corporate headquarters to reduce operating expenses including reduction of professional fees which have decreased since we are no longer under the plan of liquidation, reduction of Board fees, consolidation of office space, reduction of staff and elimination of certain services. However, the corporate overhead expense for 2009 is impacted by the expenses incurred to seek candidates and perform diligence for an acquisition or other growth initiative and will be further impacted if we are successful in completing the merger with Pernix.
We believe that we possess adequate liquidity and capital resources to conduct our operations. In the event that we are unable to close the merger transaction with Pernix and we pursue an acquisition or other strategic alternative requiring significant capital investment, it is anticipated that funding will be provided by cash on hand, equity issuance, debt issuance, commercial credit facilities or a combination of the aforementioned.
The Board has not limited the types of alternative growth strategies it has considered. Emphasis was placed on areas of our historical expertise, as well as that of our management and board of directors. The contemplated merger with Pernix is a stock exchange and will not require an additional capital investment.
Off Balance Sheet Arrangements
As of September 30, 2009, we have no off balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.
There have not been any material changes from the contractual obligations, contingent liabilities and commitments previously disclosed in our 2008 annual report for fiscal year ended December 31, 2008. Please refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations-Contractual Obligations, Contingent Liabilities and Commitments" in our Form 10-K for the year ended December 31, 2008, filed on March 20, 2009, for a description of our contractual obligations.
Inflation
Inflation has not historically had a significant impact on us. Now that we no longer own any golf course assets, we are subject to the risks that our costs of operations will increase and we will be unable to offset those increases with cost saving measures. However, until we complete the contemplated merger with Pernix or make another acquisition, the impact of inflation should continue to be insignificant.
Seasonality
Now that we have sold Stonehenge, until we complete the contemplated merger with Pernix or make another acquisition, the impact of seasonality should continue to be insignificant.
ITEM 3.
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