Golf Town Income Fund announces Q2 2007 financial results



    
    -  Total sales increased 14.9% over Q2 2006
    -  Comp store sales up 3.6%
    -  EBITDA up 17.2% compared to Q2 2006
    

    MARKHAM, ON, Aug. 13 /CNW/ - Golf Town Income Fund (the Fund TSX -
GLF.UN) today announced the financial results of the second quarter ended
June 30, 2007.
    In the second quarter of fiscal 2007, Golf Town total sales grew to
$94.3 million, an increase of 14.9 per cent over the $82.1 million recorded
for the comparable period in 2006. The growth in sales was attributable to the
addition of new stores and strong same store sales of 3.6%.
    Golf Town's 2007 spring store openings have included new stores in
Dartmouth, Nova Scotia, Boisbriand, Quebec, St. Catharines, Ontario and
Brampton, Ontario. Two more stores in Ottawa and Windsor, Ontario are planned
for later this year.
    Golf Town's EBITDA increased by $2.5 million or 17.2% over the comparable
period in 2006, resulting in EBITDA of $17.0 million for the quarter.
    Said Stephen Bebis, President and Chief Executive Officer, "The golf
season didn't start until late April this year. Despite the slow start, strong
sales in May and June have resulted in another solid quarter for Golf Town.
The golf season continues to be strong into Q3."
    Gross profit increased to $34.0 million in the second quarter, a gain of
14.5 per cent compared to $29.7 million in the second quarter of 2006.
    Said Bebis: "All of the major golf brands have had a good year with new
product introductions. Demand for the new square head technology introduced by
Callaway and Nike is expected to continue to be strong for the rest of the
season and into next year."

    Golf Town was founded in 1998 and is now the largest golf retailer in
Canada with 32 stores across the country. Golf Town Income Fund units are
traded on the Toronto Stock Exchange under the symbol GLF.UN.


    Note to editors:
    Golf Town Financial Statements and MD&A attached


    
    Consolidated Financial Statements

    Golf Town Income Fund
    CONSOLIDATED BALANCE SHEETS
    (UNAUDITED)
    (in thousands of Canadian dollars)

                                                           As at       As at
                                                            June    December
                                                        30, 2007    31, 2006
                                                               $           $
    -------------------------------------------------------------------------
    ASSETS (notes 4 and 5)
    Current
    Cash                                                   2,818       1,801
    Inventory                                             71,197      54,022
    Amounts receivable                                    12,998       9,551
    Income taxes receivable                                    4          39
    Prepaid expenses                                         547         583
    -------------------------------------------------------------------------
    Total current assets                                  87,564      65,996
    Deferred costs, net                                      933         899
    Fixed assets, net                                     22,735      19,696
    Intangible assets, net                                27,699      27,914
    Goodwill                                              71,055      71,055
    -------------------------------------------------------------------------
                                                         209,986     185,560
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND UNITHOLDERS' EQUITY
    Current
    Bank indebtedness (note 4)                            15,021       7,842
    Accounts payable and accrued liabilities              46,540      32,131
    Distributions payable to unitholders (note 6)          1,302       1,250
    Future tax liabilities                                 4,736       2,552
    Current portion of deferred lease inducements          1,121         967
    Current portion of obligations under capital leases      512         651
    -------------------------------------------------------------------------
    Total current liabilities                             69,232      45,393
    Obligations under capital leases                         328         568
    Deferred lease inducements                             6,248       5,353
    Debenture payable (note 5)                            10,000      10,000
    Future tax liabilities                                 8,998       9,021
    -------------------------------------------------------------------------
    Total liabilities                                     94,806      70,335
    -------------------------------------------------------------------------

    Unitholders' equity
    Trust units                                          114,830     114,830
    Trust units held by Long Term Incentive
     Plan (note 8)                                        (1,479)       (450)
    Retained earnings                                      1,829         845
    -------------------------------------------------------------------------
    Total unitholders' equity                            115,180     115,225
    -------------------------------------------------------------------------
                                                         209,986     185,560
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes


    On behalf of the Trustees and the Board:

                    SIGNATURE                         SIGNATURE
                 MICHAEL ROUSSEAU                   STEPHEN BEBIS
                     Trustee                           Trustee



    Golf Town Income Fund
    CONSOLIDATED STATEMENTS OF
    INCOME/COMPREHENSIVE INCOME AND RETAINED EARNINGS
    (UNAUDITED)
    (in thousands of Canadian dollars, except per unit amounts)

                                 For the     For the     For the     For the
                                   three       three         six         six
                                  months      months      months      months
                                   ended       ended       ended       ended
                               30-Jun-07   30-Jun-06   30-Jun-07   30-Jun-06
                                       $           $           $           $
    -------------------------------------------------------------------------

    Sales                         94,257      82,120     126,200     112,138
    Cost of sales                 60,265      52,431      81,846      72,890
    -------------------------------------------------------------------------
    Gross profit                  33,992      29,689      44,354      39,248
    Expenses
    Selling, general and
     administrative               17,038      15,196      29,457      25,738
    -------------------------------------------------------------------------
    Income before amortization,
     interest and taxes           16,954      14,493      14,897      13,510
    Amortization of fixed assets   1,075         965       2,068       1,885
    Amortization of deferred
     financing costs                   -          30           -          59
    Amortization of pre-opening
     costs                           171         115         310         191
    Amortization of intangible
     assets                          108         108         215         215
    Interest on long-term debt       229         249         463         434
    Other interest                   375         248         696         458
    -------------------------------------------------------------------------
    Income before income taxes    14,996      12,778      11,145      10,268
    Provision for (recovery of)
     income taxes - current            -         612           -      (1,156)
    Provision for income taxes
     - future                      4,128       2,111       2,257       2,180
    -------------------------------------------------------------------------
    Net income and comprehensive
     income for the period        10,868      10,055       8,888       9,244
    Retained earnings (deficit),
     beginning of period          (5,133)     (5,341)        845      (1,196)
    Change in accounting
     policy (note 3)                   -           -        (196)          -
    Distributions declared in
     the period                   (3,906)     (3,437)     (7,708)     (6,771)
    -------------------------------------------------------------------------
    Retained earnings, end of
     period                        1,829       1,277       1,829       1,277
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net income per trust unit
    -------------------------------------------------------------------------
      Basic                         0.88        0.81        0.72        0.74
      Diluted                       0.87        0.80        0.71        0.74
    -------------------------------------------------------------------------
    Weighted average number of
     units outstanding
     (in thousands)
    -------------------------------------------------------------------------
      Basic                       12,385      12,451      12,379      12,449
      Diluted                     12,501      12,501      12,501      12,501
    -------------------------------------------------------------------------

    See accompanying notes



    Golf Town Income Fund
    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (UNAUDITED)
    (in thousands of Canadian dollars)

                                 For the     For the     For the     For the
                                   three       three         six         six
                                  months      months      months      months
                                   ended       ended       ended       ended
                               30-Jun-07   30-Jun-06   30-Jun-07   30-Jun-06
                                       $           $           $           $
    -------------------------------------------------------------------------
    OPERATING ACTIVITIES
    Net income for the period     10,868      10,055       8,888       9,244
    Add (deduct) items not
     involving cash
      Amortization of fixed
       assets                      1,075         965       2,068       1,885
      Amortization of deferred
       financing costs                 -          30           -          59
      Amortization of deferred
       pre-opening costs             171         115         310         191
      Amortization of intangible
       assets                        108         108         215         215
      Amortization of deferred
       lease inducements            (272)       (220)       (512)       (423)
      Long term incentive plan
       compensation expense          172          58         344         115
      Loss on disposal of assets     104           -         134           -
      Future income tax provision  4,128       2,111       2,257       2,180
    Receipt of lease inducements   1,561       1,176       1,561       1,865
    Purchase of Fund units held
     in trust by long term
     incentive plan                 (147)          -      (1,373)       (679)
    Changes in non-cash working
     capital balances related
     to operations:
      Amounts receivable          (6,815)     (3,472)     (3,447)     (3,230)
      Inventory                     (442)     (6,680)    (17,175)    (17,057)
      Prepaid expenses                63          46          36        (122)
      Accounts payable and
       accrued liabilities         4,465       9,804      14,409      17,782
      Income taxes payable             0         612          35      (1,156)
    -------------------------------------------------------------------------
    Cash provided by operating
     activities                   15,039      14,708       7,750      10,869
    -------------------------------------------------------------------------
    INVESTING ACTIVITIES
    Deferred pre-opening costs      (404)       (295)       (636)       (637)
    Purchase of fixed assets      (3,255)     (1,744)     (5,241)     (3,382)
    -------------------------------------------------------------------------
    Cash used in investing
     activities                   (3,659)     (2,039)     (5,877)     (4,019)
    -------------------------------------------------------------------------
    FINANCING ACTIVITIES
    Distributions paid to
     unitholders                  (3,906)     (3,437)     (7,656)     (6,719)
    Increase (decrease) in bank
     indebtedness                 (5,704)     (6,857)      7,179       2,932
    Repayment of obligations
     under capital leases           (170)       (176)       (379)       (345)
    -------------------------------------------------------------------------
    Cash used in financing
     activities                   (9,780)    (10,470)       (856)     (4,132)
    -------------------------------------------------------------------------
    Net increase in cash for
     the period                    1,600       2,199       1,017       2,718
    Cash, beginning of period      1,218       2,024       1,801       1,505
    -------------------------------------------------------------------------
    Cash, end of period            2,818       4,223       2,818       4,223
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental cash flow
     information
    -------------------------------------------------------------------------
    Interest paid                    638         485       1,179         874
    Interest received                 23          36          44          46
    Income taxes paid                  -           -           -           -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes



    Notes to Consolidated Financial Statements

    Golf Town Income Fund
    (UNAUDITED)
    (in thousands of Canadian dollars, except per unit amounts)

    1.  NATURE OF THE BUSINESS

    Golf Town Income Fund (the "Fund") is an unincorporated open-ended
    limited purpose trust established under the laws of Ontario pursuant to a
    Declaration of Trust dated October 1, 2004. The Fund remained inactive
    until it acquired all of the shares of Golf Town Canada Inc. on
    November 12, 2004. Effective April 1, 2006, the business of Golf Town
    Canada Inc. was transferred to and carried on through Golf Town Operating
    Limited Partnership (the "Company" or "Golf Town") which is 100% owned by
    Golf Town Canada Inc.

    The Fund operates, within the Canadian marketplace, a retail "big-box"
    chain specializing in golf apparel and equipment. As at June 30, 2007,
    the Company had thirty-two locations open for business.

    The Fund's results for the period from January 1, 2007 to June 30, 2007
    are not necessarily indicative of the results that may be expected for
    the full year due to seasonal variations in sales levels. The Company
    historically experiences a higher level of sales and contribution margins
    during the second and third quarters, while the first and fourth quarters
    experience lower sales and contribution margins due to seasonal shopping
    patterns. Occupancy related expenses, general and administrative
    expenses, term debt interest expense and amortization remain relatively
    steady throughout the year.

    2.  BASIS OF PRESENTATION

    The accompanying unaudited interim consolidated financial statements have
    been prepared by the Fund in accordance with Canadian generally accepted
    accounting principles with respect to the preparation of interim
    financial information. Accordingly, they do not include all the
    information and footnotes as required in the preparation of annual
    financial statements and should be read in conjunction with the
    December 31, 2006 audited consolidated financial statements and notes
    included in the Fund's 2006 Annual Report.

    The preparation of consolidated financial statements in conformity with
    Canadian 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 consolidated financial statements and the reported
    amounts of revenue and expenses during the reporting period. Actual
    results could differ from those estimates.

    These interim consolidated financial statements follow the same
    accounting policies and methods of their application as the December 31,
    2006 audited consolidated financial statements with the exception of the
    adoption of Canadian Institute of Chartered Accountants ("CICA")
    accounting standards Section 3855 "Financial Instruments - Recognition
    and Measurements", Section 3861 "Financial Instruments - Disclosure and
    Presentation", Section 3865 "Hedges" and Section 1530 "Comprehensive
    Income" as noted in Changes in Accounting Policy in note 3 below.

    The Fund currently qualifies as a mutual fund trust for income tax
    purposes. The Fund is required by its Declaration of Trust to distribute
    all of its taxable income to unitholders and is entitled to deduct such
    distributions for income tax purposes.

    On June 12, 2007 the proposed legislation eliminating the deduction of
    distributions from taxable income for certain forms of publicly traded
    income trusts and partnerships that meet the definition of a Specified
    Investment Flow-Through Entity ("SIFT") passed with certain
    modifications. The proposals are not intended to apply to taxation years
    ending prior to 2011 for income trusts that commenced trading prior to
    November 2006.

    This legislation did not have any impact on the Fund since the business
    operations are effectively conducted in a corporate entity and all
    temporary differences that currently reside outside the corporate legal
    entity are expected to reverse prior to 2011.

    3.  CHANGES OF ACCOUNTING POLICY

    Effective January 1, 2007 the Fund adopted the CICA Handbook Section 3855
    "Financial Instruments - Recognition and Measurements", Section 3861
    "Financial Instruments - Disclosure and Presentation", Section 3865
    "Hedges" and Section 1530 "Comprehensive Income". The adoption of the new
    standards resulted in changes in accounting for financial instruments and
    recognition of certain transition adjustments that have been recorded in
    the opening deficit. As provided under these standards, the comparative
    interim consolidated financial statements have not been restated. The
    principal changes in the accounting for financial instruments due to the
    adoption of these accounting standards are described below.

    Section 1530 Comprehensive Income

    This Section describes the reporting and disclosure standards with
    respect to comprehensive income and its components. Comprehensive income
    is composed of net income and other comprehensive income. The components
    of comprehensive income are disclosed in the consolidated statement of
    income (loss), comprehensive income (loss) and retained earnings
    (deficit).

    Section 3855 Financial Instruments - Recognition and Measurement

    This Section sets out the standards for the recognition and measurements
    of financial assets and financial liabilities. Depending on their balance
    sheet classification, fair value or cost-based measures are used. This
    standard also prescribes the basis of presentation of gains and losses on
    financial instruments. Based on financial instrument classification,
    gains and losses on financial instruments are recognized in either net
    income or other comprehensive income.

    All financial assets and liabilities are now accounted for on an
    amortized cost basis, consistent with prior accounting policies, with the
    exception of long-term debt. Prior to the adoption of the new standards,
    costs associated with the acquisition of long-term debt were capitalized
    separately as deferred financing costs on the balance sheet and the
    amortization of these costs was reported as a separate line item in the
    consolidated statements earnings (loss). With the adoption of the new
    standards, transaction costs are now expensed as incurred, and the
    deferred financing costs balance at December 31, 2006 has been recorded
    as a transition adjustment through retained earnings, effective
    January 1, 2007.

    The adoption of these Sections is done retroactively without restatement
    of the consolidated financial statements of prior periods. As at
    January 1, 2007, there is no impact on the consolidated balance sheet of
    measuring derivatives at fair value.

    4.  BANK INDEBTEDNESS

    The Fund has a line of credit of $40,000 expiring November 12, 2009. The
    amount drawn on the line of credit bears interest at the Royal Bank of
    Canada's rate for one month banker's acceptances plus between 175 and 250
    basis points per annum depending on the level of borrowing (effective
    rate at June 30, 2007 - 6.63% (December 2006 - 6.59%)) and is
    collateralized by a general security agreement covering all assets of the
    Fund. The amount available for borrowing under this facility throughout
    the year is determined by inventory levels. At June 30, 2007, the Fund
    had drawn $15,021 on this facility.

    5.  DEBENTURE PAYABLE

    On November 12, 2004, the Fund issued a $10,000 subordinated debenture to
    Roynat Capital Inc. ("Roynat"), a unitholder of the Fund, in order to
    refinance existing subordinated debt and to provide funds for future
    growth. The debenture, which matures on December 15, 2008, has an annual
    interest rate of Roynat's floating base rate plus 3.75% which is paid
    monthly. The effective rate of interest at June 30, 2007 was 8.68%
    (December 2006 - 8.59%). The debenture is collateralized by the assets of
    the Company and is subordinate to the security granted pursuant to the
    Fund's line of credit as described in note 4.

    6.  DISTRIBUTIONS

    The Fund makes regular distributions to unitholders of record as of the
    last business day each month. Distributions to unitholders are calculated
    and recorded on an accrual basis. Distributions for the period ended
    June 30, 2007 are as follows:

                                                                Distribution
    Period        Record Date      Payment Date     Per Unit          Amount
                                                           $               $
    -------------------------------------------------------------------------
    Jan-07          31-Jan-07         15-Feb-07    0.1000000           1,250
    Feb-07          28-Feb-07         15-Mar-07    0.1000000           1,250
    Mar-07          31-Mar-07         15-Apr-07    0.1041667           1,302
    Apr-07          30-Apr-07         15-May-07    0.1041667           1,302
    May-07          31-May-07         15-Jun-07    0.1041667           1,302
    Jun-07          30-Jun-07         15-Jul-07    0.1041667           1,302


    7.  VENDOR REBATES

    In accordance with EIC 144, "Accounting by a customer (including a
    reseller) for certain consideration received from a vendor", vendor
    rebates of $711 have been recognized into income during the period based
    on purchases-to-date and management's best estimate of rebate levels that
    will be achieved through the duration of the contract. The full
    requirements for entitlement to these rebates have not yet been met.

    8.  LONG-TERM INCENTIVE PLAN

    The Fund has adopted a long-term incentive plan ("LTIP") to enhance the
    ability of the Fund to attract, retain and motivate key personnel and
    reward these key employees for significant performance and associated per
    unit cash flow growth. Compensation under the LTIP will be provided to
    eligible employees annually where distributable cash generated by the
    Fund exceeds certain threshold amounts.

    If distributable cash per unit exceeds threshold amounts, a percentage of
    the excess distributable cash (the participation rate) is contributed by
    the Fund into a separate trust (the "LTIP Trust"). The LTIP Trust will
    use the funds to purchase Units in the open market, and such Units will
    vest to the eligible employees over a three-year period.

    The participation rates are as follows:

    Percentage by which distributable cash per Unit
    exceeds the threshold                                 Participation rate
    -------------------------------------------------------------------------
    5% or less                                                           10%
    between 5% and 10%                  15% of any excess between 5% and 10%
    greater than 10%                              20% of any excess over 10%


    For the years ended December 31, 2005 and December 31, 2006, the
    distributable cash per unit of the Fund exceeded the threshold amount.
    Thus, in 2006, the Fund transfered $679 to the LTIP Trust and in 2007,
    the Fund transfered $1,373 to the LTIP Trust under this plan.
    Compensation expense will be recorded in the years in which vesting
    occurs. For the period ended June 30, 2007, $344 (2006 - $114) of
    compensation expense was recorded under the plan.

    In March 2006, the LTIP Trust purchased 56,828 Units of the Fund. The
    first one-third of these units vested to the participants on January 1st,
    2007. In 2007, the LTIP Trust purchased a total of 97,002 Units of the
    Fund, with 87,100 Units purchased in March and 9,902 Units purchased in
    April. At June 30, 2007, the LTIP Trust held 134,890 Units of the Fund.

    9.  UNITHOLDERS' EQUITY

                                                          Three months ended
                                                                   30-Jun-07

                                                          Number      Amount
                                                              No.          $
    -------------------------------------------------------------------------
    Trust units
    Balance, beginning of period                      11,881,380     109,455
    Exchange of LP units for Trust units                 300,208       4,271
    -------------------------------------------------------------------------
                                                      12,181,588     113,726
    -------------------------------------------------------------------------
    Exchangeable LP units                                619,572       5,375
    Exchange of LP units for Trust units                (300,208)     (4,271)
    -------------------------------------------------------------------------
                                                         319,364       1,104
    -------------------------------------------------------------------------
    Balance, end of period                            12,500,952     114,830
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    On April 17, 2007, 300,208 Exchangble LP units were exchanged
    respectively for 300,208 Trust units.

    10. SEGMENTED INFORMATION

    The Company operates in one business segment specializing in the
    retailing of golf apparel and equipment.

    11. SUBSEQUENT EVENT

    On August 10, 2007 the Fund entered into a definitive Transaction
    Agreement (the "Agreement") with OMERS CAPITAL PARTNERS the entity
    responsible for OMERS Administration Corporation's private equity
    investments. Under the terms of the Agreement all of the assets of Golf
    Town Limited Partnership will be acquired for proceeds equal to $17.15
    per outstanding Golf Town Unit on a fully diluted basis. Such proceeds
    are expected to be paid to the Fund's Unitholders by way of redemption
    and/or other distribution in respect of the outstanding Golf Town Income
    Fund Units. Subsequent to the redemption of the Units, the Fund will be
    wound up.

    The completion of the transaction is subject to the approval of Golf
    Town's Unitholders at a special meeting which is expected to be held on
    September 21, 2007. Golf Town has set August 21, 2007 as the record date
    for the special meeting.

    



    Golf Town Income Fund

    Management's Discussion and Analysis of Results and Financial Condition

    As of August 10, 2007

    For the Period Ended June 30, 2007

    This Management's Discussion and Analysis (MD&A) and the accompanying
consolidated financial statements of Golf Town Income Fund (the Fund) provide
an overview of the performance and the results of the Fund for the quarter
ended June 30, 2007.
    The Fund's business is subject to seasonal fluctuations and this review
covers only one quarter of a year. As such, the results presented are not
representative of the annual performance of the Fund.
    All amounts are in Canadian dollars.

    Overview of the Fund

    The Fund holds indirectly through its wholly-owned subsidiary, Golf Town
Limited Partnership, a 97.5% interest in the common shares and the unsecured
subordinated notes issued by the Golf Town Canada Inc., and pays monthly
distributions to unitholders from the interest and other income earned on the
notes and from dividends or return of capital on the common shares. A former
shareholder of the Golf Town Canada Inc. holds a 2.5% interest in Golf Town
Canada Inc. in the form of Exchangeable Class B Limited Partnership Units of
Golf Town Limited Partnership. These Exchangeable Units are exchangeable into
Fund units, on a one for one basis, and have the same rights and conditions as
Fund units, including participation in monthly distributions from the Fund.
Since the date of the initial public offering and subsequent exercise of the
over-allotment option, 839,171 Exchangeable Units have been exchanged for Fund
units.
    Effective April 1, 2006, the business of the Golf Town Canada Inc. was
transferred to and carried on through Golf Town Operating Limited Partnership
which is 100% owned by Golf Town Canada Inc. (collectively, the "Company")
    The Fund currently qualifies as a mutual fund trust for income tax
purposes. The Fund is required by its Declaration of Trust to distribute all
of its taxable income to unitholders and is entitled to deduct such
distributions for income tax purposes.
    On June 12, 2007 the proposed legislation eliminating the deduction of
distributions from taxable income for certain forms of publicly traded income
trusts and partnerships that meet the definition of a Specified Investment
Flow-Through Entity ("SIFT") passed with certain modifications. Amounts
distributed will be taxed at the SIFT rate rather than the full trust tax
rate. The proposals are not intended to apply to taxation years ending prior
to 2011 for income trusts that commenced trading prior to November 2006.
    The implementation of the above legislation did not have any effect on
the Fund due to the fact that the business operations of the Fund are
effectively conducted in a corporate entity and therefore any timing
differences between the estimated accounting and tax basis, otherwise created
by the legislation have been previously accounted for by the Fund and all
temporary differences that currently reside outside the corporate legal entity
are expected to reverse prior to 2011.
    The Fund's units trade on the Toronto Stock Exchange under the symbol
GLF.UN.

    Overview of the Company

    The Company is the largest retailer of golf merchandise in Canada and
believes that it is the third largest in the world. As at June 30, 2007, the
Company operated 32 retail stores in six provinces. Store sizes range from
13,000 to 24,000 square feet and average about 18,000 square feet, excluding
the pro shop at a driving range in Surrey, British Columbia, which is about
2,000 square feet.
    The Company generally opens its new stores in the spring of the year just
prior to the beginning of the golf season in Canada. In April 2007, stores
were opened in St. Catharines, Ontario, Dartmouth, Nova Scotia and Boisbriand,
Quebec. A fourth store was opened in Brampton, Ontario in June 2007.

    New Developments

    On August 10, 2007 the Fund entered into a definitive Transaction
Agreement (the "Agreement") with OMERS CAPITAL PARTNERS the entity responsible
for OMERS Administration Corporation's private equity investments. Under the
terms of the Agreement all of the assets of Golf Town Limited Partnership will
be acquired for proceeds equal to $17.15 per outstanding Golf Town Unit on a
fully diluted basis. Such proceeds are expected to be paid to the Fund's
Unitholders by way of redemption and/or other distribution in respect of the
outstanding Golf Town Income Fund Units. Subsequent to the redemption of the
Units, the Fund will be wound up.

    The completion of the transaction is subject to the approval of Golf
Town's Unitholders at a special meeting which is expected to be held on
September 21, 2007. Golf Town has set August 21, 2007 as the record date for
the special meeting.

    

    Key Performance Drivers

    1.  Strong brand recognition

        The Company has invested significantly to create "top of mind" brand
        awareness through major advertising and promotional campaigns.
        Through a combination of radio, television and print advertising the
        Company has consistently marketed itself as the destination for
        Canadians to shop for all of their golfing needs.

    2.  Superior in-store customer experience

        Golf Town believes it distinguishes itself by creating a superior
        in-store experience for its customers.

        Most stores are located close to residential areas, in high traffic,
        highly visible locations with prominent signage and convenient
        highway access.

        Well-trained sales employees have completed a comprehensive training
        program focused on a low-pressure, informative sales approach. The
        Company's sales associates are not paid on a commission basis, which
        results in the same high quality service to all customers, whether
        they are purchasing a set of clubs or are just looking at the latest
        equipment.

        Customers are ensured a wide selection to choose from at each price
        point through a diverse product offering, including all of the top
        golf brands.

        Finally, we strive to take the worry out of purchasing by offering a
        30-day return policy coupled with a price guarantee.

    3.  Leading market position

        By creating a strong brand, the Company has become the largest
        retailer of golf equipment in Canada. This market position allows us
        to compete effectively through volume purchases, special offers from
        key suppliers and other economies of scale.
    

    Review of Operations

    This MD&A discusses the operating results of the Fund from April 1, 2007
to June 30, 2007 and compares them to operating results of the Fund from
April 1, 2006 to June 30, 2006. It also compares the first six months of the
Fund's operations to June 30, 2007 with the operating results of the Company
for the same period in 2006.
    Total sales increased by $12.2 million or 14.9%, to $94.3 million for the
three months ended June 30, 2007 (2007 quarter) from $82.1 million for the
three months ended June 30, 2006 (2006 quarter). The growth in sales was due
to the addition of two new stores in June of 2006 and four stores opened in
the spring of 2007 resulting in a sales increase of $9.3 million. In the
second quarter of 2007, same-store sales increased by 3.6% or $2.9 million.
Based on our experience in the Canadian golf markets, the golf season in
Canada typically starts in March; however in 2007 unseasonable cold weather
significantly delayed the start of the golf season and resulted in negative
same-store sales levels in the month of April. Strong sales in May and June
have more than compensated for April's sales.
    Total sales increased by $14.1 million or 12.6%, to $126.2 million for
the six months ended June 30, 2007 from $112.1 million for the six months
ended June 30, 2006. The growth in sales was largely due to the addition of
four new stores in the spring of 2006, and four new stores in the spring of
2007 resulting in a sales increase of $11.8 million. Same-store sales growth
of 2.2% or $2.3 million also contributed to the higher level of sales.
    Cost of sales increased by $7.9 million, or 15.1% to $60.3 million in the
2007 quarter compared to $52.4 million in the prior year. This increase was
largely attributable to the growth in sales. Gross profit as a percentage of
sales decreased to 36.10% compared to 36.15% for the same quarter a year ago.
Gross profit increased by $4.3 million or 14.5% to $34.0 million in the second
quarter compared to $29.7 million in the same period last year.
    Cost of sales increased by $8.9 million, or 12.2% to $81.8 million in the
first six months of 2007 compared to $72.9 million in the prior year. This
increase was largely attributable to the growth in sales. Gross profit as a
percentage of sales increased to 35.15% compared to 35.00% for the same period
a year ago. Gross profit increased by $5.2 million or 13.3% to $44.4 million
in the first six months of 2007 compared to $39.2 million in the same period
last year.
    Selling General and Administrative (SG&A) expenses increased by
$1.8 million, or 11.8%, to $17.0 million in the second quarter of 2007
compared to $15.2 million in the prior year. The increase was due to growth of
the business resulting from the addition of two stores in June 2006 and four
stores in the spring of 2007 partially offset by lower bonus accrual in 2007
compared to 2006. Employee compensation, occupancy costs, credit card
processing fees and advertising costs together constituted 91.6% of total SG&A
in the second quarter compared to 92.3% in the prior year.
    SG&A expenses increased by $3.8 million, or 14.8%, to $29.5 million in
the first six months of 2007 compared to $25.7 million in the prior year. The
increase was largely due to the addition of stores in 2006 and 2007. During
the first quarter of 2007, the Fund incurred professional fees and other costs
totaling $577 relating to the review and investigation of a potential
transaction. This potential transaction was abandoned.

    EBITDA

    EBITDA (earnings before interest, taxes, depreciation and amortization)
is not a recognized measure under Canadian generally accepted accounting
principles (GAAP) and may not be comparable to similar measures used by other
companies. The Fund believes that in addition to GAAP measures, EBITDA is a
useful widely accepted financial indicator as it represents a useful measure
for evaluating the performance of the business. Unitholders should be
cautioned, however, that EBITDA should not be construed as an alternative to
net income as determined in accordance with GAAP. The following table
reconciles net income before income taxes to EBITDA:


    
                                 For the     For the     For the     For the
                                   three       three         six         six
                                  months      months      months      months
                                   ended       ended       ended       ended
                                 June 30,    June 30,    June 30,    June 30,
                                    2007        2006        2007        2006
                                       $           $           $           $
                                ---------------------   ---------------------
    Income before income taxes    14,996      12,778      11,145      10,268
    Add:
      Amortization of fixed
       assets                      1,075         965       2,068       1,885
      Amortization of deferred
       financing costs                 -          30           -          59
      Amortization of pre-
       opening costs                 171         115         310         191
      Amortization of intangible
       assets                        108         108         215         215
      Interest on long-term debt     229         249         463         434
      Other interest                 375         248         696         458
                                ---------------------   ---------------------
    EBITDA                        16,954      14,493      14,897      13,510
                                ---------------------   ---------------------
                                ---------------------   ---------------------
    


    EBITDA increased by $2.5 million or 17.2%, to $17.0 million in the second
quarter compared to $14.5 million in the second quarter of 2007. The increase
in EBITDA was attributable to the growth of the Company as discussed above.
    EBITDA increased by $1.4 million or 10.4%, to $14.9 million in the first
six months of 2007 compared to $13.5 million in the first six months of 2006.
The increase in EBITDA was attributable to the growth of the Company as
discussed above and was partially offset by the cost associated with the
abandoned transaction.
    Income before taxes for the quarter ended June 30, 2007 was $15.0 million
compared to an income of $12.8 million in the same quarter last year.

    Long Term Incentive Plan

    In March 2006, a trust (the "LTIP Trust") was formed to hold Units of the
Fund on behalf of the participants of the Fund's long-term incentive plan (the
"LTIP"). The Fund is neither a trustee nor a direct participant of the LTIP;
however, under certain circumstances it may be the beneficiary of forfeited
Units held by the LTIP Trust. Consequently, the LTIP Trust is considered a
variable interest entity for accounting purposes and the Fund will consolidate
the LTIP Trust. With respect to each grant under the LTIP Plan, one-third of
the Units held by the LTIP Trust will vest to the participants of the LTIP in
each year over a three-year period. Compensation expense will be recorded by
the Fund over the vesting period.
    In accordance with the LTIP agreement and in connection with the
performance of the Fund in fiscal 2006, the Trustees of the Fund approved the
funding and transfer of $1.4 million (2005 - $0.7 million) of cash to the LTIP
Trust in March 2007 to fund the purchase of Units by the LTIP Trust. With
respect to the transfer relating to fiscal 2006, in March and April 2007, the
LTIP Trust purchased 97,002 Units (fiscal 2005 - 56,828 Units) of the Fund.
    In the second quarter of 2007, compensation expense totaling $172 (2006 -
$57) relating to the LTIP was recorded by the Fund. Distributions on unvested
Units held by the LTIP Trust are paid to LTIP participants. Unvested Units
held by the LTIP Trust are shown as a reduction of unitholders' equity.
    Basic net income per unit reflects the impact of the LTIP Units vesting
evenly over the three year period. As at June 30, 2007, 18,940 of the Units
held by the LTIP Trust had vested.

    Distributable Cash and Distributable Cash per Unit (see calculation in
    the table below)

    Included in this MD&A are references to the Fund's distributable cash and
distributable cash per unit. Readers should be aware that distributable cash
is not a measure under Canadian GAAP, and there is no standardized measure for
it. Distributable cash as presented may not be comparable to similar measures
presented by other income funds. Management believes that this measure is a
widely accepted financial indicator used by investors to assess the
performance of income funds and their ability to generate cash through
operations. This is especially true of the Fund, which pays out the majority
of its cash in regular distributions.
    Distributable cash is calculated as cash flow from operating activities
adjusted for non-cash working capital items, income taxes, lease inducement
accounting, maintenance capital expenditures, and LTIP funding requirements.
Non-cash working capital items are not factored into the distributable cash
calculation as fluctuations in these items are generally short term in nature.
The Fund does not currently pay cash taxes and therefore changes in income tax
accounts do not reflect cash requirements of the Fund. Lease inducements do
not reflect run rate cash flows of the Fund and therefore have not been
included in the calculation of distributable cash. Cash flow from operating
activities includes the impact of the LTIP once the Fund has transferred the
cash to the LTIP Trust. For purposes of calculating distributable cash, the
Fund deducts the LTIP funding requirement in the period in which it is earned
and therefore once the payment has been made to the Trust, it no longer
represents an adjustment in the calculation of distributable cash. As the Fund
generates the majority of its distributable cash in the second and third
quarters, the ability to accurately estimate the LTIP funding requirement
prior to the completion of the third quarter is limited. As a result, the Fund
estimates the LTIP funding requirement as part of its third quarter reporting
with the actual calculation being completed in the fourth quarter.

    
                                             For the     For the
                                               three      twelve       Since
                                              months      months   inception
    Distributable cash                         ended       ended          to
    (000's except for unit amounts)        30-Jun-07   30-Jun-07   30-Jun-07
    -------------------------------------------------------------------------

    Cash flow provided by operating
     activities                               15,039      13,834      48,057

    Add/(subtract) short term changes
     in non-cash working capital items
     excluding income taxes:(1)
    Inventory                                    442      10,552      32,163
    Amounts receivable                         6,815       4,107       6,668
    Prepaids                                     (63)        (35)       (369)
    Accounts payable and accrued
     liabilities                              (4,465)     (4,481)    (30,153)

    Deduct receipt of lease inducements,
     net of amortization(2)                   (1,289)       (643)     (2,395)

    Net change in tax accounts(3)                  -         (36)      1,031

    Maintenance capital expenditures(4)         (563)     (1,040)     (2,074)

    Long term incentive plan funding
     requirement(5)                              147           -           -

                                          -----------------------------------
    Distributable cash                        16,063      22,258      52,928
                                          -----------------------------------
                                          -----------------------------------

    Distributions declared                     3,906      14,949      36,633

    Cash distributions payout ratio(6)         24.3%       67.2%       69.2%

    Total Fund units and Exchangeable LP
     units outstanding                    12,500,952  12,500,952  12,500,952
    Distributable cash per Fund unit and
     Exchangeable LP unit                      1.285       1.781       4.234
    Distributions declared per Fund unit
     and Exchangeable LP unit                  0.312       1.196       2.930

    (1) Non-cash changes in working capital items have been excluded from
        this calculation as they fluctuate throughout the year. Management
        believes, that over the long term, working capital will remain
        relatively consistent. In addition, Golf Town uses its operating
        credit facility to finance inventory as it opens new stores. All
        available excess cash is used to pay down this facility on a daily
        basis.

    (2) The receipt of lease inducement amounts and their amortization for
        accounting purposes have been excluded from this calculation as they
        do not represent cash flows generated by the business of Golf Town.

    (3) Net change in tax accounts since inception relate to the business of
        Golf Town prior to it being acquired by the Fund.

    (4) Maintenance capital expenditures are defined as all capital
        expenditures except expenditures on new stores and expenditures on
        new incremental revenue generating initiatives within existing
        stores.

    (5) The Fund deducts the impact of LTIP amounts for distributable cash
        purposes in the year in which they are earned. For the three months
        ended June 30, 2007, the LTIP funding adjustment represents $147 of
        the 2006 funding requirement, which was used to purchase Units for
        the LTIP Trust in April of 2007.

    (6) Distributable cash has significantly exceeded distributed cash with
        respect to the 3 month period due to seasonality of the business, as
        Q2 and Q3 represent our strongest quarters in terms of distributable
        cash. In terms of the twelve month and since inception calculations
        of distributable cash, the Board of Trustees approves the level of
        distributed cash based on its expectations of the business and the
        Fund's ability to sustain the level of distributions in the future.
        Given the seasonality of the business, the since inception
        calculation will be positively or negatively impacted depending on
        where the current quarter falls within the golf season.
    

    For the quarter ended June 30, 2007, the Fund distributed $0.312 per unit
compared with $1.285 per unit of distributable cash per unit per the above
calculation. This difference reflects the Fund's seasonal fluctuations in
earnings. On a rolling twelve month basis, the Fund has distributed $1.196
compared with $1.781 per unit of distributable cash per unit per the above
calculation.

    Outstanding Unit information

    At August 6, 2007 the Fund had a total of 12,500,952 Units and
Exchangeable Units issued and outstanding. This consisted of 12,181,588 Units
and 319,364 Exchangeable Units. Of the 12,181,588 Units, 134,890 Units were
held by the LTIP Trust. In April 2007 there was an exchange of 300,208
Exchangeable Units for Units on a one-for-one basis.



    
    Selected Financial Data

                               As at and   As at and   As at and   As at and
                                 for the     for the     for the     for the
                              six months        year        year    376 days
                                   ended       ended       ended       ended
                                 June 30,     Dec 31,    Dec. 31,    Dec. 31,
    ($000's)                        2007        2006        2005        2004
    -------------------------------------------------------------------------
    Sales                        126,200     220,099     191,725     166,523
    Cost of sales                 81,846     142,916     126,940     110,470
    Gross profit                  44,354      77,183      64,785      56,053
                                  35.15%      35.07%      33.79%      33.66%

    S G & A                       29,457      52,396      44,477      39,212
    EBITDA                        14,897      24,787      20,308      16,841
    Income before tax and
     minority interest            11,145      18,007      14,769       9,782
    Net income(1)                  8,888      16,052      12,945

    Total assets                 209,986     185,560     171,014     164,821
    Long term liabilities         25,574      24,942      24,860      23,826

    Distributions declared
     per Unit                    $0.3125     $1.1208     $1.0500     $0.1400

    Income before tax and
     minority interest per unit
     fully diluted               $0.8915     $1.4405     $1.1814     $0.7825
    Net income per unit fully
     diluted(1)                  $0.7110     $1.2841     $1.0355

    (1) Net income has not been presented for the period prior to
        December 31, 2004 as it is not comparable due to the changes to the
        capital structure of the Company on November 12, 2004.



    Quarterly Information
                                                                  Net income
                                                           Net    (loss) per
                                                        income    unit fully
           Start                End           Sales      (loss)      diluted
    -------------------------------------------------------------------------
      April 1, 2007         June 30, 2007    94,257     10,868        0.8690
    January 1, 2007        March 31, 2007    31,943     (1,980)      (0.1600)
    October 1, 2006     December 31, 2006    37,756        523        0.0418
       July 1, 2006    September 30, 2006    70,205      6,285        0.5028
      April 1, 2006         June 30, 2006    82,120     10,055        0.8043
    January 1, 2006        March 31, 2006    30,018       (811)      (0.0649)
    October 1, 2005     December 31, 2005    32,388       (292)      (0.0234)
       July 1, 2005    September 30, 2005    60,891      5,491        0.4392
    

    The Company's business is subject to seasonal fluctuations with the peak
occurring during the Canadian golf season from April to September each year.
We are able to limit the effects of this fluctuation on net income by, among
other things, keeping merchandise in stock in winter months, promoting golf
year round and controlling costs in the winter months by reducing the number
of employees and marketing activities. One of Golf Town's main competitors,
golf course pro shops, generally close in October and therefore begin to
reduce their inventory in August. Also, sporting goods stores in Canada
typically change their inventory positions in the fall to focus on winter
sports.

    Liquidity and Capital Resources

    At June 30, 2007, cash had increased by $1.0 million to $2.8 million from
$1.8 million on December 31, 2006. The Company has two principal sources of
liquidity: (i) cash provided by operations; and (ii) amounts available under
its $40 million revolving credit facility. Management believes that the
Company's liquidity will be sufficient in the short and long term to meet its
planned growth and distribution targets. At June 30, 2007, $15.0 million of
the Revolving Facility was drawn and, based on inventory levels at
June 30, 2007 an additional $24.7 million was available.
    The Revolving Facility is a revolving operating credit facility with no
required principal payments prior to maturity. The Revolving Facility revolves
through the application of all funds received by the Company and the
re-advance of available loan amounts as requested by the Company. Repayments
are required if the allowed advance amount, which is based on inventory
levels, is exceeded. Interest is payable monthly in arrears on the first day
of each month at a variable rate of interest.
    In addition to the Revolving Facility, the Company has a $10.0 million
debenture outstanding at June 30, 2007. Interest on this debenture is payable
monthly in arrears on the fifteenth day of each month based on a variable rate
of interest. The principal amount of the debenture is due in November 2008.
    As a result of the seasonality of its business, the Company's working
capital requirement fluctuates throughout the year. Historically, a movement
of up $10.0 million is experienced during the year, depending on the timing of
inventory buys, vendor payments and receivable collections. Generally, working
capital remains flat as the Company grows, however the above noted timing
issues can create minor variances from one year to the next.

    Distributions

    The Fund's policy is to distribute to its unitholders all available cash
from operations after cash required for maintenance capital expenditures and
other reserves considered advisable by the Trustees of the Fund. The golf
equipment market experiences seasonality in sales volume, with its highest
sales occurring in the second and third quarters. However, occupancy related
expenses along with certain general and administrative expenses are fixed
throughout the year. Interest on long term debt is consistent throughout the
year while interest on the Company's operating line is higher in the slower
off-season. The Trustees have eliminated the impact of seasonal fluctuations
on monthly distributions by equalizing them. The Trustees consider this
seasonality in determining the levels of available cash at the end of the
year. Cash flow in the second and third quarters is expected to be
significantly higher than the distributions in those quarters and will
therefore offset the impact of lower cash flows in the first and fourth
quarters. The Fund anticipates maintaining at least the current level of
distributions based on performance and anticipated levels of available cash.
    The Fund makes monthly distributions of its available cash to unitholders
of record on the last business day of each month, payable on or about the 15th
day of the following month.

    2007 distributions

    
                                                                Distribution
    Period        Record Date      Payment Date     Per Unit          Amount
                                                           $               $
    -------------------------------------------------------------------------
    Jan-07          31-Jan-07         15-Feb-07    0.1000000           1,250
    Feb-07          28-Feb-07         15-Mar-07    0.1000000           1,250
    Mar-07          31-Mar-07         15-Apr-07    0.1041667           1,302
    Apr-07          30-Apr-07         15-May-07    0.1041667           1,302
    May-07          31-May-07         15-Jun-07    0.1041667           1,302
    Jun-07          30-Jun-07         15-Jul-07    0.1041667           1,302
    

    Investing activities

    The Company usually opens between three and five new stores each year. A
typical new store costs approximately $1.4 million to open, plus an additional
$2 million for inventory. New store cost and inventory is financed through the
Company's revolving operating credit facility as well as through capital
leases and lease inducement payments from landlords. All cash flows not
required by the Company for operations and distributions are used to reduce
the revolving operating credit facility.
    Maintenance capital expenditures for store equipment replacement, store
renovations and other initiatives are at the discretion of management. In the
second quarter of 2007 total maintenance capital expenditures were
$0.6 million. Maintenance capital expenditures are also financed through the
revolving operating credit facility.

    Disclosure Controls

    Disclosure control and procedures are designed to provide reasonable
assurance that information required to be disclosed is recorded, processed,
summarized and reported within the time periods specified by securities
regulations. The Chief Executive Officer and Chief Financial Officer have
evaluated the effectiveness of the Company's disclosure controls and
procedures as of August 6, 2007 and have concluded that they are adequate and
effective to ensure accurate and complete disclosure. There has been no change
in the Fund's internal controls that occurred during 2007 that has materially
affected or is reasonably likely to materially affect the Fund's internal
controls over financial reporting.

    Outlook

    Future performance can be affected by weather and economic conditions,
among other factors, and therefore is difficult to predict precisely. As with
any company, there are a number of risks that can affect performance at Golf
Town.
    Due to colder than normal weather conditions in the spring of 2007, golf
courses in Canada opened for business in the later part of April, several
weeks later than previous years. The late start to the golf season impacted
sales in the first quarter and the early part of the second quarter. The golf
season is now in full swing and management is optimistic that it is and will
continue to recovery the lost sales from earlier in the year.
    Management notes that 2007 has seen more new product introductions than
in 2006. Historically new product introductions stimulate consumer interest
and increase store traffic.
    Golf Town expects to continue to benefit from six new stores in 2007 -
St. Catharines, Ontario, Boisbriand, Quebec, Dartmouth, Nova Scotia, Brampton,
Ontario, have already opened. Ottawa, Ontario and Windsor, Ontario stores will
open in late fall of 2007. New stores usually become cash flow positive during
their first month of operation.
    Golf Town is also targeting continued growth in revenue and market share
from corporate promotional sales and through its website at www.golftown.com.

    Further Information

    Additional information relating to the Fund and the Company is filed on
SEDAR at www.sedar.com.
    This MD&A contains forward-looking statements relating to the future
performance of the Fund and the Company. Forward-looking statements,
specifically those concerning future performance, are subject to certain risks
and uncertainties, and actual results may differ materially. The Fund and the
Company, details these risks and uncertainties from time to time.
Consequently, readers should not place any undue reliance on such
forward-looking statements. In addition, these forward-looking statements
relate to the date on which they were made. The Fund and the Company disclaim
any intention or obligation to update or revise any forward-looking statement,
whether as a result of new information, future events or otherwise.

    %SEDAR: 00021322E




For further information:

For further information: Stephen Bebis, President and CEO, Golf Town,
(905) 479-0343

Organization Profile

GOLF TOWN INCOME FUND

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