UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year ended: December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from: _____ to _____
Commission File No. 0-17436
LAS VEGAS DISCOUNT GOLF & TENNIS, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
COLORADO 84-1034868
(State or Other Jurisdiction of (I.R.S. Employer Identi-
Incorporation or Organization) fication Number)
5325 SOUTH VALLEY VIEW BOULEVARD, SUITE 10
LAS VEGAS, NEVADA 89118
(Address of Principal Executive Offices, Including Zip Code)
Issuer's Telephone Number, Including Area Code: (702) 798-7777
Securities Registered Pursuant to Section 12(b) of the Act: None.
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
(Title of Class)
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is not contained in this Form, and no disclosure will be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
State Issuer's revenues for its most recent fiscal year: $13,560,000.
As of March 29, 1996, 5,319,008 shares of common stock were outstanding, and
the aggregate market value of the common stock of the Registrant held by non-
affiliates was approximately $1,820,000.
Documents incorporated by reference: NONE.
Transitional Small Business Disclosure Format (check one): Yes __ No X
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
THE COMPANY
Las Vegas Discount Golf & Tennis, Inc. (the "Company") (1) owns and
operates four retail golf stores; (2) sells golf and tennis merchandise to
franchisees of its subsidiary (Saint Andrews Golf Corporation) and others; and
(3) owns two-thirds (2/3's) of the outstanding shares of common stock of Saint
Andrews Golf Corporation ("Saint Andrews"). The Company's ownership of two-
thirds of Saint Andrews represents the Company's largest asset and the
financial results of Saint Andrews have a significant impact on the Company's
consolidated financial statements included in this Form 10-KSB. Although this
Report contains much disclosure about Saint Andrews and its business, readers
should keep in mind that Saint Andrews operates as a separate company with its
own management. For further information on Saint Andrews, please see Saint
Andrew's Form 10-KSB.
The Company's business began in 1974 when Vaso Boreta, the President and
Chairman of the Board of the Company, opened a "Las Vegas Discount Golf &
Tennis" retail store in Las Vegas, Nevada. This store, which is still owned
by Mr. Boreta as an affiliated store of the Company (the "Affiliated Store"),
subsequently began distributing catalogs and developing a mail order business
for the sale, principally of golf, and, to a lesser extent, tennis products.
In 1984, the Company began to franchise the "Las Vegas Discount Golf & Tennis"
retail store concept through its Saint Andrews subsidiary and commenced the
sale of franchises. As of April 1, 1996, the Saint Andrews subsidiary had 45
franchised stores in operation in 16 states and 2 foreign countries.
Beginning in late 1989, the Company began to implement its business
strategy of promoting retail sales at franchised stores rather than through
mail order, and mail order sales declined. In July, 1990, the Company discon-
tinued all direct mail order sales.
In 1990, the Company opened its first company-owned store in Las Vegas
which serves as a showcase and training center for franchisees. In 1993, the
Company opened a second store in the Los Angeles, California area, and during
1995 the Company opened a store in the Westwood area of Los Angeles and a
store in Encino, California.
In addition to its ownership of two-thirds of Saint Andrews, the Company
also has two wholly-owned subsidiaries -- Las Vegas Discount Golf & Tennis
Rainbow, Inc. and Las Vegas Discount Golf & Tennis Development Corp., which
operate the company-owned stores in Las Vegas, Nevada and Los Angeles,
California, respectively. The new stores in the Westwood area of Los Angeles
and in Encino, California are operated under Las Vegas Discount Golf & Tennis,
Inc. Unless the context indicates otherwise, all references to the Company
includes the business of Las Vegas Discount Golf & Tennis, Inc. and these
wholly-owned subsidiaries from the dates of their organization.
The Saint Andrews subsidiary operates the business of franchising "Las
Vegas Discount Golf & Tennis" stores and has developed a concept for and is
currently constructing a sports-oriented theme park, as describe below. Saint
Andrews was a wholly-owned subsidiary of the Company until December 1994 when
Saint Andrews completed an initial public offering of its securities. The net
proceeds to Saint Andrews from this public offering were approximately
$3,686,000.
The Company is a Colorado corporation incorporated in March, 1986, under
the name "La Jolla Capital Corporation", for the purpose of creating a
corporate vehicle to seek and acquire a business opportunity. The Company
changed its name to "Laguna Capital Corporation" in May, 1986, and following
the acquisition of Saint Andrews, changed its name to "Las Vegas Discount
Golf & Tennis, Inc." in December, 1988.
The Company's offices are located at 5325 South Valley View Boulevard,
Suite 10, Las Vegas, Nevada 89118. Its telephone number is (702) 798-7777.
BUSINESS OF THE COMPANY
MERCHANDISE
The Company's products, available in its Company-owned retail stores and
in the stores of the Saint Andrews franchisees, consist of a wide variety of
golf and tennis equipment. Merchandise includes Company Brands which are
available exclusively through the Company at the Company-owned retail stores
and the stores of the Saint Andrews franchisees, as well as name brand
merchandise. These products are generally offered at a discount from prices
found in golf and tennis pro shops, sporting goods stores and other non-
discount retail stores.
Golf merchandise includes golf apparel, clubs, shoes, balls, bags and a
range of accessories including caps, tees and golf instruction video tapes.
The Company Brands are "St. Andrews", "Birdie Golf" and "Royal Scot", and the
other brands are nationally known name brands and equipment such as Callaway,
Spaulding, Wilson, Mac Gregor, Titleist, Taylor Made, Ping, Dunlop, Yamaha,
and others.
Tennis merchandise includes a selection of tennis equipment such as
tennis rackets, apparel, balls, shoes and other miscellaneous items. Name
brands include Wilson, Prince, Dunlop, Kennex, Head, Yamaha, Adidas, Fila and
others.
Company Brand products are generally lower priced to the consumer than
competing name brand merchandise, although many of these products are
manufactured to Company specifications by nationally known and other domestic
and foreign manufacturers. Many of the Company Brands products carry the
manufacturer's name as well as the Company's label. The Company believes that
as a result of its catalogs, magazine advertisements, and the growth of the
Saint Andrews franchise network, its Company Brands products have received
consumer acceptance and that sales of Company Brands products enhance customer
loyalty, as well as contributing to the overall profitability of the Company
and franchisee.
During 1995 and 1994, product sales to franchisees of the Company's
Saint Andrews subsidiary (of which approximately 90% represent Company Brand
sales, since franchisees generally purchase most name brand merchandise
directly from the manufacturer) represented approximately 12% and 30% of total
revenues, respectively.
MARKETING AND DISTRIBUTION
The Company's business is seasonal, with the heaviest sales at the
retail level during March, April and May, when outdoor spring activities
commence, and in November and December because of holiday gift purchases.
The Company believes that its existing warehouse space, which contains
approximately 15,500 square feet, has the capacity to process merchandise for
its existing level of business. The Company expects that it may be required
to lease additional space at this location as new franchised stores open and
believes such space is currently available.
Because substantially all Company Brands merchandise is attempted to be
shipped within 24 hours of receipt of an order, the Company does not have a
significant backlog of orders. The Company offers returns on defective
products and will provide a credit of the purchase price on other returns.
To date, returns have been minimal.
INTERNET SITE
On March 1, 1996, the Company and Saint Andrews established a home page
on the World Wide Web which allows people to view information on certain of
the Company's products on the computer and place orders directly from their
computers. The web site address is http://www.lvgolf.com.
The Company's home page/web site is also an information center to let
people know about the Company and Saint Andrews. This site includes
historical information about the Company, latest news releases and financial
reports. It also provides information about the franchise opportunities and a
list of current franchise locations.
PURCHASING OF MERCHANDISE AND INVENTORY
Merchandise is obtained from numerous manufacturers, based on purchase
orders for specific products and quantities. The Company does not have any
long term supply agreements although certain suppliers of Company Brands
merchandise require minimum purchase commitments. In addition, although
certain suppliers of Company Brands merchandise have represented in excess of
10% of inventory purchases at various times and certain merchandise is
currently obtained from only one supplier, the Company does not believe it is
dependent on any one supplier and that there are alternate sources available.
Although the Company has not experienced inabilities to obtain desired
goods as a result of its discount retail practice, certain manufacturers of
name brand products do prohibit the Company from advertising their products at
a discounted price. There is no assurance that name brand manufacturers will
supply the Company with merchandise as needed. Although the Company Brands
have accounted for an increasing percentage of the Company's revenues and
profitability, the Company believes it is important to continue to offer name
brands for certain items.
Approximately 50% of all inventory and approximately 75% of Company
Brands merchandise is imported from overseas suppliers, primarily in the Far
East. As a result, the Company's business could be affected by economic or
political events affecting imports or by a major reduction in the value of the
dollar in relation to the currency of the countries from which the goods are
imported. In addition, overseas suppliers generally require a letter of
credit to be posted for the entire purchase price.
Company Brands merchandise purchased from overseas suppliers is
generally delivered in approximately 90 to 100 days and is shipped to the
Company's Las Vegas, Nevada warehouse. Products ordered from domestic
manufacturers and/or distributors are normally delivered within 10 to 30
business days. Saint Andrews franchisees generally purchase certain brand
name goods directly from domestic manufacturers.
The Company oversees quality assurance and control of all overseas
suppliers and manufacturers that provide products to the Company's
specifications. To date, approximately 95% of the merchandise received from
overseas sources has met the Company's specifications. For products
manufactured in the U.S., the Company relies on the quality assurance and
control of the major manufacturers and distributors with whom it does
business. Any damaged merchandise is normally damaged in transit and is the
carrier's responsibility. Inappropriately manufactured goods (goods which do
not meet specifications) are the responsibility of the manufacturer.
The Company uses a computerized inventory control system for the
acquisition and control of inventories. The Company believes it is important
to maintain adequate levels of inventory to satisfy needs of the Saint Andrews
franchisees but not excessively high levels resulting in overstock inventory.
Although merchandise is shipped throughout the year, inventory has been built
up and is expected to continue to be higher than average immediately preceding
the spring and Christmas seasons when larger volumes are demanded for delivery
on a timely basis.
LAS VEGAS DISCOUNT GOLF & TENNIS CREDIT CARD
During March 1996, the Company and Saint Andrews launched a program to
offer Las Vegas Discount Golf & Tennis branded Visa credit cards. The Company
believes that this will be a vehicle to create customer loyalty by giving the
customer an incentive to return to the Company's corporate and franchisees
stores each time they plan to purchase a golf or tennis related product. The
Company selected Maryland Bank of North America (MBNA) to service the credit
cards and coordinate the marketing of the credit cards.
The launch of the credit card project included an initial direct mailing
to over 200,000 prescreened preferred customers of the franchisees and
corporate stores. This mailing was then followed up by telemarketing
conducted by MBNA. All advertising done by the corporate or franchise stores
that is generated by Saint Andrews' advertising department will include
marketing of the credit card.
BUSINESS OF THE COMPANY'S SAINT ANDREWS SUBSIDIARY
ALL-AMERICAN SPORTPARK
Saint Andrews is currently developing plans for a family-oriented sports
theme park named "All-American SportPark," which will be a live action sports
entertainment complex that will feature a Major League Baseball Slugger
Stadium, a Callaway Golf Country Club Driving Range, a NASCAR SpeedPark, a
sports pavilion including a multi-purpose sports arena; and other features
including food courts, meeting rooms, specialty retails areas, and space for
special events.
Saint Andrews is currently in negotiations with several parties
concerning the location of the first site for the All-American SportPark. The
most likely possibilities include Orange County, California and Las Vegas,
Nevada, although Saint Andrews has had preliminary discussions concerning a
number of other potential sites in the United States and overseas.
FEATURE ATTRACTIONS
MAJOR LEAGUE BASEBALL "SLUGGER STADIUM." The Slugger Stadium will be a
full size replica of a major league ballpark for batting and baseball
training. Saint Andrews has been granted an exclusive license from Major
League Baseball Properties to own and operate Major League Baseball Slugger
Stadiums. Under the license agreement, Saint Andrews also has the right to
utilize certain Major League Baseball trademarks including those of the All
Star Game, Division Series, League Championship Series and World Series.
Slugger Stadium is a nostalgic formatted batting stadium which attempts to
duplicate a major league experience for its patrons. Unlike batting cages
which are the normal industry standard, Saint Andrews's design is a full size
stadium that replicates many of the features of a modern baseball stadium.
Plans include 17 batter boxes and 17 on-deck circles. Batters will have the
option of hitting hard or soft balls delivered at three different speeds.
Outfield wall replicas of Fenway Park's "Green Monster" Wall, Baltimore's
Camden Yards, Chicago's Wrigley Field, Yankee Stadium, and the ball park in
Arlington, Texas will be designed to challenge batters to hit the balls out of
the park. To complete the Major League experience will be authentic
turnstiles, classic ballpark food and beverage concessions, baseball
memorabilia, electronic scoreboard and specially designed sound systems that
provide typical baseball sounds including proprietary designed umpire calls of
balls and strikes.
CALLAWAY GOLF COUNTRY CLUB DRIVING RANGE, GOLF CLUBHOUSE AND TRAINING
CENTER. Saint Andrews has a Concept Development/License Agreement with
Callaway Golf Company whereby both companies will participate in the
development of the Callaway Golf Country Club Driving Range. The range is
expected to house 80 stations in a two-tiered format. The range is designed
to have the appearance of an actual golf course with grass greens surrounded
by sand traps and lakes as hitting targets. Pro-line equipment and popular
brand name golf balls will be utilized. Plans also include a putting and
chipping green and state-of-the-art training center. In addition to the
driving range area there will be a 3,000-square foot golf center featuring
company brand and pro-line merchandise, and a small area for offices.
NASCAR SPEEDPARK. Saint Andrews has an exclusive license agreement with
The National Association of Stock Car Auto Racing, Inc. ("NASCAR") for the
operation of SpeedParks as a part of the All-American SportPark or as a
stand-alone All-American NASCAR SpeedPark. The SpeedPark will include two
tracks to accommodate three styles of racing: NASCAR, sprint and go-kart.
The go-kart track will be a 1,000 linear foot track for five horsepower go-
karts designed for families and children 14 and under, and the other track
will be a 450-foot oval track for nine horsepower NASCAR-style go-karts
designed for youths and adults 16 years and older. The SpeedParks will be
comprised generally of the NASCAR Go-Kart SpeedPark, the Garage Experience,
the Pit Stop Challenge, the Infield RV Park, Victory Lane, the NASCAR Jr.
Track, the Tailgater Picnic Grounds and the NASCAR Retail Trailer
Merchandising Experience.
OTHER ATTRACTIONS. The SportPark will also include a sports pavilion
with a multipurpose sports arena, food courts, meeting rooms, specialty
retails areas, special events space and leased tenant facilities for food and
beverage service, retail merchandize, video game and sports skill redemption
games, and other possible ancillary businesses.
LEASE AGREEMENT
Effective June 1, 1994, Saint Andrews entered into a ground lease for
approximately a 33-acre parcel of land located in Las Vegas, Nevada for the
development of Saint Andrews's first All-American SportPark. The lease had a
fifteen-year term unless terminated earlier by the lessor pursuant to the
agreement. The lease contained a provision allowing the landlord to terminate
the lease on 30-days' notice prior to completion of construction under certain
circumstances, including a sale by the landlord of the property covered by the
lease. During June 1995, Saint Andrews was notified that the landlord was
selling the property and therefore the lease would be terminated. The lease
contains a provision requiring reimbursement for certain specified expenses up
to $3,500,000 and Saint Andrews has submitted a claim to the landlord for
reimbursement of expenses in excess of $3,500,000. Payment on the claim was
due on August 20, 1995, however, as of this date no payment has been received.
On February 27, 1996, Saint Andrews filed a complaint in District Court,
Clark County, Nevada, against Gordon Gaming Corporation ("Gordon"), Saint
Andrews which purchased the property from the initial landlord. When Gordon
purchased the property, it assumed the obligations relating to the termination
of the lease. The complaint seeks an unspecified amount of compensatory
damages, punitive damages, attorneys fees and costs.
PROJECT MANAGEMENT
During February 1995, Saint Andrews hired Harris Production Services
("Harris") as the overall project producer for ae Las Vegas All-American
SportPark. Harris is a leader in the industry having been involved with the
production of 25 Broadway shows, the MGM Grand Hotel and Casino's $41 million
production show "EFX", Walt Disney's "Beauty and the Beast" show and the
Starlight Express" Tour. Assisting Harris are three other national
consultants: Becket and Associates (architectural and engineering); Ellerbe
Becket, Inc. (design planning); and EME Entertainment Design (creative and
conceptual designs, scripts and renderings). Becket and Associates have
worked on such projects as the Iwerks Cinetropolic Entertainment Complex at
the Foxwoods Hotel and Casino in Ledyard, Connecticut; Jack Kent Cooke Stadium
in Washington, D.C.; America West Arena in Phoenix, Arizona; and Pauley
Pavilion in Los Angeles, California. Ellerbe Becket, Inc. has played a major
role in the design of the new Olympic Stadium in Atlanta, Georgia, and has
also assisted in the design of Universal Studios and Animal Kingdom at Disney
World in Orlando, Florida. EME Entertainment Design's projects include the
Festival Fountain at the Forum Shops at Caesars Palace; the Holiday Inn Casino
Boardwalk, IMAX Corp.; Universal Studios Tower; and Walt Disney Co.
AGREEMENT WITH ORACLE ONE PARTNERS, INC.
Saint Andrews has entered into a letter agreement with Oracle One
Partners, Inc. ("Oracle") whereby Oracle has been retained to assist Saint
Andrews in obtaining corporate sponsorship for certain areas of the Sports
Park including a license agreement from Major League Baseball for the Slugger
Stadium. The initial period of the agreement was for the three month period
ending September 30, 1994, and the agreement has been continued on a month-
to-month basis since them. Saint Andrews is paying Oracle $4,000 a month and
has agreed to pay Oracle 15% of the gross of any sponsorship fees for sponsors
obtained through the efforts of Oracle. The Company paid Oracle $60,000 for
its efforts in obtaining the exclusive license agreement with Major League
Baseball. Saint Andrews recently issued options to a principal of Oracle to
purchase 10,000 shares of Saint Andrews's Common Stock.
AGREEMENT WITH MAJOR LEAGUE BASEBALL
In December 1994, Saint Andrews entered into an agreement with Major
League Baseball ("MLB") concerning a license for the use of MLB logos, marks
and mascots in the decor, advertising and promotions of Saint Andrews's
Slugger Stadium concept. Saint Andrews obtained an exclusive license for
indoor and outdoor baseball batting stadiums in the United States through
December 31, 1997, and in return Saint Andrews will pay a royalty of the gross
revenues from the batting cages with a minimum annual royalty for each
stadium.
Saint Andrews's right to exclusively use MLB logos and other marks at
its baseball batting stadiums is dependent upon certain conditions set forth
in the Agreement.
LIABILITY INSURANCE
Saint Andrews intends to purchase comprehensive general liability
insurance policy to cover possible claims for injury and damages from
accidents and similar activities. Saint Andrews has not obtained premium
quotations for such insurance and there is no assurance that such coverage can
be obtained, or if obtained, that it can be obtained at reasonable rates nor
that it will be sufficient to cover or be available for future claims.
FRANCHISE BUSINESS OF THE COMPANY'S SAINT ANDREWS SUBSIDIARY
SUMMARY OF FRANCHISE STORE DEVELOPMENT
Set forth below is a summary of the development of Saint Andrews'
franchise stores during the past two years.
YEAR ENDED DECEMBER 31,
1995 1994
Sold during the year, net 8 11
Opened during the year 6 8
Closed during the year (10) (10)
In operation at year-end 50 54
Sold but not in operation at year-end 2 3
As of April 1, 1996, Saint Andrews had 45 stores in 16 states and 2
foreign countries in operation. Saint Andrews' also had two franchises under
development pursuant to signed contracts. In addition, Vaso Boreta, the
Company's President and Chairman of the Board, owns a store in Las Vegas,
Nevada.
Following is the geographical location of stores open or under
development as of April 1, 1996, and where applicable, the year each store was
opened:
ALABAMA
Huntsville (1991)
Foley*
ARIZONA
Goodyear (1995)
CALIFORNIA
Bakersfield (1991)
Cerritos (1994)
Costa Mesa (1992)
Mission Viejo (1992)
Orange (1992)
Orange (1994)**
Palm Desert (1994)
San Mateo (1986)
San Ramon (1993)
Pasadena (1995)
COLORADO
Broomfield (1991)
Fort Collins (1990)
Greeley (1993)
Denver (1995)
FLORIDA
Naples (1990)
Plantation (1993)
GEORGIA
Marietta (1992)
IDAHO
Boise (1990)
MICHIGAN
Canton (1989)
Monroe (1996)
NEW JERSEY
Cherry Hill (1994)
NEW YORK
Albany (1985)
White Plains (1986)
OREGON
Bend (1992)
SOUTH CAROLINA
Bluffton (1994)
Myrtle Beach*
TENNESSEE
Antioch (1991)
TEXAS
Arlington (1993)
Dallas (1988)
Lewisville (1995)
Ft. Worth (1995)
VIRGINIA
Manassas (1993)
Woodbridge (1995)
UTAH
Layton (1994)
Sunset (1994)
CANADA
Calgary, Alberta
(1984)
S. Calgary, Alberta
(1994)
Coquitlam, British
Columbia (1989)
Kelowna, British
Columbia (1991)
Medicine Hat,
Alberta (1993)
Surrey, British
Columbia (1990)
Vancouver, British
Columbia (1991)
Victoria, British
Columbia (1992)
MARIANA ISLANDS
Saipan (1991)
____________________
* Under development.
** St. Andrews Golf Center License.
DESCRIPTION OF FRANCHISE PROGRAM
Saint Andrews' franchising business was originally started in 1984,
involving the sale of franchises known as Las Vegas Discount Golf or Las
Vegas Discount Golf & Tennis stores (collectively, "Las Vegas Discount Golf &
Tennis"). The following discussion is a summary of the material rights and
obligations of Saint Andrews and a franchisee under Saint Andrews' standard
franchise agreement.
Saint Andrews licenses to the franchisee the right to use the "Las Vegas
Discount Golf & Tennis" trademark and other proprietary names and marks in a
single store generally within a designated area ranging from five to 10 miles
in radius. Franchisees may not relocate their store without Saint Andrews'
permission.
Saint Andrews, as franchisor, enforces a strict quality control program
to promote the quality, service and maintenance of the store's appearance and
image. Each franchisee is required to adhere to Saint Andrews' special
standardized decor. Franchisees are required to devote their full time and
energy to actual management and operation of the store, except as otherwise
permitted by Saint Andrews.
Generally, the franchise agreements are for a period of fifteen years
and are renewable for varying periods of up to 15 years at the option of the
franchisee if certain conditions are met. Franchise agreements do not give
franchisees the right to unilaterally terminate. Saint Andrews has the right
to unilaterally terminate the franchise under certain conditions such as
bankruptcy or insolvency of the franchisee, or the franchisee's failure to
comply with the terms of the franchise agreement. Franchises are
transferrable only with the prior approval of Saint Andrews.
Saint Andrews generally receives an initial non-refundable franchise fee
of $40,000 upon execution of the franchise agreement. In addition, Saint
Andrews receives a royalty which is normally 3% of the franchisee's gross
sales, payable weekly. Saint Andrews has the right to audit sales reports to
verify that such payments are correct. In 1994, Saint Andrews earned
$1,271,000 in royalties and $303,000 in franchise fees. These amounts were
$1,209,100 and $245,000, respectively, during 1995.
The estimated cost of establishing a new Las Vegas Discount Golf &
Tennis store is between $345,500 to $656,000. The components of the
franchisee's initial investment are estimated to be as follows:
MINIMUM MAXIMUM
Initial Franchise Fee* $ 20,000 $40,000
Opening and Grand Opening 15,000 15,000
Business Premises 5,000 12,000
Tenant Improvements 20,000 60,000
Fixtures and Equipment 70,000 100,000
Deposits 500 3,000
Insurance 3,000 12,000
Organizational Expenses 1,000 4,000
Opening Inventory 150,000 300,000
Signage 5,000 20,000
Additional Funds 1,000 5,000
Labor and Payroll Taxes 5,000 10,000
Working Capital 50,000 75,000
-------- --------
Total $345,500 $656,000
__________________
* The initial fee is $40,000 for the first unit and $20,000 for each
additional unit.
Franchisees are not obligated to purchase inventories from Saint Andrews
or its designated suppliers. However, all merchandise suppliers and vendors
to a franchise must be approved by Saint Andrews. In addition, if a
franchisee plans to purchase any inventories or services from sources other
than Saint Andrews or previously approved sources, the franchisee is required
to give Saint Andrews sufficient advance notice. The proposed suppliers'
merchandise must conform to the standards and specifications for clothing,
equipment, and accessories prescribed by Saint Andrews.
Although franchisees are not required to purchase inventory from Saint
Andrews, the Company is the only source available for certain private label
merchandise marketed by it. The Company offers payment terms similar to those
prevalent in the industry for purchases made directly from it.
SERVICES FOR FRANCHISEES
Saint Andrews attempts to provide a good support program for its
franchisees. As of April 1, 1996, Saint Andrews employed four field
representatives and support personnel for franchise operations. Important
programs include the following:
FORMAL FRANCHISE TRAINING. Each franchisee receives two weeks extensive
training at Saint Andrews' headquarters in Las Vegas, Nevada, in nearly all
facets of the sports retailing business including product knowledge,
merchandising techniques, cost and inventory control, computerized information
systems and management skills. Classes are conducted by the Saint Andrews'
management staff of skilled and experienced personnel. Franchisees and their
staff are invited to attend additional training classes at no extra cost on an
as-needed basis.
IN-FIELD OPERATIONAL SUPPORT. On a regular basis, at least several
times a year, all domestic franchisees receive regular visits and
consultations by Company staff personnel. The objective is to provide
across-the-board assistance to improve the overall business and profits of
the franchise stores.
PRODUCT INVENTORY. Pursuant to an August 1994 agreement with Saint
Andrews, the Company maintains an inventory consisting primarily of Saint
Andrews' private label golf and tennis merchandise in a 15,500 square foot
multi-story warehouse at its headquarters. Distribution systems are in place
to provide for 24-hour turnaround of most product requests by franchisees.
This inventory back-up and product capability provides valuable merchandising
support to franchises and a valuable service to their customers.
EXCLUSIVE PRODUCT LINE. A diversified line of proprietary products
manufactured to Saint Andrews' specifications by leading manufacturers in the
world are made available to franchisees. These products are value priced and
merchandised under the branded trade marks "St. Andrews", "Birdie Golf" and
"Royal Scot". Product introductions in recent years include: high tech men's
graphite perimeter-weighted irons and metalwoods; two-tone colored graphite
shafts on matching irons and woods; extra length oversized boron-graphite
shafts and compression molded graphite head drivers; and colored graphite
shafted ladies clubs.
PRO-LINE PRODUCTS. The Company has regularly assisted Saint Andrews'
franchisees to obtain a broad selection of "pro-line" merchandise at
attractive prices. Merchandise is regularly obtained from such names as
Taylor Made, Callaway, Titleist, Spalding, McGregor, Wilson, Hogan, Ping,
Cobra, Foot Joy, Etonic, Dunlop, Nike, Yamaha, Prince, and Head. Building
upon long-standing relations and continuing support of the franchises, the
Company has agreements with many pro-line suppliers to provide to the
franchisees expanded product lines, attractive prices, and additional services
for clubs, balls, shoes, apparel, accessories and tennis items.
CATALOG AND ADVERTISING PROGRAMS. Historically, the Company prepared
and distributed an extensive four-color product catalog in the Spring and Fall
which was mailed to a select list of past customers in the trade area serviced
by its franchisees. To reduce costs, the catalog was replaced in 1993 by a
four-color mailer which is distributed by individual franchise stores. Saint
Andrews continues to work with individual franchisees on mailers and
advertising. Utilizing state-of-the-art computer graphics and reduced size,
Saint Andrews is able to provide high image quality and low cost promotional
material. These are prepared by the Company's Graphic Arts/Advertising
Department, where graphic services are available throughout the year to all
franchisees.
TARGET FRANCHISE MARKETING PROGRAM. Company personnel work closely with
real estate and demographic professionals to identify optimum locations for
potential franchisees. Such locations are pre-selected and made available to
prospective franchisees and/or Company personnel will prepare a special study
of a geographical area for a prospective franchisee. Occasionally, Saint
Andrews selects attractive sites for itself and then searches for a franchisee
to develop the site.
ACTIVE FRANCHISE PROMOTIONS. A nine-minute professionally prepared
video tape describes Saint Andrews franchise story to potential franchisees.
This tape and other Company video productions have been shown on various cable
networks including CNBC and ESPN. Saint Andrews regularly advertises in "Golf
Digest", "Golf Magazine", "Inc.", "Entrepreneur" and other sport and
investment trade publications, and in various newspapers including "The Wall
Street Journal" and "USA Today". Saint Andrews and its franchisees have been
featured in local and national newspapers. Saint Andrews is active in
promotion at various industry trade shows.
SPECIAL FEATURES. In keeping with its commitment to provide a quality
franchise product, Saint Andrews has introduced to its franchise network a
number of innovations. These include a proprietary computer-based management
information system owned by Saint Andrews which provides complete inventory
and operational control, top-of-the-line modular standardized fixtures, and in
1991, a golf club repair center designed to build traffic and service
customers. The golf club repair center is a 12-foot by 12-foot free standing
fixture which is sold to the franchisees as part of the fixture package.
SAINT ANDREWS LOGO MERCHANDISE PROGRAM
During 1993 Saint Andrews worked with a retail consulting firm to
develop a comprehensive marketing program to exploit Saint Andrews' foundation
of a multi-store sports retailer and its trademark based proprietary position
with the Saint Andrews logos. This design is already included on business
cards, corporate stationery and various miscellaneous items. Preliminary
design work has been completed for over 150 separate items featuring the new
logo. Emphasis has been on golf hard goods and a complete line of sports soft
goods as well as items not directly tied to sports such as colognes, perfumes,
ties, etc. Plans for an initial marketing roll-out program have been
completed; however, the timing has not been set. These design and packaging
features have not been included in Saint Andrew products to date because
additional capital is required to manufacture prototypes, finalize the
products and purchase initial inventory. Saint Andrews only has limited
capital available for this purpose and at the current time Management's first
priority has been to open the All-American SportPark.
Saint Andrews has marketed a limited line of Saint Andrews products,
mostly golf clubs, accessories and golf balls, on an exclusive basis through
franchise stores. Saint Andrews plans to market the proposed new line of
Saint Andrews products not only to franchise outlets but also to other
wholesale and retail distribution channels and to provide a marketing support
program as is normal in the trade. There are no assurances of the degree of
success, if any, Saint Andrews will experience in this new business.
MARKETING
In 1995, Saint Andrews had franchise royalty income of $1,209,100 and
franchise fee income of $245,000. Management estimates that golf related
items represent more than 90% of franchise system retail sales with the
balance being primarily tennis related. Saint Andrews' marketing focus
continues to emphasize sale of golf related merchandise through its existing
franchise program. See "Franchise Business of the Company's Saint Andrews
Subsidiary" above.
Saint Andrews intends to roll-out a complete line of Saint Andrews
merchandise, including both hard good and soft good lines. Management
believes that the Saint Andrews name is generally considered in the trade as
one of the most recognized names in golf. The objective of the Saint Andrews
merchandise roll-out is to enable Saint Andrews to increase merchandise sales
with proprietary products not only through its franchise system, but also to
gain a share of the much larger sports apparel market. There is no assurance
Saint Andrews will be successful in reaching its objective.
Slugger Stadium is a unique baseball stadium concept that is expected to
be expanded to other locations in the United States using the prototype
installation at All-American SportPark as a demonstration facility.
Considerable market research by management has indicated a large potential
market for Slugger Stadium. Possible locations include stand-alone sites at
amusement parks, malls, other All-American SportParks and stand-alone sites.
Target consumers include adults, softball players and little leaguers.
Saint Andrews' marketing efforts are directed towards a number of large
existing and potential markets for which there can be no assurance of
financial success. Further, to expand the Slugger Stadium or driving range
concepts beyond the first location in Las Vegas would require considerably
more financial resources than Saint Andrews presently has and more management
and human resources than presently exist at Saint Andrews.
COMPETITION
SPORTPARK SEGMENT. Any SportParks built by Saint Andrews will compete
with any other family/sports attractions in the city where the SportPark is
located. Such attractions could include amusement parks, driving ranges,
water parks, and any other type of family or sports entertainment. Saint
Andrews will be relying on the combination of active user participation in the
sports activities and competitive pricing to encourage visitors and patrons.
There can be no assurance that Saint Andrews will be able to operate the park
on a profitable basis.
FRANCHISE BUSINESS SEGMENT. Saint Andrews' franchise sales operations
compete with the operations of other companies which offer franchises for
similar types of retail stores. Saint Andrews has identified five other
companies which offer franchises for discount golf and tennis stores, at least
two of which may be larger than Saint Andrews. Nevada Bob's Discount Golf &
Tennis and Pro Golf Discount are Saint Andrews' largest competitors.
Saint Andrews and its franchisees also compete with general sporting
goods stores, especially discount stores such as Herman's and Oshman's, other
discount golf and tennis stores such as the Nevada Bob's and Pro Golf Discount
franchise stores described above, discount department stores such as K-Mart,
catalog stores and other retailers. Saint Andrews believes that the greatest
competition to its franchised retail stores comes from the other discount golf
and tennis stores, the number of which has grown substantially in recent
years.
Saint Andrews and its franchisees also compete with entities engaged in
the sale of similar merchandise by telephone and mail order sales. The
largest telephone and mail order competitor which advertises through catalogs
is Austad's, which is much larger and has greater financial resources than
does Saint Andrews. Major competitors that advertise through national
magazine advertisements are Nevada Bob's Discount Golf & Tennis and Edwin
Watts.
Principal competitive factors faced by Saint Andrews in connection with
the sale of franchises include territory availability, availability of
exclusive products, training and support, assistance in site selection and the
initial investment required of a franchisee. Saint Andrews believes that the
support, training and other assistance offered to potential franchisees is
more responsive to the needs of franchisees than that provided by its
competitors. In addition, Saint Andrews believes that the customized,
integrated point of sale and management computer system which it has developed
for its franchisees offers certain competitive advantages.
Principal competitive factors faced by Saint Andrews and its franchisees
in the sale of merchandise generally are price, quality, personal service,
merchandise, convenience, and customer loyalty. Saint Andrews believes that
the prices of the merchandise offered by franchisees is generally below those
offered by non-discount retail outlets. Saint Andrews' franchisees offer top
name-brand and quality private label merchandise, and Saint Andrews requires
that its franchisees obtain Saint Andrews' approval on all merchandise to be
sold to ensure the quality of the merchandise offered. The Company believes
that it will be able to continue to assist the franchisees to obtain regular
and close-out merchandise at attractive prices from name-brand manufacturers,
but there is no assurance how long this will continue.
TRADE NAMES AND TRADEMARKS
The trademarks "Las Vegas Discount Golf & Tennis" and "St. Andrews" on
golf clubs and golf bags, are registered on the principal register of the
United States Patent and Trademark Office as well as in Canada and in the
State of Nevada. These trademarks have been licensed by the Company to Saint
Andrews. Management of Saint Andrews also believes that it and/or the Company
have developed proprietary rights to the names "Birdie Golf" and "Royal Scot",
as well as variations of its registered trademarks. These names and marks are
licensed to franchisees under franchise agreement provisions which strictly
regulate their use.
The Company has also filed "intent to use" trademark applications with
regard to the "St. Andrews" name and related designs with respect to mens' and
womens' clothing and certain golf equipment and accessories. Saint Andrews
has also filed an "intent to use" trademark application for "All-American
SportPark" and a related design and Slugger Stadium, and it intends to file a
similar application for the "Saint Andrews" name.
The Company and Saint Andrews intend to maintain the integrity of the
trademarks, other proprietary names and marks against unauthorized use and to
protect the franchisees' use against claims of infringement and unfair
competition where circumstances warrant. Failure to defend and protect such
trade name and other proprietary names and marks could adversely affect the
Saint Andrews' sales of franchises under such trade names and other
proprietary names and marks. The Company knows of no current, materially
infringing uses except for several golf catalogs which have recently included
clothing items bearing the name of St. Andrews, and a company in Canada which
is believed to be distributing a line of clothes that bears the St. Andrews
name in various pro shops in Canada. The Company has recently advised the
company in Canada that it is infringing on the Company's St. Andrews trademark
(which is registered in Canada) and demanded that they cease using the
trademark. The Canadian company has responded and stated that they have
ceased production and distribution of this line of clothes, but the Company
has not yet verified this information. With respect to the golf catalogs, the
Company is currently investigating whether anyone else has filed for trademark
protection in the United States for the name "St. Andrews" with respect to
clothing. If they have, the Company intends to file objections to any such
applications because the Company believes that it was the first to use the
trademark with respect to clothing. Once this search is completed, the
Company also intends to notify the catalogs that they are infringing on the
Company's trademark rights. There is no assurance that the Company will be
able to establish that it was the first to use St. Andrews on clothing in the
United States. If it cannot, the Company will not have any trademark
protection for the St. Andrews name with respect to clothing.
Saint Andrews' Operations Manual provides operation, management and
marketing guidelines for its franchise stores. The Operations Manual is the
sole property of Saint Andrews but is available for use by a franchisee of
Saint Andrews so long as the franchisee operates the store pursuant to the
terms of the franchise agreement.
GOVERNMENTAL REGULATION
Saint Andrews' franchising activities are subject to Federal Trade
Commission ("FTC") regulation and state laws which regulate the offer and sale
of franchises. Saint Andrews is also subject to a number of state laws which
regulate substantive aspects of the franchisor-franchisee relationship.
The FTC's Trade Regulation Rule on Franchising ("FTC Rule") requires
Saint Andrews to furnish to all prospective franchisees a franchise offering
circular containing information prescribed by the FTC Rule. In addition, 15
states presently regulate the offer and sale of franchises in such states by
laws requiring both disclosure to prospective franchisees and, in most cases,
registration of the franchise offering with state authorities. Saint Andrews
is currently registered to sell franchises in 15 of the 15 states which
require registration.
State laws which regulate the franchisor-franchisee relationship
presently exist in at least 17 states and the District of Columbia. Such laws
regulate the franchise relationship by, for example, requiring the franchisor
to deal with its franchisees in good faith, prohibiting interference with the
right of free association among franchisees, limiting the imposition of
standards of performance on a franchisee, and regulating discrimination among
franchisees in charges, royalties and fees. Such laws have not precluded
Saint Andrews from seeking franchisees in a given area. Such laws also
restrict a franchisor in the termination of a franchise agreement by, for
example, requiring "good cause" to exist as a basis for the termination,
advance notice to the franchisee of the termination, an opportunity to cure
and repurchase of inventory or other compensation.
Saint Andrews is not aware of any pending franchise legislation which in
its view is likely to affect significantly the operations of the Company. The
Company believes that its operations comply substantially with the FTC Rule
and state franchise laws.
At present, none of the foreign countries in which Saint Andrews has
granted franchises directly regulate franchising activities except for the
Province of Alberta in Canada, which has franchise requirements similar to
those of many states in the U.S.
EMPLOYEES
As of April 1, 1996, the Company employed a total of 5 persons on a
full-time basis, and Saint Andrews employed a total of 24 persons on a full-
time basis. None of the Company's or Saint Andrews' employees are represented
by a union, and the Company and Saint Andrews believe that their employee
relations are good.
FOREIGN OPERATIONS
The Company has had only a limited amount of export sales. During the
years ended December 31, 1995 and 1994, the Company had approximately $17,000
and $28,500, respectively, in export sales from continuing operations.
Saint Andrews presently has franchise stores located in Canada and the
Mariana Islands, and receives franchise fees and royalties from these stores.
During the years ended December 31, 1995 and 1994, the Company received
approximately $137,000 and $148,000, respectively, in fees and royalty revenue
from foreign franchisees.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company leases approximately 15,500 square feet of warehouse space
and approximately 6,000 square feet of office space at 5325 South Valley View
Boulevard, Suite 10, Las Vegas, Nevada, at an aggregate monthly rent of
approximately $13,000 from its Chairman of the Board. The rent is adjustable
annually based on increases in the consumer price index and the lease expires
January 31, 2005. The Company and Saint Andrews are presently using all of
this space, and additional space is available at this location if needed for
the Company's operations. The Company believes that the rent paid is
comparable to that which it could obtain from an unaffiliated party.
Saint Andrews uses approximately 3,000 square feet of the office space
and pays 33% of the rent.
During 1990, the Company opened a Company-owned store in Las Vegas,
Nevada. This store is a "show place" type of location which is used to show
prospective franchisees, provide franchisee training and provide an additional
source of revenue for the Company. The store is located in leased space in a
small shopping center in a growing area of Las Vegas. The space covers 5,600
square feet of space, and is leased from an unaffiliated party for $7,000 per
month plus cost of living adjustments, real estate taxes and other expenses.
The lease expires in August, 2000.
During 1993, the Company opened a retail store in Los Angeles,
California. The store is located in leased space in a small shopping center.
The space covers 3,816 square feet, and is leased from an unaffiliated party
for approximately $5,000 per month. The lease expires in October, 1998.
During 1995, the Company opened a retail store in the Westwood area of
Los Angeles, California. The store covers approximately 16,000 square feet
and is leased from an unaffiliated party for approximately $5,000 per month
pursuant to a lease which expires May 31, 1996.
During 1995, the Company also opened a retail store in Encino,
California. The store covers approximately 4,144 square feet and is leased
from an unaffiliated party for approximately $8,152 per month pursuant to a
lease which expires January 26, 1998.
ITEM 3. LEGAL PROCEEDINGS.
Except for the lawsuit described in the following paragraphs, neither
the Company nor Saint Andrews is presently a party to any legal proceedings,
except for routine litigation that is incidental to the Company's business.
As of April 1, 1996, Saint Andrews had pending three lawsuits it had filed
against former franchisees for failure to pay amounts due and other breaches
of their franchise agreements. In two of these lawsuits, the franchisees have
filed counterclaims against Saint Andrews requesting specified and unspecified
compensatory damages and other relief including attorneys' fees, interest and
exemplary damages. Saint Andrews believes that it is normal for franchisees
to assert counterclaims in such lawsuits as a defense tactic.
On February 27, 1996, Saint Andrews filed a Complaint in the District
Court, Clark County, Nevada, against Gordon Gaming Corporation ("Gordon"),
Saint Andrews which purchased from Howard Hughes Corporation ("Hughes") the
property in Las Vegas where Saint Andrews was preparing to build its first
SportsPark. The lawsuit is based on a lease which Saint Andrews entered into
with Hughes on May 31, 1994, for approximately 33 acres located at the corner
of Sahara and Las Vegas Boulevard South. Pursuant to the lease, Hughes had
the right to terminate the lease if the property was sold provided that Saint
Andrews would be reimbursed for certain expenditures up to a maximum of $3.5
million.
The lease was terminated on June 21, 1995, and according to the terms of
the lease, Hughes was required to pay Saint Andrews its reimbursable amount no
later than 30 days after the termination. When Gordon purchased the property
from Hughes, it assumed Hughes' obligations relating to the termination of the
lease. Gordon has continued to refuse to make any payment to Saint Andrews,
even the amount which both parties agreed was reimbursable. The Complaint
seeks an unspecified amount of compensatory damages, punitive damages,
attorneys' fees and costs.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) MARKET INFORMATION. The Company's Common Stock is traded in the
over-the-counter market and is quoted on the NASDAQ Small-Cap Market under the
symbol "LVDG." The following table sets forth the closing high and low bid
prices of the Common Stock for the periods indicated. These prices are
believed to be representative inter-dealer quotations, without retail markup,
markdown or commissions, and may not represent prices at which actual transac-
tions occurred.
BID
HIGH LOW
YEAR ENDED DECEMBER 31, 1994
First Quarter $0.625 $0.4375
Second Quarter $0.75 $0.4375
Third Quarter $1.875 $0.5625
Fourth Quarter $2.0625 $1.375
YEAR ENDED DECEMBER 31, 1995
First Quarter $1.625 $1.125
Second Quarter $1.875 $1.125
Third Quarter $2.00 $1.125
Fourth Quarter $1.375 $0.71875
(b) HOLDERS. The number of holders of record of the Company's $.001
par value common stock at March 29, 1996, was approximately 1,050. This does
not include shareholders who hold stock in their accounts at broker/dealers.
(c) DIVIDENDS. Holders of common stock are entitled to receive such
dividends as may be declared by the Company's Board of Directors. No
dividends have been paid with respect to the Company's common stock and no
dividends are anticipated to be paid in the foreseeable future. It is the
present policy of the Board of Directors to retain all earnings to provide for
the growth of the Company. Payment of cash dividends in the future will
depend, among other things, upon the Company's future earnings, requirements
for capital improvements and financial condition.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
SEASONALITY
The Company's business is seasonal, in that the Company's franchisees
typically experience sales peaks in the Spring and pre-Christmas seasons.
Accordingly, the results of interim periods may not be indicative of results
for the full year.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995, COMPARED TO YEAR ENDED DECEMBER 31, 1994
Total revenues for 1995 increased by approximately 43% from 1994 to
$13.2 million. The principal factors contributing to this increase were:
1. A 69% increase in retail sales of merchandise primarily due to the
increased volume of Company-owned stores, two of which opened during 1995.
2. A 34% increase in wholesale revenue.
These increases were partially offset by:
1. A 5% decrease in royalties.
2. A 19% decrease in franchise fees reflecting a reduction in the
average number of stores opened in 1995 as compared to 1994.
The retail sales have increased because of two additional Company owned
stores. There were 50 franchisees in operation at the end of 1995 compared to
54 at year-end 1994. Sales of products sold at wholesale by the Company are
expected to increase based on the ongoing education of franchisees on the
merits of the Company Brand merchandise and the higher gross profit margin
opportunity available to franchisees from the sale of these products.
Gross margins on wholesale sales of merchandise and corporate equipment
increased from 9% in 1994 to 13% in 1995. The gross margin on retail sales
decreased from 27% in 1994 to 23% in 1995.
Selling, general and administrative expenses increased 42% during 1995
to approximately $4.1 million. The Company attributes this increase primarily
to salaries, wages, promotional and advertising expenses.
The Company recognized a $230,000 loss from operations before income
taxes in 1995, a decrease of $383,000 compared to 1994. The Company
attributes the loss to increased selling, general and administrative expenses
of $1.2 million and a 4% decrease in retail sales gross margin, and $108,000
in costs for the development of its Saint Andrews golf centers concept and
sportparks.
During 1995, six new franchises were opened as compared to 8 franchises
in 1994. The Company's internal target is to open a greater number of new
franchises than it opened in 1995 and it has modified the specific programs in
place to accomplish this objective. There were 10 store closings in 1995,
mostly for the lack of retail sales and the inability of the franchisee to
meet the performance standards required by the Company as specified in the
franchise agreement. Many of these closings are the result of the economic
downturns and increased competition discussed above.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, the Company had working capital of approximately
$3,757,000, as compared to working capital of approximately $4,332,000 at
December 31, 1994. Cash decreased from $3,586,000 at December 31, 1994, to
$1,043,000 at December 31, 1995, primarily due to $3,000,000 of terminated
project costs, $626,000 spent on the acquisition of property and equipment,
and the increase in inventories of $1,332,000. These amounts were offset by
the increase in accounts payable and accruals in the amount of $1,841,000 and
the increase in the amount due to the Affiliated Store of $763,000.
The Company's sources of working capital include its current cash
balance, cash flows from operating activities, and a $400,000 bank line of
credit. Management believes that these sources of cash will be adequate to
fund operations throught the balance of 1996.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements are set forth on pages F-1 through F-17 hereto.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING FINANCIAL
DISCLOSURE.
No response required.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The Directors and Executive Officers of the Company are as follows:
NAME AGE POSITIONS AND OFFICES HELD
Vaso Boreta 63 President, Chairman of the Board, Secretary
and Treasurer
Ronald S. Boreta 33 Director
Robert R. Rosburg 69 Director
William Kilmer 56 Director
Except for the fact that Vaso Boreta and Ronald Boreta are father and
son, respectively, there is no family relationship between any Director or
Officer of the Company. The Company presently has no audit, compensation or
nominating committee.
All Directors hold office until the next Annual Meeting of Shareholders.
Officers of the Company are elected annually by, and serve at the
discretion of, the Board of Directors.
The following sets forth biographical information as to the business
experience of each officer and director of the Company for at least the past
five years.
VASO BORETA has been Chairman of the Board of Directors since December
1989, President since July 1994, and Treasurer and Secretary since June 1992,
and a Director of the Company since February 1988. He also served as the
Company's President from February 1988 to December 1989, and October 1990 to
June 1992. Mr. Boreta has also been an Officer and a Director of Saint
Andrews Golf Corporation since its formation in March 1984. In 1974, Mr.
Boreta first opened a specialty business named "Las Vegas Discount Golf &
Tennis," which retailed golf and tennis equipment and accessories. Mr.
Boreta's original store is now an Affiliated Store of the Company. Mr.
Boreta devotes approximately 80% of his time to the business of the Company
and the balance to operating his Affiliated Store.
RONALD S. BORETA has been a Director since February 1988, and served as
President of the Company from June 1992 until July 1994, when he resigned to
become President and Chief Executive Officer of Saint Andrews. He also
previously served as Vice President, Secretary and Treasurer of the Company.
He has been employed by Saint Andrews Golf Corporation ("Saint Andrews") since
its inception in March 1984, with the exception of a 6-month period in 1985
when he was employed by a franchisee of Saint Andrews located in San
Francisco, California. Mr. Ron Boreta has also been a Director of Saint
Andrews Golf Corporation since 1984, and an Officer since 1986. Prior to his
employment by Saint Andrews, Mr. Boreta was an assistant golf professional at
San Jose Municipal Golf Course in San Jose, California, and had worked for two
years in the areas of sales and warehousing activities with a golf discount
store in South San Francisco, California.
ROBERT R. ROSBURG has served as a Director of the Company since November
1989, and has been a director of Saint Andrews since August 1994. Mr. Rosburg
has been a professional golfer since 1953. From 1953 to 1974 he was active on
the Professional Golf Association tours, and since 1974 he has played
professionally on a limited basis. Since 1975 he has been a sportscaster on
ABC Sports golf tournament telecasts. Since 1985 he has also been the
Director of Golf for Rams Hill Country Club in Borrego Springs, California.
Mr. Rosburg received a Bachelor's Degree in Humanities from Stanford
University in 1948.
WILLIAM KILMER has served as a Director of the Company since July 1990,
and has been a director of Saint Andrews since August 1994. Mr. Kilmer is a
retired professional football player, having played from 1961 to 1978 for the
San Francisco Forty-Niners, the New Orleans Saints and the Washington
Redskins. Since 1978, he has toured as a public speaker and also has served
as a television analyst. Mr. Kilmer received a Bachelor's Degree in Physical
Education from the University of California at Los Angeles.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Based solely on a review of Forms 3 and 4 and amendments thereto
furnished to the Company during its most recent fiscal year, and Forms 5 and
amendments thereto furnished to the Company with respect to its most recent
fiscal year and certain written representations, no persons who were either a
director, officer, beneficial owner of more than 10% of the Company's common
stock, failed to file on a timely basis reports required by Section 16(a) of
the Exchange Act during the most recent fiscal year.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth information regarding the executive
compensation for the Company's President and each other executive officer who
received compensation in excess of $100,000 for the years ended December 30,
1995, 1994 and 1993 from the Company and its subsidiaries:
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
PAYOUTS
SECURI-
TIES
UNDERLY-
OTHER RE- ING
ALL
ANNUAL STRICTED OPTIONS/
OTHER
NAME AND PRINCIPAL COMPEN- STOCK SARs LTIP
COMPEN-
POSITION YEAR SALARY BONUS SATION AWARD(S)
(NUMBER)PAYOUTS SATION
<S> <C> <C> <C> <C> <C> <C> <C>
<C>
Vaso Boreta, 1995 $100,000 -0- $ 4,584 -- -- --
-0-
President, Chair- <F3>
man of the Board<F1> 1994 $100,000 -0- $ 60,400 -- <F5> --
-0-
<F3>
Ronald S. Boreta 1995 $100,000 -0- $ 19,071 -- -0- --
-0-
President and CEO <F4>
of Subsidiary 1994 $100,000 -0- $14,190 -- 281,000 --
-0-
<F2> <F4> <F6>
1993 $ 80,000 -0- $ 8,959 -- -- --
-0-
<F4>
Charles Hohl, 1995 $100,000 -0- $ 2,346 -- -0- --
-0-
Executive Vice <F7>
President of
Subsidiary
_________________________
<FN>
<F1>
Vaso Boreta has served as President of the Company since August 1, 1994.
<F2>
Mr. Boreta has served as President and CEO of Saint Andrews since August 1,
1994, and Saint Andrews has paid all of his salary since that time. From
June 1992 to July 1994, Mr. Boreta served as President of both Saint
Andrews and the Company and during this period the Company and Saint
Andrews each paid one-half of his salary.
<F3>
Represents amount contributed to the Company's 401(k) plan on behalf of Mr.
Boreta in 1994 and 1995.
<F4>
Represents amounts paid for country club memberships for Ronald S. Boreta
and contributions to the Company's 401(k) plan on his behalf.
<F5>
During 1994, Vaso Boreta received options to purchase 110,000 shares of the
common stock of Saint Andrews.
<F6>
In addition to the options to purchase shares of the Company's Common Stock
shown, during 1994, Ronald S. Boreta also received options to purchase
110,000 shares of the common stock of Saint Andrews.
<F7>
Represents amount contributed to the Company's 401(k) plan on behalf of Mr.
Hohl in 1995.
</FN>
</TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS/
UNDERLYING SARS GRANTED EXERCISE
OPTIONS/SARS TO EMPLOYEES OR BASE EXPIRATION
NAME GRANTED(#) IN FISCAL YEAR PRICE($/SH) DATE
Ronald S. Boreta -0- -- -- --
Vaso Boreta -0- -- -- --
EMPLOYMENT AGREEMENTS
In February 1988, Saint Andrews Golf Corporation ("Saint Andrews")
entered into a seven year employment agreement with Mr. Vaso Boreta
pursuant to which he received a base salary of $100,000 per year plus
annual increases as determined by the Board of Directors. This salary was
paid one-half by the Company and one-half by Saint Andrews. Mr. Boreta
deferred his entire 1988 salary and was paid only $50,000 of his 1989
salary. In February 1990, the Company issued a promissory note to Mr.
Boreta in the principal amount of $131,000 in payment of his accrued
salaries. This note was combined into a new note from the Company on
December 31, 1993, which note is due April 30, 1996, and bears interest at
10% per annum. Mr. Vaso Boreta's employment agreement with Saint Andrews
was terminated as of July 31, 1994, and he no longer receives any salary
from Saint Andrews. Since July 31, 1994, Mr. Vaso Boreta has been paid an
annual salary of $100,000 by the Company.
Effective August 1, 1994, Saint Andrews entered into an employment
agreement with Ronald S. Boreta, Saint Andrew's President and Chief
Executive Officer, pursuant to which he receives a base salary of $100,000
per year plus annual increases as determined by the Board of Directors.
The employment agreement terminates on December 31, 1996, but will be
automatically extended for additional one year periods unless 60 days'
notice of the intention not to extend is given by either party. In
addition to his base salary, Ronald S. Boreta also will receive a $1,000
bonus for each new franchise which is sold and a royalty equal to 2% of all
gross revenues directly related to the All-American SportPark and Slugger
Stadium concepts. However, such royalty is only payable to the extent that
Saint Andrews's annual consolidated income before taxes after the payment
of the royalty exceeds $1,000,000. Ronald S. Boreta also receives the use
of an automobile, for which Saint Andrews pays all expenses, and full
medical and dental coverage. Saint Andrews also pays all dues and expenses
for membership at two local country clubs at which Ronald S. Boreta
entertains business contacts for Saint Andrews. Ronald S. Boreta has
agreed that for a period of three years from the termination of his
employment agreement that he will not engage in a trade or business similar
to that of Saint Andrews. In the event of a change of more than 25% of the
beneficial ownership of the Company or its parent, the termination date is
extended from December 31, 1996 to December 31, 1998, and it may be
extended up to an additional five years under certain conditions.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company do not receive any fees
for Board meetings they attend but are entitled to be reimbursed for
reasonable expenses incurred in attending such meetings.
STOCK OPTION PLANS
In December 1989, the Company's Board of Directors adopted an
Incentive Stock Option Plan (the "1989 Plan") under which options granted
are intended to qualify as "incentive stock options" under Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"). This Plan
replaced an earlier incentive stock option plan of the Company. Pursuant
to the Plan, options to purchase up to 300,000 shares of the Company's
Common Stock may be granted to employees of the Company. The Plan is
administered by the Board of Directors, which is empowered to determine the
terms and conditions of each option, subject to the limitation that the
exercise price cannot be less than the market value of the Common Stock on
the date of the grant (110% of the market value in the case of options
granted to an employee who owns 10% or more of the Company's outstanding
Common Stock) and no option can have a term in excess of 10 years (5 years
in the case of options granted to employees who own 10% or more of the
Company's Common Stock). On December 29, 1989, the Board of Directors
granted an option to Larry Jordan, the Company's former President, to
purchase up to 200,000 shares of Common Stock at $2.00 per share. However,
that option expired when he resigned in October 1990. No other options
have been granted under the 1989 Plan.
In June 1991, the Company's Board of Directors adopted a Stock Option
Plan (the "1991 Plan"), and it was approved by the Company's shareholders
in June 1992. The 1991 Plan allows the Board to grant stock options from
time to time to employees, officers and directors of the Company and
consultants to the Company. The Board of Directors has the power to
determine at the time the option is granted whether the option will be an
Incentive Stock Option (an option which qualifies under Section 422 of the
Internal Revenue Code of 1986) or an option which is not an Incentive Stock
Option. However, Incentive Stock Options will only be granted to persons
who are employees or officers of the Company. Vesting provisions are
determined by the Board of Directors at the time options are granted. The
total number of shares of Common Stock subject to options under the 1991
Plan may not exceed 500,000, subject to adjustment in the event of certain
recapitalizations, reorganizations and so forth. The option price must be
satisfied by the payment of cash and will be no less than the fair market
value of the Common Stock on the date the option is granted.
In June 1991, the Company's Board of Directors granted incentive
stock options under the 1991 Plan to 14 employees to purchase an aggregate
of 220,000 shares of Common Stock and non-qualified stock options to two
consultants to purchase an aggregate of 40,000 shares. All of the options
are exercisable at a price of $1.38 per share (except for an option granted
to Ronald Boreta which is exercisable at $1.52 per share, as described
below). These options were fully exercisable until December 31, 1992, when
one-fourth of each option expired (unless previously exercised). At the
end of each following year, an additional one-fourth of each option will
expire until December 31, 1995, when the options will expire in full.
Among the above-described options granted in June 1991, were options
granted to Ronald S. Boreta, who was then Vice President, Secretary,
Treasurer and a Director of the Company, to purchase 20,000 shares at $1.52
per share, and an option granted to Kim A. Stevenson, who was then Chief
Financial Officer of the Company, to purchase 20,000 shares at $1.38 per
share.
In October 1992, the Board of Directors granted an incentive stock
option to Ronald Boreta to purchase 120,000 shares at an exercise price of
$1.52 per share, and a non-qualified stock option to John Boreta, a
consultant to the Company, to purchase 120,000 shares at $1.38 per share.
These options are fully vested and expire on October 20, 1997.
In July 1994, the Company's Board of directors granted incentive stock
options to 10 employees to purchase an aggregate of 208,000 shares of Common
Stock and non-qualified stock options to one employee and two consultants to
purchase an aggregate of 283,000 shares of Common Stock. All of these
options are fully vested and are exercisable at a price of $.80 per share and
expire on July 27, 1999. Included in these options is an incentive stock
option granted to Ronald S. Boreta to purchase 138,000 shares of Common Stock
and a non-qualified option to purchase 143,000 shares. Also included in
these options is a non-qualified stock option granted to John Boreta, a
consultant to the Company and a principal shareholder, to purchase 130,000
shares of Common Stock.
In January 1995, the Company's Board of Directors granted an incentive
stock option to one employee to purchase 10,000 shares of Common Stock.
This option will vest as to 5,000 shares on June 1, 1995, and as to the other
5,000 shares on June 1, 1996. The exercise price is $1.625 per share and the
option expires on January 26, 2000.
In July 1995, the Company's Board of Directors granted an incentive
stock option to one employee to purchase 1,000 shares at a price of $1.35 per
share for five years.
401(K) PLAN
The Company maintains a 401(k) employee retirement and savings program
(the "401(k) Plan") which covers the employees of the Company and its
subsidiaries. Under the 401(k) Plan, an employee may contribute up to 15% of
his or her gross annual earnings, subject to a statutory maximum, for
investment in one or more funds identified under the plan. The Company makes
matching contributions equal to 25% of participants' contributions.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of April 1, 1996, the stock ownership
of each person known by the Company to be the beneficial owner of five
percent or more of the Company's Common Stock, each Officer and Director
individually, and all Directors and Officers of the Company as a group.
Except as noted, each person has sole voting and investment power with
respect to the shares shown.
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND ADDRESS NATURE OF BENE- PERCENT
OF BENEFICIAL OWNERS FICIAL OWNERSHIP OF CLASS
<S> <C> <C>
Vaso Boreta 2,621,410 49.3%
5325 South Valley View Blvd.
Las Vegas, NV 89118
Ronald Boreta 1,455,144<F1> 23.3%
5325 South Valley View Blvd.
Las Vegas, NV 89118
Robert R. Rosburg 5,000 0.1%
49-425 Avenida Club La Quinta
La Quinta, CA 92253
William Kilmer 5,000 0.1%
1500 Sea Breeze
Ft. Lauderdale, FL 33316
John Boreta 791,345<F2> 14.2%
1601 A Lareina
Palm Springs, CA 92262
All Directors and Officers 4,086,554 65.5%
as a Group (4 Persons)
__________________
<FN>
<F1>
Includes 512,799 shares underlying Series A Convertible Preferred Stock
held by Ronald Boreta, which shares may be voted with the Company's Common
Stock as a single class. The Series A Convertible Preferred Stock is not
convertible until the achievement of certain performance goals. (See ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.) Also includes 406,000
shares underlying Stock Options held by Ronald Boreta.
<F2>
Includes 255,000 shares underlying Nonqualified Stock Options held by John
Boreta.
</FN>
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
CERTAIN TRANSACTIONS
The Company presently owns 66.7% of the outstanding common stock of
Saint Andrews Golf Corporation ("Saint Andrews"). Vaso Boreta, the Company's
President and Chairman of the Board, is Chairman of the Board of Saint
Andrews. Ronald S. Boreta, a Director of the Company, is President and a
Director of Saint Andrews. Robert S. Rosburg and William Kilmer, Directors
of the Company, are also Directors of Saint Andrews. In addition, John
Boreta, the son of Vaso Boreta and the brother of Ronald S. Boreta, is a
principal shareholder of the Company.
Until August 1, 1994, the Company and Saint Andrews shared the expenses
of jointly-used facilities and administrative and accounting personnel on a
50-50 basis under a verbal agreement. Since August 1994, the Company and
Saint Andrews have allocated these costs on a pro rata basis based on which
entity receives the benefit of the particular expense. With respect to the
lease for office and warehouse space, the Company pays 67% of the monthly
lease payments and Saint Andrews pays 33%.
Effective August 1, 1994, the Company has also agreed to purchase,
warehouse and make available to Saint Andrews and its franchisees certain
merchandise. In exchange, Saint Andrews agreed to pay $350,000 to retire
certain bank indebtedness described below. The agreement will terminate on
July 31, 1997.
Effective August 1, 1994, the Company granted Saint Andrews a license to
use all of its trademarks, tradenames and other commercial names and symbols
for so long as such trademarks, tradenames and other commercial names and
symbols are being used by Saint Andrews and its franchisees.
The facilities used by the Company and Saint Andrews are leased by the
Company from Vaso Boreta, the Company's Chairman of the Board. The Company
leases approximately 15,500 square feet of warehouse space and 6,000 square
feet of office space from Mr. Boreta at a base monthly rent of $13,000,
pursuant to a lease which expires on January 21, 2005. The Board of
Directors of the Company believes that the terms of this lease are at least
as favorable as those which could be obtained from an unaffiliated entity.
Effective October 1, 1990, a franchise agreement between Saint Andrews
and Vaso Boreta, the Company's President and Chairman of the Board, was
mutually terminated, and a new agreement was entered into with him pursuant
to which he was permitted to operate a Las Vegas Discount Golf & Tennis store
in Las Vegas, Nevada, which is not a franchise store. The agreement also
provided that Mr. Boreta may purchase certain merchandise for his store at
the same cost as the Company, use the facilities and personnel of the Company
on a limited basis, and operate a limited mail order business from his store.
In exchange for these rights, Mr. Boreta paid Saint Andrews a fee of $3,000
per month. This agreement with Saint Andrews was terminated on July 31, 1994.
Mr. Boreta now has a similar agreement with the Company. This store is
referred to herein as the "Affiliated Store."
During 1995, the Affiliated Store purchased $559,000 in sporting goods
merchandise from the Company and the Affiliated Store sold $757,000 in
merchandise to the Company.
The Company owns one store in Las Vegas and therefore the Company and the
Affiliated Store share advertising costs in the Las Vegas market on an equal
basis. During 1994, the Company paid $60,000 for advertising shared with the
Affiliated Store, which represented approximately one-half of the costs of
such advertising.
During the year ended December 31, 1994, Voss Boreta loaned the Company
a net amount of approximately $387,000 which, when combined with the balance
owed to Mr. Boreta of $231,000 on December 31, 1993, resulted in an amount
due Mr. Boreta on December 31, 1994, of $618,000. This amount was increased
to $663,000 as of December 31, 1995. This amount is represented by an
unsecured note bearing interest at 10% which is due on January 31, 1997. The
terms of the note with Mr. Boreta are substantially equivalent to the terms
of the loans he took out from a bank to fund his loans to the Company.
The Company and Saint Andrews obtained $1,011,000 in loans from an
unaffiliated bank which Vaso Boreta and his wife personally guaranteed. The
loans were also collateralized by inventory and accounts receivable. The
loans were completely paid off during 1994, and Saint Andrews paid $350,000
of the balance from the proceeds of its public offering. The loan proceeds
were originally used for the purchase of property and equipment and working
capital.
In October 1992, the Board of Directors established 512,799 shares of
Series A Convertible Preferred Stock and issued such shares to Vaso Boreta in
exchange for services valued at $5,128. These shares were issued to Mr.
Boreta to replace shares which he previously relinquished in order to
facilitate a proposed public offering in early 1990. Each share of the Series
A Convertible Preferred Stock is convertible into one share of Common Stock
in the event that the Company has annual income before taxes of at least
$1,000,000 for any fiscal year. Each share of Series A Preferred Stock is
entitled to one vote and with respect to that vote the holder is entitled to
vote with the holders of the Company's Common Stock as a single class. In
the event of liquidation, the holder of the Series A Convertible Preferred
Stock is entitled to receive $.01 per share before any assets are distributed
to the holders of Common Stock. The Series A Convertible Preferred Stock has
no redemption or dividend rights. During 1994, Vaso Boreta transferred all of
his shares of Series A Convertible Preferred Stock to Ronald Boreta, a son of
Vaso Boreta and a Director of the Company.
In September 1994, Vaso Boreta, the Company's President and Chairman of
the Board, loaned Saint Andrews $120,000. This note was repaid in full during
December 1994, and no interest was charged or paid.
CONFLICTS OF INTEREST
The Company presently owns 66.7% of the outstanding common stock of
Saint Andrews. All four of the Company's directors are also directors of
Saint Andrews and Vaso Boreta, the Company's President and Chairman of the
Board, is also Chairman of the Board of Saint Andrews.
The Company sells golf and tennis related merchandise to franchisees of
Saint Andrews and others, and owns and operates four "Las Vegas Discount Golf
& Tennis" stores - one in Las Vegas, Nevada, two in Los Angeles, California,
and one in Encino, California. These stores are not franchises of Saint
Andrews and do not pay royalties to Saint Andrews, even though they may
benefit from Saint Andrews' activities, including any national advertising
which Saint Andrews may do. In addition, the Company holds the rights to
certain trademarks and tradenames which have been licensed to Saint Andrews
on a perpetual basis. The Company and Saint Andrews share office and
warehouse facilities and certain administrative and accounting personnel, and
the Company has agreed to maintain an inventory of merchandise for sale to
Saint Andrews' franchisees under an agreement which expires July 31, 1997.
The merchandise which the Company sells to the franchisees is generally
private label merchandise, but the Company occasionally purchases close out
merchandise from name brand manufacturers which it also sells to franchisees.
The Company has agreed to sell the merchandise to Saint Andrews' franchisees
at competitive prices which allow a reasonable profit to the Company.
Vaso Boreta owns and operates a "Las Vegas Discount Golf & Tennis" store
in Las Vegas, Nevada, which is not a franchise of the Company, under an
agreement with the Company. This store does not pay royalties to Saint
Andrews, even though the store may benefit from Saint Andrews' activities,
including any national advertising which Saint Andrews may conduct.
The Company has in the past, and in the future is expected to continue,
to negotiate with the name brand manufacturers for the purchase of golf and
tennis merchandise by Saint Andrews' franchise system, the Company-owned
stores and Mr. Boreta's Affiliated Store. The combined buying power of the
franchise system, the Company-owned stores and Mr. Boreta's Affiliated Store
enables the group to obtain better terms than they might be able to obtain
separately. As a result, the Company, Mr. Boreta and Saint Andrews receive a
benefit from this arrangement. Generally, the franchisees, the Company, and
Mr. Boreta will buy merchandise from the name brand manufacturers at the same
price.
By virtue of the relationships and arrangements described above,
operation of the Company has and will in the future involve transactions
between the Company and related individuals and entities which result in
potential conflicts between the interests of the Company and those of such
persons or entities.
The Company and Saint Andrews have agreed upon a means of resolving
future conflicts of interest between the two corporations which relate to
corporate opportunities by defining certain areas of interest for each
corporation. Any opportunities which come to the attention of officers or
directors of either corporation in the areas of interest set forth below
must be disclosed promptly to the appropriate corporation and made
available to it. The board of directors of such corporation may reject any
such business opportunity if it believes that it is in the best interest of
the corporation to do so. In such case, the opportunity will then be made
available to the other corporation. The Company and Saint Andrews have
agreed that the areas of interest will continue indefinitely beyond the
July 31, 1997, termination of their agreement until such time as the two
companies may mutually agreed to amend the provisions of the agreement.
AREAS OF INTEREST OF SAINT ANDREWS
1. All potential franchisees and all potential future sites for
Las Vegas Discount Golf & Tennis stores or Saint Andrews Golf Centers.
2. All opportunities for All-American SportParks, Slugger Stadiums
or other sports oriented theme parks.
3. All opportunities related to the sale of Saint Andrews logo
merchandise, except that the Company will be allowed to purchase such
merchandise at wholesale prices for resale in its two corporate stores.
AREA OF INTEREST THE COMPANY
All future opportunities related to the purchase, sale and distribution
of name brand merchandise and private label merchandise which does not use
the St. Andrews or Saint Andrews names or logos. Opportunities related to
the purchase, sale and distribution of private label merchandise using the
St. Andrews or Saint Andrews names or logos will belong to Saint Andrews.
In an effort to minimize future conflicts of interest with Saint
Andrews's officers and directors, Saint Andrews's Board of Directors has
established a corporate opportunities doctrine. Saint Andrews's bylaws
have been amended to provide that all business opportunities within areas of
interest determined from time to time by the Board of Directors, as evidenced
by resolutions appearing in Saint Andrews's Minutes, which come to the
attention of the officers, directors and other members of management of Saint
Andrews, shall be disclosed promptly to Saint Andrews and made available to
it. The Board of Directors may reject any business opportunity presented to
it and thereafter any officer, director or other member of management may
avail himself of such opportunity. The areas of interest which have been
delineated include any opportunities which relate to (1) Saint Andrews's
franchise business; (2) Saint Andrews's proposed All-American SportPark;
(3) Saint Andrews's proposed Slugger Stadium; or (4) Saint Andrews's proposed
Saint Andrews logo merchandise program.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) 3. EXHIBITS.
EXHBIIT
NUMBER DESCRIPTION LOCATION
3.1 Articles of Incorporation, Incorporated by reference to
as amended Exhibit 3.1 to Registrant's
Form S-1 Registration State-
ment (No. 33-33450)
3.2 Bylaws Incorporated by reference to
Exhibit 3.2 to Registrant's
Form S-1 Registration State-
ment (No. 33-33450)
3.3 Articles of Amendment to Incorporated by reference to
Articles of Incorporation Exhibit 3.3 to Registrant's
Form S-1 Registration State-
ment (No. 33-33450)
3.4 Statement Establishing Incorporated by reference to
Series A Preferred Stock Exhibit 3.4 to Registrant's
Form S-1 Registration State-
ment (No. 33-33450)
10.1 1989 Incentive Stock Incorporated by reference to
Option Plan Exhibit 10.1 to Registrant's
Form S-1 Registration State-
ment (No. 33-33450)
10.2 Lease Agreement with Vaso Incorporated by reference to
Boreta, as amended Exhibit 10.2 to Registrant's
Form S-1 Registration State-
ment (No. 33-33450)
10.3 Employment Agreement with Incorporated by reference to
Vaso Boreta, as amended Exhibit 10.3 to Registrant's
Form S-1 Registration State-
ment (No. 33-33450)
10.4 License Agreement with Incorporated by reference to
Vaso Boreta Exhibit 10.16 to Registrant's
Annual Report on Form 10-K
For the year ended December
31, 1990
10.5 1991 Stock Option Plan Incorporated by reference to
Exhibit 10.16 to Registrant's
Annual Report on Form 10-K
For the year ended December
31, 1991
10.6 Promissory Note to Vaso Incorporated by reference to
Boreta dated December 31, Exhibit 10.10 to Registrant's
1993 Annual Report on Form 10-K
For the year ended December
31, 1993
10.7 Ground Lease with Summa Incorporated by reference to
Corporation Exhibit 10.3 to the Form
SB-2 Registration Statement
of Saint Andrews Golf Cor-
poration (No. 33-84024)
10.8 Agreement between the Incorporated by reference to
Company and Saint Andrews Exhibit 10.4 to the Form
Golf Corporation SB-2 Registration Statement
of Saint Andrews Golf Cor-
poration (No. 33-84024)
10.9 License Agreement between Incorporated by reference to
the Company and Saint Exhibit 10.5 to the Form
Andrews Golf Corporation SB-2 Registration Statement
of Saint Andrews Golf Cor-
poration (No. 33-84024)
10.10 Lease Agreement with A&R Incorporated by reference to
Management and Develop- Exhibit 10.8 to the Form
ment Co., et al., and SB-2 Registration Statement
Sublease to Las Vegas of Saint Andrews Golf Cor-
Discount Golf & Tennis, poration (No. 33-84024)
Inc.
10.11 Lease Agreement with Vaso Incorporated by reference to
Boreta, as amended, and Exhibit 10.9 to the Form
Assignment to Las Vegas SB-2 Registration Statement
Discount Golf & Tennis, of Saint Andrews Golf Cor-
Inc. poration (No. 33-84024)
10.12 Letter Agreement with Incorporated by reference to
Oracle One Partners, Inc. Exhibit 10.10 to the Form
SB-2 Registration Statement
of Saint Andrews Golf Cor-
poration (No. 33-84024)
10.13 Promissory Note to Vaso Incorporated by reference to
Boreta Exhibit 10.11 to the Form
SB-2 Registration Statement
of Saint Andrews Golf Cor-
poration (No. 33-84024)
10.14 Agreement with Major Incorporated by reference to
League Baseball Proper- Exhibit 10.14 to the Regis-
ties, Inc. trant's Form 10-K for the
year ended December 31,
1994
21 Subsidiaries of the Attached
Registrant
(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed during the
quarter ended December 31, 1995.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Las Vegas Discount Golf & Tennis, Inc.:
We have audited the accompanying consolidated balance sheets of LAS VEGAS
DISCOUNT GOLF & TENNIS, INC. (a Colorado corporation) and subsidiaries as of
December 31, 1995 and 1994, and the related consolidated statements of
operations, shareholders' equity and cash flows for the years then ended.
These 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 Las Vegas
Discount Golf & Tennis, Inc. and subsidiaries as of December 31, 1995 and 1994
and the results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
March 5, 1996
LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS-DECEMBER 31, 1995 AND 1994
ASSETS
1995 1994
CURRENT ASSETS:
Cash and cash equivalents $ 1,043,000 $ 3,586,000
Accounts receivable, less allowance for
doubtful accounts of $98,000 and $217,000 422,000 569,000
Lease termination receivable 3,000,000 -
Notes receivable 52,000 2,000
Inventories 2,588,000 1,256,000
Due from officer - 15,000
Due from Affiliated Store 263,000 40,000
Prepaid expenses and other 16,000 44,000
Other receivables 365,000 -
Total current assets 7,749,000 5,512,000
PROPERTY AND EQUIPMENT, net 475,000 421,300
PROJECT DEVELOPMENT COSTS 1,047,000 553,700
OTHER ASSETS 140,000 297,000
$ 9,411,000 $ 6,784,000
The accompanying notes are an integral part of these financial statements.
LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS-DECEMBER 31, 1995 AND 1994
LIABILITIES AND SHAREHOLDERS' EQUITY
1995 1994
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 2,901,000 $ 1,060,000
Deferred franchise fees 120,000 120,000
Due to Affiliated Store 971,000 -
Total current liabilities 3,992,000 1,180,000
NOTE PAYABLE TO SHAREHOLDER 663,000 618,000
DEFERRED INCOME TAX LIABILITY 743,000 743,000
MINORITY INTEREST 1,252,000 1,319,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Convertible, preferred stock, Series A,
no par value; authorized-5,000,000 shares
issued and outstanding-512,799 shares 5,000 5,000
Common stock, no par value; authorized-
15,000,000 shares; issued and outstanding-
5,319,008 shares 3,871,000 3,871,000
Accumulated deficit (1,115,000) (952,000)
Total shareholders' equity 2,761,000 2,924,000
$ 9,411,000 $ 6,784,000
The accompanying notes are an integral part of these financial statements.
LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
REVENUES:
Wholesale $ 3,700,000 $ 2,759,000
Retail 7,810,000 4,634,000
Franchise fees 245,000 303,000
Royalties 1,209,000 1,271,000
Other 229,000 243,000
Total revenues 13,193,000 9,210,000
EXPENSES:
Wholesale 3,217,000 2,510,000
Retail 5,984,000 3,392,000
Selling, general and administrative 4,068,000 2,873,000
Provision for doubtful accounts 76,000 193,000
Golf centers and driving range development costs 108,000 -
Total expenses 13,453,000 8,968,000
INCOME (LOSS) FROM OPERATION (260,000) 242,000
INTEREST INCOME AND EXPENSE
Income 87,000 26,000
Expense (57,000) (115,000)
30,000 (89,000)
INCOME (LOSS) BEFORE INCOME TAXES (230,000) 153,000
Income tax provision - 149,000
INCOME (LOSS) BEFORE MINORITY INTEREST (230,000) 4,000
MINORITY INTEREST 67,000 -
NET INCOME (LOSS) $ (163,000) $ 4,000
NET INCOME (LOSS) PER COMMON SHARE: $ (.03) $ -
The accompanying notes are an integral part of these financial statements.
LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994<TABLE>
<CAPTION>
Preferred Stock Common Stock Accumulated
Total
Shares Amount Shares Amount Deficit
Equity
<S> <C> <C> <C> <C> <C>
<C>
Balance,
December 31, 1993 512,799 $5,000 5,319,008 $2,249,000 $ (956,000)
$1,298,000
Net income for the year
ended December 31, 1994 - - - - 4,000
4,000
Increase in equity due
to sale of stock by SAGC,
net of deferred tax
liability of $743,000 - - - 1,622,000 -
1,622,000
Balance,
December 31, 1994 512,799 5,000 5,319,008 3,871,000 (952,000)
2,924,000
Net loss for the year
ended December 31, 1995 - - - - (163,000)
(163,000)
Balance,
December 31, 1995 512,799 $ 5,000 5,319,008 $3,871,000 $(1,115,000)
$2,761,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (163,000) $ 4,000
Adjustment to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Minority interest (67,000) -
Depreciation and amortization 79,000 87,000
Changes in assets and liabilities:
Decrease in accounts receivable 147,000 144,000
(Increase) decrease in notes receivable (50,000) 45,000
(Increase) decrease in inventories (1,332,000) 555,000
Decrease in due from officer 15,000 -
(Increase) decrease in prepaid expenses
and other 28,000 59,000
Increase in other receivables (143,000) -
Decrease in income tax benefit - 141,000
Increase in accounts payable and accrued expenses 1,841,000 135,000
Decrease in deferred franchise fees - (10,000)
(Increase) decrease in receivable/payable
with the Affiliated Store 748,000 (120,000)
Net cash provided by operating activities 1,103,000 1,040,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (133,000) (15,000)
Lease termination receivable (3,000,000) -
Increase in other assets (65,000) (230,000)
Project development costs (493,000) (514,000)
Net cash used in investing activities (3,691,000) (759,000)
The accompanying notes are an integral part of these financial statements.
LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on note payable (215,000) (1,011,000)
Proceeds from note payable to shareholder 260,000 387,000
Proceeds from issuance of common stock - 3,496,000
Proceeds from issuance of stock warrants - 188,000
Net cash provided by financing activities 45,000 3,060,000
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (2,543,000) 3,341,000
CASH AND CASH EQUIVALENTS, Beginning of year 3,586,000 245,000
CASH AND CASH EQUIVALENTS, End of year $ 1,043,000 $ 3,586,000
SUPPLEMENTAL CASH FLOW INFORMATION:
1995 1994
Cash paid for:
Interest $ 48,000 $ 79,000
Income taxes $ - $ 8,000
NON-CASH DISCLOSURES:
During 1995, SAGC reclassified deposits totaling $221,500 from other long-term
assets to current assets - other receivables. SAGC subsequently collected the
deposit in 1996.
The accompanying notes are an integral part of these financial statements.
LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ORGANIZATIONAL STRUCTURE AND BASIS OF PRESENTATION
a. PRINCIPALS OF CONSOLIDATION
The consolidated financial statements of Las Vegas Discount Golf &
Tennis, Inc. (LVDGT), a Colorado corporation, include the accounts of LVDGT
and its subsidiaries, Saint Andrews Golf Corporation (SAGC), LVDGT Development
Corporation (Development) and LVDGT Rainbow, Inc. (Rainbow). LVDGT and its
subsidiaries are collectively referred to as "the Company". All significant
intercompany accounts and transactions have been eliminated.
b. COMPANY BACKGROUND
In 1974, the Company's chairman and principal shareholder opened a
retail store in Las Vegas, Nevada under the name Las Vegas Discount Golf &
Tennis. This store is still owned and operated by the Company's chairman and
principal shareholder and is referred to herein as "the Affiliated Store".
In March 1984, the Company's chairman and principal shareholder formed a
corporation named Sporting Life, Inc. (SLI) and SLI began to franchise the Las
Vegas Discount Golf & Tennis retail store concept. On December 27, 1988, SLI
was renamed St. Andrews Golf Corporation and on August 12, 1994, the name was
further changed to SAGC.
LVDGT was incorporated in March 1986, under the name La Jolla Capital
Corporation for the purpose of creating a corporate vehicle to seek and
acquire a business opportunity and changed its name to Laguna Capital
Corporation (LCC) in May 1986. In February 1988, LCC acquired all of the
outstanding stock of SAGC and in December 1988, LCC changed its name to LVDGT.
Today, LVDGT sells golf and tennis related merchandise to franchisees and owns
and operates Development and Rainbow.
Until December 13, 1994, SAGC was wholly-owned by LVDGT. On December
13, 1994, SAGC completed an initial public offering of 1,000,000 (representing
one-third of the post offering shares outstanding) Units at a price of $4.50
per Unit, each Unit consisting of one share of common stock and one Class A
Warrant. The net proceeds of this offering have been proportionately
allocated to LVDGT and to the minority interest shareholders. Future
operating results of SAGC will be proportionately allocated to LVDGT and the
minority interest shareholders. No minority interest in net income
of subsidiary has been reflected in the statement of operations for the year
ended December 31, 1994 as the amount is not significant. Since 1984, SAGC
has been engaged in selling LVDGT franchise retail stores and in 1994
began construction of a sports oriented theme park under the name "All
American SportPark" in Las Vegas, Nevada (see Note 6).
Development, a wholly-owned subsidiary, was formed in 1993 for the
purpose of operating a Las Vegas Discount Golf & Tennis retail store in Los
Angeles, California. With the addition of retail stores in Encino, California
and Westwood, California during 1995, Development now operates three
retail stores, all in California. Rainbow, a wholly-owned subsidiary, was
formed in 1990 for the purpose of operating a Las Vegas Discount Golf & Tennis
retail store in Las Vegas, Nevada.
c. ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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.
SAGC has recorded a $3,000,000 lease termination receivable which is
the subject of litigation (see Note 6). While SAGC believes that it will be
successful in the collection of such amounts, the ultimate resolution of the
litigation could result in the collection of an amount which is less than
that reflected in the consolidated financial statements.
In addition, SAGC has capitalized certain project development costs
related to its All-American SportPark concept. No definitive sites have been
secured or contracts entered into for such developments. Although management
believes that it will be successful in its efforts to develop such projects,
there can be no assurance that SAGC will commence such operations, or if such
operations are commenced that they will be profitable.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. FRANCHISE FEE REVENUE AND COMMISSION EXPENSE
Franchise fees received and commissions paid are initially deferred,
and are recognized in the statements of operations when all material services
or conditions related to the sale of a franchise have been performed by the
Company, typically when the franchise store opens.
b. ACCOUNTS RECEIVABLE
Accounts receivable consists of amounts due from franchisees for
royalties, and the sale of merchandise, computer equipment and supplies.
Additionally, during 1995, SAGC entered into an agreement with MBNA America
Bank, N.A. which allows MBNA to use SAGC's trademark on its credit cards. The
Company recognized $125,000 in income related to this non-refundable
payment received under to this agreement and will receive royalties for the
generation of credit card accounts. As of December 31, 1995, $100,000 of the
balance was included in accounts receivable.
c. INVENTORIES
Inventories, primarily sporting goods merchandise, display units,
computer equipment and supplies held for sale to franchisees, are stated at
the lower of cost (first-in, first-out method) or market. Inventories of the
four Company-owned retail stores are stated at the lower of cost (average cost
method) or market.
Approximately 50% of all inventory and approximately 75% of the
Company's merchandise is imported from overseas suppliers, primarily in the
Far East. As a result, the Company's business could be affected by economic
or political events affecting imports or by a major reduction in the value of
the dollar in relation to the currency of the countries from which the
goods are imported. In addition, overseas suppliers generally require a
letter of credit to be posted for the entire purchase price.
d. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and
amortization is provided for on a straight-line basis over the lesser of the
lease term or the following estimated useful lives of the assets:
Furniture and equipment 5-10 years
Leasehold improvements 15-31.5 years
Normal repairs and maintenance are charged to expense when incurred.
Expenditures which materially extend the useful life of assets are
capitalized.
e. SALES TO FRANCHISEES
All wholesale and computer equipment sales and related cost of goods
sold relate to sales to franchisees. In early 1995, SAGC outsourced the
future sales and ongoing maintenance of all franchisee computer equipment to
an unrelated third party.
f. ROYALTIES
The Company receives a three percent royalty on gross franchise sales.
Royalty revenue is recognized when earned.
g. INCOME (LOSS) PER COMMON SHARE
Income (loss) per common share and common share equivalents are
computed using the weighted average number of common shares and common share
equivalents outstanding which totalled 5,319,008 for the years ended December
31, 1995 and 1994.
h. INCOME TAXES
In May 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes". The Company adopted SFAS No. 109 during the year ended December 31,
1993. Previously, the Company accounted for income taxes under Opinion No. 11
of the Accounting Principles Board. Adoption of the new standard did not have
a significant effect on the Company's financial position or results of
operations.
i. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt investments with a
original maturity of three months or less to be cash equivalents.
j. GOLF CENTERS AND DRIVING RANGE DEVELOPMENT COSTS
During 1995, SAGC incurred and expensed $108,200 in costs for the
development of its golf centers concept and driving ranges. These costs
included certain direct and indirect costs associated with the concepts
including salaries and other administrative expenses.
k. RECLASSIFICATIONS
Certain reclassifications have been made to prior year amounts to
conform to current year presentation.
3. RELATED PARTY TRANSACTIONS
The Company has extensive transactions and relationships with its chairman
and principal shareholder, the Affiliated Store and SAGC. Because of these
relationships, it is possible that the terms of transactions between these
parties are not the same as those which would result from transactions among
unrelated parties. As of December 31, 1995 and 1994, the Company had a
$263,000 and $40,000 receivable from the Affiliated Store. As of December 31,
1995, the Company had outstanding payables to Affiliated Store of $971,000.
With the exception of a related party leasing arrangement discussed in Note 9,
all significant related party transactions are discussed below:
The Affiliated Store operates in Las Vegas, Nevada and is not a franchise
of SAGC. As a result, this store pays no royalties to SAGC but purchases
merchandise for the Affiliated Store at the same cost as SAGC. The Affiliated
Store also may benefit from the SAGC's activities, including any local and
national advertising conducted by the SAGC.
The Company and SAGC share office and warehouse facilities and the Company
provides certain administrative personnel in accounting, purchasing and
warehousing. These occupancy and administrative expenses are allocated
proportionately between the Company and SAGC in ratios management believes are
reasonable. The monthly payments are subject to adjustment in the event LVDGT
enters into new office lease arrangements or if any salary increases or
decreases are effected by LVDGT with respect to the administrative or
accounting personnel.
a. MERCHANDISE SALES
The Company sells sporting goods merchandise to the Affiliated Store.
Sales made to the Affiliated Store are recorded at the Company's cost and
totaled $559,000 and $753,000 in 1995 and 1994, respectively.
b. PURCHASES OF MERCHANDISE
Merchandise purchased from the Affiliated Store are recorded at cost
and totaled $757,000 and $1,492,000, respectively, in 1995 and 1994.
c. NOTES PAYABLE
At December 31, 1995 and 1994, the Company had an unsecured, ten
percent note payable totaling $663,000 and $618,000, respectively, with the
Company's chairman and principal shareholder. The principal amount, interest
rate, and payment terms are substantially similar to borrowings which the
Company's chairman and principal shareholder obtained from a bank to fund
these loans to the Company. The notes payable are due on January 31, 1997.
Interest expense of $57,000 and $36,000 related to this note is
included in interest expense in 1995 and 1994.
d. AUGUST 1, 1994 AGREEMENT
On August 1, 1994, LVDGT and SAGC entered into a written agreement
pursuant to which LVDGT agreed to grant SAGC a license to use all of its
trademarks, trade names and other commercial names and symbols. LVDGT also
agreed to purchase, warehouse and make available to SAGC and its franchisees
certain merchandise. In exchange, SAGC subsequently repaid with proceeds from
its initial public offering loans previously obtained by LVDGT and SAGC from
an unaffiliated bank in the amount of $350,000 (see Note 8). This agreement
expires July 31, 1997.
e. OTHER
The Company provides certain general and administrative services to
the Affiliated Store under a license agreement that provides for a monthly fee
of $3,000 to the Company as compensation for these services. The Company
received $36,000 each year in connection with this agreement in 1995 and 1994.
In September 1994, the Company's President and Chairman of the Board,
loaned SAGC $120,000. This note was repaid in full during December 1994, and
no interest was charged or paid.
The Affiliated Store and Rainbow store share advertising costs equally
in the Las Vegas market area. These advertising costs were $112,000 and
$120,000 in 1995 and 1994, respectively.
SAGC made non-interest bearing advances to the President of SAGC,
$15,000 as of December 31, 1994. During 1995, this advance was offset against
amounts owed to the Company's President.
4. NOTES RECEIVABLE
Notes receivable at December 31, 1995 and 1994 represented amounts due
from franchisees or former franchisees.
5. PROPERTY AND EQUIPMENT
Property and equipment included the following as of December 31, 1995 and
1994:
1995 1994
Furniture and equipment $ 688,000 $ 623,000
Leasehold improvements 448,000 381,000
Less--Accumulated depreciation
and amortization (661,000) (583,000)
$ 475,000 $ 421,000
6. LEASE TERMINATION RECEIVABLE
In May of 1994, the Company entered into a Ground Lease (the "Lease") for
approximately 33 acres of land on Las Vegas Boulevard which it intended to use
for the development of an All-American SportPark. The Lease contained
provisions which allowed the lessor to terminate the lease within the first 6
years of the 15 year lease term in the event that the lessor entered into a
sale of the property as long as the intended use of the property after the
sale was not a golf/sports park as contemplated by the Company.
In June 1995, the lessor notified the Company that it had entered into a
sale agreement for the parcel and that it was exercising its right of
termination. Pursuant to cancellation provisions contained within the Lease
the Company was entitled to reimbursement of unamortized construction costs
which it incurred, based upon criteria contained within the Lease, up to an
aggregate amount of $3.5 million. The purchaser of the parcel assumed the
obligations relating to the termination of the lease.
Upon notification of the Lease termination, the Company ceased
construction activities and submitted substantiation for construction costs
totaling approximately $3.9 million. Utilizing applicable formulas derived
from the Lease the Company believes that, based on the maximum expenditures
available for reimbursement of $3,500,000, $3,279,465 in costs are
reimbursable by the purchaser who assumed the original lessor's obligations
relating to the lease termination. The purchaser has reviewed such support
and has indicated that it believes that only a portion of the construction
costs submitted are reimbursable within the context of the Lease agreement.
No settlement was reached regarding the disputed amount and on February
27, 1996 the Company filed a complaint against the purchaser with the District
Court, Clark County, Nevada, against the purchaser of the parcel seeking an
unspecified amount of compensatory damages, punitive damages, attorney fees
and costs.
Management believes, and legal counsel concurs, that a recovery of
$3,000,000 is probable with regards to this litigation and that the amount
will be collected in 1996. The Company has, accordingly, recorded the lease
termination receivable as a current asset in the accompanying consolidated
balance sheet as of December 31, 1995.
7. PROJECT DEVELOPMENT COSTS
The Company is currently engaged in the ongoing planning and design of the
All-American SportPark concept. While no definitive site has been selected,
the Company has incurred costs of $1,047,000 and $553,700 as of December 31,
1995 and 1994, respectively, which consists primarily of sportspark concept
development, training and procedures manuals for sportspark operations,
computer software, and payments for various exclusive license agreements.
8. NOTES PAYABLE
As of December 31, 1995, the Company had a $400,000 bank line of credit;
interest is payable monthly at one and one half (1.5%) percent over the bank's
prime rate which was 9% at year-end and the line of credit is due July 1996.
There was no outstanding balance at December 31, 1995. As of December 31,
1994, the Company had no outstanding notes payable and no line of credit.
Interest expense for the years ended December 31, 1995 and 1994, including
related party interest, totaled approximately $57,000 and $115,000.
The Company and SAGC obtained $1,011,000 in loans from an unaffiliated
bank. The loans were collateralized by inventory and accounts receivable.
The loan proceeds were originally used for the purchase of property and
equipment and working capital. The loans were completely paid off during 1994
in part with the proceeds from SAGC's public offering.
9. LEASES
The Company and SAGC lease office and warehouse facilities from the
Company's Chairman and principal shareholder under a non-cancelable operating
lease agreement which expires on January 31, 2005. The lease provides for
initial monthly lease payments which may be increased based on increases in
the consumer price index. Until August 1994, the Company and SAGC shared rent
equally. Beginning August 1, 1994, the allocation was changed to 67 percent
to the Company and 33 percent to SAGC, based on the new ownership percentages
effected with the public offering. The lease provides for monthly rental
payments of $13,000 which increase based on the consumer price index. Rent
expense under this lease totaled $155,000 and $154,000, in 1995 and 1994,
respectively.
The Company also leases retail space for the Development and Rainbow
stores under non-cancelable operating lease agreements which expire at various
times between 1996 and 2000 and provide for base monthly rental payments
ranging from $5,000 to $8,152. Under the leases the base monthly rental may
increase based on increases in the consumer price index and taxes. Rent
expense under these leases totaled $288,000 and $161,000, in 1995 and 1994,
respectively.
In addition to the leases discussed above, the Company also leases various
equipment and automobiles under non-cancelable operating leases. At December
31, 1995, minimum future rental commitments under non-cancelable operating
leases are as follows:
Year ending
1996 $ 480,000
1997 446,000
1998 349,000
1999 220,000
2000 156,000
Thereafter 635,000
$ 2,286,000
SAGC entered into two retail space leases under non-cancelable operating lease
agreements. SAGC assigned its rights to these leases to franchisees and
remains contingently liable for one lease as of December 31, 1995. Future
minimum rental commitments remaining on this contingent lease are $41,000.
10. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
Year Ended December 31,
1995 1994
Current $ - $ -
State Taxes - 8,000
Deferred provisions (benefits) (42,000) 60,000
Increase in deferred tax asset
valuation allowance 42,000 81,000
$ - $149,000
Deferred tax assets (liabilities) are related to the following at December
31, 1995 and 1994:
1995 1994
Provision for bad debt $ 33,000 $ 74,000
Deferred franchise fees 41,000 41,000
Vacation accrual 18,000 11,000
Commissions (5,000) (6,000)
Depreciation (17,000) (24,000)
Book/tax basis difference in SAGC (743,000) (743,000)
Net operating loss carryforward 218,000 150,000
(455,000) (497,000)
Valuation allowance (288,000) (246,000)
Net deferred tax liability $(743,000) $(743,000)
A reconciliation of income tax expense computed by applying the statutory
federal income tax rate to the Company's income from continuing operations
before provision (benefit) for income taxes is as follows:
1995 1994
Dollars % Dollars %
Federal income tax at statutory rate $(78,000) (34) $ 52,000 34
Minority interest in loss 23,000 10 - -
State Taxes - - 8,000 5
Increase in deferred tax
asset valuation allowance 42,000 18 81,000 5
Other 13,000 6 8,000 5
$ - - $149,000 97
As of December 31, 1995 LVDGT and SAGC have net operating loss
carryforwards of $641,000 and $251,000, respectively, which are available
through 2010.
11. FRANCHISE INFORMATION
Franchise activity is summarized as follows:
Number of Franchises
1995 1994
Sold during the year, net 8 11
Opened during the year 6 8
Closed during the year (10) (10)
In operation at year-end 50 54
Sold but not in operation at year end 2 3
12. CAPITAL STOCK, STOCK OPTIONS, AND INCENTIVES
a. Stock Option Plans
In June 1991, the Company's Board of Directors adopted a Stock Option
Plan (the "1991 Plan"), which was subsequently approved by the Company's
shareholders. The 1991 Plan allows the Board to grant stock options from time
to time to employees, officers, directors of the Company and consultants to
the Company. The Board of Directors has the power to determine at the time the
option is granted whether the option will be an Incentive Stock Option. or an
option which is not an Incentive Stock Option. However, Incentive Stock
Options will only be granted to persons who are employees or officers of the
Company. Vesting provisions are determined by the Board of Directors at the
time options are granted. The total number of shares of Common Stock subject
to options under the 1991 Plan may not exceed 500,000, subject to adjustment
in the event of certain recapitalizations and reorganizations.
Total options granted under the 1991 Plan during the year ended
December 31, 1995 and 1994 were 11,000 and 491,000, respectively at exercise
prices ranging from $.80 to $1.625. These options have expiration dates which
extend through January 2000. Total options outstanding under the 1991 Plan at
December 31, 1995 and 1994 were 742,000 and 796,000, respectively, of which
737,000 and 796,000 were exercisable.
SAGC's Board of Directors adopted a stock option plan (the "1994
Plan") on August 8, 1994 which authorized the issuance of up to 300,000 shares
of SAGC's common stock. Two hundred and forty thousand options to purchase
shares of SAGC's common stock at an exercise price of $5.00 per share were
granted in 1994. These options are exercisable at anytime on or before August
8, 1999. In addition, 60,000 options with an exercise price of $5.00 were
granted to an employee, which vest in increments of 20,000 each year beginning
on August 8, 1995. The exercise price was equal to or exceeded the fair
market value of the common stock at the date of grant. At December 31, 1995,
there are no additional SAGC shares reserved for future options.
b. Preferred Stock
On June 1, 1992, the shareholders approved an amendment to the
Articles of Incorporation authorizing the issuance of up to 5,000,000 shares
of preferred stock.
On October 21, 1992, the Board of Directors authorized the creation of
Series A convertible preferred stock with no par value. The Board also
authorized the issuance of 512,799 shares of the Series A convertible
preferred stocks to the Company's chairman and principal shareholder in
exchange for services rendered valued at $5,128. The Series A convertible
preferred stock shares are not entitled to any dividend, have a liquidation
preference of $.0l per share or $5,128 and are automatically convertible into
512,799 shares of the Company's common stock once the audited financial
statements of the Company for any fiscal year reports pre-tax income of at
least $1,000,000. Each share of Series A convertible preferred stock entitles
the holder to one vote with full voting rights and powers of a holder of
shares of common stock. During 1994 all of theses preferred shares were
transferred to the President of SAGC and a director of the Company.
c. Common Stock and Common Stock Purchase Warrants
On December 13, 1994, SAGC completed a public offering of 1,000,000
Units, each Unit consisting of one share of Common Stock and one Class A
Common Stock Purchase Warrant. As a result 1,000,000 shares of Common Stock
and 1,000,000 Class A Warrants were issued. Net proceeds from the offering
were $3,684,000. Two Class A Warrants entitle the holder to purchase one
share of SAGC common stock for $6.50, $2 above the initial public offering
price. The Class A Warrants have been assigned a value of $.1875 for
financial reporting purposes.
Also, in connection with the public offering SAGC issued to the
Representative of the Underwriters, Representative's Warrants to purchase
100,000 shares (10 percent of the units purchased by the underwriters), with
an exercise price of $5.40 for a four year period beginning on December 13,
1995. These Representative's Warrants contain certain demand and piggyback
registration rights. SAGC also issued to the Representative 100,000 Class A
Warrants which entitle the Underwriter to purchase 50,000 shares of Common
Stock (5 percent of the units purchased by the underwriters), with an exercise
price of $7.80 per share exercisable beginning on December 13, 1995. As of
December 31, 1995, no warrants have been exercised.
13. EMPLOYEES' 401(k) PROFIT SHARING PLAN
The Company offers all its eligible employees participation in the
Employees' 401(k) LVDGT Profit Sharing Plan ("the Plan"). The Plan provides
for purchases of certain investment vehicles by eligible employees through
annual payroll deductions of up to 15% of base compensation. In 1995 and
1994, the Company matched 25% of employees' contributions up to a maximum of 1
1/2% of an employee's base compensation. The Company had expenses related to
the Plan of $27,228 and $9,230 for 1995 and 1994, respectively.
14. COMMITMENTS AND CONTINGENCIES
SAGC has employment agreements with its President, as well as other key
employees which will require the payment of fixed and incentive based
compensation. The Company is involved in certain litigation as both plaintiff
and defendant related to its business activities. Management, based upon
consultation with legal counsel, does not believe that the resolution of these
matters will have a materially adverse effect upon the Company.
SAGC has entered into a letter agreement with Oracle One partners, Inc.
("Oracle") whereby Oracle has been retained to assist SAGC in obtaining
corporate sponsorship for certain areas of the All-American SportPark projects
including a license agreement from Major League Baseball for a Slugger
Stadium. The initial period of the agreement was for the three month period
ending September 30, 1994, and the agreement has been continued on a
month-to-month basis since then. SAGC is paying Oracle $4,000 a month and has
agreed to pay Oracle 15% of the gross of any sponsorship fees for sponsors
obtained through the efforts of Oracle. The Company paid Oracle $60,000 for
its efforts in obtaining the exclusive license agreement with Major League
Baseball described below.
In December 1994, SAGC entered into an agreement with Major League
Baseball ("MLB") concerning a license for the use of MLB logos, marks and
mascots in the decor, advertising and promotions of the Company's Slugger
Stadium concept. SAGC obtained an exclusive license for indoor and outdoor
baseball batting stadiums in the United States through December 31, 1997, and
in return SAGC will pay a royalty of the gross revenues from the batting cages
with a minimum annual royalty for each stadium. SAGC's right to exclusively
use MLB logos and other marks at its baseball batting stadiums is dependent
upon certain conditions set forth in the agreement.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned thereunder duly authorized.
LAS VEGAS DISCOUNT GOLF & TENNIS, INC.
Dated: April 22, 1996 By: /s/ Vaso Boreta
Vaso Boreta, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
/s/ Vaso Boreta President, Chairman of the April 22, 1996
Vaso Boreta Board, Secretary, Treasurer
(Principal Financial and
Accounting Officer) and
Director
/s/ Ronald S. Boreta Director April 22, 1996
Ronald S. Boreta
__________________________ Director
Robert S. Rosburg
/s/ William Kilmer Director April 22, 1996
William Kilmer
SUBSIDIARIES OF THE REGISTRANT
NAME OF SUBSIDIARY STATE OF INCORPORATION
Saint Andrews Golf Corporation Nevada
LVDGT Rainbow, Inc. Nevada
LVDGT Development Corp. Nevada
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheets and statements of operations found on pages F-2 and F-3 of
the Company's Form 10-KSB for the fiscal year ended December 31, 1995, and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,043,000
<SECURITIES> 0
<RECEIVABLES> 4,200,000
<ALLOWANCES> 98,000
<INVENTORY> 2,588,000
<CURRENT-ASSETS> 7,749,000
<PP&E> 475,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,411,000
<CURRENT-LIABILITIES> 3,992,000
<BONDS> 0
0
5,000
<COMMON> 3,871,000
<OTHER-SE> (1,115,000)
<TOTAL-LIABILITY-AND-EQUITY> 2,761,000
<SALES> 11,510,000
<TOTAL-REVENUES> 13,193,000
<CGS> 9,201,000
<TOTAL-COSTS> 13,453,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (57,000)
<INCOME-PRETAX> (230,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (163,000)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
