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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
Amendment No. 1
[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, 1996
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.
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(Exact Name of Small Business Issuer as Specified in its Charter)
COLORADO 84-1034868
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(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
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(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
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(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: $10,798,000.
As of February 21, 1997, 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 $1,514,000.
Transitional Small Business Disclosure Format (check one): Yes __ No X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
THE COMPANY
Las Vegas Discount Golf & Tennis, Inc. (the "Company") presently (1) owns
and operates one retail golf store in Las Vegas, Nevada; and (2) 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 February 26, 1997, the Saint Andrews subsidiary had
43 franchised stores in operation in 17 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
discontinued all direct mail order sales.
In 1990, the Company opened its first company-owned store in Las Vegas
which served 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. which operates the company-owned store in Las Vegas, Nevada, and
Las Vegas Discount Golf & Tennis Development Corp., which operated the
company-owned stores in Los Angeles, California. 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 operated 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 described 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.
On December 16, 1996, the Company and Saint Andrews Golf Corporation
entered into negotiations pursuant to an "Agreement for the Purchase and Sale
of
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Assets" to dispose of all but one of the Company-owned retail stores, all
wholesale operations and the entire franchising business of Saint Andrews.
Accordingly, at December 31, 1996, the Company accounted for the retail
operations, assets and liabilities to be disposed of as "held for sale" and
its franchise and wholesale business segment as "discontinued operations" in
the financial statements included in this Report. On February 26, 1997, the
Company and Saint Andrews completed this transaction, and as a result the
Company's operations, assets and liabilities now consist of one retail store
and, through its ownership of Saint Andrews, the development and operation of
"All-American SportParks".
Also in December 1996, the Company announced that it intends to merge
into Saint Andrews, however, the terms of this merger have not been negotiated
pending the completion of an independent valuation of the two companies. The
proposed merger has not been approved by the Board of Directors of either
company, and would be subject to a number of contingencies including, among
other things, the effectiveness of a registration statement which would be
filed with the Securities and Exchange Commission, and the approval of the
respective shareholders of each company.
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.
SALE OF ASSETS
On February 26, 1997, the Company and Saint Andrews completed the sale
of all but one of the Company-owned retail stores, the Company's wholesale
operations and Saint Andrews franchising business to Las Vegas Golf & Tennis,
Inc., an unaffiliated entity.
The total purchase price for the transaction was $5,354,287.25 of which
$4,600,000.00 was paid in cash, $264,176.62 was paid with a short-term
unsecured receivable, $200,000 was placed in escrow pending the accounting of
inventory and trade payables, $200,000 was placed in escrow for two years to
cover potential indemnification obligations, $60,475 was withheld for sales
taxes, and $29,635.63 was withheld for accrued vacation liabilities. Of the
total purchase price, $2,603,787.25 was allocated to the Company and
$2,750,500 was allocated to Saint Andrews.
In connection with the sale of the above-described assets, the Company
and Saint Andrews agreed not to compete with the Buyer in the golf equipment
business except that Saint Andrews is permitted to sell golf equipment at
SportPark and driving range facilities which it may operate. In addition, the
Buyer granted Boreta Enterprises, Ltd., a limited partnership owned by Vaso
Boreta, the Company's President, Ron Boreta, the President of Saint Andrews,
and John Boreta, a principal shareholder of the Company, the right to operate
"Las Vegas Discount Golf & Tennis" stores in southern Nevada, except for
Summerlin, Nevada.
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BUSINESS OF THE COMPANY
RETAIL STORE
The Company currently owns and operates a "Las Vegas Discount Golf &
Tennis" retail store located at 2200 Rainbow Boulevard South in Las Vegas,
Nevada. The products available in the Company's Las Vegas retail store
consist of a wide variety of golf and tennis equipment. 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 merchandise is sold under the proprietary name "St. Andrews", as well as
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.
The Company's retail business is seasonal, with the heaviest sales during
March, April and May, when outdoor spring activities commence, and in November
and December because of holiday gift purchases.
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 require minimum
purchase commitments. In addition, 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. The Company believes it is
important to continue to offer name brands for certain items.
Approximately 50% of all inventory 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.
BUSINESS OF THE COMPANY'S SAINT ANDREWS SUBSIDIARY
ALL-AMERICAN SPORTPARK
Saint Andrews has developed a concept for family-oriented sports theme
parks named "All-American SportPark," which will be a live action sports
entertainment complex that will feature a Major League Baseball Slugger
Stadium; a NASCAR SpeedPark; a major sponsored Golf Experience, which is
comprised of an executive golf course, driving range, putting course,
clubhouse and training center; a SportsCenter pavilion including a multi-
purpose sports arena, sports
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bar and clubhouse grill, brand name food court, sporting goods retail
superstore, specialty retail areas, special events space and a number of lease
tenant facilities.
On July 12, 1996, Saint Andrews entered into a lease agreement covering
approximately 65 acres of land in Las Vegas, Nevada, on which Saint Andrews
intends to develop its first All-American SportPark. The project is expected
to include a golf driving range; a pro shop/clubhouse; a training and custom
club-fitting center; a par 3 golf course; a Major League Baseball Slugger
Stadium; a NASCAR SpeedPark; an off-ice hockey complex; an All-American
SportPark Pavilion and Arena; and other facilities. The property is located
south of the Luxor Hotel on "The Strip" and borders the new I-215 Loop around
the City of Las Vegas. The land is adjacent to McCarran International Airport
and in the vicinity of the new Circus Circus multi-billion dollar hotel resort
development referred to as "The Millennium Project". The lease will be for an
initial term of 15 years, and Saint Andrews will have two options to extend
for five years each. The landlord may cancel the lease if the SportPark is
not completed by February 1, 1999.
The lease provides for a minimum rental during the first five years of
$625,000 per year. The minimum rental will begin to accrue when the SportPark
opens or 12 months after the lease period commences, whichever occurs first.
The minimum rental will be increased 10% at the end of each five years during
the term of the lease. Saint Andrews will be required to pay additional rent
to the extent that percentages ranging from 3% to 10% of gross receipts,
depending on the type of revenue, exceeds the minimum rental. In connection
with the signing of the lease, Saint Andrews paid a deposit of $500,000 which
will be applied to minimum rental payments, and to a security deposit of
approximately $104,000 which will be applied to minimum rental payments at the
end of the fourth year of the lease.
As of the date of this Report, Saint Andrews has not secured financing
for the construction of the first SportPark. Saint Andrews has been holding
discussions with a number of potential corporate sponsors who have expressed
an interest in participating in the SportPark, and management expects that
corporate sponsors will contribute a portion of the financing needed. Saint
Andrews expects to receive the balance of the financing from a combination of
sources including outside equity and/or debt investors, bank financing, and
Saint Andrews' own cash. There is no assurance that financing will be
obtained from any of these sources.
The design of the project is completed for the golf facilities and
approximately 90% completed for the arena pavilion and other sports
activities. All design work should be completed during April 1997. Saint
Andrews anticipates that the golf facilities may open by Labor Day 1997 and
the arena pavilion and other sports facilities by mid-November 1997. The
projected opening dates are subject to change due to delays in obtaining
financing; construction delays due to availability of construction personnel,
materials, adverse weather and other factors; delays in obtaining governmental
permits and approvals; and other factors.
Saint Andrews has obtained project zoning, use permits and variances
from Clark County; Federal Aviation Administration approval for construction
(due to the SportPark's proximity to McCarran International Airport); approval
of the Clark County Department of Aviation; and architectural review approval
by the Planning Commission. Saint Andrews has submitted a comprehensive Water
Plan which is currently being reviewed. It is anticipated that all building
plans will be submitted for review in April 1997.
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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 a 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' design is a full size stadium that
replicates many of the features of a modern baseball stadium. Plans include
16 batter boxes and 16 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.
Completing 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.
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 the Company's Slugger
Stadium concept. This agreement was amended during August 1997. Pursuant to
the amended agreement, Saint Andrews holds the exclusive right to identify its
indoor and outdoor baseball batting stadiums as Major League Baseball Slugger
Stadiums. The license covers the United States and expires on November 30,
2000, subject to the right to extend for three additional years provided
certain conditions are met. As consideration for the license, Saint Andrews
agreed to pay $50,000 for each Stadium opened provided that in any year of the
term of the agreement a stadium is not opened, Saint Andrews must pay $50,000
during such year. Saint Andrews has made the payments required for 1995 and
1996. In addition to and as an offset against the minimum payments set out
above, Saint Andrews is required to pay to MLB a royalty based on the revenue
from the batting cages of the greater of (i) six and one-quarter percent
(6-1/4%) or (ii) the royalty rate payable by Saint Andrews to any other
individual or entity for the right to open or operate any attraction or event
in the Sports Entertainment Complex.
Saint Andrew'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.
GOLF COUNTRY CLUB DRIVING RANGE, PAR 3 GOLF COURSE, GOLF CLUBHOUSE AND
TRAINING CENTER. Saint Andrews is in discussions with several potential
corporate sponsors for the driving range facility. The range is expected to
house 110 driving range 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, the
SportPark will include an executive nine hole, par three golf course. The
golf course is being designed to be challenging, and will include a pond and
other water hazards. The facility will also include a clubhouse with a
country club atmosphere including a tree-lined driveway with PGA Tour Player
personality banners and an eight-foot tall bronze statue of Bobby Jones.
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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 NASCAR SpeedPark. The license expires December 31, 1999. The SpeedPark
will include three tracks to accommodate three styles of racing: family, adult
and junior tacks. The family go-kart track will be a 1,200 linear foot road
course for five horsepower go-karts designed for families and children 10 and
up, and the other track will be a 2,200-foot road course track for eighteen
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 Winner's Circle, the Infield RV Park,
Victory Lane, the NASCAR Jr. Track, the Tailgater's Dining Circle and the
NASCAR Retail Trackside Trailer Merchandising Experience.
In May 1996, Saint Andrews entered into an agreement with Jeff Gordon,
the 1995 NASCAR Winston Cup Champion and the 1997 Daytona 500 Champion, to
serve as spokesperson of the NASCAR SpeedPark through April 30, 2000. Mr.
Gordon will be paid $25,000 for his services during 1996, $25,000 per
SpeedPark per year thereafter ($325,000 guaranteed over the life of the
agreement); .25% of net profits to go to a charity designated by Mr. Gordon;
and additional fees for recording television and radio spots and making more
than six appearances per year. Mr. Gordon was also granted options under
Saint Andrews' stock option plan.
Saint Andrews is working with Roush Racing to develop the go-karts for
the NASCAR SpeedParks. Roush Racing fields three NASCAR Winston Cup teams,
two NASCAR Busch Grand National teams, and two NASCAR Craftsman teams. Roush
is working with Saint Andrews to develop replicas of NASCAR Winston Cup Stock
Cars and NASCAR Craftsman Trucks.
OTHER ATTRACTIONS. The SportPark will also include a sports pavilion
with a multipurpose sports arena, food courts, meeting rooms, specialty retail
areas, special events space and leased tenant facilities for food and beverage
service, retail merchandise, video game and sports skill redemption games, and
other possible ancillary businesses.
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 then. Saint Andrews is paying Oracle $4,000 a month and has
agreed to pay Oracle 10% of the gross of any sponsorship fees for sponsors
obtained through the efforts of Oracle. Saint Andrews paid Oracle $60,000 for
its efforts in obtaining the license agreement with Major League Baseball.
During April 1996, Saint Andrews issued options to a principal of Oracle to
purchase 10,000 shares of Saint Andrews' 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 a license for indoor and
outdoor baseball batting stadiums in the United States through December 31,
1997, and in return
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Saint Andrews will pay a royalty of the gross revenues from the batting cages
with a minimum annual royalty for each stadium.
Saint Andrews' right to exclusively use MLB logos and other marks at its
baseball batting stadiums is dependent upon certain conditions set forth in
the agreement.
LETTER OF INTENT WITH PEPSI-COLA COMPANY
In January 1997, Saint Andrews entered into a non-binding letter of
intent with the Pepsi-Cola Company ("Pepsi") concerning an exclusive
sponsorship agreement. Under the proposed agreement, Pepsi would receive
certain exclusive rights related to soft drinks, tea products, juice products,
bottled water and similar products in exchange for a series of payments
beginning when the SportPark opens. The rights to be granted to Pepsi are
expected to include that Pepsi's products will be exclusively sold for the
categories listed, that only Pepsi identified cups will be used in the
SporkPark, and that Pepsi would have the right to name the arena. In
addition, the agreement is expected to provide that Pepsi will provide the
equipment needed to dispense its products at the SporkPark.
Saint Andrews also anticipates that the agreement with Pepsi will
provide that Saint Andrews and Pepsi will participate in joint marketing
programs such as promotions on Pepsi's products and local radio advertising.
LIABILITY INSURANCE
Saint Andrews intends to purchase a comprehensive general liability
insurance policy to cover possible claims for injury and damages from
accidents and similar activities. 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.
MARKETING
Major League Baseball Slugger Stadium is the "Official Batting Stadium
of Major League Baseball". The unique baseball stadium concept is expected to
be expanded to other locations in the United States using the prototype
installation at the All-American SportPark as a demonstration facility.
Considerable market research by management has indicated a large potential
market for Slugger Stadium. Possible locations include new gated sites inside
major theme parks, attachments to regional and value oriented shopping malls,
inside new sports stadium and Major League Ballpark complexes which are either
in the planning and design phase or currently under construction and other
All-American SportParks or as stand alone sites. Target consumers include the
family, adults, softball players and all youth baseball organizations.
The golf facility concept which includes the executive nine-hole par 3
golf course, driving range, clubhouse and practice putting and chipping areas
are designed as a country club atmosphere for the general public. The golf
portion may be expanded into various hotel and resort areas throughout the
United States and can also be included in the SportPark opportunities
described above or as a stand alone business.
NASCAR SpeedPark is the "Only Officially Licensed NASCAR Go-Kart
Facility in the World". Management plans to develop the concept to include
installations alongside Superspeedways, NASCAR Team Race/Shops Racing Retail &
Entertainment Centers, stand alone facilities and as a separate gated
attraction inside major theme parks throughout the United States.
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The All-American SportPark Pavilion area of the project can be recreated
as a stand alone development in a downtown urban setting alongside new arenas,
shopping malls, and football/baseball stadiums. It can also be adapted to a
multi-level attraction including a portion of the golf center on the roof to
the structure.
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 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.
RETAIL STORE. The Company's Las Vegas retail store competes with general
sporting goods stores, other discount golf and tennis stores such as the
Nevada Bob's and Pro Golf Discount franchise stores, discount department
stores such as K-Mart, catalog stores and other retailers. The Company
believes that the greatest competition to its retail store comes from the
other discount golf and tennis stores, the number of which has grown in recent
years.
The Company also competes 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 the Company. Major
competitors that advertise through national magazine advertisements are Nevada
Bob's Discount Golf & Tennis and Edwin Watts.
Principal competitive factors faced by the Company in the sale of
merchandise generally are price, quality, personal service, merchandise,
convenience, and customer loyalty. The Company believes that the prices of
the merchandise it offers are generally below those offered by non-discount
retail outlets.
TRADE NAMES AND TRADEMARKS
Saint Andrews has filed an "intent to use" trademark application for
"All-American SportPark" and a related design and Slugger Stadium. 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. The Company and Saint
Andrews intend to maintain the integrity of the trademarks, other proprietary
names and marks against unauthorized use.
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. Management of Saint Andrews also believes that it and/or the
Company have developed proprietary rights to the name "Birdie Golf". In
February 1997,
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the rights to the trademarks "Las Vegas Discount Golf & Tennis" and "Birdie
Golf" were assigned to the purchaser in the sale of assets transaction.
The purchaser of the assets granted back to Boreta Enterprises, Ltd. a
perpetual license to use the name Las Vegas Discount Golf & Tennis for retail
equipment stores in the State of Nevada, south of a line between Pahrump,
Nevada and Mesquite, Nevada, except for Summerlin, Nevada. Boreta
Enterprises, Ltd. has agreed to allow the Company's retail store on Rainbow
Boulevard in Las Vegas to continue to use the name Las Vegas Discount Golf &
Tennis.
EMPLOYEES
As of March 3, 1997, the Company employed one person on a full-time
basis, and Saint Andrews employed a total of seven persons on a full-time
basis. Saint Andrews is also sharing nine persons with the entity which
purchased the franchise business for an unspecified period. 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.
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 $13,700 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. From July 1994 through June 1996 Saint Andrews was
allocated 33% of the rent and the Company was allocated 67% of the rent.
Beginning July 1, 1996 Saint Andrews was allocated 67% of the rent and the
Company was allocated 33% of the rent. The Company believes that the rent
paid is comparable to that which it could obtain from an unaffiliated party.
In February 1997, the Company subleased a majority of the warehouse
space and approximately one-half of the office space to the purchaser in the
asset sale. The purchaser will pay its pro rata share of the rent, but this
amount had not been calculated as of the date this report was filed.
During 1990, the Company opened its retail store at 2200 Rainbow
Boulevard South in Las Vegas, Nevada. 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.
On July 22, 1996, Saint Andrews entered into a lease for 65 acres of
land in Las Vegas, Nevada, on which Saint Andrews intends to build its first
SportPark. The terms of the lease are described above under the heading
"BUSINESS OF THE COMPANY'S SAINT ANDREWS SUBSIDIARY -- ALL AMERICAN
SPORTPARK."
ITEM 3. LEGAL PROCEEDINGS.
Except for the lawsuits 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.
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
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Vegas where Saint Andrews was preparing to build its first SportPark. 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 refused to make any payment to Saint Andrews, even the amount
which both parties agreed was reimbursable. The Complaint sought an
unspecified amount of compensatory damages, punitive damages, attorneys' fees
and costs.
In October 1996, a settlement of $3,217,500 was reached and paid to
Saint Andrews.
In 1995, Giant Ride, Inc. filed suit in the District Court of Clark
County, Nevada against Saint Andrews claiming that Saint Andrews had breached
a contract to purchase a giant slide for Saint Andrews' Las Vegas SportPark.
Giant Ride, Inc. is seeking an unspecified amount of damages. Saint Andrews
denies that it had a contract to purchase such a slide. This suit is
currently in the discovery stage.
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 sales
prices of the Common Stock for the periods indicated.
HIGH LOW
YEAR ENDED DECEMBER 31, 1995
First Quarter $1.875 $1.125
Second Quarter $2.00 $1.1875
Third Quarter $2.125 $1.125
Fourth Quarter $2.5625 $0.71875
YEAR ENDED DECEMBER 31, 1996
First Quarter $1.625 $0.71875
Second Quarter $1.75 $1.00
Third Quarter $1.375 $0.875
Fourth Quarter $1.28125 $0.90625
(b) HOLDERS. The number of holders of record of the Company's $.001 par
value common stock at February 25, 1997, was approximately 1,044. 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
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<PAGE>
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 OPERATION.
RESULTS OF OPERATIONS
During the year ended December 31, 1996, the Company owned and operated
four retail golf stores and sold merchandise on a wholesale basis to
franchisees of its majority-owned subsidiary, Saint Andrews Golf Corporation
("SAGC") which operate their franchises under the name "Las Vegas Discount
Golf & Tennis." The four Company-owned retail stores are located in Las
Vegas, Nevada and Southern California. The 45 franchise stores are located in
16 states throughout the United States and in two foreign countries. In
addition to the retail, wholesale and franchise businesses, the Company
through SAGC is currently involved in the development of sports-oriented theme
parks.
On February 26, 1997, the Company and SAGC sold certain assets and
transferred certain liabilities for $5.3 million to an unrelated buyer who has
incorporated under the name Las Vegas Golf & Tennis, Inc. in a transaction
pursuant to an "Agreement for the Purchase and Sale of Assets". Specifically,
the Company sold all of its interest in three company-owned "Las Vegas
Discount Golf & Tennis" retail stores located in the Southern California
metropolitan area. The sale covers the inventory, fixtures and other property
at the retail stores and certain inventory and assets at the Company's
headquarters. In addition, the sale includes the Company's business of
selling golf and tennis equipment on a wholesale basis to franchisees of SAGC
and to other retailers. Under the same agreement, SAGC also sold all of its
interest in its business of franchising "Las Vegas Discount Golf & Tennis"
retail stores, including its rights under agreements with franchisees, the
right to franchise such stores and the rights to related trademarks. The
buyer also assumed certain trade payables of the two companies. The Company
expects to recognize a gain of approximately $3.8 million from this sale in
the first quarter of 1997.
1996 VERSUS 1995
Revenues for the retail stores for the year ended December 31, 1996,
were $10.8 million versus $7.4 million in 1995. The net increase of 45% is
due to the opening of two new Company-owned Las Vegas Discount Golf & Tennis
stores in Encino and Westwood, California in April 1995 and August 1995,
respectively. The full year of operations for the two stores in 1996 versus
the partial year of operation in 1995 resulted in increased revenue of $3.9
million. The Las Vegas retail store revenue also increased by approximately
$202,000 while the Los Angeles store experienced a decrease in revenue of
$659,000.
Cost of sales represented 77% and 75% of retail revenues during the
years ended December 31, 1996 and 1995, respectively. The decrease in gross
profit margins is due to discount incentives provided to customers to fuel
sales growth and a shift in merchandise mix to items with lower profit
margins.
Selling, general and administrative expenses related to the retail
business increased to $3,340,000 for the year ended December 31, 1996, from
$2,597,000 in 1995. The increase in 1996 is due to increased marketing and
administrative costs associated with operating the two new Company-owned
stores which opened in Southern California in mid-1995.
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<PAGE>
Prospectively, the Company will own and operate only one retail store
located in Las Vegas, Nevada. On February 26, 1997, the Company successfully
completed the sale of the majority of its existing core businesses including
three of its four Company-owned retail stores and its wholesale and franchise
business segments (see "Discontinued Operations" discussed below). Revenues
related to the remaining retail store owned by the Company totaled
approximately $2.9 million for the years ended December 31, 1996 and 1995.
The Company's strategic emphasis at this point is the development of
sports-oriented theme parks under the name "All-American SportPark." During
1996, the Company spent $207,000 in development of this concept versus
$108,000 in 1995. The Company has leased a site for its first "All-American
SportPark" development in Las Vegas, Nevada, which is scheduled to open in
November 1997 (see discussion under "Liquidity and Capital Resources").
OTHER INCOME (EXPENSE)
Interest income decreased 20.5% to $70,000 in 1996 due to a decrease in
interest income for SAGC from $86,000 in 1995 to $70,000 in 1996. Other
income was $26,000 in 1996 versus $8,000 in 1995 representing an increase in
income recognition of deferred income related to advance royalty payments from
an agreement with a national credit card company.
Interest expense increased 57.9% to $90,000 in 1996 primarily as the
result of an additional $19,000 in expense related to the bank line of credit.
DISCONTINUED OPERATIONS
Wholesale revenue for the Company, which represents sales to franchisees
and other non-related retail outlets were $2.9 million for the year ended
December 31, 1996, compared to $3.7 million for the year ended December 31,
1995. The decrease in 1996 sales is attributed to the loss of the services of
a sales manager and a sales person who had contributed significantly to
wholesale revenues in 1995. Cost of sales for wholesale activities
represented 93.4% of revenues in 1996 versus 90% in 1995 as the percentage of
total wholesale sales to the Affiliated Store, which have no gross profit,
increased in comparison to the non-related party transactions. The revenues
and costs related to wholesale activities have been classified as discontinued
operations due to the sale of this business segment as part of the "Agreement
for the Purchase and Sale of Assets" consummated on February 26, 1997.
Franchise fee and royalty revenues for the year ended December 31, 1996,
which have been reclassified to discontinued operations as a result of the
sale of the franchise business segment on February 26, 1997, were relatively
unchanged at $240,000 and $1.2 million, respectively, compared to $245,000 and
$1.2 million in 1995. At December 31, 1996, the Company had 45 franchise
stores in operation versus 50 at December 31, 1995. Selling, general and
administrative expenses related to the franchise business segment totaled $1.7
million for the year ended December 31, 1996, versus $1.5 million in 1995.
The increase is due to higher marketing costs to solicit new franchise
locations and increases in training and other support services costs related
to administration of the franchise program.
INCOME TAXES
Due to operating losses, the Company has no tax provision nor has it
recorded any tax benefits.
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<PAGE>
NET LOSSES
The net loss for the year ended December 31, 1996 of $945,000 compared
to a loss of $242,000 in 1995. The decline in operating levels is attributed
to reduced revenues associated with the now disposed of wholesale business
segment coupled with additional expenditures related to the Company's focus on
the development of the "All-American SportPark" operations.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996 and 1995, the Company held cash and cash
equivalents of $6,457,000 and $1,043,000, respectively. Company-wide cash used
in operating activities was $1.4 million in 1996. This compares to cash
provided by operating activities during 1995 of $355,000.
During the year ended December 31, 1996, the Company's principal source
of cash resulted from the collection of a $3,000,000 lease termination
receivable which had been outstanding since mid-1995. In addition, on October
7, 1996, SAGC successfully completed the sale of $5 million in convertible
preferred stock through a private placement.
Capital expenditures funded during the year related primarily to the
Company's ongoing development efforts for the "All-American SportPark"
concept. Project development costs, both those expensed and deferred, total
$770,000 in 1996. In July 1996, SAGC entered into a lease for 65 acres of
undeveloped land in Las Vegas, Nevada which will be the site of the Company's
first "All-American SportPark". As part of the lease arrangements, SAGC was
required to post a refundable $500,000 deposit with the lessor.
Capital expenditures for 1997 are expected to be approximately $20
million and relate predominately to the Las Vegas SportPark complex
development.
The Company's $400,000 bank line of credit matures in July 1997. At
December 31, 1996, the Company had outstanding $398,000 under this
arrangement. It is management's current intention to extend or replace this
source of funding. The Company received $4.6 million on February 26, 1997,
from the sale of certain retail stores and its wholesale and franchise
business. The cash balance for the Company as of February 28, 1997, totals
approximately $9.8 million.
Overall, the Company expects to finance future operations and capital
expenditures through its existing cash balance, bank line of credit and other
financing vehicles including corporate sponsorships as they relate to the All-
American SportPark. Cash flows from operations in 1997 will be limited to
those generated by the remaining one Company-owned retail store and therefore
will be negligible until the expected November 1997 opening of the All-
American SportPark. There were no funds received during the year ended
December 31, 1996 from potential corporate sponsors for the All-American
SportPark.
SAFE HARBOR PROVISION
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Annual Report contains statements that are forward-looking such as statements
relating to plans for future expansion and other business development
activities, as well as other capital spending, financing sources, the effects
of regulation and competition. Such forward-looking information involves
important risks and uncertainties that could significantly affect anticipated
results in the future and, accordingly, such results may differ from those
expressed in any forward-
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<PAGE>
looking statements made by or on behalf of the Company. These risks and
uncertainties include, but are not limited to, those relating to development
and construction activities, dependence on existing management, leverage and
debt service (including sensitivity to fluctuations in interest rates),
domestic or global economic conditions (including sensitivity to fluctuations
in foreign currencies), changes in federal or state tax laws or the
administration of such laws, changes in regulations and application for
licenses and approvals under applicable jurisdictional laws and regulations.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements are set forth on pages F-1 through F-22 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 64 President, Chairman of the Board, Secretary
and Treasurer
Ronald S. Boreta 34 Director
Robert R. Rosburg 70 Director
William Kilmer 57 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
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<PAGE>
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.
SECTION 16(A) BENEFICIAL REPORTING COMPLIANCE
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 31,
1996, 1995 and 1994 from the Company and its subsidiaries:
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<PAGE>
<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, 1996 $100,000 $40,000 -- -- -- -0-
President and <FN3>
Chairman of the 1995 $100,000 -0- $ 4,584 -- -- -- -0-
Board<FN1> <FN3>
1994 $100,000 -0- $ 60,400 -- <FN5> -- -0-
<FN3>
Ronald S. Boreta, 1996 $120,000 $5,500 $39,160 -- <FN6> -- $8,265
President and CEO <FN4> <FN7>
of Subsidiary 1995 $100,000 -0- $ 19,071 -- -0- -- -0-
<FN2> <FN4>
1994 $100,000 -0- $14,190 -- 281,000 -- -0-
<FN4> <FN6>
Charles Hohl, 1996 $100,000 $22,000 $10,000 -- -0- -- -0-
Executive Vice 1995 $100,000 -0- $ 2,346 -- -0- -- -0-
President of <FN8>
Subsidiary
_________________________
<FN>
<FN1>
Vaso Boreta has served as President of the Company since August 1, 1994.
<FN2>
Ronald S. 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.
<FN3>
Represents amount contributed by the Company to retirement plans on behalf of
Vaso Boreta.
<FN4>
Represents amounts paid for country club memberships for Ronald S. Boreta and
contributions made by the Company to retirement plans on his behalf. For 1996,
these amounts were $14,160 for club memberships and $25,000 to the Company's
Supplemental Retirement Plan.
<FN5>
During 1994, Vaso Boreta received options to purchase 110,000 shares of the
common stock of Saint Andrews.
<FN6>
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, and in 1996 he received options
to purchase 325,000 shares of common stock of Saint Andrews.
<FN7>
Represents premiums paid on a life insurance policy for Ronald S. Boreta's
benefit.
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<PAGE>
<FN8>
Represents amount contributed to the Company's retirement plan on behalf of
Mr. Hohl.
</FN>
</TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
SECURITIES
UNDERLYING VALUE OF UNEXER-
SHARES UNEXERCISED CISED IN-THE
ACQUIRED OPTIONS MONEY OPTIONS/
ON SARs AT FY-END SARs AT FY-END
EXERCISE VALUE EXERCISABLE/ EXERCISABLE/
NAME (NUMBER) REALIZED UNEXERCISABLE UNEXERCISABLE
Ronald S. Boreta -0- -0- 281,000 / 0* $29,856 / 0*
Vaso Boreta -0- -0- -0-* -0-*
Charles Hohl -0- -0- -0-* -0-*
______________
* Does not include options to purchase common stock of Saint Andrews held by
such person.
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. 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. His salary was
increased to $120,000 for the year ended December 31, 1996. 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 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' 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
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<PAGE>
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.
There are currently a total of 442,000 options outstanding under the
1991 Plan with exercise prices ranging from $.80 to $1.35 per share.
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 17% 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 50% of participants' contributions up to a
maximum of 6% of the participant's salary.
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<PAGE>
SUPPLEMENTAL RETIREMENT PLAN
In November 1996, the Company established a Supplemental Retirement
Plan, pursuant to which certain employees selected by the Company's Chief
Executive Officer receive benefits based on the amount of compensation elected
to be deferred by the employee and the amount of contributions made on behalf
of the employee by the Company. Company contributions to the Supplemental
Retirement Plan are immediately vested for Category I employees, and vest 20%
per year of employment for Category II employees. Vested amounts under the
Supplemental Retirement Plan are paid out over 5 to 20 years upon retirement,
disability, death or termination of employment.
For 1996, Voss Boreta (President and Chairman of the Board of the
Company), John Boreta (a principal shareholder of the Company), and Ronald S.
Boreta (a Director of the Company and President of Saint Andrews) were
designated as Category I employees, and Charles Hohl (Executive Vice President
of Saint Andrews) was designated as a Category II employee. The Company made
contributions to the Supplemental Retirement Plan on behalf of these persons
for 1996 as follows: Voss Boreta - $40,000; John Boreta - $25,000; Ronald S.
Boreta - $25,000; and Charles Hohl - $10,000.
The Company's Board of Directors has not yet determined the amounts, if
any, which will be contributed to the Supplemental Retirement Plan for 1997.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of February 28, 1997, 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 1,330,144<FN1> 21.8%
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 666,345<FN2> 12.2%
1601 A Lareina
Palm Springs, CA 92262
All Directors and Officers 3,961,544 64.8%
as a Group (4 Persons)
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__________________
<FN>
<FN1>
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, however, if the Company
merges with Saint Andrews these shares will be convertible. (See ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.) Also includes 281,000 shares
underlying Stock Options held by Ronald Boreta.
<FN2>
Includes 130,000 shares underlying Non-qualified 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.
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 33% of the monthly
lease payments and Saint Andrews pays 67%.
Effective August 1, 1994, the Company 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, trade names and other commercial names and symbols
for so long as such trademarks, trade names and other commercial names and
symbols are being used by Saint Andrews and its franchisees.
Through February 1997, certain facilities used by the Company and Saint
Andrews were leased by the Company from Vaso Boreta, the Company's Chairman of
the Board. The Company leased 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 approximately $13,700. The Board of Directors of the Company believes
that the terms of this lease were 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
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<PAGE>
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, when Mr. Boreta
entered into a similar agreement with the Company. This store is referred to
herein as the "Affiliated Store."
During 1995 and 1996, the Affiliated Store purchased $559,000 and
$1,120,000, respectively, in sporting goods merchandise from the Company.
Also during 1995 and 1996, the Affiliated Store sold $757,000 and $382,000,
respectively, in merchandise to the Company. The Company's Board of Directors
believes that the terms of these transactions were on terms no less favorable
to the Company than if the transactions were with unaffiliated third parties.
The Company owns a retail store in Las Vegas and the Company and the
Affiliated Store share advertising costs in the Las Vegas market on an equal
basis. During 1995 and 1996, the Company paid $60,000 and $228,000,
respectively, 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, Vaso 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 due to additional loans from Mr. Boreta to
the Company. This amount was represented by an unsecured note bearing
interest at 10% which was due on January 31, 1997. On February 1, 1997, the
Company issued a new note on the same terms for $631,149 due on December 31,
1998. 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.
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 April 1996, the Board of
Directors approved an agreement with Ronald Boreta that in the event that the
Company were to spin off its shares of Saint Andrews Golf Corporation to the
Company's shareholders or otherwise distribute or issue shares of Saint
Andrews Golf Corporation in any form of reorganization involving the Company,
that the Company will allow Ronald Boreta to convert the 512,799 shares of
Series A Convertible Preferred Stock into Common Stock of the Company even if
the conversion requirements have not been met.
John Boreta, the son of Vaso Boreta and a principal shareholder of the
Company, served as manager of the Company's Westwood store until it was sold
in February 1997, was paid $62,700 by the Company for his services in 1996.
The Company also provided medical insurance for him for which the Company paid
$4,566 in premiums, and paid $17,585 for his housing expenses. The Company
also
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<PAGE>
contributed $25,000 on his behalf under the Company's Supplemental Retirement
Plan for 1996.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) 3. EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION LOCATION
2 Agreement for the Purchase Incorporated by reference to
and Sale of Assets, as Exhibit 10 to the Registrant's
amended Current Report on Form 8-K
dated February 26, 1997
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
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<PAGE>
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 Filed herewith electronically
Boreta dated February 1,
1997
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 Corporation
(No. 33-84024)
10.8 Agreement between the Incorporated by reference to
Company and Saint Andrews Exhibit 10.4 to the Form SB-2
Golf Corporation Registration Statement of Saint
Andrews Golf Corporation
(No. 33-84024)
10.9 License Agreement between Incorporated by reference to
the Company and Saint Exhibit 10.5 to the Form SB-2
Andrews Golf Corporation Registration Statement of Saint
Andrews Golf Corporation
(No. 33-84024)
10.10 Lease Agreement with A&R Incorporated by reference to
Management and Development Exhibit 10.8 to the Form SB-2
Co., et al., and Sublease Registration Statement of Saint
to Las Vegas Discount Golf Andrews Golf Corporation
& Tennis, Inc. (No. 33-84024)
10.11 Lease Agreement with Vaso Incorporated by reference to
Boreta, as amended, and Exhibit 10.9 to the Form SB-2
Assignment to Las Vegas Registration Statement of Saint
Discount Golf & Tennis, Andrews Golf Corporation
Inc. (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 Corporation
(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 Corporation
(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
10.15 Incentive Agreement with Filed herewith electronically
Ron Boreta
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<PAGE>
10.16 Indenture of Lease between Incorporated by reference to
Urban Land of Nevada and Exhibit 10.16 to the Post-
All-American SportPark, Inc. Effective Amendment No. 2 to
the Form SB-2 Registration
Statement of Saint Andrews
Golf Corporation (No. 33-84024)
21 Subsidiaries of the Incorporated by reference to
Registrant Exhibit 21 to the Registrant's
Form 10-KSB for the year ended
December 31, 1995
27 Financial Data Schedule Filed herewith electronically
(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed during the
quarter ended December 31, 1996.
-25-
<PAGE> 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, 1996 and 1995, 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, 1996 and 1995
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
January 17, 1997 (except with respect
to the matters discussed in Note 17
as to which the date is February 26,
1997).
F-1
<PAGE>
LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS-DECEMBER 31, 1996 AND 1995
ASSETS
1996 1995
CURRENT ASSETS:
Cash and cash equivalents $ 6,457,000 $ 1,043,000
Accounts receivable, net of allowance
of $57,000 and $25,000, respectively 66,000 111,000
Accounts receivable, held for sale 20,000 5,000
Lease termination receivable - 3,000,000
Inventories 400,000 427,000
Inventories, held for sale 1,376,000 1,044,000
Due from Affiliated Store 72,000 263,000
Due from officer 13,000 -
Prepaid expenses and other 16,000 9,000
Other receivables - 365,000
Total current assets 8,420,000 6,267,000
PROPERTY AND EQUIPMENT, net 236,000 280,000
PROPERTY AND EQUIPMENT, net held for sale 179,000 165,000
PROJECT DEVELOPMENT COSTS 1,604,000 1,047,000
DEPOSIT FOR LAND LEASE 500,000 -
NOTES RECEIVABLE, net of allowance for
doubtful accounts of $44,000 at December
31, 1996 - 52,000
OTHER ASSETS 82,000 85,000
OTHER ASSETS, held for sale 68,000 54,000
NET ASSETS OF DISCONTINUED OPERATIONS 443,000 289,000
$11,532,000 $ 8,239,000
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS-DECEMBER 31, 1996 AND 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
1996 1995
CURRENT LIABILITIES:
Bank line of credit $ 398,000 $ -
Current portion of obligations under
capital lease 13,000 -
Accounts payable 1,004,000 1,076,000
Accounts payable trade, held for sale 219,000 364,000
Accrued expenses 348,000 349,000
Due to Affiliated Store 463,000 971,000
Deferred franchise fees 63,000 60,000
Total current liabilities 2,508,000 2,820,000
NOTE PAYABLE TO SHAREHOLDER 631,000 663,000
OBLIGATION UNDER CAPITAL LEASE,
net of current portion 20,000 -
DEFERRED INCOME 91,000 117,000
DEFERRED TAX LIABILITY 743,000 743,000
PREFERRED STOCK OF SUBSIDIARY 5,000,000 -
MINORITY INTEREST 802,000 1,214,000
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 (2,139,000) (1,194,000)
Total shareholders' equity 1,737,000 2,682,000
$11,532,000 $8,239,000
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
REVENUES:
Retail $10,764,000 $ 7,356,000
Other 34,000 21,000
Total revenues 10,798,000 7,377,000
EXPENSES:
Retail 8,330,000 5,530,000
Selling, general and administrative 3,340,000 2,597,000
Provision for doubtful accounts 50,000 43,000
SportPark development costs 207,000 108,000
Total expenses 11,927,000 8,278,000
LOSS FROM CONTINUING OPERATIONS (1,129,000) (901,000)
OTHER INCOME (EXPENSE):
Interest income 70,000 88,000
Interest expense (90,000) (57,000)
Other income 26,000 8,000
6,000 39,000
LOSS BEFORE INCOME TAX PROVISION (1,123,000) (862,000)
Income tax provision - -
LOSS BEFORE MINORITY INTEREST
AND DISCONTINUED OPERATIONS (1,123,000) (862,000)
MINORITY INTEREST 248,000 105,000
NET LOSS FROM CONTINUING OPERATIONS (875,000) (757,000)
DISCONTINUED OPERATIONS:
Income (loss) from franchise and wholesale
operations to be disposed of (no income
taxes were recorded in 1996 or 1995) (70,000) 515,000
NET LOSS $ (945,000) $ (242,000)
NET LOSS PER SHARE:
Loss from continuing operations $ (.17) $ (.14)
Income (loss) from discontinued
operations (.01) .10
NET LOSS PER SHARE $ (.18) $ (.04)
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ACCUMULATED TOTAL
SHARES AMOUNT SHARES AMOUNT DEFICIT EQUITY
<S> <C> <C> <C> <C> <C> <C>
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 - - - - (242,000) (242,000)
Balance,
December 31,
1995 512,799 5,000 5,319,008 3,871,000 (1,194,000) 2,682,000
Net loss for
the year ended
December 31,
1996 - - - - (945,000) (945,000)
Balance,
December 31,
1996 512,799 $5,000 5,319,008 $3,871,000 $(2,139,000) $1,737,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (945,000) $ (242,000)
Adjustment to reconcile net loss to net
cash provided by (used in) operating
activities:
Minority interest (248,000) (105,000)
Depreciation and amortization 77,000 79,000
Changes in assets and liabilities:
Decrease in accounts receivable 108,000 147,000
Decrease (increase) in notes receivable 8,000 (50,000)
Increase in inventories (350,000) (1,332,000)
(Increase) decrease in due from officer (13,000) 15,000
(Increase) decrease in prepaid expenses
and other (5,000) 28,000
Decrease (increase) in other receivables 365,000 (143,000)
(Increase) decrease in accounts payable
and accrued expenses (349,000) 1,841,000
Increase in deferred franchise fees 3,000 -
(Decrease) increase in deferred income (26,000) 117,000
Net cash provided by (used in) operat-
ing activities (1,375,000) 355,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (19,000) (133,000)
Lease termination receivable 3,000,000 (3,000,000)
Increase in other assets (10,000) (65,000)
Deposit for land lease (500,000) -
Project development costs (563,000) (493,000)
Net cash provided by (used in)
investing activities 1,908,000 (3,691,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank line of credit 398,000 -
Principal payments on notes payable (6,000) -
Principal payments on notes payable to
shareholder (32,000) (215,000)
Proceeds from note payable to shareholder - 260,000
(Increase) decrease in receivable/payable
with the Affiliated Store (317,000) 748,000
Proceeds from issuance of preferred
stock and options to purchase
Common Stock by SAGC 4,838,000 -
Net cash provided by financing activities 4,881,000 793,000
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 5,414,000 (2,543,000)
(Continued)
F-6
<PAGE>
LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(Continued)
1996 1995
CASH AND CASH EQUIVALENTS,
Beginning of year 1,043,000 3,586,000
CASH AND CASH EQUIVALENTS, End of year $ 6,457,000 $1,043,000
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(Continued)
SUPPLEMENTAL CASH FLOW INFORMATION:
1996 1995
Cash paid for:
Interest $ 99,000 $ 48,000
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.
In 1996 the Company entered into a capital lease for the purchase of equipment
with a cost of approximately $41,000 and a note payable for equipment totaling
$45,000.
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Historically, LVDGT's primary business segments have included the following:
(1) the wholesale of golf and tennis related merchandise to franchisees and
to other golf retailers, (2) the operation of Company-owned Las Vegas Discount
Golf & Tennis retail stores and (3) franchising LVDGT retail stores and
collecting royalty revenue through its subsidiary SAGC.
Development, a wholly-owned subsidiary, was formed in 1993 for the purposes 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, Development now operates three retail stores, all in
Southern 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.
Until December 13, 1994, SAGC was wholly-owned by LVDGT. On December 13,
1994, SAGC completed an initial public offering of 1,000,000 Units
(representing one-third of the post offering shares outstanding) 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, which totaled $3,683,800,
have been proportionately allocated to LVDGT and to the minority interest
shareholders. LVDGT currently owns 66-2/3% of SAGC's outstanding common
stock. Operating results of SAGC are proportionately allocated to LVDGT and
the minority interest shareholders. Since 1984, SAGC has been engaged in
franchising LVDGT retail stores and collecting royalty revenues related to
such stores. Additionally, in 1994 SAGC commenced the development, through
its wholly owned subsidiary All American Sportpark, Inc., of a sports oriented
theme park concept (the "Sportpark").
F-9
<PAGE>
c. SALE OF ASSETS AND DISCONTINUED OPERATIONS
On December 16, 1996, the Company entered into negotiations pursuant to an
"Agreement for the Purchase and Sale of Assets" (the "Agreement") to dispose
of its franchise business, wholesale business and the three Company owned
retail stores in Southern California. The assets to be sold include all
inventory, equipment, furniture and other personal property related to these
operations. The Southern California retail stores are located in Encino,
Westwood, and Los Angeles (the "Stores"). Additionally, pursuant to the
Agreement the buyer will assume all trade payables related to the inventory of
the Stores and the wholesale business. The agreement results in the
assignment of all franchisor rights under the existing franchise agreements,
the assumption of the Company's leasehold interests in the Stores and
corporate headquarters and security deposits associated with such leases.
Furthermore, the Company assigns all trade names and trade marks associated
with the business. The Agreement also includes a covenant not to compete
which prohibits the Company, and its officers and directors from engaging in
the ownership or operation of franchised retail golf equipment outlets within
the continental United States. Certain exemptions have been granted by the
purchaser to Boreta Enterprises, Ltd., a related entity owned by the President
of the Company and the President of SAGC with respect to the Company's right
to own or operate retail golf equipment outlets in connection with Saint
Andrews Golf Corporation's Sportparks or driving ranges.
The base purchase price to be paid by the buyer to the Company is
approximately $5,000,000 for all of the assets, subject to certain adjustments
at closing for trade payables and inventory. To the extent that inventory
exceeds trade payables by $800,000 the base purchase price shall be increased
by the excess. Conversely, to the extent that inventory does not exceed trade
payables by $800,000, the base purchase price shall be reduced by such amount.
The Company's operations after the sale has been consummated will consist of
the Company owned retail store in Las Vegas, Nevada and the Sportpark concept
being developed by SAGC. The assets, liabilities and rights related to the
franchise and wholesale businesses have been presented as "Discontinued
Operations" in the accompanying balance sheets and statements of operations as
of and for the years ended December 31, 1996 and 1995. The assets and
liabilities associated with the retail stores to be sold have been segregated
and classified as held for sale in the accompanying balance sheets of the
Company as of December 31, 1996 and 1995.
Assets and liabilities of the Company's franchise and wholesale business to be
disposed of consisted of the following at December 31:
1996 1995
Accounts receivable, net of allowance of
$111,400 and $72,400, respectively $ 271,000 $ 306,000
Inventories 1,162,000 1,118,000
Prepaid and other assets 11,000 7,000
Property and equipment, net 80,000 30,000
Total assets 1,524,000 1,461,000
Accounts payable 936,000 1,067,000
Accrued expenses 45,000 45,000
Notes payable 40,000 -
Deferred franchise fees 60,000 60,000
Net assets to be disposed of $ 443,000 $ 289,000
F-10
<PAGE>
Revenues related to the discontinued operations totaled $4,397,000 and
$5,154,000 for the years ended December 31, 1996 and 1995, respectively. The
Company anticipates that a gain will be recognized on the sale of the three
retail stores, franchise and wholesale business segments, and accordingly, has
deferred such gain until it is realized.
d. 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. 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.
b. ACCOUNTS RECEIVABLE AND DEFERRED INCOME
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.
(MBNA) which allows MBNA to use SAGC's trademark on its credit cards. The
agreement provides for a $125,000 Advance Royalty payment which was deferred
and is being amortized into income over the 5 year period of the agreement.
The Company will receive royalties for the generation of credit card accounts.
c. INVENTORIES
Inventories, which consist primarily of finished sporting goods merchandise,
display units, 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 letters 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.
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e. SPORTPARK DEVELOPMENT COSTS
The Company has applied an accounting policy regarding capitalization of
project development costs related to the All-American Sportpark concept which
excludes internal overhead costs and includes direct, incremental third party
expenditures including architectural and design costs and licensing agreements
(see Note 8). In July, 1996, SAGC entered into a land lease for the site of
its first All-American Sportpark in Las Vegas, Nevada. Since that time SAGC
has capitalized direct incremental payroll associated with such development.
During the years ended December 31, 1996 and 1995, SAGC incurred and expensed
$207,000 and $108,000, respectively, in costs for the development of the
Sportpark concept. These costs included certain direct and indirect costs
including salaries and other administrative expenses.
f. 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.
g. LOSS PER COMMON SHARE
Loss per common share is computed using the weighted average number of common
shares. Weighted average shares outstanding at December 31, 1996 and 1995
were 5,319,088 shares.
h. ISSUANCE OF SUBSIDIARY STOCK
The Company recorded the excess of the fair value over the carrying amount of
its investment in SAGC due to SAGC's initial public offering in December 1994
as an equity transaction. Any future transactions involving the issuance of
a subsidiary's stock will be accounted for in a similar manner.
i. CONCENTRATION OF SERVICES
Subsequent to the completion of the sale of assets related to the three
Company-owned retail stores in California, and the wholesale business and the
franchise business, the Company's activities will consist solely of the one
Company-owned retail store in Las Vegas, Nevada and development of the
Sportpark in Las Vegas, Nevada. There can be no assurance that the Company
will be able to operate the Sportpark on a profitable basis. Further, to
expand beyond the Las Vegas Sportpark will require considerably more financial
and management resources than presently exist at the Company.
j. RECLASSIFICATIONS
Certain reclassifications, which had no impact on the Company's results of
operations, have been made to prior year amounts to conform them to the
current year presentation.
3. SEGMENT INFORMATION
The Company's operations after giving effect to the discontinued operations
and assets sold as previously described are classified into two primary
business
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segments: retail operations consisting of the Company-owned store, and
development activities related to the Sportpark concept. As of December 31,
1996, the Sportpark is still in the development stage and, accordingly, has no
revenues.
The Company's three retail store operations which have been sold (See Note 1)
are located in Southern California. The one remaining retail store is located
in Las Vegas, Nevada. Accordingly, all revenue generated was derived from the
Southwest geographical area.
4. 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, 1996 and 1995, the Company had a
$72,000 and $263,000 receivable from the Affiliated Store. As of December 31,
1996 and 1995, the Company had outstanding payables to the Affiliated Store of
$463,000 and $971,000, respectively. 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 at the same cost as SAGC. The
Affiliated Store also benefits from SAGC's activities, including any local and
national advertising conducted by SAGC. 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 in connection with this
agreement in 1996 and 1995. The Affiliated Store and Rainbow store share
advertising costs equally in the Las Vegas market area. These advertising
costs were $228,000 and $112,000 in 1996 and 1995, respectively.
Sales of merchandise made to the Affiliated Store are recorded at the
Company's cost and totaled $1,120,000 and $559,000 for the years ended
December 31, 1996 and 1995, respectively. These sales are included in
"Discontinued Operations" in the accompanying statement of operations.
Merchandise purchased from the Affiliated Store are recorded at cost and
totaled $382,000 and $757,000, respectively, in 1996 and 1995. These
purchases were recorded in "Discontinued Operationsin the accompanying
statement of operations.
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.
At December 31, 1996 and 1995, the Company had an unsecured, ten percent note
payable totaling $631,000 and $663,000, 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. Interest expense of $65,000 and $57,000 related to this note is
included in interest expense in 1996 and 1995.
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,
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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 9). This agreement will expire on July
31, 1997.
SAGC made non-interest bearing advances to the President of SAGC of $13,000 as
of December 31, 1996 and $15,000 as of December 31, 1994. During 1995, the
amount advanced in 1994 was offset against amounts owed to the Company's
President.
5. NOTES RECEIVABLE
Notes receivable at December 31, 1996 and 1995 represented amounts due from
franchisees or former franchisees
6. PROPERTY AND EQUIPMENT
Property and equipment included the following as of December 31:
1996 1995
Furniture and equipment $ 50,000 $ 109,000
Furniture and equipment under
capital lease 41,000 -
Leasehold improvements 296,000 291,000
Land improvements 13,000 13,000
Other 50,000 50,000
450,000 463,000
Less--Accumulated depreciation
and amortization (214,000) (183,000)
$ 236,000 $ 280,000
Property and equipment, held for sale, included the following as of December
31:
1996 1995
Furniture and equipment $ 165,000 $ 102,000
Leasehold improvements 38,000 48,000
Other 34,000 47,000
237,000 197,000
Less--Accumulated depreciation
and amortization (58,000) (32,000)
$ 179,000 $ 165,000
7. LEASE TERMINATION RECEIVABLE
In May of 1994, the Company entered into a Ground 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 Ground 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.
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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 Ground 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 Ground Lease termination, the Company ceased
construction activities and submitted substantiation for construction costs
totaling approximately $3.9 million. Utilizin applicable formulas derived
from the Ground Lease, the Company believed that $3,279,465 in costs were
reimbursable by the purchaser who assumed the original lessor's obligations
relating to the lease termination. Based upon information available as of
December 31, 1995 the Company believed that the amount would be collected in
1996 for a total of $3,000,000 with regards to this litigation and,
accordingly, recorded the lease termination receivable as a current asset.
In October, 1996 this matter was settled for total consideration of $3,217,000
of which $3,000,000 was applied to the lease termination receivable balance
while the remaining $217,000 in proceeds was applied against legal fees
incurred with respect to this matter in the current year.
8. PROJECT DEVELOPMENT COSTS
The Company has a capitalized balance of costs incurred related to the
Sportpark of $1,604,000 and $1,047,000 as of December 31, 1996 and 1995,
respectively. These costs consist primarily of concept development and
design, exclusive long-term licensing fees, consulting fees, training and
procedures manuals for Sportpark operations and computer software. All of the
costs related to the balance as December 31, 1995 were to unrelated third-party
vendors while the balance as of December 31, 1996 includes $116,700 in
capitalized payroll for those direct, incremental employees working
exclusively on the Las Vegas Sportpark.
SAGC is currently engaged in the planning and design of All-American
Sportparks. The first phase of the All-American Sportpark planned for Las
Vegas, Nevada will consist of an executive golf course and other related
amenities and is scheduled for completion by November 1997. The remaining
components of the project are expected to be completed by year-end 1997.
The Company currently has not secured financing for the construction of the
first SportPark. The Company has been holding discussions with a number of
potential corporate sponsors who have expressed an interest in participating
in the SportPark, and management expects that corporate sponsors will
contribute a portion of the financing needed. The Company expects to receive
the balance of the financing from a combination of sources including outside
equity and/or debt investors, bank financing and the Company's own cash.
There is no assurance that financing will be obtained from any of these
sources.
9. BANK LINE OF CREDIT
As of December 31, 1996 and 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 9.75% at December 31, 1996. As of December
31, 1996, approximately $398,000 had been drawn on this facility while at
December 31, 1995, there were no amounts outstanding. The line of credit is
due in full in July 1997.
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10. OBLIGATIONS UNDER CAPITAL LEASE
In March 1996, the Company entered into a capital lease for the purchase of
certain computer equipment. The lease bears interest at 17.5 percent, has a
term of 36 months and requires monthly payments of $1,466.
Future lease payments required under capital leases for the five years
subsequent to December 31, 1996 are as follows:
Year ending
1997 $ 18,000
1998 18,000
1999 3,000
2000 -
2001 -
Thereafter -
39,000
Less amounts representing interest (6,000)
Present value of net monthly lease payments 33,000
Less current maturities (13,000)
Obligations under capital lease less
current maturities $ 20,000
11. OPERATING 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 initial public offering of SAGC. Beginning July 1, 1996,
the Company was allocated 33 percent and SAGC was allocated 67 percent. The
lease provides for monthly rental payments of $13,000 which increase based on
the consumer price index. Rent expense under this lease totaled $162,000 and
$155,000 in 1996 and 1995, respectively.
The Company also leases retail space for the Company owned stores under non-
cancelable operating lease agreements which expire at various times between
1997 and 2007 and provide for base monthly rental payments ranging from $5,611
to $12,000. 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 $380,000 and $288,000 in 1996 and 1995, respectively.
In addition to the leases discussed above, the Company also leases various
equipment and automobiles under non-cancelable operating leases.
At December 31, 1996, minimum future rental commitments under non-cancelable
operating leases, including the office and warehouse lease with the Chairman
and principal shareholder, are as follows:
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<PAGE>
Year ending
1997 $ 658,000
1998 530,000
1999 405,000
2000 336,000
2001 332,000
Thereafter 1,731,000
$ 3,992,000
In July 1996, SAGC entered into a lease for 65 acres of undeveloped land in
Las Vegas, Nevada for the development of the Las Vegas All-American Sportpark.
The lease term is for a period of fifteen years with two consecutive five year
renewal periods and commences upon the satisfaction of certain conditions.
These conditions include a determination of economic feasibility, secured
estimates of reasonable infrastructure costs, Federal Aviation Administration
approvals (as the site is located near McCarran International Airport), and
the receipt of all necessary zoning approvals from other governmental
entities.
Beginning the earlier of twelve months after the lease commences, or after
SAGC opens substantially all of the facilities, SAGC will pay the lessor an
annual base amount of $625,000 due in monthly installments of $52,083.
Additionally, the Lease contains contingent rent based upon gross sales at the
park ranging from three to ten percent of the different sources of gross
revenues if such percentage revenues exceed $625,000 annually. If SAGC opens
a portion of the facility prior to the completion of the entire facility the
fixed monthly rent will be $30,000 per month until the remainder of the
facility is opened. The minimum rent shall be increased at the end of the
fifth year of the term and every five years thereafter by an amount equal to
ten percent of the minimum monthly installment immediately preceding the
adjustment date.
As a condition to the Lease, SAGC also entered into a Deposit Agreement which
required SAGC to post a refundable deposit with the lessor of $500,000. The
$500,000 deposit is secured by promissory notes which in turn are
collateralized by a first trust deed in certain unrelated parcels of real
estate owned by the lessor. The deposit will be returned to SAGC if the
conditions previously described are not met.
If SAGC satisfactorily resolves the conditions noted above, the $500,000
deposit will be applied as follows: $104,166 as security deposit and the
remainder as prepaid rent to be amortized until exhausted. Future minimum
rental commitments under this lease, are as follows:
Year ending
1997 $ 60,000
1998 625,000
1999 625,000
2000 625,000
2001 625,000
Thereafter 7,783,750
$10,343,750
12. INCOME TAXES
The provision (benefit) for income taxes consists of the following at December
31, 1996 and 1995:
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<PAGE>
1996 1995
Current $ - $ -
State Taxes - -
Deferred benefit (244,000) (69,000)
Increase in deferred tax asset
valuation allowance 244,000 69,000
$ - $ -
Deferred tax assets (liabilities) are related to the following at December 31,
1996 and 1995:
1996 1995
Provision for bad debt $ 74,000 $ 33,000
Deferred franchise fees 42,000 41,000
Vacation accrual 19,000 18,000
Commissions (7,000) (5,000)
Depreciation (18,000) (17,000)
Book/tax basis difference in SAGC (743,000) (743,000)
Net operating loss carryforward 449,000 245,000
(184,000) (428,000)
Valuation allowance (559,000) (315,000)
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:
1996 1995
Dollars % Dollars %
Federal income tax ----------------- -----------------
at statutory rate $(331,000) (35) $(118,000) (34)
Minority interest in loss 87,000 9 36,000 10
Increase in deferred tax
asset valuation allowance 244,000 26 69,000 18
Other - - 13,000 -
$ - - $ - -
As of December 31, 1996 LVDGT and SAGC have net operating loss carryforwards
of $783,000 and $875,000, respectively, which are available through 2010.
13. 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"). All options granted under the 1991 Plan except for 4,000
options which were granted in 1992 and 1993 have either expired or were
replaced under an amendment to the plan effective July, 1994. 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,
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subject to adjustment in the event of certain recapitalizations and
reorganizations.
Total options granted under the 1991 Plan in 1994 were 491,000 at an exercise
price of $.80 per share. Of these shares, 50,000 have expired while the
remaining 441,000 shares are exercisable at any time through July 1999. An
additional 11,000 shares were granted in 1995 at exercise prices ranging
between $1.35 and $1.625. As of December 31, 1996, 10,000 of these options
had expired. These options have expiration dates which extend through January
2000. Total options outstanding under the 1991 Plan were 442,000 at December
31, 1996 and 1995, respectively, of which all were exercisable at prices
ranging from $.80 to $1.35 per share.
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 stock 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 $.01 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 who is also a director of the Company.
In April 1996 the Board adopted a resolution which would allow the President
of SAGC to convert the 512,799 shares of preferred stock to SAGC common shares
upon a spin off of SAGC common shares by the Company, even if the conversion
requirements have not been met.
c. SAINT ANDREWS PREFERRED STOCK
On July 11, 1996 the SAGC Board of Directors authorized the creation of
500,000 shares of Series A Convertible Preferred Stock with a $.001 par value.
On July 29, 1996, SAGC entered into an agreement which resulted in the sale,
on an installment basis, of the 500,000 shares of the Series A Convertible
Preferred Stock to Three Oceans Inc. ("TOI"), an affiliate of Sanyo North
America Corporation, at $10.00 per share for a total of $5,000,000. The
agreement also resulted in the assignment of certain rights to TOI. All
proceeds related to the agreement were received in accordance with the stated
terms of this agreement on October 7, 1996. Issuance costs totaling $162,000
were incurred related to the preferred stock. The preferred stock issued by
SAGC and accompanying options to purchase 250,000 shares of SAGC common stock
is included as a component of minority interest totaling $5,000,000 as of
December 31, 1996.
Each share of the Series A Convertible Preferred Stock issued to TOI is
convertible at the option of TOI into one share of SAGC's common stock. In
the event of liquidation or dissolution of the Company, each share of Series A
Convertible Preferred Stock will have a $10.00 liquidation preference over all
other shareholders. In addition, holders of the Preferred stock shall be
entitled to receive dividends at a rate equal to the rate per share payable to
common stock holders, assuming conversion of the Preferred shares. The
Preferred shares can be redeemed by the Company upon a registration statement
being declared effective by Securities and Exchange Commission covering the
issuance of the common stock upon conversion of the Preferred Stock and the
following two
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conditions being satisfied: (1) SAGC earns $1,000,000 of pre-tax income for a
fiscal year according to the year-end audited financial statements; and (2)
the closing bid price for the Company's common stock is at least $15.00 for 20
consecutive trading days. If SAGC notifies TOI of its intent to redeem the
Preferred Stock, TOI will have at least 30 days to elect to convert its
Preferred Stock or accept the redemption price of $12.50. Each share of
Series A Convertible Preferred Stock is entitled to vote and will vote along
with the holders of SAGC's common stock.
The rights granted to TOI in accordance with the agreement include the
following: (1) rights of first refusal with respect to debt and or equity
financing arrangements for Sportparks developed by SAGC's subsidiary All-
American Sportpark, Inc. for a period of 5 years commencing July 29, 1996 and
for a period of 3 years for Anaheim, California and Las Vegas, Nevada, (2) an
obligation to obtain electrical and electronic equipment for such Sportparks
for a period of 5 years, (3) certain signage rights for TOI or its designees
at the first two Sportparks and (4) other miscellaneous rights as defined.
Pursuant to the agreement, SAGC also granted TOI an option to purchase up to
250,000 shares of SAGC's common stock at $5.00 per share for a period of 5
years from the date of the agreement.
The agreement also provides for certain demand and piggyback registration
rights with respect to the shares of common stock issuable upon the conversion
of the Series A Convertible Preferred Stock and the exercise of the option.
Pursuant to the agreement, SAGC expanded the number of Directors of SAGC from
four to five, and elected Hideki Yamagata as a Director of SAGC. Mr. Yamagata
is the president of Three Oceans Inc.
d. 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. In connection with the December 1996 announcement by the Company
and SAGC that they had entered into a letter of intent to sell certain retail
stores, the wholesale and franchise business segments (see Note 1), the
expiration date of the Class A Warrants have been extended until after the
sale is completed and written communication to warrantholders that fully
describes the impact of the sale occurs.
In connection with the initial 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, 1996, no warrants have been exercised.
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e. ACCOUNTING FOR STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123 requires pro forma net
income disclosures reflecting compensation expense for stock options granted
after fiscal years commencing December 15, 1994. Accordingly only the 11,000
options granted in 1995 are subject to the provisions of the pronouncement.
The pro forma effect for these grants are not material to the consolidated
financial statements of the Company.
14. 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. For 1996 and 1995, the
Company matched 50% and 25%, respectively, of employees' contributions up to a
maximum of 6% and 1 1/2% of an employee's base compensation. The Company had
expenses related to the Plan of $106,000 and $27,000 for 1996 and 1995,
respectively.
15. SUPPLEMENTAL NON-QUALIFIED RETIREMENT PLAN
In 1995, the Company entered into a Supplemental Retirement Plan for certain
key employees including the President of the Company and the President of
SAGC. This plan became effective on January 1, 1996. During 1996, the
Company paid $100,000 pursuant to the plan for officers and directors of the
Company.
16. 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.
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. In 1995 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, trade 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.
In May 1996, SAGC entered into an agreement with Jeff Gordon, the 1995 NASCAR
Winston Cup Champion and the 1997 Daytona 500 Champion, to serve as
spokesperson of the NASCAR SpeedPark through April 30, 2000. Mr. Gordon will
be paid $25,000 for his services during 1996, $25,000 per SpeedPark per year
thereafter ($325,000 quaranteed over the life of the agreement); .25% of net
profits to go to a charity designated by Mr. Gordon; and additional fees for
recording television
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and radio spots and making more than six appearances per year. Mr. Gordon was
also granted options under the Company's stock option plan.
SAGC 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 NASCAR SpeedPark.
In January 1997 SAGC entered into a non-binding letter of intent with the
Pepsi-Cola Company ("Pepsi") concerning an exclusive sponsorship agreement.
Under the proposed agreement, Pepsi would receive certain exclusive rights
related to soft drinks, tea products, juice products, bottled water and
similar products in exchange for a series of payments beginning when the
SportPark opens. The rights to be granted to Pepsi are expected to include
that Pepsi's products will be exclusively sold for the categories listed, that
only Pepsi identified cups will be used in the SportPark, and that Pepsi would
have the right to name the arena. In addition, the agreement is expected to
provide that Pepsi will provide the equipment needed to dispense its products
at the SportPark. SAGC also anticipates that the agreement with Pepsi will
provide that SAGC and Pepsi will participate in joint marketing programs such
as promotions on Pepsi's products and local radio advertising.
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.
17. SUBSEQUENT EVENTS
On February 26, 1997, the Company and SAGC completed the sale of certain of
their assets and transferred certain liabilities to an unrelated buyer who has
incorporated under the name Las Vegas Golf & Tennis, Inc. in a transaction
whose terms were substantially in accordance with the "Agreement for the
Purchase and Sale of Assets" described in Note 1. The total consideration
received was $5.3 million, of which $4.6 million was paid in cash, $264,000
was received in the form of a short-term unsecured receivable, $200,000 was
placed in escrow pending the accounting for inventory and trade payables, and
$200,000 was placed in escrow for two years to cover potential indemnification
obligations.
The note payable owed to the Company's chairman and principal shareholder (see
Note 4) originally matured on January 31, 1997; however, on February 1, 1997,
the chairman extended the due date to December 31, 1998.
F-22
<PAGE>
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: October 23, 1997 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 October 23, 1997
Vaso Boreta Board, Secretary, Treasurer
(Principal Financial and
Accounting Officer) and
Director
/s/ Ronald S. Boreta Director October 23, 1997
Ronald S. Boreta
/s/ Robert S. Rosburg Director October 23, 1997
Robert S. Rosburg
/s/ William Kilmer Director October 23, 1997
William Kilmer
PROMISSORY NOTE
Principal: $631,148.76 Date: 2-1-97
Las Vegas Discount Golf & Tennis, Inc. promises to pay to Voss Boreta at
5325 S. Valley View Blvd., Suite 10, Las Vegas, Nevada 89118, the principal
amount of SIX HUNDRED THIRTY-ONE THOUSAND, ONE HUNDRED FORTY-EIGHT and 76/100
($631,148.76), together with interest at the rate of ten percent (10%) per
annum on the unpaid principal balance from February 1, 1997, until paid in
full.
The Maker will pay this note in one payment of $631,148.76. The payment
is due on December 31, 1998.
In addition, the Maker promises to pay reasonable attorney's fees and
costs incurred in collection of this note, or any part thereof, with or
without suit, and in the event of suit, such additional attorney's fees as the
court may determine and adjudicate to be reasonable.
LAS VEGAS DISCOUNT GOLF & TENNIS, INC. (Maker)
By: /s/ Ron Boreta
Ron Boreta, Director
EXHIBIT 10.15
INCENTIVE AGREEMENT
THIS INCENTIVE AGREEMENT is made the 24th day of April 1996 by and
between Las Vegas Discount Golf & Tennis, Inc., a Colorado corporation
("LVDG") and Ronald S. Boreta, an individual ("Ron Boreta").
WHEREAS, Ron Boreta serves as President of Saint Andrews Golf
Corporation, a majority owned subsidiary of LVDG ("SAGC"), and he also serves
as a member of the boards of directors of both LVDG and SAGC; and
WHEREAS, Ron Boreta has been instrumental in the past in helping SAGC
raise money through SAGC's initial public offering; and
WHEREAS, it is very important to the success of both LVDG and SAGC that
SAGC raises additional funding which will enable SAGC to pursue its business
plan of building sports entertainment parks, and if SAGC is able to carry out
this business plan it could be in the best interests of LVDG's shareholders;
and
WHEREAS, the Board of Directors of LVDG believes that the best way to
accomplish this objective is to provide a significant incentive to Ron Boreta
to pursue such transaction;
NOW, THEREFORE, in consideration of the premises and the mutual promises
and covenants contained herein:
THE PARTIES HERETO AGREE AS FOLLOWS:
1. If LVDG determines to spin off its shares of SAGC to the LVDG
shareholders or if shares of SAGC are otherwise distributed or issued to LVDG
shareholders in any form of reorganization involving LVDG, LVDG will allow Ron
Boreta to convert the 512,799 shares of LVDG preferred shares he owns even if
the conversion requirements specified on such shares have not been met.
2. This Agreement shall inure to and be binding upon the heirs,
executors, successors and assigns of each of the parties to this Agreement.
AGREED TO AND ACCEPTED on the date first above written.
LAS VEGAS DISCOUNT GOLF & TENNIS, INC.
/s/ Ronald S. Boreta By /s/ Vaso Boreta
Ronald S. Boreta Vaso Boreta, President
<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 through F-4 of
the Company's Form 10-KSB for the fiscal year ended December 31, 1996, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> $ 6,457,000
<SECURITIES> 0
<RECEIVABLES> 86,000
<ALLOWANCES> 0
<INVENTORY> 1,776,000
<CURRENT-ASSETS> 8,420,000
<PP&E> 415,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,532,000
<CURRENT-LIABILITIES> 2,508,000
<BONDS> 0
0
5,000
<COMMON> 3,871,000
<OTHER-SE> (2,139,000)
<TOTAL-LIABILITY-AND-EQUITY> 11,532,000
<SALES> 10,764,000
<TOTAL-REVENUES> 10,798,000
<CGS> 8,330,000
<TOTAL-COSTS> 11,927,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 90,000
<INCOME-PRETAX> (1,123,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (875,000)
<DISCONTINUED> (70,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (945,000)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
