<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
Commission File Number: 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 of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
5325 South Valley View Boulevard, Suite 4, Las Vegas, Nevada 89118
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(Address of principal executive offices including zip code)
(702) 798-7777
---------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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___
As of May 12, 1998, 5,831,807 shares of common stock, no par value per share,
were outstanding.
Transitional Small Business Disclosure Format (check one): Yes___ No X
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LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
FORM 10-QSB
INDEX
Page No.
Part I: Financial Information
Item 1. Financial Information:
Unaudited Condensed Consolidated Balance Sheets 3
Unaudited Condensed Consolidated Statements of
Operations 5
Unaudited Condensed Consolidated Statements of
Cash Flows 7
Notes to Unaudited Condensed Consolidated
Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Part II: Other Information
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 19
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LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
1998 1997
----------- -----------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 285,000 $ 429,000
Accounts receivable, net 252,000 78,000
Inventories 536,000 479,000
Due from Affiliated Store 138,000 194,000
Due from officer 3,000 3,000
Prepaid expenses and other 44,000 31,000
Preopening costs, net 77,000 100,000
----------- -----------
Total current assets 1,335,000 1,314,000
Leasehold improvements and equipment, net 10,014,000 10,151,000
Project development costs 13,468,000 7,850,000
Other long term receivables 209,000 227,000
Deposit for land lease 396,000 434,000
Other assets 73,000 96,000
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$25,495,000 $20,072,000
=========== ===========
The accompanying notes are an integral part of these financial statements.
(Continued)
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LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, December 31,
1998 1997
----------- -----------
(Unaudited)
CURRENT LIABILITIES:
Bank line of credit $ - $ 668,000
Current portion of notes payable 5,351,000 500,000
Current portion of obligations under
capital leases 77,000 87,000
Accounts payable and accrued expenses 4,384,000 2,183,000
Due to Affiliated Store 417,000 300,000
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Total current liabilities 10,229,000 3,378,000
---------- ---------
Note payable to shareholder 400,000 600,000
Note payable 5,250,000 5,250,000
Obligation under capital leases, net
of current portion 192,000 217,000
Deferred income 570,000 517,000
Deferred tax liability 743,000 743,000
Preferred stock of subsidiary 5,000,000 5,000,000
Minority interest 1,375,000 1,625,000
SHAREHOLDERS' EQUITY:
Convertible, preferred stock, Series A,
no par value; 5,000,000 shares authorized;
no shares issued and outstanding at
March 31, 1998 and December 31, 1997 - -
Common stock, no par value; 15,000,000 shares
authorized; 5,831,807 shares issued and
outstanding at March 31, 1998 and
December 31, 1997 3,876,000 3,876,000
Accumulated deficit (2,140,000) (1,494,000)
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Total shareholders' equity 1,736,000 2,382,000
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Total Liabilities and Shareholders' Equity $25,495,000 $20,072,000
=========== ===========
The accompanying notes are an integral part of these financial statements.
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LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
1998 1997
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REVENUE:
Net merchandise sales $ 751,000 $ 961,000
Callaway Golf Center 502,000 -
Other 37,000 78,000
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Total revenue 1,290,000 1,039,000
COST OF REVENUE:
Retail 582,000 545,000
Callaway Golf Center 503,000 -
--------- ----------
Total cost of revenue 1,085,000 545,000
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GROSS PROFIT 205,000 494,000
OPERATING EXPENSES:
Selling, general and administrative 826,000 600,000
Depreciation and amortization 117,000 14,000
Preopening expense 23,000 77,000
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966,000 691,000
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OPERATING LOSS (761,000) (197,000)
Interest (expense) income, net (135,000) 69,000
--------- ---------
Loss from continuing operations before
income taxes and minority interest (896,000) (128,000)
Provision for income taxes - -
Loss from continuing operations before --------- ---------
minority interest (896,000) (128,000)
Minority interest 250,000 (629,000)
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LOSS FROM CONTINUING OPERATIONS (646,000) (757,000)
DISCONTINUED OPERATIONS:
Loss from franchise and wholesale
operations to be disposed of (no income
taxes were recorded in 1998 or 1997) - (159,000)
Gain on disposal of franchise and wholesale
operations (less applicable income
taxes of $575,000) - 2,841,000
---------- ----------
Income from discontinued operations - 2,682,000
---------- ----------
NET INCOME (LOSS) $ (646,000) $1,925,000
========== ==========
The accompanying notes are an integral part of these financial statements.
(Continued)
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LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Continued)
1998 1997
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INCOME (LOSS) PER SHARE:
BASIC
Loss from continuing operations $ (.11) $ (.02)
Income from discontinued operations - .38
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Net Income (Loss) per Share $ (.11) $ .36
========== ==========
DILUTED
Loss from continuing operations $ (.11) $ (.02)
Income from discontinued operations - .35
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Net Income (Loss) per Share $ (.11) $ .33
========== ==========
The accompanying notes are an integral part of these financial statements.
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LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ (646,000) $ 1,925,000
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Minority interest (250,000) 629,000
Depreciation and amortization 117,000 14,000
Preopening expense amortization 23,000 -
Amortization of land lease 38,000 -
Gain on disposal of franchise, wholesale
and retail stores, net of income taxes - (3,416,000)
Changes in assets and liabilities:
Increase in accounts receivable (174,000) (240,000)
Increase in inventory (57,000) (218,000)
(Increase) decrease in prepaid expenses
and other (13,000) 68,000
Increase in accounts payable
and accrued expenses 2,201,000 204,000
Decrease in deferred franchise fees - (63,000)
Increase in deferred income 53,000 -
Increase in income tax payable - 575,000
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Net cash provided by (used in) operating
activities 1,292,000 (522,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds received from sale of franchise,
wholesale and assets held for sale - 4,550,000
Project development costs (5,618,000) (1,240,000)
Decrease in other assets 23,000 3,000
Leasehold improvement and equipment
disposals, net 20,000 -
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Net cash (used in) provided by investing
activities (5,575,000) 3,313,000
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The accompanying notes are an integral part of these financial statements.
(Continued)
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LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Continued)
1998 1997
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of line of credit (668,000) (398,000)
Decrease in notes receivable 18,000 -
Proceeds from notes payable and note
payable to shareholder, net 4,651,000 (535,000)
Increase to Affiliate Store
and Related Entities, net 173,000 -
Repayment of capital lease obligations (35,000)
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Net cash provided by (used in)
financing activities: 4,139,000 (933,000)
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NET (DECREASE)INCREASE IN CASH
AND CASH EQUIVALENTS (144,000) 1,858,000
CASH AND CASH EQUIVALENTS,
Beginning of period 429,000 6,457,000
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CASH AND CASH EQUIVALENTS,
End of period $ 285,000 $ 8,315,000
=========== ===========
The accompanying notes are an integral part of these financial statements.
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LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. CONDENSED FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements include
the accounts of Las Vegas Discount Golf & Tennis, Inc. ("LVDG") a Colorado
corporation, and its subsidiaries, Saint Andrews Golf Corporation ("SAGC"),
LVDG Development Corporation ("Development") and LVDG Rainbow, Inc.
("Rainbow"). LVDG and its subsidiaries are collectively referred to as "the
Company". All significant inter-company accounts and transactions have been
eliminated.
The accompanying financial statements have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange
Commission relating to interim financial statements. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. In the opinion of management, all adjustments necessary
to present fairly, in all material respects, the financial position, results
of operations and cash flows at March 31, 1998 and for all periods presented
have been made.
Certain reclassifications have been made to previously reported amounts to
conform them to current classifications.
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.
These consolidated financial statements should be read in conjunction with the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1997.
The Company's current operations consist of one Company-owned retail store in
Las Vegas, Nevada and the development and operation of sport-oriented theme
parks under the name "All-American SportPark". The Company's concept of a
sport-oriented theme park consists of a baseball-batting stadium, car-racing
tracks, video arcade, retail and restaurant facilities and a golf facility
named "Callaway Golf Center". The golf facilities are comprised of an
executive golf course, driving range, putting course, clubhouse and training
center. The Callaway Golf Center for the Las Vegas, Nevada facility commenced
operations on October 1, 1997.
2. SALE OF ASSETS AND DISCONTINUED OPERATIONS
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". 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 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. Of the total
consideration received, approximately $2.5 million was allocated to LVDG.
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This transaction resulted in the disposal of the Company's franchise business,
wholesale business, and the three Company-owned retail stores in Southern
California, and the assignment of all franchise rights, trade names, and trade
marks associated with the business. The agreement also contains certain
provisions not to compete in the franchised retail golf equipment business.
Accordingly, the sale of all assets, and assumption of liabilities and rights
related to the these businesses have been presented as "Discontinued
Operations" in the accompanying statement of operations for the period ended
March 31, 1997.
3. PROPOSED MERGER WITH SAINT ANDREWS GOLF CORPORATION
On January 20, 1998, the officers of LVDG and SAGC executed a merger agreement
pursuant to which SAGC would merge with and into LVDG which is intended to
constitute a tax-free plan of reorganization. As a result, the separate
corporate existence of SAGC would cease and LVDG would change its name to
All-American SportPark, Inc. to reflect the primary business of the surviving
corporation.
At the effective date of the merger each share of SAGC's common stock issued
and outstanding immediately prior to the effective date (except for shares of
SAGC's common stock held by LVDG) will be converted into 2.4 shares of LVDG
common stock. Each share of SAGC's Series A Preferred Stock will be converted
into 2.4 shares of LVDG Series B Preferred Stock, and each share of SAGC's
common stock held by LVDG immediately prior to the effective date and all
rights in respect thereof will be canceled. This would result in the current
shareholders of SAGC (other than LVDG) owning approximately 38.2% of the
surviving corporation, assuming there are no dissenting shareholders.
At the effective date each option or warrant granted by SAGC to purchase
shares of SAGC's common stock which is outstanding and unexercised immediately
prior to the effective date will be assumed by LVDG and converted into an
option or warrant to purchase shares of LVDG common stock in such number and
at such exercise price similar to that previously discussed (2.4 to 1). The
exercise price per share of LVDG common stock under the new option or warrant
will be equal to the quotient of the exercise price per share of SAGC's common
stock under the original option or warrant divided by the exchange ratio.
4. GOING CONCERN MATTERS
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the accompanying
financial statements the Company incurred operating losses of $761,000 and
$197,000 for the periods ended March 31, 1998 and 1997, respectively.
Additionally, as of March 31, 1998 the Company had negative working capital of
approximately $8.9 million. The Company has entered into several short-term
financing transactions as noted below in order to fund ongoing operating cash
requirements as well as the continuing construction of the All-American
SportPark.
On January 26, 1998 and April 2, 1998 the Company's president loaned SAGC
$200,000 and $400,000, respectively. The loans are due in 2001 and bear
interest at a rate of 10 percent per annum.
On February 5, 1998, SAGC secured a $4.0 million short-term bank loan bearing
interest at a rate of 10 percent per annum. This loan requires interest only
payments, which commenced on March 10, 1998, with the full loan plus all
unpaid interest due August 10, 1998.
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On March 18, 1998, SAGC obtained an additional $3.0 million short-term
promissory note bearing interest at a rate of 10 percent per annum from
Callaway Golf Company. As security the Company pledged its equity in
All-American Golf LLC, a subsidiary of SAGC. The note is due in full with
principal and interest on June 18, 1998. As of March 31, 1998, the Company
had borrowed approximately $1.4 million under this agreement. The balance was
borrowed in April 1998.
On May 7, 1998, SAGC received a Bridge Mortgage Loan Commitment Letter (the
"Commitment Letter") from First Connecticut Consulting Group, Inc. (the
"Lender") pursuant to which the Lender would loan up to $18 million to SAGC
for one year. The loan would bear interest at the rate of 12% per annum and
be secured by a first mortgage on all the All-American SportPark in Las Vegas.
The loan would be guaranteed by LVDG and SAGC. The Commitment Letter requires
that SAGC pay a non-refundable commitment fee of $180,000 on acceptance of the
commitment. SAGC must pay a financing fee of 4% of the loan amount at
closing, however the $180,000 financing fee will be credited against the
financing fee. SAGC must also pay all of the Lender's loan expenses, and a 2%
fee to the person who brokered the loan.
The loan can be prepaid at any time, provided that at least nine months of
interest must be paid on the loan. The commitment is subject to a number of
terms and conditions set forth in the Commitment Letter including completion
by the Lender of its due diligence and the completion and execution of the
definitive loan documentation. SAGC would use the proceeds of this loan to
repay the $4 million short term bank loan and other outstanding indebtedness
and for the completion of the construction of the SportPark.
The Company's continuation as a going concern is dependent upon its ability to
generate positive cash flows and to obtain additional financing or refinancing
which will be required in order to complete the All-American SportPark. SAGC
currently has not secured sufficient financing to complete construction of the
SportPark portion of the Las Vegas facility. SAGC expects to receive the
balance of the financing from a combination of sources including outside
equity and/or debt investors and bank financing. There is no assurance that
financing will be obtained from any of these sources. The financial statements
do not include any adjustments relating to the recoverability and
classification of assets and liabilities that might be necessary should the
Company be unable to continue as a going concern.
5. EARNINGS PER SHARE AND STOCK OPTIONS
Net income (loss) per share is computed by dividing net income (loss) by the
weighted average number of shares of common stock outstanding during the
periods presented. Diluted earnings per share reflects the additional
dilution for all potentially dilutive securities such as stock options.
Options having an exercise price greater than the average market price of the
underlying common stock during the period are excluded from the computation of
diluted earnings per share. Substantially all of the Company's outstanding
stock options are included in the calculations for the periods presented.
The weighted-average number of common and common equivalent shares used in the
calculation of basic and diluted earnings per share for the periods ended
March 31, 1998 and 1997 consisted of the following:
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1998 1997
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Weighted-average common shares outstanding
(used in the computation of basic earnings
per share) 5,831,807 5,319,008
Potential dilution from the assumed exercise
of common stock options 437,000 512,799
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Weighted-average common and common equivalent
shares (used in the computation of diluted
earnings per share) 6,268,807 5,831,807
========== ==========
6. RELATED PARTY TRANSACTIONS
The Company has extensive transactions and relationships with its chairman and
principal shareholder, a retail store owned by the Company's chairman (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.
The Affiliated Store operates in Las Vegas, Nevada and was not a franchise of
SAGC during the period ended March 31, 1997. As a result, this store paid no
royalties to SAGC but purchased merchandise at the same cost as SAGC. The
Affiliated Store also benefited from SAGC's activities, including any local
and national advertising conducted by SAGC. The Affiliated Store and the
Company owned store share advertising costs equally in the Las Vegas market
area. Sales of merchandise made to the Affiliated Store are recorded at the
Company's cost and totaled $36,000 and $190,000 for 1998 and 1997,
respectively.
7. LEASEHOLD IMPROVEMENTS AND EQUIPMENT
Leasehold improvements and equipment included the following as of March 31,
1998 and December 31, 1997, respectively:
1998 1997
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Furniture and equipment $ 738,000 $ 728,000
Leasehold improvements 9,539,000 9,574,000
Other 257,000 250,000
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10,534,000 10,552,000
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Less - accumulated amortization and
depreciation (520,000) (401,000)
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$10,014,000 $10,151,000
=========== ===========
8. PROJECT DEVELOPMENT COSTS
SAGC is currently engaged in the planning and design of All-American
SportParks. The All-American SportPark in Las Vegas, Nevada is currently
under construction and is expected to be completed in June 1998. Project
development costs represent the continuing construction costs of the
All-American SportPark and totaled approximately $13,468,000 as of March 31,
1998.
These costs consist primarily of $10,592,000 in buildings, $1,601,000 in land
improvements, and $1,275,000 in furniture, equipment and other.
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9. LEASES
SAGC's lease for approximately 23 acres of undeveloped land on which the
All-American SportPark is being constructed became effective on February 1,
1998.
The base rental on the lease is $18,910 per month and contains contingent
rentals based on a percentage of gross revenues in the park. The lease term
is 15 years with two five-year renewal options.
10. COMMITMENTS AND CONTINGENCIES
The Company has employment agreements with its President, as well as other key
employees, which require the payment of fixed and incentive based
compensation.
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. This agreement was amended during 1997. Pursuant to the amended
agreement, SAGC 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, SAGC 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, SAGC must pay $50,000 during such year. SAGC has made
the payments required for 1995, 1996 and 1997. In addition to and as an
offset against the minimum payments set out above, SAGC 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
the Company to any other individual or entity for the right to open or operate
any attraction or event in the Sports Entertainment Complex. 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 1997 NASCAR
Winston Cup Champion, 1997 Daytona 500 Champion, 1997 Coca-Cola 600 Champion,
1995 Winston Cup Champion and former NASCAR Winston Cup Rookie of the year, to
serve as spokesperson of the NASCAR SpeedPark through April 30, 2000. Mr.
Gordon is to be paid $25,000 per SpeedPark opening per year with a minimum
guarantee over the life of the agreement. Under the agreement, he is to
receive 1% of the net profits of each SpeedPark and additional fees for
recording television and radio spots and making more than six appearances per
year. Mr. Gordon was also granted options under the Company's stock option
plan. On November 20, 1997, the agreement with Mr. Gordon was amended to,
among other things, reduce the amount of services to be provided by him, to
make his services non-exclusive to the Company, to limit his services to the
Las Vegas SportPark and to set his base fee at $25,000 per year.
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 standalone NASCAR SpeedPark. The
agreement, as amended, provides that the Company has an exclusive license to
use certain trademarks and service marks in the development, design and
operation of go-kart racing facilities having a NASCAR racing theme in the
territories of Las Vegas, Nevada and Southern California. The agreement
provides that the exclusive rights to Las Vegas are subject to the condition
that the Las Vegas SpeedPark is opened by March 1, 1998, and that the
exclusive rights to Southern California are subject to the condition that the
Southern California SpeedPark is opened by March 1, 1999. Under the terms of
the agreement, if SAGC opened the Las Vegas site by March 1, 1998, the license
for that site would continue until
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December 31, 2003, and if the Company opens the Southern California site by
March 1, 1999, the license for that site will continue until December 31,
2003, and if the Company opens the Southern California site by March 1, 1999,
the license for that site will continue until December 31, 2004. NASCAR has
verbally agreed to extend the March 1, 1998, deadline for the Las Vegas
SportPark, but no new deadline has yet been determined.
In January 1997, SAGC entered into an agreement with the Pepsi-Cola Company
("Pepsi") concerning an exclusive sponsorship agreement. Under the 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 totaling $1,250,000 beginning when the SportPark opens.
SAGC received $250,000 as the first payment on this contract on December 31,
1997. The remaining amounts are due annually over a four year period starting
with the commencement of operations of the All-American SportPark. The rights
granted to Pepsi are 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 multipurpose arena
the AllSport Arena. In addition, Pepsi will provide the equipment needed to
dispense its products at the SportPark. 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.
In September 1997, SAGC entered into a lease and concession agreement with
Sportservice Corporation ("Sportservice") which provides Sportservice with the
exclusive right to prepare and sell all food, beverages (alcoholic and
non-alcoholic), candy and other refreshments throughout the All-American
SportPark, including the Callaway Golf Center, during the ten year term of the
agreement. Sportservice has agreed to pay rent based on a percentage of gross
sales depending upon the level of sales, whether the receipts are from
concession sales, the Arena restaurant, the Clubhouse, vending machines,
mobile stands, or catering sales. Rents from the Callaway Golf Center will be
paid to All-American Golf LLC and all other rents will be paid to SAGC.
Sportservice is expected to invest approximately $3.85 million into the
concessions and operations which includes all food service leasehold
improvements. The agreement also provides Sportservice with a right of first
refusal for future parks to be built by the SAGC in consideration for a
$100,000 payment. An additional payment of up to $100,000 is due depending on
whether Sportservice's development costs for its leasehold improvements and
food service assets do not exceed the estimate of $3.85 million. The
agreement has a number of other terms and conditions including a requirement
that SAGC and the LLC must develop and construct the SportPark in accordance
with certain specifications provided to Sportservice, and provide all
necessary building structure and shell components. SAGC and the LLC must
operate the SportPark on a year-round, seven days a week basis throughout the
term of the agreement.
The Company has entered into a two year agreement with Integrated Sports
International ("ISI") whereby ISI has been retained to assist the Company in
obtaining corporate sponsorship for various areas of the SportPark.
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.
11. SUBSEQUENT EVENT
During 1997, SAGC and Callaway Golf Company ("Callaway") formed All-American
Golf LLC, a California limited liability company to construct, manage and
operate the
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"Callaway Golf Center", a premier golf facility at the site of the
All-American SportPark. SAGC contributed the value of expenses incurred
relating to the design and construction of the golf center plus cash in the
combined amount of $3 million for 80% of the membership units. Callaway
contributed equity capital of $750,000 and loaned the LLC $5.25 million for
the remaining 20% of the membership units.
The Callaway loan bears interest at a rate of 10 percent per annum with
interest only payments commencing 60 days after the opening of the golf center
(which occurred on October 1, 1997). All-American Golf was unable to make the
interest payments due in December 1997 and January, February and March 1998.
Accordingly, on March 18, 1998, All-American Golf entered into a forbearance
agreement with Callaway Golf Company which cured the default and established
terms to repay the amounts in arrears.
Subsequently, on May 5, 1998, SAGC sold its 80% interest in All-American Golf
to Callaway in exchange for $1.5 million in cash and the cancellation of the
$3 million note, including any interest thereon, owed to Callaway by SAGC. Of
the cash payment, $500,000 was held back by Callaway until it has assured
itself that it has obtained all of the rights necessary to operate the
Callaway Golf Center. In connection with the sale of its membership units
SAGC resigned as manager of the LLC, and agreed not to compete with the
Callaway Golf Center in Clark County, Nevada for a period of two years.
Results of operations of All-American Golf included in the unaudited condensed
consolidated financial statements for the quarter ended March 31, 1998 were as
follows:
Revenue $ 502,000
=========
Cost of revenue $ 503,000
Depreciation and amortization 113,000
Amortization of preopening costs 23,000
Interest expense 135,000
---------
Total expenses 774,000
---------
(272,000)
Minority interest loss 54,000
----------
Net loss $(218,000)
==========
Assets and liabilities included in the accompanying unaudited condensed
consolidated financial statements as of March 31, 1998 and December 31, 1997
were as follows:
1998 1997
CURRENT ASSETS: ----------- -----------
Cash and cash equivalents $ 124,000 $ 45,000
Accounts receivable, net 38,000 58,000
Due from Affiliated Store 47,000 33,000
Prepaid expenses and other 19,000 28,000
Preopening costs 77,000 100,000
----------- -----------
Total current assets 305,000 264,000
Leasehold improvements and
equipment, net 9,705,000 9,841,000
----------- -----------
$10,010,000 $10,105,000
=========== ===========
-15-
<PAGE>
CURRENT LIABILITIES:
Current portion of obligations $ 65,000 $ 65,000
under capital leases
Accounts payable and accrued
expenses 921,000 769,000
Due to Affiliated Store 13,000 21,000
Due to Related Entities 616,000 565,000
----------- -----------
Total current liabilities 1,615,000 1,420,000
LONG TERM LIABILITIES:
Obligation under capital leases, net 167,000 185,000
of current portion
Note payable 5,250,000 5,250,000
----------- -----------
Total long term liabilities 5,417,000 5,435,000
----------- ----------=
Total liabilities $ 7,032,000 $ 6,855,000
=========== ===========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Quarterly 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 and financing
sources. 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-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, 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.
The Company's continuing operations consist solely of the retail
location on Rainbow Boulevard in Las Vegas, Nevada and the operations of Saint
Andrews Golf Corporation ("SAGC") which is currently involved in the
development of sport-oriented theme parks under the name "All-American
SportPark".
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1998 AS COMPARED TO
THREE MONTHS ENDED MARCH 31, 1997
DISCONTINUED OPERATIONS
On February 26, 1997, the Company and SAGC sold certain assets and
transferred certain liabilities to an unrelated buyer who has incorporated
under the name Las Vegas Golf & Tennis, Inc. The total consideration received
was approximately $5.3 million of which approximately $2.5 million was
allocated to LVDG. 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, including inventory, fixtures
and other property at the retail stores, certain inventory and assets at the
Company's headquarters, and the Company's business of selling golf and tennis
equipment on a wholesale basis to former franchisees of SAGC and to other
retailers. Under the agreement,
-16-
<PAGE>
SAGC also sold all of its interest in its business of franchising "Las Vegas
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 sale of all assets, liabilities and rights related to the
franchise and wholesale businesses have been presented as "Discontinued
Operations" in the accompanying statement of operations for the period ended
March 31, 1997.
CONTINUING OPERATIONS
REVENUE. Revenue increased to $1.3 million in 1998 from $1.0 million in
1997. Revenue for the Callaway Golf Center (which commenced operations in
October 1997) totaled $502,000 while merchandise sales at the Rainbow store
increased by $44,000 to $751,000. These were offset by a decrease in sales to
Affiliated Stores which totaled $36,000 in 1998 and $190,000 in 1997,
respectively. Other income decreased to $37,000 in 1998 versus $78,000 in
1997 due primarily to an insurance reimbursement of $61,000 in 1997 offset by
SAGC management fees for managing the operations of the Callaway Golf Center
of $25,000 in 1998.
COST OF REVENUE. Retail cost of revenues increased by $37,000 to
$582,000 in 1998. This is due primarily to a $91,000 increase in cost of
sales at the Rainbow store which totaled $547,000 in 1998 offset by a decline
in sales to Affiliated Stores to $36,000 in 1998 from $190,000 in 1997. Cost
of revenue related to the Callaway Golf Center which opened on October 1, 1997
totaled $503,000.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses related to continuing operations consist principally
of administrative payroll, office rent, professional fees and other corporate
costs. The $226,000 increase to $826,000 in 1998 from $600,000 in 1997 is
primarily attributable to the general administration of the Company and its
All-American SportPark subsidiary.
DEPRECIATION AND AMORTIZATION. The opening of the Callaway Golf Center
resulted in depreciation and amortization expense of approximately $113,000 in
1998 accounting for substantially all the increase over 1997 expense of
$14,000.
PREOPENING EXPENSE. Preopening expense of $23,000 in 1998 represents
the amortization of costs (consisting primarily of direct personnel and other
operating costs) incurred before the opening of the Callaway Golf Center.
These costs are being amortized over a 12 month period. The costs incurred
during 1997 related to the development of the All-American SportPark concept
were expensed as of December 31, 1997.
INTEREST EXPENSE. Interest expense, net of interest income, was
$135,000 in 1998 compared to interest income of $69,000 in 1997. Interest
expense in 1998 primarily represents interest expense on the $5.2 million note
of the Callaway Golf Center. 1997 income resulted from interest earned on
cash balances.
INCOME TAXES. Due to operating losses, the Company has no tax provision
nor has it recorded any tax benefits. Income taxes of $575,000 relating to
the Company's sale of its franchise operations during 1997 were offset against
the gain on disposal of the discontinued operations.
NET LOSS. The loss from continuing operations for 1998 was $646,000
compared to a loss of $757,000 in 1997. The losses are principally attributed
to the startup nature of the Company's new business focus involving the
development of the "All-American SportPark".
-17-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had negative working capital of
approximately $8.9 million as compared to a negative working capital of
approximately $2.1 million at December 31, 1997, a decrease of approximately
$6.8 million. Of this decrease, approximately $5.6 million resulted from the
financing of construction costs of the All-American SportPark. These costs
were funded primarily with short term loans including a bank loan of $4
million and $1.4 million in borrowings under a $3 million short term loan from
Callaway. Accounts payable and accrued expenses increased approximately $2.2
million primarily representing outstanding bills for construction of the
All-American SportPark.
Capital expenditures for the remainder of 1998, which relate
predominantly to construction of the All-American SportPark complex, are
expected to be approximately $9.7 million.
The Company currently has not secured long term financing for the
construction of the sports entertainment complex portion of the 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,
and bank financing. The Company has been holding discussions with a number of
potential financial sources concerning long term financing although no formal
commitments have yet been received. There is no assurance that required
financing will be obtained from any of these sources. Until long term
financing can be obtained the Company will continue to fund its construction
and operations with short term sources of funds. On February 13, 1998, SAGC
secured a $4 million short-term loan at an interest rate of 10% per annum from
Nevada State Bank. SAGC will pay interest only commencing March 10, 1998, with
the full loan plus unpaid interest due August 10, 1998. Additionally, on
March 19, 1998, SAGC obtained a $3 million short-term loan bearing interest at
a rate of 10% per annum from Callaway Golf Company. $1.4 million of this
facility was drawn down in March, and the balance was drawn down in April.
This loan was forgiven in connection with SAGC's sale to Callaway in May 1998
of its 80% membership interest in All-American Golf LLC. On January 26, 1998,
the Company's chairman loaned the Company $200,000, and in April 1998 loaned
an additional $400,000. The loans are due in 2001 and bear interest at a rate
of 10% per annum. Additionally, SAGC received a commitment letter for an $18
million short term loan as discussed in Note 4 of Notes to Unaudited Condensed
Consolidated Financial Statements. The Company intends to use the proceeds
from these loans towards completing construction of the All-American SportPark
and repayment of other outstanding indebtedness of SAGC.
During the three months ended March 31, 1998, operating activities
provided approximately $1.3 million of cash as compared to 1997 in which cash
used by operating activities was $522,000. Increases in outstanding vendor
invoices and other payables accounted for a majority of this decrease in cash
used.
Cash used by investing activities totaled approximately $5.6 million
during the 1998 quarter versus cash provided during the 1997 period of $3.3
million. This is due to the continued construction of the All-American
SportPark in 1998. The investment in the SportPark totaled $5.6 million
during the quarter ended March 31, 1998 versus $1.2 million for the comparable
quarter in 1997.
-18-
<PAGE>
Additionally, project development costs in 1997 were offset by the
proceeds on the sale of the franchise and retail operations of approximately
$4.55 million.
Financing activities in 1998 provided cash of approximately $4.1
million. This resulted from proceeds of the previously described loans and
notes offset by the repayment of the $700,000 bank line of credit and the
$500,000 note payable. In the 1997 period, repayment of the bank line of
credit and various notes used approximately $933,000 in cash.
Cash flows from operations in 1998 will be limited to those generated by
the remaining one Company-owned retail store, and therefore may be negligible
until the commencement of operations at the All-American SportPark which is
expected to occur in June 1998.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. None.
Item 2. Changes in Securities. None.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K. None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LAS VEGAS DISCOUNT GOLF & TENNIS, INC.
Date: May 15, 1998 By:/s/ Voss Boreta
Voss Boreta, President and Chief
Financial Officer
-19-
<PAGE>
EXHIBIT INDEX
EXHIBIT METHOD OF FILING
- -------- -----------------------------
27. FINANCIAL DATA SCHEDULE Filed herewith electronically
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited condensed consolidated balance sheets and unaudited condensed
consolidated statements of operations found on pages 3, 4, 5 and 6 of the
Company's Form 10-QSB for the year to date, and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 285,000
<SECURITIES> 0
<RECEIVABLES> 252,000
<ALLOWANCES> 0
<INVENTORY> 536,000
<CURRENT-ASSETS> 1,335,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 25,495,000
<CURRENT-LIABILITIES> 10,229,000
<BONDS> 0
<COMMON> 3,876,000
0
0
<OTHER-SE> (2,140,000)
<TOTAL-LIABILITY-AND-EQUITY> 25,495,000
<SALES> 751,000
<TOTAL-REVENUES> 1,290,000
<CGS> 1,085,000
<TOTAL-COSTS> 1,085,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (896,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (646,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (646,000)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
