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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year ended: December 31, 1997
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 4, 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. [ ]
State Issuer's revenues for its most recent fiscal year: $5,152,000.
As of April 22, 1998, 5,831,807 shares of common stock were outstanding, and
the aggregate market value of the common stock of the Registrant held by
non-affiliates was approximately $3,426,600.
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
Andrews' 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 Assets" to dispose of all but one of the Company-owned retail stores, all
wholesale operations and the entire franchising business of Saint Andrews.
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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".
The total price for the transaction was $5,354,287 of which $4,600,000
was paid in cash, $264,176 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
was withheld for accrued vacation liabilities. Of the total purchase price,
$2,603,787 was allocated to the Company and $2,750,500 was allocated to Saint
Andrews. During the three months ended June 30, 1997, Saint Andrews recognized
an additional $113,000 of gain on the sale of the franchise assets.
In connection with the sale of the above-described assets, Saint Andrews
and the Company agreed not to compete with the Buyer in the golf equipment
business except that the Company 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 President of the Company, 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.
During June 1997 Saint Andrews and Callaway Golf Company formed All
American Golf LLC, a California limited liability company which is owned 80%
by the Company and 20% by Callaway Golf Company, and which owns and operates
the Callaway Golf Center[TM] at the Las Vegas All American SportPark.
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 4, Las Vegas, Nevada 89118. Its telephone number is (702) 798-7777.
PROPOSED MERGER WITH SAINT ANDREWS GOLF CORPORATION
GENERAL
On January 20, 1998, the officers of the Company and Saint Andrews
executed a merger agreement pursuant to which Saint Andrews would merge with
and into the Company. As a result, the separate corporate existence of Saint
Andrews would cease and the Company would continue as the surviving
corporation of the merger. Management also intends to change the name of the
Company to "All-American SportPark, Inc." to reflect the primary business of
the surviving corporation.
The Company and Saint Andrews have commenced preparation of a
registration statement on Form S-4 which will be filed with the Securities and
Exchange Commission once it is completed. Once this is declared effective by
the Commission, proxy materials will be submitted to the shareholders of the
Company
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and Saint Andrews seeking their approval of the merger and the name change.
The merger will take place as promptly as practicable after the adoption and
approval of the merger agreement and the approval of the merger by the
stockholders of Saint Andrews and the stockholders of the Company, and the
satisfaction or waiver of the other conditions to the merger set forth in the
merger agreement.
The exchange rate for the merger described below as based upon the
recommendations of Quist Financial Inc., an independent valuation firm.
The following description of the merger assumes that the stockholders of
both the Company and Saint Andrews approve the merger.
EFFECTIVE TIME
The merger will become effective by the filing of certificates of merger
with the Secretary of State of Colorado and the Secretary of State of Nevada.
CORPORATE MATTERS
At the Effective Time the articles of incorporation and by-laws of the
Company will become the articles of incorporation and by-laws of the Surviving
Corporation, and the officers and directors of Saint Andrews immediately prior
to the Effective Time will become the officers and directors of the Surviving
Corporation.
CONVERSION OF SECURITIES
At the Effective Time, by virtue of the merger and without any action on
the part of the Company, or the holders of Saint Andrew's Capital Stock, (I)
each share of Saint Andrew's Common Stock issued and outstanding immediately
prior to the Effective Time (except for shares of Saint Andrews' Common Stock
held by the Company) will be converted into 2.4 shares of the Company's Common
Stock, (ii) each share of the Saint Andrews' Series A Preferred Stock will be
converted into 2.4 shares of the Company's Preferred Stock, and (iii) each
share of Saint Andrews' Common Stock held by the Company immediately prior to
the Effective Time and all rights in respect thereof will be canceled. This
would result in the current shareholders of Saint Andrews (other than the
Company) owning approximately 38.2% of the surviving corporation, assuming
that there are no dissenting shareholders.
OPTIONS AND WARRANTS TO PURCHASE SAINT ANDREWS' COMMON STOCK
At the Effective Time, each option or warrant granted by Saint Andrews to
purchase shares of Saint Andrews' Common Stock which is outstanding and
unexercised immediately prior to the Effective Time will be assumed by the
Company and converted into an option or warrant to purchase shares of the
Company's Common Stock in such number and at such exercise price as described
below and otherwise having the same terms and conditions as in effect
immediately prior to the Effective Time. The number of shares of the
Company's Common Stock to be subject to the new option or warrant will be
equal to the product of (i) the number of shares of Saint Andrews' Common
Stock subject to the original option or warrant multiplied by (ii) the
Exchange Ratio. The exercise price per share of the Company's Common Stock
under the new option or warrant will be equal to the quotient of (i) the
exercise price per share of Saint Andrews' Common Stock under the original
option or warrant divided by (ii) the Exchange Ratio.
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REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains certain customary representations and
warranties on the part of Saint Andrews and the Company, including, without
limitation, representations and warranties as to (i) organization and
qualification and subsidiaries; (ii) organizational documents; (iii)
capitalization; (iv) authority relative to the Merger Agreement; (v) no
conflict and required filings and consents; (vi) permits and compliance with
laws; (vii) Commission filings and financial statements; (viii) employee
benefit plans and labor matters; (ix) accounting and certain tax matters; (x)
contracts; (xi) litigation; (xii) intellectual property; (xiii) insurance; and
(xiv) certain interests of officers and directors in the constituent
corporations.
CONDUCT OF BUSINESS PENDING THE MERGER
The Merger Agreement provides that, between the date of the Merger
Agreement and the Effective Time, Saint Andrews and the Company must conduct
their respective businesses in the ordinary course consistent with past
practice and use all reasonable efforts to preserve substantially intact their
respective business organizations. The Merger Agreement also provides that
neither Saint Andrews nor the Company may, without the prior written consent
of the other party, between the date of the Merger Agreement and the Effective
Time, (I) amend its articles of incorporation or by-laws; (ii) declare or pay
any dividend or other distribution with respect to any of its capital stock;
(iii) reclassify, combine, split or subdivide or redeem, purchase or otherwise
acquire, directly or indirectly, any of its capital stock; (iv) authorize or
enter into any formal or informal agreement or otherwise make any commitment
to take any action prohibited by the Merger Agreement; or (v) issue any shares
of capital stock, except for issuances of capital stock pursuant to options,
warrants and other rights to acquire capital stock outstanding on the date of
the Merger Agreement, or for issuances of capital stock in connection with
financing of the Las Vegas All-American SportPark.
PLAN OF REORGANIZATION
The Merger Agreement is intended to constitute a tax-free "plan of
reorganization" within the meaning of the income tax regulations promulgated
under the Code. Pursuant to the Merger Agreement, Saint Andrews and the
Company have agreed that, from and after the date of the Merger Agreement,
they will use all reasonable efforts to cause the Merger to qualify, and will
not knowingly take any actions or cause any actions to be taken which could
reasonably be expected to prevent the Merger from qualifying, as a tax-free
reorganization under the Code.
FURTHER ACTION; CONSENTS; FILINGS
The Merger Agreement provides that Saint Andrews and the Company must use
all reasonable efforts to (i) take, or cause to be taken, all appropriate
action, and do, or cause to be done, all things necessary, proper or advisable
under applicable law or otherwise to consummate and make effective the Merger;
(ii) obtain from governmental entities any consents, licenses, permits,
waivers, approvals, authorizations or orders required to be obtained by Saint
Andrews or the Company in connection with the authorization, execution and
delivery of the merger Agreement and the consummation of the Merger; and (iii)
make all necessary filings, and thereafter make any other required or
appropriate submissions, with respect to the Merger Agreement and the Merger
required under the rules and regulations of the Securities Act, the Exchange
Act and any other applicable federal or state securities laws and any other
applicable law.
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CONDITIONS TO THE MERGER
CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The obligations of both
Saint Andrews and the Company to consummate the Merger are subject to the
satisfaction or waiver of certain conditions, including, without limitation,
(i) the continuing effectiveness of the Registration Statement which includes
the Joint Proxy Statement/Prospectus; (ii) the approval of the Merger
Agreement and the Merger by the shareholders of Saint Andrews and the Company;
(iii) the absence of any injunction or order making the Merger illegal or
otherwise prohibiting its consummation; and (iv) the receipt of all material
consents, approvals and authorizations legally required to be obtained to
consummate the Merger.
CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligations of the
Company to consummate the Merger are subject to the satisfaction or waiver of
certain additional conditions, including, without limitation, (i) the accuracy
at and as of the Effective Time of each of the representations and warranties
of Saint Andrews contained in the Merger Agreement; (ii) the performance or
compliance by Saint Andrews with all material agreements and covenants
required by the Merger Agreement to be performed or complied with by it on or
prior to the Effective Time; and (iii) the receipt from Overton Babiarz &
Sykes, P.C. of its opinion to the effect that the Merger will be treated for
federal income tax purposes as a tax-free reorganization.
CONDITIONS TO THE OBLIGATIONS OF SAINT ANDREWS. The obligations of Saint
Andrews to consummate the Merger are subject to the satisfaction or waiver of
certain additional conditions, including, without limitation, (i) the accuracy
at and as of the Effective Time of each of the representations and warranties
of the Company contained in the Merger Agreement; (ii) the performance or
compliance by the Company with all material agreements and covenants required
by the Merger Agreement to be performed or complied with by it on or prior to
the Effective Time; and (iii) the receipt from Overton Babiarz & Sykes, P.C.
of its opinion to the effect that the Merger will be treated for federal
income tax purposes as a tax-free reorganization.
TERMINATION
The Merger Agreement provides that it may be terminated and the Merger
abandoned at any time prior to the Effective Time, notwithstanding the
adoption and approval of the Merger Agreement by the shareholders of Saint
Andrews and/or the Company (i) by the mutual written consent of the boards of
directors of each of Saint Andrews and the Company, or (ii) by either Saint
Andrews or the Company, if any governmental order, writ, injunction, or decree
preventing the consummation of the Merger is entered by any court of competent
jurisdiction and becomes final and nonappealable.
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
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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 include a live action Sports
Entertainment Complex that will feature a Major League Baseball Slugger
Stadium; a NASCAR SpeedPark; an All-American SportPark Pavillion; and an
Allsport Arena. The other portion of the SportPark is a Callaway Golf
Center[TM], which is comprised of a lighted, nine-hole par 3 golf course,
which wraps around a state-of-the-art 110-tee driving range, and a 20,000
square foot clubhouse and training center.
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 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".
On June 20, 1997, the lessor of the 65 acre tract agreed with the Company
to cancel the original lease and replace it with two separate leases: one
lease with All American Golf, LLC, which covers the 41 acres where the
Callaway Golf
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Center[TM] is located; and the second lease with Saint Andrews which covers
the 24 acres where the Sports Entertainment Complex is located.
Both leases are very similar in structure. They are both fifteen year
leases with options to extend for two additional five year terms. The lease
for the Callaway Golf Center[TM] commenced on October 1, 1997 when the golf
center opened. The other lease commenced on February 1, 1998. The Sports
Entertainment Complex is expected to open during June 1998.
The minimum rent for the golf center lease is $398,077 per year for the
first five years and it increases by 10% at the end of each five years during
the term of the lease. The minimum rent for the other lease is $226,923 per
year for the first five years and it increases by 10% at the end of each five
years during the term of the lease. Both leases also provide for additional
rent to the extent that percentages ranging from 3% to 10% of gross receipts,
depending on the type of revenue, exceed the minimum rental. In connection
with the signing of the lease covering 24 acres, Saint Andrews paid a deposit
of $500,000 which will be applied to minimum rental payments, and a security
deposit of approximately $37,820 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 only secured financing
for the golf facility portion 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 sufficient
financing will be obtained from these sources for the Sports Entertainment
Complex.
In April 1997, Saint Andrews broke ground on the Callaway Golf
Center[TM], and it opened to the public on October 1, 1997. The preliminary
opening of the Sports Entertainment Complex is anticipated to be in June 1998,
however, the actual opening date could depend upon when the financing for this
portion is received. The projected opening date is also subject to change due
to construction delays due to availability of construction personnel,
materials, adverse weather 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 was accepted for review by the Las Vegas Valley Water District in
February 1997. Saint Andrew's improvement plans were approved by the Clark
County Public Works in February 1997 pending review by the Clark County
Building Department. Saint Andrews now believes that it has obtained all
required permits and approvals except for minor routine approvals.
FEATURE ATTRACTIONS
Callaway Golf Center[TM]. In June 1997, Saint Andrews completed a final
agreement with Callaway Golf Company ("Callaway Golf") to form a limited
liability company named All American Golf LLC (the "LLC") for the purpose of
operating a golf facility, to be called the "Callaway Golf Center[TM]," on
approximately forty-one (41) acres of land which is inside the All-American
SportPark located on approximately sixty-five (65) acres adjacent to Las Vegas
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Boulevard in Las Vegas. The Callaway Golf Center[TM] opened to the public on
October 1, 1997.
The Callaway Golf Center[TM] includes a 110-tee driving range in a
two-tiered format. The driving range is designed to have the appearance of an
actual golf course with ten impact greens and a 1-1/2 acre lake with cascading
waterfalls and an island green. Pro-line equipment and popular brand name
golf balls are utilized. In addition, the golf center includes a lighted nine
hole, par three golf course named the "Divine Nine". The golf course has been
designed to be challenging, and has several water features including lakes,
creeks, water rapids and waterfalls, golf cart paths and designated practice
putting and chipping areas. At the entrance to the golf center is a 20,000
square foot clubhouse which includes The Callaway Golf Experience, a David
Leadbetter Golf Academy, a retail store, a restaurant and bar, and an outdoor
patio overlooking the golf course and driving range with the Las Vegas "Strip"
in the background.
Callaway Golf has constructed and operates a state-of-the-art training
center at its own cost (estimated at $2,000,000) which is known as "The
Callaway Golf Experience". The Callaway Golf Experience, located in the
clubhouse, is Callaway Golf's high-tech evaluation system that allows golfers
of all skill levels to compare the performance of different golf clubs. Saint
Andrews is managing the entire Callaway Golf Center[TM] except for the
Callaway Golf Experience and other tenant facilities for which it receives a
management fee of 5% of revenues. Therefore, Saint Andrews receives a 5%
management fee from all revenues from the par 3 golf course, the driving
range, and all tenant facilities except for the Callaway Golf Experience.
Callaway Golf will receive 100% of the revenues from the Callaway Golf
Experience and will pay the LLC $50,000 per year for the right to occupy that
portion of the premises.
The LLC is owned 80% by Saint Andrews and 20% by Callaway Golf. Callaway
Golf agreed to contribute $750,000 of equity capital and loan the LLC
$5,250,000. Saint Andrews will contribute the value of expenses incurred by
the Company relating to the design and construction of the golf center and
cash in the combined amount of $3,000,000. Callaway Golf's loan to the LLC
has a ten year term and bears interest at 10%. The principal is due in 60
equal monthly payments commencing five years after the golf center opened.
Additional payments of principal are required under certain conditions if the
LLC is making cash distributions to its owners before the loan has been
repaid. The loan can also be repaid without penalty at any time.
If during the first year after the effective date of the Callaway Golf
loan Saint Andrews contributes additional cash to the LLC for the purpose of
paying down the loan, Callaway Golf is required to also contribute to the LLC
in the form of equity 25% of the amount contributed by the Company up to a
maximum of $850,000.
The LLC has executed a license agreement with Callaway Golf pursuant to
which the LLC licenses the right to use the mark "Callaway Golf Center[TM]"
from Callaway Golf for an annual royalty not to exceed $50,000. Pursuant to
this agreement, Callaway Golf has the right to terminate the agreement at any
time without cause on ninety days prior written notice and with payment of
$500,000. Such termination could have an adverse impact on the success of the
golf center.
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
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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, the Company's 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. See
"Agreement with Major League Baseball" below.
NASCAR SPEEDPARK. Saint Andrews has a 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 agreement, as amended, provides that Saint
Andrews 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 Saint Andrews opened the Las Vegas site
by March 1, 1998, the license for that site would 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, 2003. NASCAR has
verbally agreed to extend the March 1, 1998 deadline for the Las Vegas
SportPark, but no new deadline has yet been determined.
As consideration for the license Saint Andrews has agreed to pay a fee of
$25,000 plus $25,000 for each new SpeedPark opened after the first SpeedPark.
In addition, Saint Andrews has agreed to pay NASCAR a royalty up to five
percent (5%) of each SpeedPark's revenue from racing activities plus a royalty
ranging from two percent (2%) to five percent (5%) on revenues received from
sponsors and promoters of SpeedPark activities.
The SpeedPark will include three tracks to accommodate three styles of
racing: family, adult and junior tracks. 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.
Scale model, near emissions-free, gas-powered, stock cars complete with
sponsorship graphics and signage, will compete on the three tracks. The cars
are 5/8 scale NASCAR Winston Cup Stock Car replicas, 5/8 scale NASCAR
Craftsman Truck Series replicas and Jr. Track Stock Cars.
In May 1996, Saint Andrews 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. According to the original agreement, Mr. Gordon was
paid $25,000 for his services
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during 1996, and is to be paid $25,000 per SpeedPark opening per year with a
minimum guarantee over the life of the agreement; he is to receive 1% of the
net profits of each SpeedPark; .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. 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 Saint Andrews, to limit his services to the Las Vegas
SportPark and to set his base fee at $25,000 per year.
ALL-AMERICAN SPORTPARK PAVILION. The 100,000 square foot Pavilion will
include a multi-purpose sports arena (the "Allsport Arena"), speciality retail
areas, a video arcade, food courts, meeting rooms, special events space and
leased tenant facilities for food and beverage service and other Saint Andrews
and tenant operated sports activities.
ALLSPORT ARENA. This space can be used to accommodate indoor
professional beach volleyball tournaments, professional roller hockey
exhibition games, basketball tournaments, tennis matches, cultural and civic
special events, and annual super bowl parties which coincide with
internationally broadcasted major sporting events, music and entertainment
events. It will include a giant video display and movable seating which is
adaptable for 1,500 to 3,000 people to view an event. When the arena is not
in use for a scheduled event, it will accommodate the core business use for
in-line skaters who will be able to skate to an entertaining multimedia light
and sound performance.
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' 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, 1996
and 1997. 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 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.
SPONSORSHIP AGREEMENT WITH PEPSI-COLA COMPANY
In December 1997, Saint Andrews entered into a sponsorship agreement with
the Pepsi-Cola Company ("Pepsi") under which Pepsi received certain exclusive
rights related to all non-alcoholic beverage products, except for certain
specialty tenants which may use their products such as Starbucks Coffee Shop,
and a few other minor exceptions, in exchange for an annual fee and
advertising support expenditures. In addition, the agreement provides that
Pepsi will have
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specified signage rights and the multipurpose arena will be named the AllSport
Arena after Pepsi's Allsport drink product. In addition, the agreement
provides that Pepsi will provide, without charge, all equipment needed to
dispense its products at the Sportpark.
The agreement with Pepsi provides that Saint Andrews and Pepsi will
participate in joint marketing programs such as promotions on Pepsi's products
and the SportPark. In addition, Pepsi will have the right to provide three
marketing events per year. These events are to be used to promote the
business of Saint Andrews and Pepsi.
In consideration for the above rights, Pepsi agreed to pay Saint Andrews
$250,000 when any portion of the SportPark was officially opened; an
additional $250,000 when the SportPark is 100% completed and all attractions
are accessible by the public; and make additional comparable payments on an
annual basis for the remaining 3 years of the lease. The sponsorship
agreement will terminate five years after the SportPark is 100% completed,
unless earlier terminated as provided in the agreement. Saint Andrews
received the first $250,000 during December 1997 since Callaway Golf
Center[TM] had opened on October 1, 1997.
AGREEMENT WITH SPORTSERVICE CORPORATION
In September 1997, Saint Andrews entered into a lease and concession
agreement with Sportservice Corporation ("Sportservice") which provides that
Sportservice has 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[TM], 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[TM] will be paid to All American Golf LLC and all other rents will
be paid to Saint Andrews.
Sportservice is expected to invest approximately $3.85 million into the
concessions and operations which includes all food service leasehold
improvements. Sportservice is a wholly-owned subsidiary of Delaware North
Company. Other Delaware North Companies include the Boston Garden, the Fleet
Center in Boston, and food service clients which include the Ballpark in
Arlington, Texas, California Speedway, Miller Park in Milwaukee, Space Port
USA at Kennedy Space Center and Yosemite National Park.
The agreement also provides Sportservice with a right of first refusal
for future parks to be built by Saint Andrews 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 exceed the estimate of $3.85 million.
The agreement has a number of other terms and conditions including a
requirement that Saint Andrews 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. Saint
Andrews and the LLC must operate the SportPark on a year-round, seven days a
week basis throughout the term of the agreement.
AGREEMENT WITH INTEGRATED SPORTS INTERNATIONAL
Saint Andrews has entered into a two year agreement with Integrated
Sports International ("ISI") whereby ISI has been retained to assist Saint
Andrews in obtaining corporate sponsorship for various areas of the SportPark.
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ISI has agreed to serve as the SportPark's exclusive sponsorship sales
company and to serve as a consultant to develop ways to help the SportPark in
the areas of marketing and promotions that will improve perceived value from
tenants and sponsors. ISI is also to consult on and implement a
licensing/merchandising plan to enhance the image of the SportPark.
ISI will be paid a monthly consulting fee and a percentage of sponsorship
sales and product sponsorships. Although the agreement has a two year term
commencing June 10, 1997, the exclusive nature of the agreement will terminate
after the first six months if ISI is not successful in assisting Saint Andrews
in securing sponsorships during the first six months.
ISI represents Disney International and a number of sports celebrities.
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 and overseas 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 Callaway Golf Center[TM] which includes the nine-hole par 3 golf
course, driving range, and clubhouse is designed as a country club atmosphere
for the general public. This concept may be expanded into various hotel and
resort areas throughout the United States and overseas and can also be
included in the SportPark opportunities described above or as a stand alone
business.
NASCAR SpeedPark is "The Official Go-Kart Racing Facility Licensed by
NASCAR". 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.
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.
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 could require considerably more financial resources than the
Company presently has and more management and human resources than presently
exist at Saint Andrews.
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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 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, 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.
During September 1997, Saint Andrews agreed to sell its rights to the St.
Andrews name to Boreta Enterprises, Ltd. for a $20,000 two year promissory
note since Saint Andrews had committed all of its efforts to the development
and management of the All-American SportPark and no longer intended to engage
in the business of selling golf equipment or apparel.
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EMPLOYEES
As of January 15, 1998, the Company employed one person on a full-time
basis, and Saint Andrews employed a total of 10 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. Saint Andrews expects
to add approximately 110 full-time and 40 part-time employees when the Sports
Entertainment Complex opens. The Callaway Golf Center[TM] employed
approximately 36 full-time and 10 part-time persons, however, these persons
are employees of the LLC.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company currently occupies approximately 2,670 square feet of office
and warehouse space at 5325 South Valley View Boulevard, Suite 4, Las Vegas,
Nevada, and pays monthly rent of $1,410. The space is leased from Vaso
Boreta, the Company's Chairman of the Board. The rent is adjustable annually
based on increases in the consumer price index and the lease expires January
31, 2005. The Company's Board of Directors believes that the rent paid is
comparable to that which it would pay to an unaffiliated party.
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.
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 the Las Vegas SportPark. In January
1998, a trial was held and a verdict was entered in favor of Giant Ride, Inc.
in the amount of $20,854. Saint Andrews intends to pay the judgment once it
so entered by the Court.
In 1997, Puckett Marketing filed suit in the District Court of Clark
County, Nevada against Saint Andrews claiming that Saint Andrews had not paid
for approximately $60,000 of advertising services performed by Puckett
Marketing. This suit is currently in the discovery stage.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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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, 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
YEAR ENDED DECEMBER 31, 1997
First Quarter $1.09375 $0.875
Second Quarter $1.21875 $0.65625
Third Quarter $1.25 $1.00
Fourth Quarter $1.1875 $0.84375
(b) HOLDERS. The number of holders of record of the Company's $.001 par
value common stock at March 11, 1998, was approximately 1,016. This does not
include approximately an additional 1,500 shareholders who hold stock in their
accounts at broker/dealers.
(c) DIVIDENDS. Holders of common stock are entitled to receive such
dividends as may be declared by the Company's Board of Directors. No
dividends have been paid with respect to the Company's common stock and no
dividends are anticipated to be paid in the foreseeable future. It is the
present policy of the Board of Directors to retain all earnings to provide for
the growth of the Company. Payment of cash dividends in the future will
depend, among other things, upon the Company's future earnings, requirements
for capital improvements and financial condition.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
RESULTS OF OPERATIONS
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). SAGC is currently involved in the development of
sport-oriented theme parks under the name "All-American SportPark".
1997 VERSUS 1996
DISCONTINUED OPERATIONS. 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. 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,
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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 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. The assets and liabilities associated with the
retail stores which were sold have been segregated and classified as held for
sale in the accompanying balance sheets of the Company as of December 31,
1996.
CONTINUING OPERATIONS
REVENUE. Revenues for the Rainbow store for the year ended December 31,
1997, was $3.6 million versus $3.1 million in 1996. The net increase of 16.1%
is due in part to the rapid growth of the northwest section of Las Vegas and a
concerted marketing program to target that market. Additionally, on October
1, 1997 the Callaway Golf Center opened and had revenue of $322,000 for the
quarter.
COST OF SALES. Cost of sales for the Rainbow store represented 73.1% and
72.6% of retail revenues during the years ended December 31, 1997 and 1996,
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. Selling, general and
administrative expenses decreased to $2,264,000 for the year ended December
31, 1997, from $3,263,000 in 1996. The decrease in 1997 is due to cost
savings associated with marketing and administrative costs and the disposal of
the wholesale and franchise businesses.
SPORTPARK DEVELOPMENT COSTS. The Company's strategic emphasis at this
point is the development of sports-oriented theme parks under the name
"All-American SportPark". During 1997, the Company spent $255,000 in
development of this concept versus $207,000 in 1996. The Company has leased a
site for its first "All-American SportPark" development in Las Vegas, Nevada,
which is scheduled to open in June 1998.
PREOPENING EXPENSE. Preopening expense of $563,000 related to the
All-American SportPark was expensed due to the uncertainty related to
completing the facility, while $40,000 of preopening expense was amortized
related to a full quarter of operations for the Callaway Golf Center.
OTHER INCOME (EXPENSE). Interest income increased 224% to $227,000 in
1997 from $70,000 in 1996 due to interest earned on the proceeds from the sale
of the franchise and wholesale segments of the Company.
Interest expense increased 35.6% to $122,000 in 1997 from $90,000 in 1996
primarily due to the interest on the Callaway loan that started on October 1,
1997.
INCOME TAXES. Due to operating losses, the Company has no tax provision
nor has it recorded any tax benefits.
NET LOSSES. The net loss from continuing operations for the year ended
December 31, 1997 was $2,242,000 as compared to a net loss of $875,000 for the
year ended December 31, 1996. 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.
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LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had negative working capital of
approximately $2,424,000 as compared to working capital of approximately
$5,912,000 at December 31, 1996. Cash decreased by $6,028,000 due to
SportPark and Callaway Golf Center expenditures in the current year of
$16,000,000, offset by $5,750,000 in debt proceeds, a $600,000 note payable to
shareholder, and $750,000 minority interest proceeds from Callaway to the golf
facility, and $4,586,000 in net cash proceeds from the sale of the California
stores and other fixed assets.
On June 13, 1997 Saint Andrews Golf Corporation ("SAGC") and Callaway
Golf Company ("Callaway") announced the formation of the All-American Golf,
LLC, a limited liability California corporation, to construct, manage and
operate "Callaway Golf Center", a premier golf facility at the site of the
All-American SportPark. SAGC owns 80 percent of the members' units of the LLC
for a contribution of $3 million while Callaway Golf owns 20% for a
contribution of $750,000. The Callaway Golf Center commenced operations on
October 1, 1997. The total costs for the Callaway Golf Center is
approximately $10.1 million. Callaway Golf provided $5,250,000 in debt
financing which bears interest at 10 percent with interest only payments
commencing 60 days after the opening of the golf center through a date ten
years after the opening at which point the remaining accrued interest and
principal will be due in full. As of December 31, 1997, $5,250,000 had been
drawn under this agreement. SAGC will manage the driving range, golf course
and tenant facilities in the clubhouse.
While SAGC has entered into the Callaway arrangement as previously
described, SAGC currently has not secured 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. As of December 31, 1997, a non-refundable fee of $100,000 was
received from CTS Enterprises which will operate the amusement portion of the
SportPark, $100,000 from Sports Service which will operate the food
concessions for the Golf Center and SportPark, and $250,000 from the
Pepsi-Cola company for the exclusive right to provide their products at the
Golf Center and SportPark. These amounts have been deferred until the
SportPark is opened. The Company expects to receive the balance of the
financing from a combination of sources including sponsorship, outside equity
and/or investors, and bank financing (See Subsequent Event note). There is no
assurance that required financing will be obtained from any of these sources.
Subsequent to December 31, 1997, on February 5, 1998, SAGC secured a
short-term loan at 10% for $4 million from Nevada State Bank. SAGC will pay
interest only commencing March 10, 1998, with the full loan plus unpaid
interest due August 10, 1998. On March 18, 1998, SAGC obtained an additional
short-term loan at 10% for $3 million from Callaway Golf; the full amount of
this loan plus all unpaid interest is due June 18, 1998. On January 26, 1998
and April 2, 1998 the Company's chairman loaned SAGC $200,000 and $400,000
respectively. The loans are demand notes at 10%. The Company intends to use
the proceeds from these loans toward completing the construction of the
All-American SportPark.
In May 1998, SAGC sold its 80% interest in All American Golf LLC to
Callaway Golf in exchange for $1,500,000 in cash and the cancellation of the
$3,000,000 note issued to Callaway Golf which was due in June 1998. Of the
cash portion of the payment, $500,000 was withheld pending confirmation of the
transfer of certain rights to Callaway Golf.
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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% and be secured
by a first mortgage on the All-American SportPark in Las Vegas. The loan
would also be guaranteed by the Company. 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 loan from the Nevada State Bank and
other outstanding indebtedness and for the completion of the construction of
the SportPark.
During 1997, the Company's operating activities used $338,000 in cash as
compared to $1,375,000 used in operating activities during the prior year.
The reduction in cash used was primarily a result of the Company's net income
of $645,000 in 1997 and an increase in accounts payable and accrued expenses
of $831,000.
During 1997, cash used in investing activities totalled $12,076,000 as
compared to $1,908,000 provided by investing activities during 1996. The
increased use of cash was a result of leasehold improvement expenditures
totalling $9,698,000 and project development costs incurred in the amount of
$6,247,000, and preopening costs of $703,000.
Cash provided by financing activities during 1997 totalled $6,386,000 as
compared to $4,881,000 provided by financing activities in 1996. The increase
was funded primarily by proceeds from debt financing from Callaway Golf and a
shareholder.
Capital expenditures for 1998 are expected to be approximately $12
million and relate predominately to the Las Vegas SportPark complex
development and the Callaway Center.
Cash flows from operations in 1998 will be limited to those generated by
the remaining one Company-owned retail store and the Callaway Center and
therefore may be negligible until the expected June 1998 opening of the
All-American SportPark.
RECENTLY ISSUED ACCOUNTING STATEMENTS
In June 1997, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 130 - Reporting Comprehensive Income,
and No. 131 - Disclosures About Segments of an Enterprise and Related
Information. The Company will adopt the provisions of these new accounting
statements in 1998. Management believes that adoption of these provisions
will not have a material impact on the Company's reported financial position
or results of operations.
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YEAR 2000 COMPLIANCE
In the past, many computer software programs were written using two
digits rather than four to define the applicable year. As a result,
date-sensitive computer software may recognize a date using "00" as the year
1900
rather than the year 2000. This could result in major system failures or
miscalculations, and is generally referred to as the "Year 2000" problem. A
comprehensive review of the Company's computer systems has been completed and
an extensive program is currently in process to modify or replace those
systems that are not Year 2000 compliant. Management believes that the
Company's systems are compliant or will be compliant by mid-1999. All
maintenance and modification costs are being expensed as incurred, while the
cost of new software, when material, is being capitalized and amortized over
its expected useful life. The cost of the Year 2000 compliance program has
not been and is not anticipated to be material to the Company's financial
position or results of operations.
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-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-25 hereto.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING FINANCIAL
DISCLOSURE.
No response required.
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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 65 President, Chairman of the Board, Secretary
and Treasurer
Ronald S. Boreta 35 Director and President of Saint Andrews
Golf Corporation
Robert R. Rosburg 77 Director
William Kilmer 58 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.
In February 1998, the Company established an audit committee which
consists of William Kilmer and Robert R. Rosburg. The Company presently has
no compensation or nominating committee.
All Directors hold office until the next Annual Meeting of Shareholders.
Officers of the Company are elected annually by, and serve at the
discretion of, the Board of Directors.
The following sets forth biographical information as to the business
experience of each officer and director of the Company for at least the past
five years.
VASO BORETA has been Chairman of the Board of Directors since December
1989, President since July 1994, and Treasurer and Secretary since June 1992,
and a Director of the Company since February 1988. He also served as the
Company's President from February 1988 to December 1989, and October 1990 to
June 1992. Mr. Boreta has also been an Officer and a Director of Saint
Andrews Golf Corporation since its formation in March 1984. In 1974, Mr.
Boreta first opened a specialty business named "Las Vegas Discount Golf &
Tennis," which retailed golf and tennis equipment and accessories. Mr.
Boreta's original store is now an Affiliated Store of the Company. Mr.
Boreta devotes approximately 80% of his time to the business of the Company
and the balance to operating his Affiliated Store.
RONALD S. BORETA has been a Director since February 1988, and served as
President of the Company from June 1992 until July 1994, when he resigned to
become President and Chief Executive Officer of Saint Andrews. He also
previously served as Vice President, Secretary and Treasurer of the Company.
He has been employed by Saint Andrews Golf Corporation ("Saint Andrews") since
its inception in March 1984, with the exception of a 6-month period in 1985
when he was employed by a franchisee of Saint Andrews located in San
Francisco, California. Mr. Ron Boreta has also been a Director of Saint
Andrews Golf Corporation since 1984, and an Officer since 1986. Prior to his
employment by Saint Andrews, Mr. Boreta was an assistant golf professional at
San Jose Municipal Golf Course in San Jose, California, and had worked for two
years in
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<PAGE>
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, except that Ronald S.
Boreta filed one Form 4 late reporting the exchange of preferred stock for
Common Stock.
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,
1997, 1996 and 1995 from the Company and its subsidiaries:
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
PAYOUTS
SECURI-
TIES
UNDERLY-
OTHER RE- ING
ALL
ANNUAL STRICTED OPTIONS/
OTHER
NAME AND PRINCIPAL COMPEN- STOCK SARs LTIP
COMPEN-
POSITION YEAR SALARY BONUS SATION AWARD(S)
(NUMBER)PAYOUTS SATION
- ------------------- ---- -------- ------ ------- ------- -------
- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
<C>
Vaso Boreta, 1997 $100,000 -0- $40,000 -- -- --
-0-
President and <FN3>
Chairman of the 1996 $100,000 $40,000 -- -- --
-0-
Board<FN1> <FN3>
1995 $100,000 -0- $ 4,584 -- -- --
-0-
<FN3>
-22-
<PAGE>
Ronald S. Boreta, 1997 $101,000 $100,000 $58,183 -- <FN5> --
$4,231
President and CEO <FN4>
<FN6>
of Subsidiary 1996 $120,000 $5,500 $39,160 -- <FN5> --
$8,265
<FN4>
<FN6>
1995 $100,000 -0- $ 19,071 -- -0- --
-0-
<FN2> <FN4>
- --------------------
<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, an
automobile for his personal use and contributions made by the Company to
retirement plans on his behalf. For 1997, these amounts were $16,393 for club
memberships, $16,790 for an automobile and $25,000 to the Company's
Supplemental Retirement Plan.
<FN5>
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.
<FN6>
Represents premiums paid on a life insurance policy for Ronald S. Boreta's
benefit.
</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* $12,294 / 0*
Vaso Boreta -0- -0- -0-* -0-*
- -------------------
* Does not include options to purchase common stock of Saint Andrews held by
such person.
EMPLOYMENT AGREEMENTS
The Company's President, Vaso Boreta, does not have an employment
agreement with the Company. Since July 31, 1994, Mr. Vaso Boreta has been
paid an annual salary of $100,000 by the Company.
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<PAGE>
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 is 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 31, 1998, and it may be extended up to an
additional five years under certain conditions.
In June 1997, Saint Andrews' Board of Directors awarded a $100,000 bonus
to Ronald S. Boreta for his extraordinary services related to the raising of
capital and development of Saint Andrews' Las Vegas SportPark.
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
-24-
<PAGE>
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 437,000 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.
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 1997, Vaso 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. The Company made contributions to the
Supplemental Retirement Plan on behalf of these persons for 1997 as follows:
Vaso Boreta - $40,000; John Boreta - $4,167; and Ronald S. Boreta - $25,000.
The Company's Board of Directors has not yet determined the amounts, if
any, which will be contributed to the Supplemental Retirement Plan for 1998.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of April 10, 1998, 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.
-25-
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND ADDRESS NATURE OF BENE- PERCENT
OF BENEFICIAL OWNERS FICIAL OWNERSHIP OF CLASS
- ----------------------------------- ---------------- --------
<S> <C> <C>
Vaso Boreta 1,837,637<FN1> 31.5%
5325 South Valley View Blvd., Ste 4
Las Vegas, NV 89118
Ronald Boreta 1,723,288<FN2> 28.2%
5325 South Valley View Blvd., Ste. 4
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 1,059,374<FN3> 17.8%[?]
5325 South Valley View Blvd., Ste. 4
Las Vegas, NV 89118
Boreta Enterprises Ltd. <FN4> 1,304,445 22.4%
5325 South Valley View Blvd., Ste. 4
Las Vegas, NV 89118
All Directors and Officers 3,570,925 58.4%
as a Group (4 Persons)
- ---------------
<FN>
<FN1>
Includes 1,823,810 shares held directly and 13,827 shares which represents
Vaso Boreta's share of the Common Stock held by Boreta Enterprises.
<FN2>
Includes 544,699 shares held directly, 897,589 shares which represents Ronald
Boreta's share of the Common Stock held by Boreta Enterprises Ltd., and
281,000 shares underlying Stock Options held by Ronald Boreta.
<FN3>
Includes 536,345 shares held directly, 393,029 shares which represents John
Boreta's share of the Common Stock held by Boreta Enterprise Ltd. and 130,000
shares underlying Non-qualified Stock Options held by John Boreta.
<FN4>
Boreta Enterprises Ltd. is a Nevada limited liability company whose members
and respective percentage ownership are as follows:
Ronald Boreta - 68.81%
John Boreta - 30.13%
Vaso Boreta - 1.06%
Ronald Boreta is the sole manager of Boreta Enterprises Ltd.
</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.
-26-
<PAGE>
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 terminated 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 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 1996 and 1997, the Affiliated Store purchased $1,120,000 and
$163,000, respectively, in sporting goods merchandise from the Company. Also
during 1996 and 1997, the Affiliated Store sold $382,000 and $1,059,239,
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 1996 and 1997, the Company paid $228,000 and $320,000,
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.
-27-
<PAGE>
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. This note was paid off during 1997, and then the Company borrowed an
additional $600,000 by the end of 1997. This loan is evidenced by a demand
note bearing interest at 10%.
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 would 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. In June 1997, the Board of
Directors determined that since the Company would have net income before taxes
of at least $1,000,000 during 1997, and in recognition of his services in
connection with the development of the Las Vegas SportPark, that the Company
would exchange 512,799 shares of the Company's Common Stock for all of his
shares of Series A Convertible Preferred Stock.
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 $13,340 by the Company for his services in 1997.
The Company also provided medical insurance for him for which the Company paid
$757 in premiums, and paid $4,800 for his housing expenses. The Company also
contributed $4,167 on his behalf under the Company's Supplemental Retirement
Plan for 1997.
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
-28-
<PAGE>
3.1 Articles of Incorporation, Incorporated by reference to
as amended Exhibit 3.1 to Registrant's
Form S-1 Registration State-
ment (No. 33-33450)
3.2 Bylaws Incorporated by reference to
Exhibit 3.2 to Registrant's
Form S-1 Registration State-
ment (No. 33-33450)
3.3 Articles of Amendment to Incorporated by reference to
Articles of Incorporation Exhibit 3.3 to Registrant's
Form S-1 Registration State-
ment (No. 33-33450)
3.4 Statement Establishing Incorporated by reference to
Series A Preferred Stock Exhibit 3.4 to Registrant's
Form S-1 Registration State-
ment (No. 33-33450)
10.1 1989 Incentive Stock Incorporated by reference to
Option Plan Exhibit 10.1 to Registrant's
Form S-1 Registration State-
ment (No. 33-33450)
10.2 Lease Agreement with Vaso Incorporated by reference to
Boreta, as amended Exhibit 10.2 to Registrant's
Form S-1 Registration State-
ment (No. 33-33450)
10.3 Employment Agreement with Incorporated by reference to
Vaso Boreta, as amended Exhibit 10.3 to Registrant's
Form S-1 Registration State-
ment (No. 33-33450)
10.4 License Agreement with Incorporated by reference to
Vaso Boreta Exhibit 10.16 to Registrant's
Annual Report on Form 10-K
For the year ended December
31, 1990
10.5 1991 Stock Option Plan Incorporated by reference to
Exhibit 10.16 to Registrant's
Annual Report on Form 10-K
For the year ended December
31, 1991
10.6 Promissory Note to Vaso Incorporated by reference to
Boreta dated February 1, Exhibit 10.6 to the Registrant's
1997 Annual Report on Form 10-KSB for
the year ended December 31, 1996
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)
-29-
<PAGE>
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 Incorporated by reference to
Ron Boreta Exhibit 10.15 to the Registrant's
Form 10-KSB for the year ended
December 31, 1996
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)
10.17 Lease Agreement between Incorporated by reference to
Urban Land of Nevada and Exhibit 10.17 to the Form SB-2
All-American Golf Center, Registration Statement of Saint
LLC Andrews Golf Corporation
(No. 33-84024)
-30-
<PAGE>
10.18 Operating Agreement for Incorporated by reference to
All-American Golf, LLC, Exhibit 10.18 to the Form SB-2
a limited liability Registration Statement of Saint
Company Andrews Golf Corporation
(No. 33-84024)
10.19 Employment Agreement with Incorporated by reference to
Kevin Donovan dated Exhibit 10.19 to the Form SB-2
October 8, 1996 Registration Statement of Saint
Andrews Golf Corporation
(No. 33-84024)
10.20 Lease and Concession Agree- Incorporated by reference to
ment with Sportservice Exhibit 10.20 to the Form SB-2
Corporation Registration Statement of Saint
Andrews Golf Corporation
(No. 33-84024)
10.21 Sponsorship Agreement Incorporated by reference to
with Pepsi-Cola Company Exhibit 10.21 to the Form SB-2
Registration Statement of Saint
Andrews Golf Corporation
(No. 33-84024)
10.22 Agreement and Plan of Incorporated by reference to
Merger dated January 20, Exhibit 10.22 to the Form SB-2
1998 between the Company Registration Statement of Saint
and Las Vegas Discount Andrews Golf Corporation
Golf & Tennis, Inc. (No. 33-84024)
10.23 Promissory Note of All- Incorporated by reference to
American SportPark, Inc. Annual Report on Form 10-KSB of
for $3 million payable to Saint Andrews Golf Corporation
Callaway Golf Company for the year ended December 31,
1997 (File No. 0-024970)
10.24 Guaranty of Note to Incorporated by reference to
Callaway Golf Company Annual Report on Form 10-KSB of
Saint Andrews Golf Corporation
for the year ended December 31,
1997 (File No. 0-024970)
10.25 Forbearance Agreement dated Incorporated by reference to
March 18, 1998 with Callaway Annual Report on Form 10-KSB of
Golf Company Saint Andrews Golf Corporation
for the year ended December 31,
1997
10.26 Amendment No. 2 to License Incorporated by reference to
Agreement with National Annual Report on Form 10-KSB of
Assoc. for Stock Car Auto Saint Andrews Golf Corporation
Racing, Inc. for the year ended December 31,
1997
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
-31-
<PAGE>
(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed during the
quarter ended December 31, 1997.
-32-
<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, 1997 and 1996, 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 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.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 1d to the consolidated financial statements, the Company has suffered
recurring losses from operations, has a working capital deficiency of $2.4
million at December 31, 1997 and insufficient borrowing capacity to fund the
completion of its All-American SportPark complex which raise substantial doubt
about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1d. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
March 27, 1998 (except with respect
to the matter discussed in Note 17
as to which the date is May 5, 1998)
F-1
<PAGE>
LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS-DECEMBER 31, 1997 AND 1996
ASSETS
1997 1996
CURRENT ASSETS: ----------- -----------
Cash and cash equivalents $ 429,000 $ 6,457,000
Accounts receivable, net 78,000 66,000
Accounts receivable, held for sale - 20,000
Inventories 479,000 400,000
Inventories, held for sale - 1,376,000
Due from affiliated store 194,000 72,000
Due from officer 3,000 13,000
Prepaid expenses and other 31,000 16,000
Preopening expenses, net 100,000 -
--------- ---------
Total current assets 1,314,000 8,420,000
Leasehold improvements and equipment, net 10,151,000 236,000
Property and equipment, net held for sale - 179,000
Project development costs 7,850,000 1,604,000
Other long term receivables 227,000 -
Deposit for land lease 434,000 500,000
Other assets 96,000 82,000
Other assets, held for sale - 68,000
Net assets of discontinued operations - 443,000
---------- ----------
$20,072,000 $11,532,000
========== ==========
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, 1997 AND 1996
(Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
1997 1996
CURRENT LIABILITIES: ----------- -----------
Bank line of credit $ 668,000 $ 398,000
Current portion of notes payable 500,000 -
Current portion of obligations under
capital leases 87,000 13,000
Accounts payable and accrued expenses 2,183,000 1,352,000
Accounts payable trade, held for sale - 219,000
Due to Affiliated Store 300,000 463,000
Deferred franchise fees - 63,000
--------- ---------
Total current liabilities 3,738,000 2,508,000
--------- ---------
Note payable to shareholder 600,000 631,000
Notes payable 5,250,000 -
Obligation under capital lease, net of
current portion 217,000 20,000
Deferred income 517,000 91,000
Deferred tax liability 743,000 743,000
Preferred stock of subsidiary 5,000,000 5,000,000
Minority interest 1,625,000 802,000
SHAREHOLDERS' EQUITY:
Convertible, preferred stock, Series A,
no par value; authorized-5,000,000
shares; issued and outstanding-0 for 1997
and 512,799 1996 shares - 5,000
Common stock, no par value; authorized-
15,000,000 shares; issued and outstanding-
5,831,807 for 1997 and
5,319,008 for 1996 shares 3,876,000 3,871,000
Accumulated deficit (1,494,000) (2,139,000)
--------- ----------
Total shareholders' equity 2,382,000 1,737,000
--------- ----------
$20,072,000 $11,532,000
========== ==========
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, 1997 AND 1996
1997 1996
REVENUE: ----------- -----------
Net merchandise sales $ 4,678,000 $10,764,000
Callaway Golf Center 322,000 -
Other 153,000 34,000
----------- -----------
Total revenues 5,153,000 10,798,000
COST OF REVENUE:
Retail 3,565,000 8,330,000
Callaway Golf Center 570,000 -
----------- ----------
Total cost of revenue 4,135,000 8,330,000
GROSS PROFIT 1,018,000 2,468,000
OPERATING EXPENSES:
Selling, general and administrative 2,264,000 3,263,000
Depreciation and amortization 170,000 77,000
Provision for doubtful accounts - 50,000
SportPark development costs 255,000 207,000
Preopening expenses 603,000
---------- ----------
3,292,000 3,597,000
---------- ----------
OPERATING LOSS (2,274,000) (1,129,000)
Interest income (expense), net 106,000 (20,000)
Other income - 26,000
Loss from continuing operations before income
taxes and minority interest (2,168,000) (1,123,000)
Provision for income taxes - -
---------- ---------
Loss from continuing operations before
minority interest (2,168,000) (1,123,000)
Minority interest (74,000) 248,000
---------- ---------
LOSS FROM CONTINUING OPERATIONS (2,242,000) (875,000)
DISCONTINUED OPERATIONS:
Loss from franchise and wholesale
operations to be disposed of (no income
taxes were recorded in 1997 or 1996) (39,000) (70,000)
Gain on disposal of franchise and wholesale
operations(net of applicable income
taxes of $575,000) 2,926,000 -
---------- --------
Income (loss) from discontinued operations 2,887,000 (70,000)
---------- ----------
NET INCOME (LOSS) $ 645,000 $ (945,000)
========== ==========
F-4
<PAGE>
LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(Continued)
1997 1996
INCOME (LOSS) PER SHARE: ------ ------
Basic:
Loss from continuing operations $(.40) $(.17)
Income (loss) from discontinued
operations .52 (.01)
------ ------
$ .12 $(.18)
====== ======
Diluted:
Loss from continuing operations $(.40) $(.17)
Income (loss) from discontinued
operations .52 (.01)
------ ------
$ .12 $(.18)
====== ======
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 SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(ACCU-
PREFERRED COMMON MULATED) TOTAL
STOCK STOCK DEFICIT EQUITY
------- --------- ---------- ---------
Balance
December 31, 1995 $ 5,000 $3,871,000 $(1,194,000) $2,682,000
Net loss - - (945,000) (945,000)
------- ---------- ---------- ----------
Balance
December 31, 1996 5,000 3,871,000 (2,139,000) 1,737,000
Issued 512,799
Common Shares in
Exchange for
512,799 shares of
Series A
Convertible
Preferred Stock (5,000) 5,000 - -
Net Income - - 645,000 645,000
------- ---------- ---------- ---------
Balance
December 31, 1997 $ - $3,876,000 $(1,494,000) $2,382,000
======= ========== =========== ==========
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES: ------------ ------------
Net income (loss) $ 645,000 $ (945,000)
Adjustment to reconcile net income (loss) to
net cash provided by operating activities:
Minority interest 74,000 (248,000)
Depreciation and amortization 170,000 77,000
Gain on disposition of leasehold improve-
ments and trademark rights (68,000) -
Preopening expenses 603,000 -
Amortization of land lease 66,000 -
Gain on disposal of franchise, wholesale
and retail stores net of income taxes (2,926,000) -
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (12,000) 481,000
(Increase) decrease in inventory (79,000) (350,000)
(Increase) decrease in due from officer 10,000 (13,000)
Increase in prepaid expenses and other (15,000) (5,000)
Increase (decrease) in accounts payable
and accrued expenses 831,000 (349,000)
(Decrease) increase in deferred
franchise fees (63,000) 3,000
Increase (decrease) in deferred income 426,000 (26,000)
---------- ---------
Net cash provided by (used in) operating
activities (338,000) (1,375,000)
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds received from sale of franchise
wholesale and assets held for sale 4,586,000 -
Project development costs (6,247,000) (563,000)
Increase in other assets (14,000) (10,000)
Land lease deposit - (500,000)
Reimbursement from lease termination - 3,000,000
Leasehold improvement expenditures (9,698,000) (19,000)
Preopening expenses (703,000) -
---------- ---------
Net cash (used in) provided by
investing activities (12,076,000) 1,908,000
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank line of credit 668,000 398,000
Repayment of line of credit (398,000) -
Principal payments on notes payable - (6,000)
Principal payments on notes payable to
shareholder (631,000) (32,000)
Proceeds from notes payable and note
payable to shareholder 6,350,000 -
Contribution from minority interest 750,000 -
Principal payments on capital leases (68,000) -
Increase to Affiliated Store (285,000) (317,000)
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, 1997 AND 1996
(Continued)
Net proceeds from issuance of preferred
stock and options to purchase Common Stock
by SAGC - 4,838,000
--------- ---------
Net cash provided by financing activities 6,386,000 4,881,000
--------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (6,028,000) 5,414,000
CASH AND CASH EQUIVALENTS,
Beginning of year 6,457,000 1,043,000
---------- ---------
CASH AND CASH EQUIVALENTS,
End of year $ 429,000 $6,457,000
========= ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
1997 1996
Cash paid for: ---------- ---------
Interest $ 5,000 $ 99,000
Income taxes $ 462,500 $ -
NON-CASH INVESTING AND FINANCING ACTIVITIES:
1997 1996
---------- ---------
Equipment financed through
capital leases $ 339,000 $ -
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. PRINCIPLES OF CONSOLIDATION AND COMPANY BACKGROUND
The consolidated financial statements of Las Vegas Discount Golf & Tennis,
Inc. (LVDG), a Colorado corporation, include the accounts of LVDG 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.
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"(See Note 4).
Historically, LVDG's primary business segments have included the following:
(1) the wholesale sales 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 LVDG retail stores
and collecting royalty revenue through its subsidiary SAGC.
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 now consist solely of the one
Company-owned retail store in Las Vegas, Nevada and development and operation
of sport-oriented theme parks under the name "All-American SportPark" in Las
Vegas, Nevada. 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
Callaway Golf Center is 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.
b. 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 described
below. The total consideration received was $5.3 million ($1.4 million of
which was attributed to net assets held for sale), 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. Of the total consideration received,
approximately $2.5 million was allocated to LVDG. The $264,000 note and
$200,000 in short term escrow were collected in 1997.
Pursuant to the "Agreement for the Purchase and Sale of Assets" (the
"Agreement") the Company disposed of its franchise business, wholesale
business and the three Company-owned retail stores in Southern California (the
"Stores"). The assets sold included all inventory, equipment, furniture and
other personal property related to these operations. Additionally, pursuant to
the Agreement the buyer assumed all trade payables related to the inventory of
the Stores and the
F-9
<PAGE>
wholesale business. The agreement assigned all franchiser 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 trademarks 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 All-American
SportPark.
Assets and liabilities of the Company's franchise and wholesale business
disposed of consisted of the following at December 31:
1996
----------
Accounts receivable, net of allowance of
$111,400 $ 271,000
Inventories 1,162,000
Prepaid expenses and other assets 11,000
Property and equipment, net 80,000
----------
Total assets 1,524,000
Accounts payable 936,000
Accrued expenses 45,000
Notes payable 40,000
Deferred franchise fees 60,000
----------
Net assets to be disposed of $ 443,000
==========
Revenues related to the discontinued operations totaled $156,000 and
$4,397,000 for the year ended December 31, 1997 and 1996, respectively.
c. PROPOSED MERGER WITH LAS VEGAS DISCOUNT GOLF & TENNIS, INC.
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.
Conversion of Securities
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 that there are no dissenting shareholders.
F-10
<PAGE>
Options and Warrants to Purchase the Company's Common Stock
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.
d. GOING CONCERN MATTERS
The accompanying consolidated 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
financial statements during the years ended December 31, 1997 and 1996, the
Company had incurred operating losses of $2,242,000 and $875,000,
respectively. Additionally, as of December 31, 1997 the Company had negative
working capital of approximately $2.4 million and insufficient borrowing
capacity to fund the completion of the All-American SportPark complex.
Subsequent to year-end SAGC 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 the Company's president loaned SAGC $200,000.
The loan is due January 26, 2003 and bears interest at 10 percent. On
February 5, 1998, SAGC secured a $4.0 million short-term loan bearing interest
at 10 percent from a bank. This loan requires interest only payments which
commenced on March 10, 1998, with the full loan plus all unpaid interest due
August 10, 1998. On March 18, 1998, SAGC obtained an additional $3.0 million
short-term promissory note bearing interest at 10 percent from Callaway Golf
Company. As security SAGC issued a guaranty and pledged its equity in the
All-American Golf LLC, a subsidiary of SAGC. This note is due in full with
principal and interest on June 18, 1998.
The Company's continuation as a going concern is dependent upon its ability to
generate positive cash flows at the Callaway Golf Center 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 or extinguish the
short-term financing which has been obtained to fund the continuation of the
construction. 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 consolidated financial statements do not include any adjustments relating
to the recoverability and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.
e. ESTIMATES USED 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.
F-11
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt investments with an original
maturity of three months or less to be cash equivalents. As of December 31,
1997 the Company had an overdraft of approximately $668,000 in one of SAGC's
primary bank account. As more fully described in Note 8, the Company's bank
extended a line of credit to fund this shortfall.
b. ACCOUNTS RECEIVABLE
Accounts receivable consists of amounts due from tenants at the Callaway Golf
Center, and the sale of merchandise and/or services.
c. INVENTORIES
Inventories, which consist primarily of finished sporting goods merchandise,
and display units are stated at the lower of cost (first-in, first-out 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. PREOPENING EXPENSES
Preopening costs primarily represent direct personnel and other operating
costs incurred before the opening of the facility. These costs are
capitalized when incurred and amortized to expense on a straight-line basis
over a period not to exceed twelve months from the date operations commenced.
Preopening costs totaling approximately $139,300 were capitalized in
connection with the Callaway Golf Center which commenced operations on October
1, 1997. Additional preopening costs totaling $563,600 have been expensed in
connection with the All-American SportPark portion of the facility. The
preopening costs related to the SportsPark were expensed as a result of the
uncertainty related to completing the facility.
e. LEASEHOLD IMPROVEMENTS AND EQUIPMENT
Leasehold improvements 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 years
Normal repairs and maintenance are charged to expense when incurred.
Expenditures that materially extend the useful life of assets are capitalized.
f. DEFERRED INCOME
Deferred income consists primarily of sponsorship fees received from tenants
and corporate sponsors of the All-American SportPark. Deferred income will be
amortized to income over the life of the agreements upon the commencement of
F-12
<PAGE>
operations. Additionally, deferred income also includes approximately $67,000
remaining from the agreement with MBNA to use SAGC's trademark on its credit
cards over a 5 year period.
g. INCOME TAXES
The Company accounts for income taxes under the provisions of the Statement of
Financial Accounting Standards ("SFAS") 109, "Accounting for Income Taxes".
h. RECOVERABILITY OF LONG-LIVED ASSETS
In 1996 the Company adopted Statement of SFAS 121, "Accounting for the
Impairment of Long-Lived Assets to Be Disposed Of" ("SFAS 121"). Pursuant to
SFAS 121, the Company reviews its long-lived assets for impairment whenever
events or changes in the circumstances indicate that the carrying amount of an
asset or a group of assets may not be recoverable. The Company deems an asset
to be impaired if a forecast or undiscounted future operating cash flows
directly related to the asset, including disposal value if any, is less than
its carrying amount. If an asset is determined to be impaired, the loss is
measured as the amount by which the carrying amount of the asset exceeds fair
value. The Company generally measures value by discounting estimated cash
flows. Considerable management judgement is necessary to estimate discounted
cash flows. Accordingly, actual results could vary significantly from such
estimates. Based upon the short duration of operations at the Callaway Golf
Center the Company does not believe that a triggering event has occurred with
respect to the negative operating income which has been achieved.
i. EARNINGS PER SHARE
In 1997, the Company adopted SFAS 128 Earnings Per Share ("SFAS 128"). SFAS
128 replaces previously reported earnings per share with "basic" earnings per
share and "diluted" earnings per share. Basic earnings per share is computed
by dividing reported earnings by the weighted-average number of common shares
outstanding during the period. Diluted earnings per share reflects the
additional dilution for all potentially dilutive securities such as stock
options. All previously reported income per share amounts have been restated
herein to reflect the adoption of SFAS 128.
The weighted-average number of common and common equivalent shares used in the
calculation of basic and diluted earnings per share consisted of the following
as of December 31:
1997 1996
---------- ---------
Weighted-average common shares outstanding
(used in the computation of basic earnings
per share) 5,603,896 5,319,008
Potential dilution from the assumed exercise
of common stock options 7,134 --
---------- ---------
Weighted-average common and common equivalent
shares (used in the computation of diluted
earnings per share) 5,611,030 5,319,008
========== =========
Pursuant to SFAS 128, 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
F-13
<PAGE>
Company's outstanding stock options are included in the calculations for the
periods presented.
j. 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.
k. 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 segments: retail operations consisting of the Company-owned store,
and 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.
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, 1997 and 1996, the Company had a
$194,000 and $72,000, respectively, receivable from the Affiliated Store. As
of December 31, 1997 and 1996, the Company had outstanding payables to the
Affiliated Store of $300,000 and $463,000, respectively. The Affiliated Store
operates in Las Vegas, Nevada and is not a franchise of SAGC. 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. These advertising costs were $290,000 and $228,000 in 1997
and 1996, respectively. Sales of merchandise made to the Affiliated Store are
recorded at the Company's cost and totaled $161,000 and $1,120,000 for the
years ended December 31, 1997 and 1996, respectively.
5. LEASEHOLD IMPROVEMENTS AND EQUIPMENT
Leasehold improvements and equipment included the following as of December 31:
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1997 1996
---------- ---------
Furniture and equipment $ 728,000 $ 91,000
Leasehold improvements 9,574,000 309,000
Other 250,000 50,000
---------- ---------
10,552,000 450,000
---------- ---------
Less--Accumulated depreciation
and amortization (401,000) (214,000)
---------- ---------
$10,151,000 $ 236,000
========== =========
Property and equipment, held for sale, included the following as of December
31:
1996
---------
Furniture and equipment $ 165,000
Leasehold improvements 38,000
Other 34,000
---------
237,000
Less--Accumulated depreciation
and amortization (58,000)
---------
$ 179,000
=========
6. 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.
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. Utilizing applicable formulas derived
from the Ground Lease, the Company believed that $3,279,500 in costs were
reimbursable by the purchaser who assumed the original lessor's obligations
relating to the lease termination. Based upon all of the information
available as of December 31, 1995 the Company believed that the amount would
be collected in 1996 in the amount 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 $3,217,000 of which $3,000,000
was applied to the lease termination receivable balance while the remaining
$217,000
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<PAGE>
in proceeds was applied against legal fees incurred with respect to this
matter in the current year.
7. PROJECT DEVELOPMENT COSTS
SAGC is currently engaged in the planning and design of All-American
SportParks. The Callaway Golf Center portion of the All-American SportPark
planned for Las Vegas, Nevada consists of an executive golf course and other
related amenities and commenced operations on October 1, 1997.
Total project development costs totaled $7,850,100 as of December 31, 1997
relating to the continuing construction of the All-American SportPark. These
costs consists primarily of $6,740,200 in buildings, $352,500 in land
improvements, and $572,200 in furniture, fixtures and signs. The remaining
$185,200 consists of various items such as fencing and other items. The
All-American SportPark is expected to be completed by June 1998. However, at
the present time no formal agreements with respect to securing financing for
the project have been reached.
The Company currently has not secured sufficient financing to complete
construction of the SportPark portion of the Las Vegas facility. 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.
8. BANK LINE OF CREDIT
As of December 31, 1997 and 1996, SAGC had a $800,000 and $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% and 9.75% at December 31, 1997 and 1996,
respectively. As of December 31, 1997 and 1996, $668,000 and $398,000,
respectively, had been drawn on the facility. The line of credit was paid in
full during February, 1998 with a portion of the proceeds collected from the
$4.0 million short-term loan received on February 05, 1998.
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at December 31:
1997 1996
---------- ----------
Accounts payable - trade $1,617,000 $1,004,000
Accrued compensation 125,000 -
Payroll and other taxes 128,000 34,000
Income taxes payable 137,000 -
Interest payable 176,000 -
Customer deposits - 38,000
Accrued expenses - 276,000
---------- ----------
$2,183,000 $1,352,000
========== ==========
10. NOTES PAYABLE
Callaway provided $5,250,000 in debt financing for construction of the
Callaway Golf Center which bears interest at 10 percent with interest only
payments commencing 60 days after the opening of the golf center (which
occurred on October 1, 1997). The principal is due in 60 equal monthly
payments commencing on October 1, 2002.
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<PAGE>
Under the terms of the note, All-American Golf was obligated to commence
making payments of interest on December 21, 1997. The Company was unable to
make this payment and at December 31, 1997 was in default on this note.
Subsequently, the Company was unable to meet its obligation on January 21,
February 21, and March 21, 1998. On March 18, 1998, the Company entered into
a forbearance agreement with Callaway Golf Company which cured the default and
established terms to repay the amounts in arrears. The first payment required
under the forbearance agreement is due on May 21, 1998 in the amount of
$80,600.
On December 8, 1997, the Company obtained a short-term loan from First
Security Bank of Nevada for $500,000 at 9 percent interest rate and a line of
credit for $800,000 (see Note 8) both of which are due March 8, 1998. The
note and line of credit were paid in full on February 13, 1998, once again
with a portion of the proceeds collected from the $4.0 million short-term loan
received on February 13, 1998.
At December 31, 1997 and 1996, the Company had an unsecured, 10 percent note
payable totaling $600,000 and $631,000, respectively, with the Company's
chairman and principal shareholder. During 1997, the $631,000 shareholder
note issued by LVDG was repaid and a new note for $600,000 was issued by SAGC.
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
$5,000 and $65,000 related to this note is included in interest expense in
1997 and 1996.
Aggregate maturities of notes payable for the five years subsequent to
December 31, 1997, are as follows:
Year ending:
1998 $ 500,000
1999 -
2000 -
2001 -
Thereafter 5,850,000
----------
$6,350,000
==========
11. LEASES
The Company and SAGC lease office and warehouse facilities from the Company's
chairman and principal shareholder under a non-cancelable operating lease
greement that expires on January 31, 2005. The lease provides for initial
monthly lease payments that 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 $14,000 which increase based on
the consumer price index. Rent expense under this lease totaled $74,000 and
$162,000 in 1997 and 1996, respectively. The reduction in rent expense for
1997 is due to the sale of the franchise operation.
The Company also leases retail space for the Company-owned store under a
non-cancelable operating lease agreement which will expire on July 31, 2000
and provide for base monthly rental payment of $9,400. Under this lease, the
base monthly rental may increase based on increases in the consumer price
index and taxes. Rent expense under this lease totaled $113,000 and $109,000
in 1997 and 1996, respectively.
F-17
<PAGE>
In July 1996, SAGC entered into a lease for 65 acres of undeveloped land in
Las Vegas, Nevada for the development of its first Las Vegas "All-American
SportPark". The lease term is for a period of fifteen years, with two
consecutive five year renewal periods. The lease commences on October 1, 1997
for All-American Golf and February 1, 1998 for the All-American SportPark.
Effective June 20, 1997, SAGC canceled the original lease and replaced it with
two separate leases, one for the Callaway Golf Center and the other for the
All-American SportPark. The annual base amount of $625,000 is due in monthly
installments of $52,083 (All-American Golf $33,173 and All-American SportPark
$18,910). The lease term remains as stated above, the Callaway Golf Center
lease commenced on October 1, 1997. The All-American SportPark lease will
commence on February 1, 1998. Additionally, the Leases contain 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. 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 to the lessor of $500,000. The
deposit will be applied as follows: $66,346 used to pay the first two months
rent for All-American Golf, $104,166 as security deposit and the remainder as
prepaid rent to be amortized until exhausted. At December 31, 1997 the
remaining balance is $434,000.
At December 31, 1997, minimum future rental commitments under non-cancelable
leases, including the office and warehouse lease with the Chairman and
principal shareholder, are as follows:
Year ending
1998 $ 949,000
1999 963,000
2000 899,000
2001 842,000
2002 798,000
Thereafter 4,530,000
-----------
TOTAL $ 8,981,000
Included in the above is $339,000 of capitalized lease obligations.
12. INCOME TAXES
The federal income tax provision consisted of $575,000 in current provision
for the year ended December 31, 1997, which is reflected as an ofset to the
gain in disposal of franchise operations.
Deferred tax assets (liabilities) are related to the following at December 31:
F-18
<PAGE>
1997 1996
----------- ---------
Provision for bad debt $ - $ 74,000
Deferred income 176,000 42,000
Vacation accrual 14,000 19,000
Commissions - (7,000)
Depreciation (58,000) (18,000)
Book/tax basis difference in SAGC (743,000) (743,000)
Net operating loss carryforward 22,000 449,000
----------- ---------
(589,000) (184,000)
Valuation allowance (154,000) (559,000)
----------- ---------
Net deferred tax liability $ (743,000) (743,000)
=========== =========
A reconciliation of income taxes computed by applying the statutory federal
income tax rate to the Company's loss from continuing operations before
provision for income taxes is as follows:
1997 1996
Dollars % Dollars %
Federal income tax --------- --- --------- ---
at statutory rate $(762,000) (34) $(382,000) (34)
Tax benefits not currently
utilizable (762,000) 34 382,000 34
--------- --- --------- ---
$ - - $ - -
========= === ========= ===
The Company utilized the majority of its net operating loss carryforward to
offset the taxable gain on disposal of franchise, wholesale and assets held
for sale.
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, 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 437,000 at
December 31, 1997 and
F-19
<PAGE>
1996, respectively, of which all were exercisable at prices ranging from $.80
to $1.35 per share.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under SFAS
123, "Accounting for Stock-Based Compensation," requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
The Company's 1991 Incentive Stock Option Plan has authorized the grant of
options to management personnel for up to 500,000 shares of the Company's
common stock. All options granted have 5-year terms and vest and become fully
exercisable at the date of grant.
Pro forma information regarding net income and earnings per share is required
by SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The
fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1997: risk-free interest rates of 4.76%; dividend yields of
0.0%; volatility factors of the expected market price of the Company's common
stock of 0.826; and a weighted-average expected life of the option of 5 years.
The Black-Scholes option pricing model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
Year ended December 31, 1997 1996
---------- ----------
Net Income (Loss)
As reported $ 645,000 (945,000)
Pro forma $ 591,000 (999,000)
Basic net income (loss) per share
As reported $ .12 (.18)
Pro forma $ .11 (.19)
Diluted net income (loss) per share
As reported $ .12 (.18)
Pro forma $ .11 (.19)
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
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<PAGE>
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 common shares,
even if the conversion requirements have not been met. This conversion
occurred on June 9, 1997.
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 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) right 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
F-21
<PAGE>
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 Motoharu Iue as a Director of SAGC. Mr. Iue 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 June 12,
1998.
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, 1997 and 1996, no warrants have been exercised.
14. EMPLOYEES' 401(k) PROFIT SHARING PLAN
The Company offers all its eligible employees participation in the Employees'
401(k) LVDG 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 1997 and 1996, the Company
matched 50% of employees' contributions up to a maximum of 6% of an employee's
base compensation. The Company had expenses related to the Plan of $100,000
and $106,000 for 1997 and 1996, 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 1997 and 1996,
the Company paid $65,000 and $100,000, respectively, pursuant to the plan for
officers and directors of the Company.
F-22
<PAGE>
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.
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.
According to the original agreement, Mr. Gordon was paid $25,000 for his
services during 1996, and is to be paid $25,000 per SpeedPark opening per year
with a minimum guarantee over the life of the agreement; he is to receive 1%
of the net profits of each SpeedPark; .25% of net profits are 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 SAGC'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 SAGC 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, the license for that site would continue
until December 31, 2003, and if SAGC opens the Southern California site by
March 1, 1999, the license for that site will continue until December 31,
2003. 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 that Sportservice has
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
F-23
<PAGE>
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 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.
All-American Golf, LLC has executed a license agreement with Callaway Golf
pursuant to which All-American Golf, LLC licenses the right to use the mark
"Callaway Golf Center[TM]" from Callaway Golf for an annual royalty not to
exceed $50,000. Pursuant to this agreement, Callaway Golf has the right to
terminate the agreement at any time without cause on ninety days prior written
notice and with payment of $500,000. Such termination could have an adverse
impact on the success of the golf center.
The Company 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.
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 EVENT
On May 5, 1998, pursuant to the terms of a Purchase and Sale Agreement between
the Company and Callaway Golf, the Company sold its 80% membership interest in
the LLC to Callaway Golf for $1,500,000 in cash and the forgiveness of the
$3,000,000 debt, including the interest thereon, owed to Callaway by the
Company. 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 the membership interest,
the Company resigned as the manager of the LLC, and agreed not to compete with
the Callaway Golf Center in Clark County, Nevada for a period of two years.
F-24
<PAGE>
As a result of the sale of its interest in the LLC, the Company has no
ownership of the Callaway Golf Center, and the Callaway Golf Center will now
be operated
separately from the All-American SportPark. However, the Company will have
the option to repurchase the 80% membership interest for a period of two
years. To exercise such right, the Company would be required to pay
$4,500,000 plus 100% of any undisclosed liabilities as of May 5, 1998, which
have not been satisfied by the Company, plus 80% of any additional capital
expenditures by the LLC, plus 80% of losses incurred by the LLC to the date of
exercise of the option. In the event that the Company exercises this option,
the Company will receive an allocation of the profits and losses in the LLC,
but it will not have the right to manage the LLC or Callaway Golf Center.
F-25
<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: May 12, 1998 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 May 12, 1998
Vaso Boreta Board, Secretary, Treasurer
(Principal Financial and
Accounting Officer) and
Director
/s/ Ronald S. Boreta Director May 12, 1998
Ronald S. Boreta
/s/ Robert S. Rosburg Director May 12, 1998
Robert S. Rosburg
________________________ Director
William Kilmer
<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, 1997, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> $ 429,000
<SECURITIES> 0
<RECEIVABLES> 78,000
<ALLOWANCES> 0
<INVENTORY> 479,000
<CURRENT-ASSETS> 1,314,000
<PP&E> 10,321,000
<DEPRECIATION> 170,000
<TOTAL-ASSETS> 20,072,000
<CURRENT-LIABILITIES> 3,738,000
<BONDS> 0
0
0
<COMMON> 3,876,000
<OTHER-SE> (1,494,000)
<TOTAL-LIABILITY-AND-EQUITY> 20,072,000
<SALES> 5,000,000
<TOTAL-REVENUES> 5,152,000
<CGS> 4,134,000
<TOTAL-COSTS> 3,292,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,168,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,242,000)
<DISCONTINUED> 2,887,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 645,000
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
