<PAGE>
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
Commission File Number: 0-17436
LAS VEGAS DISCOUNT GOLF & TENNIS, INC.
----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Colorado 84-1034868
- ---------------------------- ---------------------------------
(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
5325 South Valley View Boulevard, Suite 4, Las Vegas, Nevada 89118
--------------------------------------------------------------------
(Address of principal executive offices including zip code)
(702) 798-7777
--------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No___
As of November 13, 1998, 8,135,097 shares of common stock were outstanding.
Transitional Small Business Disclosure Format (check one): Yes___ No X
<PAGE>
<PAGE>
LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
FORM 10-QSB
INDEX
Page No.
Part I: Financial Information
Item 1. Financial Information:
Unaudited Condensed Consolidated Balance Sheets 3
Unaudited Condensed Consolidated Statements of
Operations 5
Unaudited Condensed Consolidated Statements of
Cash Flows 8
Notes to Unaudited Condensed Consolidated
Financial Statements 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 18
Part II: Other Information
Item 1. Legal Proceedings 22
Item 2. Changes in Securities 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
-2-
<PAGE>
<PAGE>
LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
1998 1997
----------- -----------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 92,200 $ 384,000
Accounts receivable 2,469,400 20,000
Inventories 715,800 479,000
Due from Affiliated Store 42,200 161,000
Due from officer - 3,000
Due from related entity - 565,000
Prepaid expenses and other 121,500 3,000
----------- -----------
Total current assets 3,441,100 1,615,000
Leasehold improvements and equipment, net 287,200 310,000
Project development costs 22,886,800 7,850,000
Other long term receivables 234,200 227,000
Deposit for land lease 282,400 434,000
Other assets 102,900 96,000
Net assets of discontinued operations - 3,250,000
----------- -----------
Total Assets $27,234,600 $13,782,000
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-3-
<PAGE>
<PAGE>
LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30, December 31,
1998 1997
----------- -----------
(Unaudited)
CURRENT LIABILITIES:
Bank line of credit $ - $ 668,000
Current portion of notes payable 420,000 500,000
Current portion of obligations under
capital leases 14,100 22,000
Accounts payable and accrued
expenses 2,375,300 1,414,000
Due to Affiliated Store 767,100 279,000
---------- ----------
Total current liabilities 3,576,500 2,883,000
Note payable to shareholder
and related entities 1,968,700 600,000
Long-term portion of notes payable 13,080,000 -
Obligations under capital leases, net
of current portion 21,300 32,000
Deferred income 519,200 517,000
Deferred tax liability 743,000 743,000
Preferred stock of subsidiary 5,000,000 5,000,000
Minority interest 707,900 1,625,000
SHAREHOLDERS' EQUITY:
Convertible, Preferred Stock, Series A,
no par value; 5,000,000 shares
authorized; no shares issued and
outstanding at September 30, 1998
and December 31, 1997 - -
Common stock, no par value;
15,000,000 shares authorized;
5,831,807 shares issued and
outstanding at September 30, 1998
and December 31, 1997 3,876,000 3,876,000
Accumulated deficit (2,258,000) (1,494,000)
---------- ----------
Total shareholders' equity 1,618,000 2,382,000
---------- ----------
$27,234,600 $13,782,000
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-4-
<PAGE>
<PAGE>
LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
For the Three Months
Ended September 30,
1998 1997
----------- -----------
(Unaudited) (Unaudited)
REVENUES:
Net merchandise sales $ 555,700 $ 825,000
Royalties 5,800 6,000
Other 600 1,000
---------- ----------
Total revenues 562,100 832,000
---------- ----------
OPERATING EXPENSES:
Retail cost of sales 433,700 652,000
Selling, general and administrative 912,900 324,000
Depreciation 13,500 -
SportPark development costs - -
---------- ----------
Total operating expenses 1,360,100 976,000
---------- ----------
OPERATING LOSS (798,000) (144,000)
Interest expense (income), net 16,800 (45,000)
---------- ----------
LOSS FROM CONTINUING OPERATIONS BEFORE
PROVISION FOR INCOME TAXES AND
MINORITY INTEREST (814,800) (99,000)
PROVISION (BENEFIT) FOR INCOME TAXES - -
---------- ----------
LOSS FROM CONTINUING OPERATIONS
BEFORE MINORITY INTEREST (814,800) (99,000)
Minority interest 77,500 41,000
---------- ----------
NET LOSS $ (737,300) $ (58,000)
========== ==========
EARNINGS PER SHARE:
Basic and Diluted earnings (loss) from
continuing operations $ (.13) $ (.01)
Basic and Diluted earnings (loss) from
net (income/loss) per Share $ (.13) $ (.01)
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-5-
<PAGE>
<PAGE>
LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
For the Nine Months
Ended September 30,
1998 1997
----------- -----------
(Unaudited) (Unaudited)
REVENUES:
Net merchandise sales $ 2,187,700 $ 3,103,000
Royalties 18,800 18,000
Other 46,600 62,000
----------- -----------
Total revenues 2,253,100 3,183,000
----------- -----------
OPERATING EXPENSES:
Cost of sales 1,686,700 2,204,000
Selling, general and administrative 2,886,900 1,492,000
Depreciation 32,600 -
SportPark development costs - 156,000
----------- -----------
Total operating expenses 4,606,200 3,852,000
----------- -----------
OPERATING LOSS (2,353,100) (669,000)
Interest expense (income), net 15,100 (212,000)
----------- -----------
LOSS FROM CONTINUING OPERATIONS BEFORE
PROVISION FOR INCOME TAXES AND
MINORITY INTEREST (2,368,200) (457,000)
PROVISION (BENEFIT) FOR INCOME TAXES - -
----------- -----------
LOSS FROM CONTINUING OPERATIONS BEFORE
MINORITY INTEREST (2,368,200) (457,000)
Minority Interest 713,200 (557,000)
----------- -----------
LOSS FROM CONTINUING OPERATIONS (1,655,000) (1,014,000)
DISCONTINUED OPERATIONS:
Income (loss) from operations of
discontinued franchise and
wholesale operations - (159,000)
Gain on disposal of franchised
wholesale operations (less
applicable income taxes of $575,000) - 2,954,000
Loss from operations of the
All-American Golf, LLC, net minority
interest share of $102,000 (203,000) -
Gain on disposal of investment in
All-American Golf, LLC, net of
minority interest share of $545,000 1,094,000 -
----------- -----------
Total discontinued operations 891,000 2,795,000
----------- -----------
NET INCOME (LOSS) $ (764,000) $ 1,781,000
=========== ===========
-6-
<PAGE>
<PAGE>
LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
For the Nine Months
Ended September 30,
1998 1997
---------- ----------
EARNINGS PER SHARE:
Basic and Diluted earnings (loss) from
continuing operations $ (.28) $ (.17)
Basic and Diluted earnings (loss) from
discontinuing operations $ .15 $ .48
Basic and Diluted earnings (loss) from
net (income/loss) per Share $ (.13) $ .31
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-7-
<PAGE>
<PAGE>
LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
For the Nine Months
Ended September 30,
1998 1997
----------- -----------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (764,000) $ 1,781,000
Adjustments to reconcile net
income (loss) to net cash provided
(used)by operating activities:
Minority interest (917,100) (557,000)
Depreciation and amortization 184,200 24,000
Gain on sale of franchise and
wholesale operations - (3,529,000)
Gain on disposal of investment in the
Callaway Golf Center (1,094,000) -
(Increase) decrease in:
Accounts receivable (2,449,400) 18,000
Inventories (236,800) 2,375,000
Prepaid expenses and other assets (125,400) 81,000
Other assets 150,000
Increase (decrease) in:
Preopening costs - (386,000)
Accounts payable and accrued expenses 961,300 (1,378,000)
Deferred income 2,200 (63,000)
Due from officers 3,000 -
Income tax payable - 137,000
Deferred income - 52,000
---------- ----------
Net cash used by operating
activities (4,436,000) (1,295,000)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Project development costs (15,036,800) (11,554,000)
Leasehold improvement expenditures 69,500 (136,000)
Proceeds from sale of All-American
Golf, LLC 1,250,000 4,550,000
Other long term receivables 7,200 -
----------- ----------
Net cash flows used in investing
Activities (13,710,100) (7,140,000)
----------- ----------
-8-
<PAGE>
<PAGE>
LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(CONTINUED)
For the Nine Months
Ended September 30,
1998 1997
----------- -----------
(Unaudited) (Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on bank line of credit, net (668,000) (398,000)
Proceeds from notes payable 16,500,000 3,937,000
Payments on notes payable (500,000) -
Proceeds from note payable to shareholder 1,050,000 -
Payments on note payable to shareholder (400,000) (631,000)
(Increase) decrease in amounts due to
Affiliate Store and Related Entities 1,171,900 -
Proceeds from note payable to
related entity 805,000 -
Payments on note payable to related entity (86,000) -
Payments on capital lease obligations (18,600) -
Payments on long-term debts - (20,000)
Proceeds from minority interest in
Callaway Golf Center - 750,000
---------- ----------
Net cash provided by financing activities 17,854,300 3,638,000
---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (291,800) 4,797,000
CASH AND CASH EQUIVALENTS
-Beginning of period 384,000 6,457,000
---------- ----------
CASH AND CASH EQUIVALENTS - End of period $ 92,200 $6,491,000
========== ==========
For the Nine Months
Ended September 30,
1998 1997
----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash payments made for interest $ 262,898 $ -
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Forgiveness of note payable $ 3,000,000 -
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-9-
<PAGE>
<PAGE>
LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. CONDENSED FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements include
the accounts of Las Vegas Discount Golf & Tennis, Inc. ("LVDG"), a Colorado
corporation, and its subsidiaries, Saint Andrews Golf Corporation ("SAGC"),
LVDG Development Corporation ("Development") and LVDG Rainbow, Inc.
("Rainbow"). LVDG and its subsidiaries are collectively referred to as "the
Company". All significant inter-company accounts and transactions have been
eliminated.
The accompanying condensed consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission relating to interim financial statements.
Accordingly, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. In the opinion of management, all
adjustments necessary to present fairly, in all material respects, the
financial position of the Company as of September 30, 1998 and December 31,
1997, and the results of its operations and cash flows for the three and six
months ended September 30, 1998 and 1997, respectively, have been made.
Certain reclassifications have been made to previously reported amounts to
conform them to current classifications.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
These condensed consolidated financial statements should be read in
conjunction with the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997.
The Company's current operations consist of one Company-owned retail store in
Las Vegas, Nevada and the development and operation of sport-oriented theme
parks under the name "All-American SportPark". The sport and entertainment
activities are primarily featured in the SportPark's four major attractions:
ALL-AMERICAN SPORTPARK PAVILION, MAJOR LEAGUE BASEBALL SLUGGER STADIUM, NASCAR
SPEEDPARK AND ALLSPORT ARENA.
2. SALE OF ASSETS AND DISCONTINUED OPERATIONS
On February 26, 1997, the Company and SAGC completed the sale of certain of
their assets and transferred certain liabilities to an unrelated buyer who has
incorporated under the name Las Vegas Golf & Tennis, Inc. in a transaction
whose terms were substantially in accordance with the "Agreement for the
Purchase and Sale of Assets". The total consideration received was $5.3
million, of which $4.6 million was paid in cash, $264,000 was received in the
form of a short-term receivable, $200,000 was placed in escrow pending the
accounting for inventory and trade payables, and $200,000 was placed in escrow
for two years to cover potential indemnification obligations. Of the total
consideration received, approximately $2.5 million was allocated to LVDG.
-10-
<PAGE>
<PAGE>
This transaction resulted in the disposal of the Company's franchise business,
wholesale business, and the three Company-owned retail stores in Southern
California, and the assignment of all franchise rights, trade names, and trade
marks associated with the business. The agreement also contains certain
provisions not to compete in the franchised retail golf equipment business.
Accordingly, the sale of all assets, and assumption of liabilities and rights
related to these businesses have been presented as "Discontinued Operations"
in the accompanying condensed consolidated financial statements.
During 1997, SAGC and Callaway Golf Company ("Callaway") formed All-American
Golf, LLC (the "LLC"), to construct, manage and operate the "Callaway Golf
Center", a premier golf facility at the site of the All-American SportPark.
SAGC contributed the value of expenses incurred relating to the design and
construction of the golf center plus cash in the combined amount of $3 million
for 80% of the membership units. Callaway contributed equity capital of
$750,000 for the remaining 20% of the membership units and loaned the LLC
$5.25 million (the "Callaway loan").
The Callaway loan bore interest at a rate of 10% per annum with monthly
interest payments commencing 60 days after the opening of the golf center on
October 1, 1997. All-American Golf was unable to make the scheduled interest
payments for 1997 and 1998. Accordingly, on March 18, 1998, All-American Golf
entered into a forbearance agreement with Callaway which cured the default and
established terms to repay the amounts in arrears.
On May 5, 1998, SAGC sold its 80% interest in All-American Golf to Callaway in
exchange for $1.5 million in cash and the cancellation of a $3 million
collateralized note evidencing amounts which Callaway had loaned to the
Company in March 1998, and related accrued interest thereon. Of the
consideration, $500,000 was withheld by Callaway until it has secured all
rights necessary to operate the Callaway Golf Center, of which all was
collected by September 30, 1998. In connection with the sale of its
membership units, SAGC resigned as manager of the LLC and agreed not to
compete with the Callaway Golf Center in Clark County, Nevada for a period of
two years. The agreement also provides for a buy back option to the Company
which enables it to repurchase its 80% equity ownership for a period of 2
years on essentially the same financial terms that it sold its interest to the
Callaway Golf Company.
Results of operations of All-American Golf through its disposal date have been
presented as Discontinued Operations in the unaudited condensed consolidated
statements of operations and were as follows for six months ended June 30,
1998.
-11-
<PAGE>
<PAGE>
Six months
Ended June 30, 1998
-------------------
Revenues $ 725,000
----------
Expenses:
Cost of revenue 716,000
Depreciation and amortization 169,000
Amortization of preopening costs 33,000
Interest expense 188,000
----------
Total expenses 1,106,000
----------
Net loss before minority interest (381,000)
Minority interest in net loss 76,000
----------
Net loss $(305,000)
==========
Assets and liabilities of All-American Golf consisted of the following on
December 31, 1997:
CURRENT ASSETS:
Cash and cash equivalents $ 45,000
Accounts receivable, net 58,000
Due from Affiliated Store 33,000
Prepaid expenses and other 28,000
Preopening costs 100,000
-----------
Total current assets 264,000
Leasehold improvements and
equipment, net 9,841,000
-----------
Total assets 10,105,000
-----------
CURRENT LIABILITIES:
Current portion of obligations 65,000
under capital leases
Accounts payable and accrued expenses 769,000
Due to Affiliated Store 21,000
Due to Related Entities 565,000
-----------
Total current liabilities 1,420,000
-----------
LONG TERM LIABILITIES:
Obligation under capital leases, net 185,000
of current portion
Note payable 5,250,000
-----------
Total long term liabilities 5,435,000
-----------
Total liabilities 6,855,000
-----------
Net assets of discontinued operations $ 3,250,000
===========
The Company recorded a gain of $1,094,000, net of minority interest on the
disposal of its 80% interest in the LLC.
-12-
<PAGE>
<PAGE>
3. PROPOSED MERGER WITH SAINT ANDREWS GOLF CORPORATION
On January 20, 1998, the officers of LVDG and SAGC executed a merger agreement
pursuant to which SAGC would possibly merge with and into LVDG which, if it
occurred, is intended to constitute a tax-free plan of reorganization. As a
result, the separate corporate existence of SAGC could cease and LVDG would
change its name to All-American SportPark, Inc. to reflect the primary
business of the surviving corporation.
At the effective date of the potential 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) are planned to be converted
into 2.4 shares of LVDG common stock. Each share of SAGC's Series A Preferred
Stock would 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 would be canceled. This
could result in the current shareholders of SAGC (other than LVDG) owning
approximately 38.2% of the surviving corporation, assuming there are no
dissenting shareholders.
At the effective date each option or warrant granted by SAGC to purchase
shares of SAGC's common stock which is outstanding and unexercised immediately
prior to the effective date would 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
would 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.
In October 1998 the proposed merger was canceled. See "Subsequent Event".
4. GOING CONCERN MATTERS
The accompanying condensed 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 accompanying financial statements the Company incurred
operating losses before minority interest of $2,368,200 1,661,000 and $457,000
for the nine month periods ended September 30, 1998 and 1997, respectively.
Additionally, as of September 30, 1998 the Company had negative working
capital of approximately $135,400. The Company has entered into several
short-term financing transactions as noted below in order to fund on-going
operating cash requirements as well as the continuing construction of the
All-American SportPark. Additionally, the Company sold its golf distribution
business to an unrelated third party on February 26, 1997 and realized a gain
of $2,954,000 on that sale. The Company also sold its 80% ownership interest
in All-American Golf to the Callaway Golf Company on May 5, 1998 and realized
a gain on the sale of $1,094,000, net of minority interest. Cash proceeds
from these transactions increased the Company's working capital which financed
operations and were invested in the All-American SportPark.
-13-
<PAGE>
<PAGE>
On January 26, April 2, April 23, May 28, and June 12, 1998 the Company's
chairman and majority shareholder loaned SAGC $200,000, $400,000, $200,000,
$150,000 and $100,000 respectively for a total of $1,050,000. The loans are
due in 2001 and bear interest at a rate of 10% per annum. The loan balance
from prior year loans from the chairman was $600,000. As of September 30,
1998, loans to related entities totaled $718,700.
In February 5, 1998 and May 14, 1998 SAGC secured a $5.0 million short-term
bank loan bearing interest at a rate of 10% per annum. This loan requires
interest only payments, which commenced on March 10, 1998, with the full loan
plus all unpaid interest due August 10, 1998.
On May 7, 1998, SAGC received a Bridge Mortgage Loan Commitment Letter (the
"Commitment Letter") from First Connecticut Consulting Group, Inc. (the
"Lender") pursuant to which the Lender would loan up to $18 million to SAGC
for one year. The loan would bear interest at the rate of 12% per annum and
be secured by a first mortgage on all the All-American SportPark in Las Vegas
and required a commitment fee of $180,000. On June 9, 1998 the Company was
informed by the Lender that they were unable to meet their stated commitment.
The Company is currently evaluating its options for obtaining a refund of the
commitment fee and other expenses paid to First Connecticut Consulting Group,
Inc. as well as recovery of damages to the Company.
On September 15, 1998 SAGC completed a $13,500,000 secured loan with Nevada
State Bank in conjunction with a $2,500,000 equity infusion from the ASI
Group, LLC (See "Subsequent Events"). The loan is for 15 years and bears
interest in 1998 of 9.38% for the first year and 4% above LIBOR thereafter.
The loan is secured by all the assets of the Company and personal guarantees
of the Company President, CEO and SAGC's President. Approximately $2,100,000
of the Accounts Receivable of $2,469,400 at September 30, 1998 was monies owed
SAGC per terms of the loan agreement.
5. EARNINGS PER SHARE AND STOCK OPTIONS
Basic loss per share from continuing operations, discontinued operations and
basic net income (loss) per share for the three and nine months ended
September 30, 1998 and 1997, are computed by dividing the loss from continuing
operations, the gain on discontinued operations and net income (loss), by the
weighted average number of shares of common stock outstanding during the
respective periods presented. As required by generally accepted accounting
principles, and because the Company has incurred losses from continuing
operations for all periods presented, there is no effect of potentially
issuable dilutive securities. Accordingly, diluted loss per share from
continuing operations, diluted discontinued operations and diluted net income
(loss) per share is equal to basic loss per share from continuing operations,
basic discontinued operations and basic net income (loss) per share,
respectively, for all periods presented. The weighted average number of
shares of common stock outstanding used in the earnings per share calculation
for all periods presented is 5,831,807 shares.
6. RELATED PARTY TRANSACTIONS
The Company has extensive transactions and relationships with its chairman and
principal shareholder, a retail store owned by the Company's chairman (the
"Affiliated Store") and SAGC. Because of these relationships, it is possible
that the terms of transactions between these parties are not the same as those
which would result from transactions among unrelated parties.
-14-
<PAGE>
<PAGE>
The Affiliated Store that operates in Las Vegas, Nevada is not a Company
franchise and is not a franchise of SAGC. As a result, prior to February 26,
1997 when the franchise system was sold, this store paid no royalties to SAGC
but purchased merchandise at the same cost as SAGC. The Affiliated Store at
that time also benefited from SAGC's activities, including any local and
national advertising conducted by SAGC. The Affiliated Store and the Company
owned store shared advertising costs equally in the Las Vegas market area.
Sales of merchandise made to the Affiliated Store are recorded at the
Company's cost and totaled $87,000 and $115,000 for the nine months ended
September 30, 1998 and 1997, respectively. In 1997 and 1998 the chairman of
the board has lent the company $1,968,700.
7. PROJECT DEVELOPMENT COSTS
SAGC is currently engaged in the final phase of construction related to the
All-American SportPark. The All-American SportPark in Las Vegas, Nevada is
currently under construction and is expected to be completed in October 1998
utilizing proceeds from the $13.5 million bank loan and the $2.5 million
equity infusion (See "Subsequent Event"). Capitalized project development
costs represent the continuing construction costs of the All-American
SportPark and totaled approximately $22,886,800 as of September 30, 1998.
These costs consist primarily of $20,052,900 in buildings and land
improvements, and $2,225,600 in furniture and equipment and $608,300 in
capitalized interest costs during construction. Additional costs relating to
the project have been expensed and include a loan deposit of $339,000, and
$784,000 and $1,200,000 of pre-opening development expensed in 1997 and the
first nine months of 1998, respectively.
8. LEASES
SAGC's lease for approximately 23 acres of undeveloped land on which the
All-American SportPark is being constructed became effective on February 1,
1998. The base rental on the lease is $18,910 per month and contains
contingent rentals based on a percentage of gross revenues in the park. The
lease term is 15 years with two five-year renewal options.
9. COMMITMENTS AND CONTINGENCIES
The Company has employment agreements with its President, as well as other key
employees, which require the payment of fixed and incentive based
compensation.
In December 1994, SAGC entered into an agreement with Major League Baseball
("MLB") concerning a license for the use of MLB logos, trade marks and mascots
in the decor, advertising and promotions of the Company's Slugger Stadium
concept. This agreement was amended during 1997. Pursuant to the amended
agreement, SAGC holds the exclusive right to identify its indoor and outdoor
baseball batting stadiums as Major League Baseball Slugger Stadiums. The
license covers the United States. and expires on November 30, 2000, subject to
the right to extend for three additional years provided certain conditions are
met. As consideration for the license, SAGC agreed to pay $50,000 for each
Stadium opened provided that in any year of the term of the agreement a
stadium is not opened, SAGC must pay $50,000 during such year. SAGC has made
the payments required license payments for 1995, 1996 and 1997. In addition
to and as an offset against the minimum payments set out above, SAGC is
required to pay to MLB a royalty based on the revenue from the batting cages.
of the greater of (I) six and one-quarter percent (6.25%) or (ii) the royalty
-15-
<PAGE>
<PAGE>
rate payable by the Company to any other individual or entity for the right to
open or operate any attraction or event in the Sports Entertainment Complex.
SAGC's right to exclusively use MLB logos and other marks at its
baseball-batting stadiums is dependent upon certain conditions set forth in
the agreement.
In May 1996, SAGC entered into an agreement with Jeff Gordon, the 1997 NASCAR
Winston Cup Champion, 1997 Daytona 500 Champion, 1997 Coca-Cola 600 Champion,
1995 Winston Cup Champion and former NASCAR Winston Cup Rookie of the year, to
serve as spokesperson of the NASCAR SpeedPark through April 30, 2000. Mr.
Gordon is to be paid $25,000 per SpeedPark opening per year with a minimum
guarantee over the life of the agreement. Under the agreement, he is to
receive 1% of the net profits of each SpeedPark and additional fees for
recording television and radio spots and making more than six appearances per
year. Mr. Gordon was also granted options under the Company's stock option
plan. On November 20, 1997, the agreement with Mr. Gordon was amended to,
among other things, reduce the amount of services to be provided by him, to
make his services non-exclusive to the Company, to limit his services to the
Las Vegas SportPark and to set his base fee at $25,000 per year. provide for
an annual fee.
SAGC has an exclusive license agreement with The National Association of Stock
Car Auto Racing, Inc. ("NASCAR") for the operation of SpeedParks as a part of
the All-American SportPark. or as a standalone NASCAR SpeedPark. The
agreement, as amended, provides that the Company has an exclusive license to
use certain trademarks and service marks in the development, design and
operation of go-kart racing facilities having a NASCAR racing theme in the
territories of Las Vegas, Nevada and Southern California.
The agreement provides that the exclusive rights to Las Vegas are subject to
the condition that the Las Vegas SpeedPark is opened by March 1, 1998, and
that the exclusive rights to Southern California are subject to the condition
that the Southern California SpeedPark is opened by March 1, 1999, the license
for that site would 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 Sportservice with the
exclusive right to prepare and sell all food, beverages (alcoholic and
non-alcoholic), candy and other refreshments throughout the All-American
SportPark, including the Callaway Golf Center, during the ten year term of the
-16-
<PAGE>
<PAGE>
agreement. Sportservice has agreed to pay rent based on a percentage of gross
sales depending upon the level of sales, whether the receipts are from
concession sales, the Arena restaurant, the Clubhouse, vending machines,
mobile stands, or catering sales. Rents from the Callaway Golf Center will be
paid to All-American Golf LLC and all other rents will be paid to the Company.
Sportservice is expected to invest approximately $3.85 million into the
concessions and operations which includes all food service leasehold
improvements. The agreement also provides Sportservice with a right of first
refusal for future parks to be built by the SAGC in consideration for a
$100,000 payment. An additional payment of up to $100,000 is due depending on
whether Sportservice's development costs for its leasehold improvements and
food service assets do not exceed the estimate of $3.85 million. The
agreement has a number of other terms and conditions including a requirement
that SAGC and the LLC must develop and construct the SportPark in accordance
with certain specifications provided to Sportservice, and provide all
necessary building structure and shell components. SAGC must operate the
SportPark on a year-round, seven days a week basis throughout the term of the
agreement.
In September 1998, SAGC entered into a revenue sharing tenant agreement with
NAMCO Cybertainment Inc. to provide arcade, video games and multi-sport
simulation attractions. NAMCO is the world's largest operator of video
arcades. The lease term is for 6 years commencing on the date of opening of
the amusement center.
The Company has entered into a two year agreement with Integrated Sports
International ("ISI") whereby ISI has been retained to assist the Company in
obtaining corporate sponsorship for various areas of the SportPark.
The Company is involved in certain litigation as both plaintiff and defendant
related to its business activities. Management, based upon consultation with
legal counsel, does not believe that the resolution of these matters will have
a materially adverse effect upon the Company.
10. SUBSEQUENT EVENT
On October 19, 1998 the Company purchased from SAGC an additional 250,000
shares of Series B convertible Preferred Stock for $2,500,000 at $10 per
share. Simultaneously the Company sold 2,303,290 shares of its common stock
to ASI Group, LLC for $2,500,000 or $1.085 per share. ASI is an
investment group headed by Andre Agassi and Sunbelt Communications Inc.
Through its investment, the Agassi/Sunbelt Group has become a strategic
partner with the company and plans to utilize its considerable experience in
sports and marketing to assist in the development and expansion of the
All-American SportPark program.
In October 1998 the proposed merger was canceled by the Board of Directors of
both companies because of significant changes in the capital structure of both
companies. These changes included the sale of 2,303,290 shares of common
stock of the Company, the sale of 250,000 shares of Series B Convertible
Preferred Stock for $2,500,000 by SAGC to LVDG, and the assumption of $13.5
million of secured debt by the SAGC. The time and expense of obtaining a new
independent valuation report and completing the shareholder approval process
outweighed the perceived benefits of the merger at this time.
-17-
<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This Report contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended. Among others, such
forward-looking statements include statements with respect to (I) the
availability to the Company of additional equity and/or debt proceeds on terms
acceptable to the Company and at the times necessary to satisfy capital
expenditure, debt repayment and other requirements, (ii) the availability of
operating cash flow in amounts and at the times anticipated by management,
(iii) the adequacy of budgeted amounts for capital expenditure projects and
the adequacy of the Company's liquidity and capital resources generally, and
(iv) the anticipated time of completion of capital projects.
These forward-looking statements involve important risks and uncertainties,
many of which will be beyond the control of the Company, and which could
significantly affect anticipated future results, both short-term and long-
term. As a result, actual results may differ, in some cases materially, from
those anticipated or contemplated by forward-looking statements in this
Report. In addition to the cautionary statements included in this section and
elsewhere throughout this Report, attention is directed to the cautionary
statements included in the Company's other publicly available reports filed
with the Securities and Exchange Commission under the Securities Exchange Act
of 1934.
The Company's continuing operations consist solely of the retail location on
Rainbow Boulevard in Las Vegas, Nevada and the operations of Saint Andrews
Golf Corporation ("SAGC") which is currently involved in the development of
sport-oriented theme parks under the name "All-American SportPark".
RESULTS OF OPERATIONS
CONTINUING OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1997
REVENUES. The Rainbow Store revenues decreased to $555,700 in 1998 from
$825,000 in 1997. The decrease of $269,300 in revenues is related to the soft
industry conditions in the golf retail business.
COST OF REVENUE. Retail cost of sales decreased by $218,300 to $433,700 in
1998 because of the lower sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses related to continuing operations consist
principally of Company administrative payroll, All-American SportPark payroll,
financing costs, office rent, professional fees and other corporate costs.
The $588,900 increase in 1998 to $912,900 from 1997 is attributable to
$395,000 of pre-opening development costs relating to the All-American
SportPark which were expensed and higher legal costs associated with obtaining
financing for the completion of the All-American SportPark, which were paid by
the Company.
INTEREST EXPENSE. Net interest expense was $146,000 in 1998 compared to net
interest income of $98,000 in 1997. Net interest expense in 1998 primarily
represents interest expense on the $6.3 million notes to Nevada State Bank and
the Company's president. 1997 net interest income resulted from interest
earned on cash balances.
-18-
<PAGE>
<PAGE>
INCOME TAXES. Due to operating losses, the Company has no tax provision nor
has it recorded any tax benefits.
NET LOSS. The loss from continuing operations for 1998 was $737,300 compared
to a loss of $58,000 in 1997. The losses are principally attributed to the
startup nature of the Company's new business focus involving the development
of the "All-American SportPark". including high selling, general and
administrative expenses.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AS COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997.
REVENUES. Revenues decreased to $2.3 million in 1998 from $3.2 million in
1997. Revenues for Rainbow store decreased by $915,300 to $2,187,700 due to
the sale of the golf distribution business in February 1997 and soft industry
conditions in 1998 in the golf retail business. Other income decreased to
$46,600 in 1998 versus $62,000 in 1997 due primarily to an insurance
reimbursement in 1997.
COST OF REVENUE. Retail cost of sales decreased by $517,300 to $1,686,700 in
1998. This is due primarily to a decrease in cost of sales at the Rainbow
store in 1998 and decrease of $414,000 due to the sale of the franchise
operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses related to continuing operations consist principally
of Company administrative payroll, All-American SportPark payroll, financing
costs, office rent, professional fees and other corporate costs. The
$1,394,900 increase in 1998 from 1997 is attributable to $1,178,140 of
pre-opening development costs relating to the All-American SportPark which
were expensed and higher legal and financing costs associated with obtaining
financing for the completion of the All-American SportPark, which were paid by
the Company.
INTEREST EXPENSE. Net interest expense was $214,000 in 1998 compared to net
interest income of $167,000 in 1997. Net interest expense in 1998 primarily
represents net interest expense on the $6.3 million notes to Nevada State Bank
and the Company's president. 1997 net interest income resulted from interest
earned on cash balances.
INCOME TAXES. Due to operating losses, the Company has no tax provision nor
has it recorded any tax benefits. Income taxes of $575,000 relating to the
Company's sale of its franchise operations during 1997 were offset against the
gain on disposal of the discontinued operations.
NET LOSS. The loss from continuing operations for 1998 was $1,655,000
compared to a loss of $1,014,000 in 1997. The losses are principally
attributed to the startup nature of the Company's new business focus involving
the development of the "All-American SportPark".
LIQUIDITY AND CAPITAL RESOURCES
On September 30, 1998 the Company had negative working capital of $135,400
compared to negative working capital of $1,268,000 at December 31, 1997 and
negative working capital of $10.2 million on June 30, 1998. On September 18,
1997 SAGC began to receive proceeds from its $13.5 million bank loan from
Nevada State Bank. Monies were mostly employed to complete the SportPark,
-19-
<PAGE>
<PAGE>
project development costs increased from $19.8 million on June 30, 1998 to
$22.9 million on September 30, 1998, and to pay off short-term bank loans of
$5.0 million.
Total current liabilities of $3.6 million including $2.3 million of payables,
are planned to be primarily serviced from current assets of $3.4 million.
Current assets include $2.1 million of monies due from the bank loan.
There are no planned major capital expenditures at the SportPark which opened
on a limited basis on October 9, 1998, although there could be minor
investments to upgrade current facilities. Any major capital expenditure at
the SportPark for the near term would require funding from outside sources.
Since the SportPark is in a start-up mode it is anticipated that the Company
could experience negative cash flow for the remainder of the year. These cash
deficiencies are intended to be funded from proceeds of the $2.5 million
equity infusion that occurred October 19,1998 in addition to various
sponsorship fees and key money from tenants which are scheduled, and tax
refunds and other adjustments due the Company. In addition a portion of short
term obligations due to related and affiliated entities may be partially
extended as required.
The Rainbow Store is anticipated to be profitable and make a positive
contribution to cash flow in the fourth quarter aided by an increase in
business from holiday sales.
During the nine months ended September 30, 1998, operating activities used
approximately $4.4 million cash in comparison to approximately $1.3 million
used in the comparable 1997 period.
Cash used in investing activities totaled approximately $13.7 million during
the nine months ended September 30, 1998 as the Company continued construction
of the All-American SportPark with an investment of approximately $15 million.
The investment in the SportPark totaled $11.6 million during the comparable
period in 1997. 1998 proceeds from investing activities includes $1.25
million from the sale of All-American Golf. 1997 proceeds for investing
activities includes $4.6 million in proceeds from the sale of the Company's
franchise and wholesale business.
Financing activities in 1998 provided cash of approximately $17.9 million.
This resulted from the previously described loans and notes and proceeds from
the sale of the Callaway Golf Center, offset by the repayment of the $688,000
bank line of credit and $486,200 note payable.
The Company's anticipated sources of working capital are its current cash
balance and future cash flows from operation of the All-American SportPark
which begin operations on October 9, 1998.
DISCONTINUED OPERATIONS
On February 26, 1997, the Company and SAGC sold certain assets and transferred
certain liabilities to an unrelated buyer. The total consideration received
was approximately $5.3 million of which approximately $2.76 million was
allocated to the Company. Specifically, the Company sold all of its interest
-20-
<PAGE>
<PAGE>
in its franchise business, including its rights under agreements with
franchisees, the rights to franchise such stores and the rights to related
trademarks. The buyer also assumed certain trade payables of the two
companies. The sale of all assets, liabilities and rights related to the
franchise and wholesale businesses have been presented as "Discontinued
Operations" in the accompanying condensed consolidated financial statements.
During 1997, SAGC and Callaway Golf Company ("Callaway") formed All-American
Golf LLC, a California limited liability company to construct, manage and
operate the "Callaway Golf Center", a premier golf facility at the site of the
All-American SportPark. SAGC contributed the value of expenses incurred
relating to the design and construction of the golf center plus cash in the
combined amount of $3 million for 80% of the membership units. Callaway
contributed equity capital of $750,000 and loaned the LLC $5.25 million for
the remaining 20% of the membership units (the "Callaway loan").
The Callaway loan bears interest at a rate of 10% per annum with monthly
interest payments commencing 60 days after the opening of the golf center
(which occurred on October 1, 1997). All-American Golf was unable to make the
interest payments due and, accordingly, on March 18, 1998, entered into a
forbearance agreement with Callaway Golf Company which cured the default and
established terms to repay the amounts in arrears.
On May 5, 1998, SAGC sold its 80% interest in All-American Golf to Callaway in
exchange for $1.5 million in cash and the cancellation of a $3 million
collateralized note evidencing amounts which Callaway had loaned to the
Company in March 1998 by Callaway, and related accrued interest thereon. Of
the consideration, $500,000 was withheld by Callaway until that it has secured
all rights necessary to operate the Callaway Golf Center, of which $250,000
was collected by June 30, 1998 and $250,000 by September 30, 1998. In
connection with the sale of its membership units, SAGC resigned as manager of
the LLC and agreed not to compete with the Callaway Golf Center in Clark
County, Nevada for a period of two years. The agreement also provides for a
buy back option to the Company which enables it to repurchase its 80% equity
ownership for a period of 2 years on essentially the same financial terms that
it sold its interest to the Callaway Golf Company. The Company recorded a
gain of $1,094,000, net of minority interest, on the disposal of its 80%
interest in All-American Golf.
YEAR 2000 COMPLIANCE
The company's accounting system was updated during the first quarter of 1998
and is year 2000 compliant. The Company's All-American SportPark has a number
of computerized systems including a point of sale system. Management has been
advised by the vendors of the various systems that they are all year 2000
compliant.
The company may also be vulnerable to the failure of other companies to be
year 2000 compliant. The company has just recently commenced its assessment
of whether third parties with whom the Company has material relationships are
year 2000 compliant. The company is evaluating its vendors and suppliers to
determine if there would be a material effect on the Company's business if
they do not timely become year 2000 compliant. The Company does not have any
significant customers. The company intends to initiate formal communications
with all of its significant vendors and customers with respect to such
persons' year 2000 compliance programs and status in the fourth quarter of
-21-
<PAGE>
<PAGE>
1998 and the first quarter of 1998. The Company has not yet initiated formal
contingency planning processes to mitigate the risk to the Company if any
vendors or suppliers are not prepared for the year 2000, but the Company
intends to complete this process by June 30, 1999.
Although the Company expects its internal systems to be year 2000 compliant,
the failure of any of its significant vendors or suppliers to correct a
material year 2000 problem could result in an interruption in certain normal
business activities and operations. Due to the general uncertainty inherent
in the year 2000 problem, resulting in part from the uncertainty of the year
2000 readiness of third parties which the Company relies on, the Company is
unable to determine at this time whether the consequences of year 2000
failures will have a material adverse impact on the Company's results of
operations, but the Company believes that with the implementation of its new
computer system and completion of its assessment of its vendors and suppliers,
the possibility of significant interruptions of normal operations should be
reduced.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. None.
Item 2. Changes in Securities. None.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K. None.
Exhibits.
EXHIBIT
NUMBER DESCRIPTION LOCATION
27 Financial Data Filed herewith
Schedule electronically
(b) Reports on Form 8-K. None
-22-
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LAS VEGAS DISCOUNT GOLF & TENNIS, INC.
Date: November 13, 1998 By:/s/ Voss Boreta
Voss Boreta, President and Chief
Financial Officer
-23-
<PAGE>
<PAGE>
EXHIBIT INDEX
EXHIBIT METHOD OF FILING
- ------- -----------------------------
27. FINANCIAL DATA SCHEDULE Filed herewith electronically
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited condensed consolidated balance sheets and unaudited condensed
consolidated statements of income found on pages 3, 4 and 5 of the Company's
Form 10-QSB for the year to date, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1998
<CASH> 92,200
<SECURITIES> 0
<RECEIVABLES> 2,469,400
<ALLOWANCES> 0
<INVENTORY> 715,800
<CURRENT-ASSETS> 3,441,100
<PP&E> 287,200
<DEPRECIATION> 32,600
<TOTAL-ASSETS> 27,234,600
<CURRENT-LIABILITIES> 3,576,500
<BONDS> 0
<COMMON> 3,876,000
0
0
<OTHER-SE> (2,258,000)
<TOTAL-LIABILITY-AND-EQUITY> 27,234,600
<SALES> 2,187,700
<TOTAL-REVENUES> 2,253,100
<CGS> 1,686,700
<TOTAL-COSTS> 1,686,700
<OTHER-EXPENSES> 2,919,500
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,100
<INCOME-PRETAX> (2,368,200)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,655,000)
<DISCONTINUED> 891,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (764,000)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
