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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
AMENDMENT NO. 1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year ended: December 31, 1998
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
SPORTS ENTERTAINMENT ENTERPRISES, INC.
(formerly named "LAS VEGAS DISCOUNT GOLF & TENNIS, INC.")
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(Exact Name of Small Business Issuer as Specified in its Charter)
COLORADO 84-1034868
- ------------------------------- ------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identi-
Incorporation or Organization) fication Number)
6730 South Las Vegas Boulevard, Las Vegas, Nevada 89119
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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
--------------------------
(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: $4,545,000.
As of March 1, 1999, 8,135,097 shares of common stock were outstanding, and
the aggregate market value of the common stock of the Registrant held by
non-affiliates was approximately $3.0 million.
Transitional Small Business Disclosure Format (check one): Yes __ No X
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
The Company's continuing operations consist of a single retail location
in Las Vegas, Nevada and the operations of AASP. AASP business in 1998
consisted of operations of the Callaway Golf Center[TM] through May 5, 1998,
and the development of the SportPark until its opening on October 9, 1998 when
it became operational.
RESULTS OF OPERATIONS
DISCONTINUED OPERATIONS. On February 26, 1997, the Company and AASP 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 covered the inventory, fixtures and
other property at the retail stores and certain inventory and assets at the
Company's headquarters. In addition, the sale included the Company's business
of selling golf and tennis equipment on a wholesale basis to franchisees of
the Company. Under the same agreement, AASP also sold all of its interest in
its business of franchising "Las Vegas Discount Golf & Tennis" retail stores,
including its rights under agreements with franchisees, the right to franchise
such stores and the rights to related trademarks. The buyer also assumed
certain trade payables. The Company recognized a gain of approximately $2.9
million (net of tax) from this sale.
During 1997 AASP and Callaway Golf formed All-American Golf, LLC (the
"LLC") to construct, manage and operate the "Callaway Golf Center[TM]", a
premium golf facility at the site of the All-American SportPark. AASP
contributed equity capital of $3,000,000 for 80% of the membership units and
Callaway Golf contributed equity capital of $750,000 and loaned the LLC $5.25
million at a rate of ten percent per annum.
On May 5, 1998 AASP sold its 80% equity interest in All-American Golf LLC
to Callaway Golf in exchange for $1.5 million in cash and the forgiveness of a
$3 million collateralized note evidencing amounts loaned to AASP in March and
April 1998 and related accrued interest. Callaway Golf retained $500,000 of
the consideration until it secured all rights to operate the Callaway Golf
Center[TM] which was completed on September 30, 1998. AASP resigned as
manager of the LLC and received a buy back option to repurchase its 80% equity
ownership for a period of 2 years on essentially the same finacial terms that
it sold its interest.
On December 31, 1998 the Company through AASP, reacquired all the assets
subject to certain liabilities of the Callaway Golf Center[TM]. The Company,
as consideration, paid $1,000,000 in the form of a promissory note payable due
in quarterly installments of $25,000 of over a 10 year period without
interest.
CONTINUING OPERATIONS
YEAR ENDED DECEMBER 31, 1998 VERSUS YEAR ENDED DECEMBER 31, 1997
REVENUES. Revenues were $4,545,400 in 1998 compared to $5,153,000 in
1997. Revenues from the Callaway Golf Center[TM] increased to $724,900 in the
first four months of operation in 1998 compared to $322,000 during the initial
three months of operation in 1997. SportPark Las Vegas revenues were $811,400
from its opening on October 9, 1998 to yearend compared to zero revenues in
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1997 when it was under development. Net merchandise sales declined to
$2,926,600 in 1998 from $4,678,000 in 1997. Net merchandise sales in 1997
included sales from 3 Company owned stores which were sold on February 25,
1997. Also impacting the lower sales in 1998 was a general slump in the
retail golf equipment business nationally which was aggravated by severe price
cutting and other increased competition.
COST OF REVENUES. Cost of revenues for retail were 78% and 76%
respectively in 1998 and 1997. Cost of sales at SportPark Las Vegas were 28%
of revenues reflecting low direct labor costs and the high fixed cost of
operation. Even though revenues were low, cost of sales at the Callaway Golf
Center[TM] were 99% of revenues in 1998 reflecting substantial start-up costs,
initial overstaffing and limited revenues during the off peak season of
January through April. Cost of sales at the Callaway Golf Center[TM] were
177% of revenues in 1997 for the much of the same reasons as in 1998.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A"). Selling, general and
administrative expenses consist primarily of payroll, rent and other corporate
costs. These increased to $2,936,000 in 1998 from $2,264,000 in 1997. Most
of the increase is due to the fixed operating costs of the Callaway Golf
Center[TM] for approximately four months in 1998 compared to approximately
three months in 1997, and the initial operation of the SportPark Las Vegas for
almost 3 months in 1998. Also in 1998, the Company experienced large
professional costs, mostly accounting and legal, associated with the multiple
financing transactions which occurred during the year.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization was
$424,000 in 1998 compared to $170,000 in 1997 reflecting the operation of the
Callaway Golf Center[TM] for approximately 4 months in 1998 and the SportPark
Las Vegas operation for approximately 2.5 months in 1998 versus operations of
the Callaway Golf Center[TM] for only 3 months in 1997.
SPORTPARK DEVELOPMENT COSTS. These expenses were $0 in 1998 because all
such costs were capitalized. In 1997, the Company expensed $255,000 of
development costs.
PREOPENING EXPENSES. These costs were $603,000 in 1997. In 1998
preopening expenses were $1,179,300 which consists of payroll and operating
expenses incurred before opening the SportPark Las Vegas.
OPERATING LOSS. Operating Loss was $3,209,300 in 1998 compared to
$2,274,000 in 1997. Losses in both periods reflect preopening and start-up
expenses and other fixed corporate costs during the period when the All-
American SportPark was not opened. The Callaway Golf Center[TM] opened on
October 1, 1997 and was sold on May 5, 1998. The remainder of the All-
American SportPark opened on a limited basis on October 9, 1998. While the
SportPark was opened, losses occurred from the combination of fixed corporate
and SportPark costs including interest, depreciation, land lease fees and
limited revenues due to the start-up phase of the business with limited
marketing exposure. Contributing to the higher loss was an operating loss at
the Company's Rainbow retail store compared to a profit in 1997.
INTEREST INCOME (EXPENSE). Net interest expense increased to $538,700 in
1998 compared to interest income of $106,000 in 1997. The Company had
interest earning cash balances in early 1997 with nearly all interest costs
capitalized. Leasehold improvements increased to $24,675,100 at December 31,
1998 compared to $10,151,000 and $7,850,000 of project development costs at
December 31, 1997. The increase in these capital improvements and reduction of
current liabilities in 1998 were financed principally from borrowed funds
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resulting in the higher interest expense since the SportPark became
operational in October 1998 and interest was no longer capitalized.
MINORITY INTEREST. Minority interest was $490,800 in 1998 compared to a
deficit of $74,000 in 1997. This item reflects the portion of operating
profits or losses which are allocated to minority shareholders of the Company.
NET INCOME (LOSS). The Company generated a net loss of $1,057,000 in
1998 compared to net income of $617,000 in 1997. Net income for 1997 includes
income from discontinued operations of $2,887,000. The net loss for 1998
includes a gain of $1,638,000 resulting from the Company's sale of its
interest in All-American Golf, LLC. Excluding these non-recurring
transactions, the Company had net losses of $2,695,000 and $2,270,000 in 1998
and 1997, respectively. The larger net loss in 1998 is due primarily to
reasons discussed previously in this section.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998 the Company had working capital of $878,900 compared
to a working capital deficit of $2,424,000 at December 31, 1997. Cash
increased to $2,584,900 compared to $429,000 at the end of 1997. Total assets
increased $9,628,100 to $29,700,100 funded mainly by: an increase in notes
payable to $13,967,400 from $5,750,000, an increase in notes payable to
shareholder and affiliated parties of $1,105,300 and an increase in borrowings
from the affiliated store of $749,200 and the $1,094,000 gain from the sale of
the Callaway Golf Center[TM] in May 1998 which included the foregiveness of $3
million of borrowings.
The Company in the normal course of its business receives sponsorship
fees and various advance payments of different kinds which are recorded as
deferred income until earned. Fees of $877,100 are included in deferred
income at December 31, 1998. It is anticipated but cannot be guaranteed that
sponsorship fees and advances will be a source of cash flow in 1999.
On September 15, 1998 the Company entered into a $13,500,000 loan
agreement with Nevada State Bank (the "Lender"). The loan is for 15 years,
with interest measured at a fixed rate of 4% above the Lender's five-year
LIBOR rate as of September 1, 1998, 2003 and 2008. For 1998 through August
31,2003, the loan bears interest of 9.38%. The loan is secured by
substantially all the assets of the Company that existed at the time the
financing was completed. To facilitate this financing transaction, the owner
of the leasehold interest in the land underlying the Sportpark executed a
trust deed granting a security interest in the leased property to the Lender
to secure repayment of the loan. As consideration for the Landlord's
willingness to provide collateral for the loan, the Company's President, CEO
and its Chairman and a related entity pledged their stock in the Company as
collateral to protect the leased property from foreclosure.
On December 31, 1998 the Company reacquired the Callaway Golf Center[TM]
for $1,000,000 payable in quarterly installments of $25,000 for 10 years with
no interest. The business generated positive cash flow in the first quarter
of 1999.
The Company's chairman increased lendings to the Company to $1,705,300
from $600,000 in 1997. The loans are due in the year 2001 and bear interest
at ten percent per annum. Interest payments of $137,600 and $5,000 have been
deferred, in 1998 and 1997 respectively, a practice which could continue in
1999 if necessary. The Company paid $225,000 of these amounts back in late
March, 1999.
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The Company's accounts payable and accrued expenses decreased in 1998 to
$1,655,700 from $2,183,000 in 1997. Payables to related entities increased to
$1,049,200 from $300,000 at December 31, 1997.
During 1998, net cash used in operating activities was $3,601,000
compared to $338,000 in 1997. The increase in cash used in operating
activities relates primarily to increased SG&A costs, increased receivables
due to SportPark operations, and significantly lower balances of trade
payables and accrued expenses.
During 1998, net cash used in investing activities was $14,200,000
compared to $12,076,000 in 1997. The primary uses of cash for investing
activities relates to the development of the SportPark which opened in October
1998.
During 1998, net cash provided by financing activities was $19,956,900
compared to $6,386,000 in 1997. The sources of borrowings in cash provided by
financing activities was due principally to $13.5 million financing from
Nevada State Bank, additional amounts from shareholder and related entities,
and proceeds from a sale of the Company's common stock of $2.5 million offset
by payments on notes payable.
The Company's current and expected sources of working capital are its
cash balances which were $2,584,900 at December 31, 1998 and cash flow from
operations including sponsorship fees and advance deposits of various kinds.
The Company has raised considerable capital in the past 2 years for
development projects. The SportPark is now operational. The Company believes
that any working capital deficiency that may occur could be funded from a
combination of existing cash balances and, if necessary, additional borrowings
from lenders or other sources. If necessary, additional borrowings against the
Callaway Golf Center could likely be arranged to fund corporate operations.
There are no planned major capital expenditures in 1999. Expansion programs
in other locations are expected to be minimal and when they occur are expected
to be funded primarily by third parties.
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. During the first quarter of 1998, the Company hired a
consultant to upgrade all of the Company's other computers and work stations
so that they are all year 2000 compliant. The Company likely will incur
additional costs in 1999 which are not expected to be material.
The Company may be vulnerable to the failure of other companies to be
year 2000 compliant. During the fourth quarter of 1998, the Company 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 year 2000 issues related to customers.
The Company intends to initiate formal communications with all of its
significant vendors and suppliers with respect to their year 2000 compliance
programs and status during the second quarter of 1999.
Although the Company expects its internal systems to be year 2000
compliant, the failure of any of its significant vendors or suppliers to
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correct a material year 2000 problem could result in an interruption in
certain normal business activities and operations.
A reasonably likely worst case scenario would be for a segment of the
Company's SportPark to shut down, and depending on which segment(s) was shut
down and for how long, the Company's results of operations could be adversely
affected. Daytime operations of the Callaway Golf Center[TM] should not be
affected at all. A shut down of operations at the Rainbow retail store could
also adversely affect the Company.
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.
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 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) 3. EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION LOCATION
2 Agreement for the Purchase Incorporated by reference to
and Sale of Assets, as Exhibit 10 to the Registrant's
amended Current Report on Form 8-K
dated February 26, 1997
3.1 Articles of Incorporation, Incorporated by reference to
as amended Exhibit 3.1 to Registrant's
Form S-1 Registration Statement
(No. 33-33450)
3.2 Bylaws Incorporated by reference to
Exhibit 3.2 to Registrant's
Form S-1 Registration Statement
(No. 33-33450)
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3.3 Articles of Amendment to Incorporated by reference to
Articles of Incorporation Exhibit 3.3 to Registrant's
Form S-1 Registration Statement
(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 Statement
(No. 33-33450)
10.1 1989 Incentive Stock Incorporated by reference to
Option Plan Exhibit 10.1 to Registrant's
Form S-1 Registration Statement
(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 Statement
(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 Statement
(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)
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)
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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)
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)
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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
10.27 Investment and Voting Agree- Incorporated by reference
ment, dated as of October 19, to the Registrant's Current
1998, by and between ASI Report on Form 8-K dated
Group, L.L.C. and Las Vegas October 19, 1998
Discount Golf & Tennis, Inc.
10.28 Option Agreement, dated as of Incorporated by reference
October 19, 1998, by and to the Registrant's Current
between ASI Group, L.L.C. and Report on Form 8-K dated
Las Vegas Discount Golf & October 19, 1998
Tennis, Inc.
10.29 Voting Agreement, dated as of Incorporated by reference
October 19, 1998, by and to the Registrant's Current
among ASI Group, L.L.C. and Report on Form 8-K dated
Messrs. John Boreta, Ronald October 19, 1998
Boreta and Vaso Boreta and
Boreta Enterprises, Inc.
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10.30 Co-Sale Agreement, dated as Incorporated by reference
of October 19, 1998, by and to the Registrant's Current
among ASI Group, L.L.C., Las Report on Form 8-K dated
Vegas Discount Golf & Tennis, October 19, 1998
Inc. and Messrs. John Boreta,
Ronald Boreta and Vaso Boreta
and Boreta Enterprises, Inc.
10.31 Investment Agreement, dated Incorporated by reference
as of October 19, 1998, by to the Registrant's Current
and between Las Vegas Report on Form 8-K dated
Discount Golf & Tennis, Inc. October 19, 1998
and Saint Andrews Golf
Corporation
21 Subsidiaries of the Incorporated by reference to
Registrant Exhibit 21 to the Registrant's
Form 10-KSB for the year ended
December 31, 1995
27 Financial Data Schedule Filed herewith electronically
(b) REPORTS ON FORM 8-K:
(1) Form 8-K, dated May 5, 1998, reporting on Item 2,
"Acquisition or Disposition of Assets".
(2) Form 8-K, dated October 19, 1998, reporting on Item 1,
"Changes in Control of Registrant".
(3) Form 8-K, dated December 31, 1998, reporting on Item 2,
"Acquisition or Disposition of Assets".
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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 (the
"Company") as of December 31, 1998 and 1997, and the related consolidated
statements of operations, shareholders' equity and cash flows for the years
then ended (As Restated - See Note 1(f)). 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, 1998 and 1997 and the
results of their operations and their cash flows for the years then ended (As
Restated - See Note 1(f)) 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 had
recurring losses from continuing operations and generated negative cash flow
from continuing operations 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 1(d). 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 24, 1999
F-1
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LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AS RESTATED - SEE NOTE 1(f))
ASSETS
DECEMBER 31,
1998 1997
CURRENT ASSETS: ----------- -----------
Cash and cash equivalents $ 2,584,900 $ 429,000
Accounts receivable, trade 1,028,800 78,000
Inventories 569,900 479,000
Due from affiliated store 19,000 194,000
Due from officer - 3,000
Prepaid expenses and other 61,900 31,000
Preopening expenses, net - 100,000
--------- ---------
Total current assets 4,264,500 1,314,000
Leasehold improvements and equipment, net 24,675,100 10,151,000
Note receivable-related party 20,000 227,000
Project development costs - 7,850,000
Deposit for land lease 225,600 434,000
Loan costs, net 393,300 -
Other assets 121,600 96,000
---------- ----------
Total assets $29,700,100 $20,072,000
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
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LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AS RESTATED - SEE NOTE 1(f))
(Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
DECEMBER 31,
1998 1997
CURRENT LIABILITIES: ----------- -----------
Bank line of credit $ - $ 668,000
Current portion of Long-term debt 559,300 500,000
Current portion of obligations under
capital leases 121,400 87,000
Accounts payable and accrued expenses 1,655,700 2,183,000
Due to Affiliated Store 1,049,200 300,000
----------- -----------
Total current liabilities 3,385,600 3,738,000
Note payable to shareholder 1,705,300 600,000
Long-term debt,net of current portion 13,408,100 5,250,000
Obligation under capital lease, net of
current portion 530,400 217,000
Deferred income 877,100 517,000
Deferred income tax liability 147,600 529,100
Preferred stock of subsidiary 5,000,000 5,000,000
Minority interest 607,100 1,625,000
SHAREHOLDERS' EQUITY:
Convertible, preferred stock, Series A,
no par value; authorized-5,000,000
shares; none issued and outstanding
for 1998 and 1997 - -
Common stock, no par value;
15,000,000 shares authorized;
8,135,097 and 5,831,807 shares issued and
outstanding at December 31, 1998
and 1997, respectively 6,107,700 3,876,000
Stock options issued 268,300 -
Accumulated deficit (2,337,100) (1,280,100)
----------- -----------
Total shareholders' equity 4,038,900 2,595,900
----------- -----------
Total liabilities and shareholders'
equity $29,700,100 $20,072,000
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AS RESTATED - SEE NOTE 1(f))
YEARS ENDED DECEMBER 31,
1998 1997
REVENUES: ----------- -----------
Retail operations $ 2,926,600 $ 4,678,000
Callaway Golf Center[TM] 724,900 322,000
SportPark Las Vegas 811,400 -
Other 82,100 153,000
----------- -----------
Total revenues 4,545,000 5,153,000
COST OF REVENUES:
Retail operations 2,273,200 3,565,000
Callaway Golf Center[TM] 716,400 570,000
SportPark Las Vegas 225,400 -
----------- -----------
Total cost of revenues 3,215,000 4,135,000
GROSS PROFIT 1,330,000 1,018,000
OPERATING EXPENSES:
Selling, general and administrative 2,936,000 2,264,000
Depreciation and amortization 424,000 170,000
SportPark development costs - 255,000
Preopening expenses 1,179,300 603,000
----------- -----------
Total operating expenses 4,539,300 3,292,000
----------- -----------
OPERATING LOSS (3,209,300) (2,274,000)
OTHER INCOME(EXPENSE):
Interest income (expense), net (538,700) 106,000
Gain on sale of interest in All-American
Golf, LLC 1,638,000 -
----------- -----------
Loss from continuing operations before
income taxes and minority interest (2,110,000) (2,168,000)
Provision (benefit) for income taxes (381,500) 28,000
----------- -----------
Loss from continuing operations before
minority interest (1,728,500) (2,196,000)
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AS RESTATED - SEE NOTE 1(f))
(continued)
YEARS ENDED DECEMBER 31,
1998 1997
----------- -----------
MINORITY INTEREST 490,800 (74,000)
DISCONTINUED OPERATIONS:
Loss from franchise and wholesale
operations to be disposed of (no income
taxes were recorded in 1997) - (39,000)
Gain on disposal of franchise and wholesale
operations(net of applicable income
taxes) 180,700 2,926,000
----------- ----------
Income from discontinued operations 180,700 2,887,000
----------- ----------
NET INCOME (LOSS) $(1,057,000) $ 617,000
=========== ==========
NET INCOME (LOSS) PER SHARE:
Basic and Diluted:
Loss from continuing operations $(.28) $(.40)
Income from discontinued operations .11 .51
------ -----
Net Income (Loss) per share $(.17) $ .11
====== =====
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(AS RESTATED - SEE NOTE 1(f))
STOCK (ACCU-
PREFERRED COMMON OPTIONS MULATED) TOTAL
STOCK STOCK ISSUED DEFICIT EQUITY
------- ---------- ------- ----------- ----------
Balance
December 31, 1996 $ 5,000 $3,871,000 - $(1,897,100) $1,978,900
512,799 of common
stock issued in
exchange for 512,799
shares of Series A
convertible prefer-
red stock (5,000) 5,000 - - -
Net Income - - - 617,000 617,000
------- ---------- -------- ---------- ----------
Balance
December 31, 1997 - 3,876,000 - (1,280,100) 2,595,900
Issuance of
2,303,290 shares
of common stock and
347,975 options - 2,231,700 268,300 - 2,500,000
Net Loss - - - (1,057,000) (1,057,000)
------- ---------- -------- ----------- -----------
Balance
December 31, 1998 $ - $6,107,700 $268,300 $(2,337,100) $ 4,038,900
======= ========== ======== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AS RESTATED - SEE NOTE 1(f))
YEARS ENDED DECEMBER 31,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES: ------------ ------------
Net income (loss) $ (1,057,000) $ 617,000
Adjustment to reconcile net income (loss) to
net cash used in operating activities:
Minority interest (490,800) 74,000
Depreciation and amortization 424,400 236,000
Gain on sale of investment in AAG (1,638,000) -
Gain on disposition of leasehold improve-
ments and trademark rights - (68,000)
Preopening expenses - 603,000
Gain on disposal of franchise, wholesale
and retail stores, net of income taxes - (2,926,000)
Change in deferred tax liability (381,500) 28,000
Changes in assets and liabilities:
Increase in accounts receivable (802,000) (12,000)
Increase in inventory (91,000) (79,000)
Decrease in due from officer 3,000 10,000
Increase in prepaid expenses and other (169,100) (15,000)
Increase in accounts payable
and accrued expenses 241,000 831,000
Decrease in deferred franchise fees - (63,000)
Increase in deferred income 360,000 426,000
----------- ----------
Net cash used in operating activities (3,601,000) (338,000)
----------- ----------
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)
Increase in other assets - (14,000)
Leasehold improvement expenditures (15,405,000) (9,698,000)
Proceeds from sale of investment in AAG 1,205,000 -
Preopening expenses - (703,000)
----------- -----------
Net cash used in investing activities (14,200,000) (12,076,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank line of credit - 668,000
Repayment of line of credit (668,000) (398,000)
Principal payments on notes payable to
shareholder - (631,000)
Proceeds from Long-term debt and note
payable to shareholder and related entity 18,335,000 6,350,000
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AS RESTATED - SEE NOTE 1(f))
(Continued)
YEARS ENDED DECEMBER 31,
1998 1997
------------ ------------
Payments on Long-term debt and note payable
to shareholder and related entity (1,362,100) -
Loan costs paid (226,000) -
Contribution from minority interest - 750,000
Principal payments on capital leases (99,000) (68,000)
Increase(decrease) in amount due
to Affiliated Store 1,477,000 (285,000)
Proceeds from sale of common stock/options 2,500,000 -
------------ -----------
Net cash provided by financing activities 19,956,900 6,386,000
------------ -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 2,155,900 (6,028,000)
CASH AND CASH EQUIVALENTS,
Beginning of year 429,000 6,457,000
------------ ----------
CASH AND CASH EQUIVALENTS,
End of year $ 2,584,900 $ 429,000
============ ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest, net of amounts capitalized $ 321,900 $ 5,000
=========== ==========
Income taxes - $ 462,500
=========== ==========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Equipment financed through
capital leases $ 699,600 $ 339,000
=========== ==========
Stock options of All-American
Sportpark issued in connection
with financing $ 174,000 $ -
=========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
LAS VEGAS DISCOUNT GOLF & TENNIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AS RESTATED - SEE NOTE 1(f))
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, All-American SportPark, Inc. ("AASP"), 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 hereinafter referred to 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 AASP.
The Company presently owns 66.7% of the outstanding common stock of AASP and
33% of its Convertible Preferred Stock. Vaso Boreta, the Company's President
and Chairman of the Board, is Chairman of the Board of AASP. Ronald S.
Boreta, a Director of the Company, is President and a Director of AASP.
Robert S. Rosburg and William Kilmer, Directors of the Company, are also
Directors of AASP.
In 1997, Callaway Golf Company ("Callaway") provided $5,250,000 in debt
financing for construction of the Callaway Golf Center[TM] which bore 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 was due
in 60 equal monthly payments commencing on October 1, 2002. Under the terms
of the note, All-American Golf, LLC was obligated to commence making payments
of interest on December 21, 1997. AASP was unable to make this payment and at
December 31, 1997 was in default on this note. Subsequently, AASP was unable
to meet its obligation on January 21, February 21, and March 21, 1998. On
March 18, 1998, AASP 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 was due
on May 21, 1998 in the amount of $80,600. This amount was not paid due to the
Company's sale of its interest in All-American Golf, LLC on May 5, 1998 as
described below.
On June 13, 1997 the AASP and Callaway Golf Company ("Callaway") formed All-
American Golf, LLC (the "LLC") to construct, manage and operate the "Callaway
Golf Center (TM)", a premier golf facility at the site of the SPLV. AASP
contributed $3.0 million for 80 percent of the members' units of the LLC while
Callaway purchased the remaining 20 percent for $750,000. The minority
interest presented in the accompanying financial statements for 1997
represents Callaway's interest in the LLC. Through May 5, 1998 the Company
managed the driving range, golf course and tenant facilities in the clubhouse
for a fee of five percent of gross revenues pursuant to the LLC Operating
Agreement.
F-9
<PAGE>
On May 5, 1998 the Company sold its 80% equity 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 loaned to the Company in March
and April 1998 and related accrued interest. Of the consideration $500,000
was held back by Callaway until it secured all rights to operate the Callaway
Golf Center[TM] which was completed on September 30, 1998. The Company
resigned as manager of the LLC and received a buy back option to repurchase
its 80% equity ownership for a period of 2 years on essentially the same
financial terms that it sold its interest.
On December 31, 1998 the Company reacquired substantially all the assets
subject to certain liabilities of All-American Golf LLC. As consideration the
Company paid $1,000,000 to Active Media Services in the form of a promissory
note payable in quarterly installments of $25,000 over a ten-year period
without interest. This promissory note has been discounted by $345,000 to
reflect the notes' present value. In turn, Active Media Services delivered to
Callaway a trade credit of $4,000,000.
Subsequent to the completion of the sale of assets related to the three
Company-owned retail stores in California, the wholesale business and the
franchise business, and the purchase of the All-American Golf, LLC assets, 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". The Company has developed a
concept for family-oriented sports theme parks named "All-American SportPark".
The first SportPark was completed in Las Vegas, Nevada on October 9, 1998.
Included in this 65 acre SportPark located on the south end of the Las Vegas
"Strip" are major attractions which are; the Callaway Golf Center[TM]
including a 110 tee driving range, Divine Nine[R] golf course and 20,000
square foot club house; All-American SportPark Pavilion, Major League Baseball
Slugger Stadium, NASCAR SpeedPark and All-Sport Arena.
b. SALE OF ASSETS AND DISCONTINUED OPERATIONS
On February 26, 1997, the Company and AASP 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 $207,000 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 $200,000 remaining in
escrow is expected to be collected in 1999.
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 wholesale business. The agreement assigned all franchisor
rights under the existing franchise agreements, the assumption of the
Company's leasehold interests in the Stores and corporate headquarters and
security deposits associated with such leases. Furthermore, the Company
assigned all trade names and trademarks associated with the business. The
Agreement also includes a covenant not to compete which prohibits the Company,
F-10
<PAGE>
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 AASP with respect to the Company's right to own or operate retail golf
equipment outlets in connection with AASP's All-American SportPark. Revenues
related to the discontinued operations totaled $156,000 for the year ended
December 31, 1997.
c. CONCENTRATION OF RISK
In addition to its single retail outlet, the Company operates one All-American
Sportpark and the Callway Golf Center in Las Vegas, Nevada. The level of
customer demand for these types of recreational facilities is undetermined.
The Company is implementing various strategies to market the facilities to
both tourists and local residents. Should attendance levels at the Sportpark
and Golf Center not meet expectations in the short-term, management believes
existing cash balances will be sufficient to fund operating expenses and debt
service requirements for at least the next twelve months. The inability to
build attendance to profitable levels beyond a twelve month period may require
the Company to seek additional debt or equity financing to meet its
obligations as they come due. There is no assurance that the Company would be
successful in securing such debt or equity financing in amounts or with terms
acceptable to the Company.
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
accompanying consolidated financial statements, during the year ended December
31, 1998, the Company had incurred losses from continuing operations before
minority interest of $2,110,000, and negative cash flow from operations of
$3,601,000. Additionally, as of December 31, 1998 the Company had working
capital of approximately $878,900 and cash and cash equivalents of $2,584,900.
In September 1998, the Company successfully secured a $13.5 million loan in
order to complete the construction of the SportPark. To facilitate this
financing transaction, the owner of the leasehold interest in the land
underlying the Sportpark executed a trust deed granting a security interest in
the leased property to the Lender to secure repayment of the loan. As
consideration for the Landlord's willingness to provide collateral for the
loan, the Company's President, CEO and its Chairman and a related entity
pledged their stock in the Company as collateral to protect the leased
property from foreclosure. Additionally, the Company obtained an additional
$2.5 million in equity financing from ASI, L.L.C. an investment group headed
by Andre Agassi and Sunbelt Communications, the proceeds of which were used to
purchase 250,000 shares of Series B Convertible Preferred Stock of AASP. In
addition, the Company will implement various marketing strategies in 1999 to
stimulate visitor volume at both the Sportpark and Callaway Golf Center.
Management believes that existing cash balances generated from the financing
activities described above will be sufficient to fund operating cash needs and
debt service requirements over at least the next twelve months. Should
additional financing to fund operations be required, the Company will turn to
the lending sources described above or other sources, as necessary. There can
be no assurance such lending sources would be willing, in terms acceptable to
the Company, to provide additional financing.
F-11
<PAGE>
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. RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been restated to
reflect a change in the accounting for the deferred tax liability related to
the Company's book/tax basis difference in its investment in AASP (see note
11). The Company previously was not adjusting this deferred tax liability for
changes in the Company's basis in AASP. The impact of this change is as
follows:
1998 1997
---- ----
Increase (decrease) in:
Deferred income tax liability $(595,400) $(213,900)
========= =========
Total stockholders' equity $ 595,400 213,900
========= =========
(Increase) decrease in:
Loss from continuing operations $ 381,500 $ (28,000)
========= =========
Loss per share from continuing
operations $ .06 $ (.01)
========= =========
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents.
b. ACCOUNTS RECEIVABLE
Accounts receivable consists of amounts due from tenants at the Callaway Golf
Center[TM] and the SportPark Las Vegas, and the sale of merchandise and/or
services.
c. INVENTORIES
Inventories, which consist primarily of sporting goods merchandise, and
display units are stated at the lower of cost (specific identification 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
F-12
<PAGE>
are imported. In addition, overseas suppliers generally require letters of
credit to be posted for the entire purchase price.
d. PREOPENING EXPENSES
Preopening expenses primarily represent direct personnel and other operating
costs incurred before the opening of the facility. In 1997, these costs were
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[TM], which commenced operations on
October 1, 1997. Pursuant to Statement of Position No. 98-5 "Reporting the
Costs of Start Up Activities," in 1998 the Company began expensing preopening
costs as incurred.
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 AASP. Deferred income is amortized to income
over the life of the agreements. Additionally, deferred income includes
approximately $41,700 remaining from the agreement with MBNA to use AASP's
trademark on its credit cards over a five-year period which expires August 31,
2000.
g. INTEREST COST
The Company capitalizes interest cost as a component of the cost of
construction in progress until the asset is placed in service and ready for
its intended use.
h. ADVERTISING
The Company expenses advertising costs as incurred. Advertising costs
amounted to $430,590 and $290,000 in 1998 and 1997, respectively.
i. INCOME TAXES
The Company accounts for income taxes under the provisions of the Statement of
Financial Accounting Standards ("SFAS") 109, "Accounting for Income Taxes".
j. RECOVERABILITY OF LONG-LIVED ASSETS
In 1996 the Company adopted Statement of SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and 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
F-13
<PAGE>
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 SportPark Las Vegas including Callaway Golf Center[TM], the
Company does not believe that a triggering event has occurred with respect to
the operating losses incurred.
k. 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. In accordance with SFAS 128, when an entity has a loss from
continuing operations, no potential common shares shall be included in the
computation of any diluted per share amount. As such, potential dilution has
not been considered in the calculations for the periods presented.
The weighted-average number of common and common equivalent shares used in the
calculation of basic and diluted earnings per share for 1998 and 1997 were
6,298,685 and 5,603,896, respectively.
l. ISSUANCE OF SUBSIDIARY STOCK
The Company recorded the excess of the fair value over the carrying amount of
its investment in AASP due to AASP'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.
m. 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 two operating segments are determined based on the nature of their
activities. The retail operations segment consists of a Company-owned store
located in Las Vegas, Nevada which sells sports equipment. The Company's
sport-oriented theme park segment which operates under the name "All-American
SportPark" consists of a baseball batting stadium, car racing tracks, video
arcade, retail and restaurant facilities and a golf facility named "Callaway
Golf Center[TM]". The golf facilities are comprised of an executive golf
course, driving range, putting course, clubhouse and training center.
The accounting policies of the reported segments are the same as those described
within Note 2-Summary of Significant Accounting Policies.
The financial information pertaining to the Company's retail operations and
sport-oriented theme park operations for each of the two years in the period
ended December 31, 1998, is as follows (thousands of dollars):
F-14
<PAGE>
<TABLE>
<CAPTION>
1998
Sports-Oriented
Retail Theme Park
Operations Operations Adjustments Total
---------- --------------- ------------- ----------
<S> <C> <C> <C> <C>
Revenues from External $2,961,200 $1,583,800 $ - $4,545,000
Customers
Interest Income 9,124 25,056 - 34,180
Interest Expense 56,824 579,056 (63,000) 572,880
Depreciation & Amortization 26,000 465,000 (67,000) 424,000
Minority Interest 474,700 76,300 (60,200) 490,800
Gain on Sale of
Interest in All-American
Golf, LLC - 1,638,000 - 1,638,000
Segment Assets 3,508,700 28,519,400 (2,328,000) 29,700,100
Capital Expenditures $ - $15,490,100 $ (85,100) $15,405,000
</TABLE>
<TABLE>
<CAPTION>
1997
Sports-Oriented
Retail Theme Park
Operations Operations Adjustments Total
---------- --------------- ------------- ----------
<S> <C> <C> <C> <C>
Revenues from External $4,766,800 $ 386,200 - $ 5,153,000
Customers
Interest Income 11,500 215,900 - 227,400
Interest Expense - 121,400 - 121,400
Depreciation & Amortization 31,300 138,700 - 170,000
Minority Interest (174,000) 100,000 - (74,000)
Income from Discontinued
operations 803,000 2,084,000 - 2,887,000
Segment Assets 1,801,900 18,793,700 (523,600) 20,072,000
Capital Expenditures $ - $15,978,000 $(33,000) $15,945,000
</TABLE>
4. RELATED PARTY TRANSACTIONS
The Company has extensive transactions and relationships with its chairman and
principal shareholder, the Affiliated Store and AASP. 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, 1998 and 1997, the Company had a
F-15
<PAGE>
$19,000 and $194,000, respectively, receivable from the Affiliated Store. As
of December 31, 1998 and 1997, the Company had outstanding payables to the
Affiliated Store of $1,049,200 and $300,000, respectively. The Affiliated
Store operates in Las Vegas, Nevada and is not a franchise of AASP. As a
result, this store paid no royalties to AASP but purchased merchandise at the
same cost as AASP only through February 26, 1997 after which AASP's franchise
outlets were sold. The Affiliated Store also benefited from AASP's
activities, including any local and national advertising conducted by AASP for
the first two months of 1997. The Affiliated Store and the Company owned store
share advertising costs equally in the Las Vegas market area. These
advertising costs were $259,000 and $166,300 in 1998 and 1997, respectively.
Sales of merchandise made by the Affiliated Store to the Company totaled
$950,574 and $1,120,000 for the years ended December 31, 1998 and 1997,
respectively. The affiliated store purchased $85,600 and $163,000,
respectively, in sporting goods merchandise from the Company.
The Company and AASP allocate the costs of facilities and administrative and
accounting personnel 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 AASP
pays 67%. The Company is terminating this lease in the second quarter of 1999
and moving to Company owned facilities at the Callaway Golf Center[TM].
5. LEASEHOLD IMPROVEMENTS AND EQUIPMENT
Leasehold improvements and equipment included the following as of December 31:
1998 1997
------------ -----------
Building $ 17,592,200 $ 4,546,100
Go-Karts 479,500 -
Land Improvement 3,139,500 4,585,300
Signs 651,100 107,100
Furniture and equipment 1,754,900 547,100
Leasehold improvements 372,500 442,300
Assets under capital leases 1,041,300 -
Other 168,100 324,100
------------ -----------
25,199,100 10,552,000
Less--Accumulated depreciation
and amortization (524,000) (401,000)
------------ -----------
$ 24,675,100 $10,151,000
============ ===========
6. PROJECT DEVELOPMENT COSTS
AASP through October 1, 1998 engaged in the planning, design and development
of SportPark Las Vegas. The Callaway Golf Center[TM] portion of the
All-American SportPark consists of an executive golf course and other related
amenities and commenced operations on October 1, 1997.
Project development costs totaled $7,850,100 as of December 31, 1997 relating
to the continuing construction of the SportPark Las Vegas. In 1998, the All-
American SportPark commenced operations.
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7. BANK LINE OF CREDIT
As of December 31, 1997, the Company had an $800,000 bank line of credit,
which was canceled in 1998. Interest was payable monthly at one and one half
(1.5%) percent over the bank's prime rate which was 9 percent at December 31,
1997. As of December 31, 1997, $668,400 was outstanding. This 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 13, 1998.
8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at December 31:
1998 1997
---------- ----------
Accounts payable - trade $ 935,500 $1,617,000
Accrued compensation 31,800 125,000
Payroll and other taxes 159,600 128,000
Income taxes payable 137,500 137,000
Interest payable 191,400 176,000
Customer deposits 2,500 -
Accrued expenses 197,400 -
---------- ----------
$1,655,700 $2,183,000
========== ==========
9. LONG-TERM DEBT
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 7) both of which were due March 8, 1998. The
note and line of credit were paid in full on February 13, 1998, with a portion
of the proceeds collected from the $4.0 million short-term loan received on
February 13, 1998.
On September 15, 1998 the Company completed a $13,500,000 secured loan with
Nevada State Bank. The loan is for 15 years with interest measured at a fixed
rate of 4% above the lender's five-year LIBOR rate as of September 1, 1998,
2003 and 2008. For 1998 through August 31, 2003, the loan bears interest of
9.38%. The loan is secured by all the assets of the Company that existed at
that time and a personal guarantee of the Company President and CEO and its
Chairman. The loan has covenants related to debt service coverage and debt to
equity that go into effect June 30, 1999.
On December 31, 1998 AASP reacquired substantially all the assets subject to
certain liabilities of All-American Golf, Inc. which managed and operated the
Callaway Golf Center. Under terms of the asset purchase agreement, the
consideration paid by AASP consisted of payment to Active Media Services of
$1,000,000 in the form of a promissory note payable due in quarterly
installments of $25,000 over 10 years without interest. This promissory note
has been discounted by $345,000 to reflect the notes' present value.
At December 31, 1998 and 1997, the Company had an unsecured, 10 percent note
payable totaling $1,705,300 and $600,000, respectively, with the Company's
chairman and principal shareholder. During 1998, the Company paid $400,000 of
the $600,000 shareholder note issued to LVDG and the remainder of borrowings
from the shareholder in 1998 were to AASP. 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 payments of $137,600 and $5,000 have been
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<PAGE>
deferred, in 1998 and 1997, respectively, a practice which could continue in
1999 if necessary.
Aggregate maturities of notes payable for the five years subsequent to
December 31, 1998, are as follows:
Year ending:
1999 $ 500,434
2000 545,565
2001 2,304,342
2002 657,761
2003 722,235
Thereafter 10,942,363
-----------
$15,672,700
===========
10. LEASES
The Company and AASP lease office and warehouse facilities from the Company's
chairman and principal shareholder under a non-cancelable operating lease
agreement 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 AASP shared rent
equally. beginning August 1, 1994, the allocation was changed to 50 percent to
the Company and 50 percent to AASP, based on the new ownership percentages
effected with the initial public offering of AASP. Beginning July 1, 1996,
the Company was allocated 33 percent and AASP was allocated 67 percent. The
original lease provided for monthly rental payments of $14,000 which increased
based on the consumer price index. When the golf distribution system was sold
in February 1997, the monthly rental decreased to $4,320 per month and
decreased further to $1,830 per month in December 1998. Rent expense under
this lease totaled $67,940 and $74,000 in 1998 and 1997, respectively.
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 a base monthly rental payment of $10,300. 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 $117,100 and $113,000
in 1998 and 1997, respectively.
In July 1996, AASP 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 commenced on October 1, 1997
for All-American Golf, LLC and February 1, 1998 for the All-American
SportPark.
Effective June 20, 1997, AASP canceled the original lease and replaced it with
two separate leases, one for the Callaway Golf Center[TM] and the other for
the SportPark Las Vegas ("SPLV"). The annual base amount of $625,000 is due in
monthly installments of $52,083 (Callaway Golf Center[TM] $33,173 and SPLV
$18,910). The lease term remains as stated above. 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.
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<PAGE>
As a condition to the lease, AASP also entered into a Deposit Agreement which
required AASP to post a refundable deposit to the lessor of $500,000. The
deposit has been 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. The remaining balance was
$225,600 and $434,000 at December 31, 1998 and 1997, respectively.
The Company is also obligated under various other capital and non-cancelable
operating leases for equipment that expire at various dates over the next five
years. Total rent expense for operating leases was $621,380 and $316,900 for
1998 and 1997, respectively.
At December 31, 1998, minimum future lease payments are as follows:
Capital Operating
Year ending Leases Leases Total
----------- --------- ----------- -----------
1999 $195,368 $ 876,095 $ 1,071,463
2000 194,982 806,847 1,001,829
2001 179,190 727,017 906,207
2002 128,870 687,775 816,645
2003 108,600 697,600 806,200
Thereafter 9,050 6,531,250 6,540,300
-------- ----------- -----------
Minimum Leases Payment $816,060 $10,326,584 $11,142,644
======== =========== ===========
Less amount representing
interest 164,260
--------
Present value of net minimum
Capital leases payments 651,800
Less current installments of
obligations under capital
leases 121,400
--------
Excluding current installments $530,400
========
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<PAGE>
11. INCOME TAXES (AS RESTATED)
The federal income tax provision (benefit) from continuing operations
consisted of the following for the years ended December 31:
1998 1997
--------- ---------
Current $(380,000) $ -
Deferred (483,200) 28,000
Less: Valuation allowance 481,700 -
--------- ---------
Total $(381,500) $ 28,000
========= =========
The benefits from the net operating loss carryforwards from continuing
operations generated in 1997 of $740,300 was realized through an offset
against taxable gain from discontinued operations. The Company received a tax
refund of approximately $180,000 in 1998 related to the 1997 gain on disposal
of its franchised operations reflected in the accompanying statements of
operations under discontinued operations.
The components of the deferred tax asset (liability) consisted of the
following at December 31:
1998 1997
----------- ----------
Deferred Tax Liabilities:
Temporary differences related to
Property and Equipment $ (49,900) $ (58,000)
Book/tax basis difference in AASP (214,000) (551,100)
Other - -
----------- ----------
Total Deferred Tax Liabilities (263,900) (609,100)
=========== ==========
Deferred Tax Assets:
Deferred Income 298,500 176,000
Other 29,500 14,000
Net Operating Loss Carryforward 402,000 22,000
=========== ==========
Net Deferred Tax Asset (Liability) Before
Valuation Allowance 466,100 (397,100)
Valuation Allowance (613,700) (132,000)
----------- ----------
Net Deferred Tax Asset (Liability) (147,600) (529,100)
=========== ==========
A valuation allowance has been established to reserve certain net deferred tax
assets (liabilities) since management does not believe it is more likely than
not that they will be realized.
As of December 31, 1998 the Company has available for income tax purposes
approximately $402,000 in federal net operating loss carryforwards, which may
offset future taxable income. These loss carryforwards begin to expire in
fiscal year 2003.
The provision (benefit) for income taxes attributable to income (loss) from
continuing operations, after consideration of minority interest, differs from
the amount computed at the federal income tax statutory rate only as a result
of changes in the valuation allowance.
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<PAGE>
12. CAPITAL STOCK, STOCK OPTIONS, AND INCENTIVES
a. CAPITAL STOCK
On October 19, 1998, LVDG issued 2,303,290 shares of its common stock for
$2,500,000 in a private transaction to ASI Group, L.L.C. ("ASI"). ASI also
received 347,975 options for common stock of the Company at an exercise price
of $1.8392 per share through October 19, 2008. ASI is a Nevada limited
liability company whose members include Andre Agassi, professional tennis
player, and Sunbelt Communications Company which is engaged in the
broadcasting business including the NBC affiliate in Las Vegas.
b. STOCK OPTION PLANS
In June 1991, the Company's Board of Directors adopted an Incentive 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. 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. All options granted have five-year
terms and vest and become fully exercisable at the date of grant.
Total options granted under the 1991 Plan in 1994 were 481,000 at an exercise
price of $.80 per share. Of these shares, 60,000 have expired while the
remaining 421,000 shares are exercisable at any time through July 1999. An
additional 11,000 shares were granted in 1995 at an exercise price of $.80.
These options have expiration dates, which extend through January 2000. Total
options outstanding under the 1991 Plan were 432,000 at December 31, 1998 and
1997, respectively, of which all were exercisable at $.80.
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.
Pro forma information regarding net income (loss) and earnings (loss) 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 1998: risk-free interest rates of 4.20%;
dividend yields of 0.0%; volatility factors of the expected market price of
the Company's common stock of 1.36; and a weighted-average expected life of
the option of 4.5 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
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<PAGE>
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,
1998 1997
----------- ----------
Net Income (Loss)
As reported $(1,057,000) $ 617,000
Pro forma $(1,057,000) $ 563,000
Basic and diluted net income
(loss) per share
As reported $ (.17) $ .11
Pro forma $ (.17) $ .10
c. PREFERRED STOCK
A summary of the status of the Company's stock option plans for the years
ended December 31, 1998 and 1997 is presented below:
1998 1997
------------------ ------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------- -------- ------- --------
Outstanding at beginning of year 432,000 $ 0.80 432,000 $ 0.80
Granted 347,975 1.84 - -
Exercised - - - -
Forfeited (11,000) 0.80 - -
Expired - - - -
------- ------- ------- -------
Outstanding at end of year 768,975 $ 1.27 432,000 $ 0.80
======= ======= ======= =======
Exercisable at end of year 768,975 $ 1.27 432,000 $ 0.80
======= ======= ======= =======
Weighted average fair value of
options granted $ 0.77 $ 0.80
======= =======
The following table summarizes information about stock options outstanding at
December 31, 1998:
F-22
<PAGE>
<PAGE>
Options
Options Outstanding Exercisable
---------------------------------- -----------------
Weighted
Average Weighted Weighted
Remaining Average Number Average
Number Contractual Exercise Exer- Exercise
Range of exercise prices Outstanding Life (Years) Price cisable Price
----------- ------------ -------- ------- --------
$0.80-$1.84 768,975 4.73 $ 1.27 768,975 $ 1.27
======= ==== ====== ======= ======
On June 1, 1992, the shareholders approved an amendment to the Articles of
Incorporation authorizing the issuance of up to 5,000,000 shares of preferred
stock. On October 21, 1992, the Board of Directors authorized the creation of
Series A convertible preferred stock with no par value. The Board also
authorized the issuance of 512,799 shares of the Series A convertible
preferred stock to the Company's chairman and principal shareholder in
exchange for services rendered valued at $5,128. The Series A Convertible
Preferred Stock shares are not entitled to any dividend, have a liquidation
preference of $.01 per share or $5,128 and are automatically convertible into
512,799 shares of the Company's common stock once the audited financial
statements of the Company for any fiscal year reports pre-tax income of at
least $1,000,000. Each share of Series A Convertible Preferred Stock entitles
the holder to one vote with full voting rights and powers of a holder of
shares of common stock. During 1994 all of these preferred shares were
transferred to the President of AASP who is also a director of the Company.
In April 1996 the Board adopted a resolution which would allow the President
of AASP to convert the 512,799 shares of preferred stock to common shares, on
the basis that the profit requirements of conversion had been met by the sale
of the Company's golf distribution business in February 1997. This conversion
occurred on June 9, 1997.
d. AASP PREFERRED STOCK SERIES A
On July 11, 1996 the AASP 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, AASP 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
AASP and accompanying options to purchase 250,000 shares of AASP common stock
is included as a component of minority interest.
Each share of the Series A Convertible Preferred Stock issued to TOI is
convertible at the option of TOI into one share of AASP's common stock. In
the event of liquidation or dissolution of AASP, 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 AASP 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) AASP 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 AASP common stock is at least $15.00 for 20
consecutive trading days. If AASP notifies TOI of its intent to redeem the
Preferred Stock, TOI will have at least 30 days to elect to convert its
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<PAGE>
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 AASP'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 AASP for a period of 5
years commencing July 29, 1996 and for a period of 3 years for Anaheim,
California and Las Vegas, Nevada, (2) an obligation to obtain electrical and
electronic equipment for such SportParks for a period of 5 years, (3) certain
signage rights for TOI or its designees at the first two SportParks and (4)
other miscellaneous rights as defined. Pursuant to the agreement, AASP also
granted TOI an option to purchase up to 250,000 shares of AASP'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, AASP expanded the number of Directors of AASP from
four to five, and elected Motoharu Iue as a Director of AASP. Mr. Iue is the
president of Three Oceans Inc.
e. AASP SERIES B CONVERTIBLE PREFERRED STOCK
On September 22, 1998, the AASP Board of Directors authorized the creation of
250,000 shares of Series B Convertible Preferred Stock with a $.001 par value.
On October 19, 1998, AASP issued 250,000 shares of Series B Convertible
Preferred Stock to its majority shareholder, Las Vegas Discount Golf & Tennis,
Inc. ("LVDG") for $2,500,000 in cash.
Each share of the Series B Convertible Preferred Stock issued to LVDG is
convertible at the option of LVDG into one share of AASP's common stock. In
the event of liquidation or dissolution of AASP, each share of Series B
Convertible Preferred Stock will have a $10.00 liquidation preference over
all other shareholders. In addition, holders of the Series B Convertible
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 AASP upon a
registration statement being declared effective by the 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) AASP
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 AASP's common
stock is at least $15.00 for 20 consecutive trading days. If AASP notifies
LVDG of its intent to redeem the Preferred Stock, LVDG 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 B Convertible Preferred Stock is entitled to
vote along with the holders of AASP's common stock.
f. AASP COMMON STOCK AND COMMON STOCK PURCHASE WARRANTS
On December 13, 1994, AASP 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 AASP 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
F-24
<PAGE>
purposes. The expiration date of the Class A Warrants had been extended to
March 15, 1999 when they expired.
In connection with the initial public offering, AASP 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. AASP 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, 1998 and 1997, no warrants have been exercised.
13. EMPLOYEES' 401(k) PROFIT SHARING PLAN
The Company offers all its eligible employees participation in the Employees'
401(k) 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 1998 and 1997, 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 $10,400
and $21,900 for 1998 and 1997, respectively.
14. SUPPLEMENTAL NON-QUALIFIED RETIREMENT PLAN
In 1995, the Company entered into a Supplemental Retirement Plan for certain
key officers and directors including the President of the Company and the
President of AASP. This plan became effective on January 1, 1996. During
1998 and 1997, the Company paid $45,900 and $74,000, respectively, pursuant to
the plan for officers and directors of the Company.
15. COMMITMENTS AND CONTINGENCIES
AASP has employment agreements with its President, as well as other key
employees which will require the payment of fixed and incentive based
compensation.
In December 1994, the Company 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, the Company 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 November 30, 2000
subject to the right to extend for three additional years provided certain
conditions are met. The Company has made the required annual license payments
of $50,000 for 1995, 1996, and 1997 and expects to make the 1998 payment in
early 1999. In addition to and as an offset against the minimum payments set
out above, the Company is required to pay to MLB a royalty based on the
revenue from the batting cages. The Company'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, AASP 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 was also granted options under AASP's stock option plan. On November
20, 1997, the agreement with Mr. Gordon was amended to, among other things,
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<PAGE>
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.
AASP 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 AASP 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.
In December 1997, the Company 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 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 SporkPark.
The agreement with Pepsi provides that the Company 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 the
Company and Pepsi.
In consideration for the above rights, Pepsi agreed to pay the Company a fixed
payment when any portion of the SportPark was officially opened; an additional
payment 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. Pepsi is current in its payments
under the terms of the agreement.
In September 1997, the Company 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
SPLV, 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.
Sportservice invested 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.
The agreement provides Sportservice with a right of first refusal for future
parks to be built by the Company 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 Company has not yet
audited the Delaware North investment to determine monies due, if any.
F-26
<PAGE>
In September 1998, the AASP 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 purchased a comprehensive general liability insurance policy
to cover possible claims for injury and damages from accidents and similar
activities. There is no assurance 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.
16. SUBSEQUENT EVENT
On February 16, 1999, the Board of Directors of AASP approved the award to Ron
Boreta, President of AASP, Stock Appreciation Rights (SAR's) as to 125,000
shares independent of any stock option under AASP's 1998 Stock Incentive Plan.
The base value of the SAR's shall be equal to $6 per share, however, no SAR
may be exercised unless and until the market price of AASP's Common Stock
equals or exceeds $10 per share. The maximum amount to be paid on the
exercise of all 125,000 SARs is $500,000. The SARs expire October 26, 2008.
F-27
<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 Amendment to be
signed on its behalf by the undersigned thereunder duly authorized.
SPORTS ENTERTAINMENT ENTERPRISES, INC.
(formerly LAS VEGAS DISCOUNT GOLF &
TENNIS, INC.)
Dated: April 28, 2000 By:/s/ Kirk Hartle
Kirk Hartle, Chief Financial Officer
<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-5 of
the Company's Form 10-KSB for the fiscal year ended December 31, 1998, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> $ 2,584,900
<SECURITIES> 0
<RECEIVABLES> 1,028,800
<ALLOWANCES> 0
<INVENTORY> 569,900
<CURRENT-ASSETS> 4,264,500
<PP&E> 24,675,100
<DEPRECIATION> 424,000
<TOTAL-ASSETS> 29,700,100
<CURRENT-LIABILITIES> 3,385,600
<BONDS> 0
0
0
<COMMON> 6,107,700
<OTHER-SE> (2,068,800)
<TOTAL-LIABILITY-AND-EQUITY> 29,700,100
<SALES> 0
<TOTAL-REVENUES> 4,545,000
<CGS> 0
<TOTAL-COSTS> 3,215,000
<OTHER-EXPENSES> 4,539,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 538,700
<INCOME-PRETAX> (2,110,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,110,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,057,000)
<EPS-BASIC> (.17)
<EPS-DILUTED> (.17)
