<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
Commission File Number: 0-17436
SPORTS ENTERTAINMENT ENTERPRISES, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Colorado 84-1034868
------------------------------- ---------------------------------
(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
6730 South Las Vegas Boulevard, Las Vegas, Nevada 89119
-----------------------------------------------------------
(Address of principal executive offices including zip code)
(702) 798-7777
---------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No___
As of August 11, 2000, 8,135,097 shares of common stock were outstanding.
Transitional Small Business Disclosure Format (check one): Yes___ No X
<PAGE>
SPORTS ENTERTAINMENT ENTERPRISES, INC. AND SUBSIDIARIES
FORM 10-QSB
INDEX
Page Number
PART I: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets
June 30, 2000 and December 31, 1999 3
Consolidated Statements of Operations
Three Months Ended June 30, 2000 and 1999 5
Consolidated Statements of Operations
Six Months Ended June 30, 2000 and 1999 6
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2000 and 1999 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis or
Plan of Operation 14
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security
Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
2
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SPORTS ENTERTAINMENT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS JUNE 30, DECEMBER 31,
2000 1999
----------- -----------
(Unaudited)
Current assets:
Cash and cash equivalents $ 364,868 $ 200,501
Accounts receivable 162,691 135,823
Inventory 682,125 643,332
Prepaid expenses and other 349,285 246,300
----------- -----------
Total current assets 1,558,969 1,225,956
Leasehold improvements and equipment, net 23,312,951 24,191,040
Due from affiliated stores 226,945 168,779
Note receivable - related party 20,000 20,000
Debt issuance costs, net 333,459 353,425
Deposit for land lease 37,821 37,821
Other assets 74,434 61,761
----------- -----------
Total assets $25,564,579 $26,058,782
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
3
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SPORTS ENTERTAINMENT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) JUNE 30, DECEMBER 31,
2000 1999
----------- -----------
(Unaudited)
Current liabilities:
Current portion of long-term debt $13,104,813 $13,102,310
Current portion of obligations under
capital leases 122,557 165,144
Accounts payable and accrued expenses 3,458,285 2,464,068
----------- -----------
Total current liabilities 16,685,655 15,731,522
Note payable to shareholder 1,543,553 1,484,616
Due to affiliated stores 1,756,182 1,634,842
Long-term debt, net of current portion 542,442 570,527
Obligation under capital leases, net
of current portion 299,229 395,505
Deferred income 780,464 694,396
----------- -----------
Total liabilities 21,607,525 20,511,408
----------- -----------
Minority interest 5,000,000 5,000,000
----------- -----------
Shareholders' equity (deficit):
Series A Convertible Preferred stock, no par
value, 500,000,000 shares authorized; no
shares issued and outstanding for 2000
and 1999 - -
Common stock, no par value, 15,000,000
shares authorized, 8,135,097 shares
issued and outstanding at June 30, 2000
and December 31, 1999 6,107,700 6,107,700
Stock options issued 268,300 268,300
Accumulated deficit (7,418,946) (5,828,626)
----------- -----------
Total shareholders' equity (deficit) (1,042,946) 547,374
----------- -----------
Total liabilities and shareholders'
equity (deficit) $25,564,579 $26,058,782
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
4
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SPORTS ENTERTAINMENT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
2000 1999
----------- -----------
Revenues:
SportPark Las Vegas $ 1,037,180 $ 1,174,911
Retail operations 835,298 721,073
Callaway Golf Center[TM] 590,246 525,767
Other 12,816 6,250
----------- -----------
Total revenues 2,475,540 2,428,001
Cost of Revenues:
SportPark Las Vegas 213,439 362,676
Retail operations 579,146 613,605
Callaway Golf Center[TM] 74,121 98,323
----------- -----------
Total cost of revenues 866,706 1,074,604
----------- -----------
Gross profit 1,608,834 1,353,397
Operating expenses:
Selling, general and administrative 1,482,629 1,757,915
Depreciation and amortization 429,792 419,494
----------- -----------
Total Operating Expenses 1,912,421 2,177,409
----------- -----------
Operating loss (303,587) (824,012)
----------- -----------
Other income (expense):
Interest income (expense), net (406,963) (398,060)
----------- -----------
Loss before provision (benefit) for
income taxes (710,550) (1,222,072)
Provision (benefit) for income taxes - -
----------- -----------
Loss before minority interest (710,550) (1,222,072)
Minority interest in loss of subsidiary - 320,882
----------- -----------
Net loss $ (710,550) $ (901,190)
=========== ===========
NET LOSS PER SHARE:
Basic and Diluted:
Net loss per share $ (0.09) $ (0.11)
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
5
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SPORTS ENTERTAINMENT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
2000 1999
----------- -----------
Revenues:
SportPark Las Vegas $ 1,943,863 $ 2,130,648
Retail operations 1,454,992 1,251,542
Callaway Golf Center[TM] 1,236,592 1,008,770
Other 23,183 12,500
----------- -----------
Total revenues 4,658,630 4,403,460
Cost of Revenues:
SportPark Las Vegas 446,587 582,110
Retail operations 1,047,124 1,043,643
Callaway Golf Center[TM] 197,370 169,453
----------- -----------
Total cost of revenues 1,691,081 1,795,206
----------- -----------
Gross profit 2,967,549 2,608,254
Operating expenses:
Selling, general and administrative 2,986,531 3,241,215
Depreciation and amortization 868,899 829,787
----------- -----------
Total Operating Expenses 3,855,430 4,071,002
----------- -----------
Operating loss (887,881) (1,462,748)
----------- -----------
Other income (expense):
Interest income (expense), net (819,169) (767,905)
----------- -----------
Loss before provision (benefit) for income
taxes (1,707,050) (2,230,653)
Provision (benefit) for income taxes - (74,887)
----------- -----------
Loss before minority interest (1,707,050) (2,155,766)
Minority interest in loss of subsidiary 116,730 607,100
----------- -----------
Net loss $(1,590,320) $(1,548,666)
=========== ===========
NET LOSS PER SHARE:
Basic and Diluted:
Net loss per share $ (0.20) $ (0.19)
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
6
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SPORTS ENTERTAINMENT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
2000 1999
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,590,320) $(1,548,666)
Adjustment to reconcile net loss to net
cash provided by (used in) operating
activities:
Minority interest (116,730) (607,100)
Depreciation and amortization 868,899 1,017,566
Gain on sale of equipment (3,818) -
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (26,868) 385,215
(Increase) decrease in inventories (38,793) 3,781
(Increase) decrease in prepaid expenses
and other 1,072 (206,857)
Increase in accounts payable and accrued
expenses 994,217 251,664
Increase (decrease) in deferred income 86,068 (18,649)
----------- -----------
Net cash provided by (used in) operating
activities 173,727 (723,046)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Leasehold improvements expenditures (75,071) (540,525)
Proceeds from sale of equipment 35,964 -
----------- -----------
Net cash used in investing activities (39,107) (540,525)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in due to Affiliate Stores 63,174 155,898
Increase (decrease)in notes payable and notes
payable to shareholder and related entity 33,355 (462,543)
Principal payments on capital leases (66,782) (66,808)
----------- -----------
Net cash provided by (used in)
financing activities 29,747 (373,453)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 164,367 (1,637,024)
----------- -----------
CASH AND CASH EQUIVALENTS, Beginning of
period 200,501 2,584,900
----------- -----------
CASH AND CASH EQUIVALENTS, End of period 364,868 947,876
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 36,041 $ 677,923
=========== ===========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Equipment financed through notes and
capital leases $ - $ 39,847
=========== ===========
Common stock of subsidiary issued in
exchange for consulting services $ 116,730 $ -
=========== ===========
Capital lease obligation reduced in
connection with sale of equipment $ 72,081 $ -
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
7
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SPORTS ENTERTAINMENT ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements include the
accounts of Sports Entertainment Enterprises, Inc. ("SPEN") a Colorado
corporation, and its subsidiaries, All-American SportPark, Inc. ("AASP"), LVDG
Development Corporation ("Development") and LVDG Rainbow, Inc.
("Rainbow")(collectively, the "Company"). As of June 30, 2000, SPEN owns
63.5% of the outstanding common stock and one-third of the outstanding
convertible preferred stock of AASP, a publicly traded company. All
significant inter-company accounts and transactions have been eliminated.
The accompanying financial statements have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange
Commission relating to interim financial statements. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. In the opinion of management, all necessary adjustments
have been made to present fairly, in all material respects, the financial
position, results of operations and cash flows of the Company at June 30, 2000
and for all periods presented.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that may require revision in future periods.
Certain reclassifications have been made to amounts in the 1999
statements of operations to conform to the 2000 presentation.
These consolidated financial statements should be read in conjunction
with the Company's Annual Report on Form 10-KSB for the year ended December
31, 1999 and the Company's report on From 10-QSB for the quarter ended March
31, 2000.
The Company's current operations consist of one Company-owned retail
store in Las Vegas, Nevada and the management and operation of 65 acres of
sports entertainment located on the south end of the Las Vegas "Strip"
including the following: (1) The Callaway Golf Center located on 42 acres of
land that includes the Divine Nine par 3 golf course fully lighted for night
golf, a 110-tee two-tiered driving range which has been ranked the Number 2
golf practice facility in the United States since it opened in October 1997, a
20,000 square foot clubhouse which includes the St. Andrews Golf Shop,
Callaway Performance Center, Giant Golf teaching academy, and the Bistro 10
restaurant and bar. (2) The SportPark Las Vegas which is a family-oriented
sports-themed amusement venue named "All-American SportPark" ("SportPark" or
"SPLV"). The SportPark comprises 23 acres adjacent to the Callaway Golf
Center and opened for business on October 9, 1998. The SportPark's major
attractions includes NASCAR SpeedPark, Major League Baseball Slugger Stadium,
the 100,000 square foot Arena Pavilion which houses the Pepsi AllSport Arena,
"The Rock" 47-foot rock climbing wall, Namco Timeout Arcade, Indoor putting
challenge, Boston Garden restaurant and bar, Skybox suites and several other
interactive experiences and retail shops.
8
<PAGE>
2. SPORTPARK LAS VEGAS LOAN AGREEMENT
On September 15, 1998 the Company entered into a $13,500,000 loan
agreement with Nevada State Bank ("Lender"). The original term of the loan is
15 years with interest measured at a fixed rate of 4% above the Lender's
five-year LIBOR rate measured September 1, 1998, 2003 and 2008. The initial
interest rate through 2003 is 9.38%. The loan is secured by substantially all
the assets of the Company that existed at the time the financing was completed
as well as corporate guarantees of AASP and SPEN. The Callaway Golf Center
was not owned by AASP at the time this financing was completed and therefore
is not security for this loan. 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 and
CEO, its Chairman, and a related entity pledged their stock in SPEN to the
landlord. The landlord was also issued 75,000 stock options exercisable at
$4.00 per share through the year 2005. Additionally, the Chairman of the
Company pledged three parcels of land owned by him (the "Chairman's parcels")
as additional collateral to secure the loan. Provisions in the loan agreement
allowed for the reconveyance of these three parcels to the Chairman of the
Company upon the SportPark achieving certain debt service coverage milestones.
AASP has not been in compliance with certain debt covenants related to
this loan since September 1999. Also, because of cash constraints, AASP did
not make its September 1999 loan payment to the Lender and since then has not
made any loan payments. AASP has had discussions with the Lender in an
attempt to renegotiate the terms of the loan. As part of these discussions,
the Lender and AASP agreed that an amusement park industry consultant should
be retained to evaluate all operational aspects of the SportPark and provide
recommendations to improve the SportPark performance from revenue,
utilization, and cost standpoints. This consultant, Management Resources,
Inc. ("MRI") was hired in December 1999 and completed its assignment in
February 2000. The Lender hired a different industry consultant to review
MRI's recommendations. AASP met with the Lender's representative on March 21,
2000 to discuss the results of both consultant's reports and to present AASP's
proposal for a work-out plan. Since that meeting, the Lender had its
consultant update its analysis of MRI's report based on detailed information
provided to the Lender by AASP at the March 21 meeting. The Lender did not
accept the SportPark's plan as presented at the March 21 meeting.
AASP has been working diligently for some time with the objective to
either (1) sell the SportPark to a buyer that will assume, renegotiate, or
refinance the bank loan and provide for the full release of AASP and its
related parties from any further obligation on the loan, or (2) locate another
lender or partner to facilitate a refinancing of the bank loan. Since these
efforts were initiated, AASP has received two formal offers from independent
buyers to acquire the SportPark. Both offers were rejected because they were
not deemed to be in the best interest of the Company and its shareholders.
AASP is in active discussions with other prospective buyers to determine their
degree of interest and ability to consummate a possible transaction.
9
<PAGE>
The Lender has filed a notice of sale and foreclosure on the Chairman's
parcels with a sale date set for August 17, 2000. On August 3, 2000, the
Company met with the Lender's representative again to discuss final
negotiating points for a possible workout arrangement that would include
delaying the sale and foreclosure on the Chairman's parcels. The Lender is
aware of our efforts to sell or refinance the SportPark. AASP expects to
submit a final proposal to the Bank requesting sufficient time to consummate a
transaction that satisfies the Company's obligation to the Bank. Although
management of AASP is optimistic that a favorable resolution will be achieved
with regard to this Bank issue, there can be no assurance that the Company
will be successful in doing so. See also Note 8.
3. EARNINGS PER SHARE AND SHAREHOLDER'S EQUITY
Basic and diluted earnings per share are computed by dividing reported
earnings by the weighted average number of common shares outstanding during
the period. The weighted-average number of common and common equivalent shares
used in the calculation of basic and diluted earnings per share were 8,135,097
for the three and six month periods ended June 30, 2000 and 1999.
In January and February 2000, AASP issued an aggregate of 150,000 shares
of its common stock to a consultant and a person affiliated with the
consultant in exchange for business consulting services. The issuance of
these shares was valued at a forty percent discount from the closing market
price of AASP's common stock on or about the date that the shares were issued.
4. RELATED PARTY TRANSACTIONS
AASP has unsecured, ten percent notes payable to its Chairman of
$1,259,702 and $1,250,000 at June 30, 2000 and December 31, 1999,
respectively. Accrued interest payable of $283,851 and $234,616 at June 30,
2000 and December 31, 1999, respectively, is included in the balance due under
the caption "Note payable to Shareholder" in the accompanying consolidated
balance sheets.
AASP has unsecured, ten percent notes payable to the Paradise Store of
$264,967 and $230,000 as of June 30, 2000 and December 31, 1999, respectively.
The Paradise Store is a golf retail store owned 100% by the Company's
Chairman. Accrued interest payable of $48,577 and $62,712 at June 30, 2000 and
December 31, 1999, respectively, is included with the note payable balance
under the caption "Due to Affiliated Stores" in the accompanying consolidated
balance sheets.
The Company normally has extensive transactions and relationships with
its chairman and principal shareholder, a retail store owned by the Company's
chairman (the "Affiliated Store" or "Paradise Store") and AASP. The Paradise
Store operates in Las Vegas, Nevada. The Paradise Store and the Company's
Rainbow retail store benefit through volume purchasing together and shared
costs of local and national advertising conducted by the Paradise Store. The
Paradise Store and the Company owned store share advertising costs equally in
the Las Vegas market area. These advertising costs were $57,407 and $54,418
for the six months ended June 30, 2000 and 1999, respectively. Purchases of
merchandise from the Paradise Store are recorded at the Company's cost and
totaled $177,983 and $376,800 for the six months ended June 30, 2000 and 1999,
respectively.
10
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5. LEASEHOLD IMPROVEMENTS AND EQUIPMENT
Leasehold improvements and equipment include the following as of June 30,
2000 and December 31, 1999:
2000 1999
----------- -----------
Building $18,090,736 $18,049,814
Land Improvements 3,468,434 3,446,069
Furniture and equipment 2,196,148 2,184,835
Leased equipment 583,262 734,296
Signs 745,299 745,299
Go-Karts 457,115 457,115
Leasehold improvements 654,485 654,485
Other 97,662 98,704
----------- -----------
26,293,141 26,370,617
----------- -----------
Accumulated depreciation and
amortization (2,980,190) (2,179,577)
----------- -----------
$23,312,951 $24,191,040
=========== ===========
6. LEASES
The land underlying the SPLV and CGC is leased to AASP at a base amount
of $52,083 per month allocated $33,173 to CGC and $18,910 to SPLV. Also, the
lease has provisions for contingent rent to be paid by AASP upon reaching
certain gross revenue levels. The lease commenced October 1, 1997 for CGC and
February 1, 1998 for SPLV. The terms of both leases are 15 years with two
five-year renewal options.
Due to cash constraints, AASP negotiated an agreement with the landlord
to defer the land lease payments on both the SPLV and CGC beginning September
1999 with no specified ending date. Management of AASP believes that the
landlord is willing to defer land lease payments until such time as adequate
capital resources are available to AASP to make such payments.
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.
The Company leases retail space for the Company-owned store under a
non-cancelable operating lease agreement that was just recently extended for
another five years and expires on June 30, 2005. The lease provides for a
base monthly rental payment of $10,550. Under this lease, the base monthly
rental may increase based on increases in the consumer price index and taxes.
7. 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.
11
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The Company has a comprehensive general liability insurance policy to
cover possible claims for injury and damages from accidents and similar
activities. Although management of the Company believes that its insurance
levels are sufficient to cover all future claims, there is no assurance that
it will be sufficient to cover all 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 on the Company.
8. 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 condensed consolidated financial statements, for the six months
ended June 30, 2000, the Company had a net loss of $1,590,320 and has
experienced cash flow problems since September of 1999. For the year ended
December 31, 1999, the Company had a net loss of $3,491,526 and negative cash
flow from operations of $968,935. Additionally, as of June 30, 2000, the
Company had a working capital deficit of $15,126,686 and cash and cash
equivalents of $364,868. Approximately $14.2 million of this working capital
deficit relates to the note payable secured by a first deed of trust on the
SportPark that has been in default since September 1999. Because of AASP's
default on the note, accounting rules require that the full amount owing be
classified as current for financial reporting purposes. If this note payable
was not classified as current in its entirety, the working capital deficit as
of June 30, 2000 would be about $900,000. See Note 2 for further information
on the note payable in default.
Management believes that (1) negotiation of a reasonable work-out plan
with the Bank which may include the sale or refinancing of the SportPark, (2)
the successful execution of its business plan in the Year 2000 and beyond as
recommended by MRI, and (3) a working capital infusion to AASP of at least $1
million will be necessary to sufficiently fund operating cash needs and debt
service requirements over at least the next twelve months. If required to fund
corporate operations, management believes that additional borrowings against
the Callaway Golf Center could be arranged. Should additional financing to
fund operations be required, the Company will explore all funding options, as
necessary. There can be no assurance such lending sources would be willing,
on terms acceptable to the Company, to provide additional financing.
The consolidated financial statements do not include any adjustments
relating to the recoverability of assets and the classification of
liabilities, except the note payable referred to above, that might be
necessary should the Company be unable to continue as a going concern.
9. RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated statements of operations and of cash flows
for the three and six month periods ended June 30, 1999 have been restated to
present, in the proper 1999 quarter, audit adjustments that were made in the
fourth quarter of 1999. The impact of this restatement is as follows:
12
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THREE SIX
MONTHS MONTHS
ENDED ENDED
JUNE 30 JUNE 30
------- -------
Decrease in revenues from the SportPark $ (93,750) $(187,500)
Increase in interest expense (26,352) ( 52,704)
Increase in minority interest 5,801 48,297
--------- ---------
Increase in net loss $(114,301) $(191,907)
========= =========
Increase in net loss per share $ (.01) $ (.02)
========= =========
13
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following information should be read in conjunction with the
Company's consolidated financial statements and related footnotes included in
this report.
OVERVIEW
The Company's continuing operations consist of the retail location on
Rainbow Boulevard in Las Vegas, Nevada and the management and operation of 2
sports entertainment venues in Las Vegas, Nevada: The Callaway Golf Center
("CGC") and the All-American SportPark ("SportPark"). Results of operations
for the three and six months ended June 30, 2000 and 1999 include the results
of the Rainbow Store, CGC and the SportPark. The SportPark commenced
operations on October 9, 1998. The CGC commenced operations in October 1997,
AASP sold its 80% interest in it on May 5, 1998 and, AASP reacquired 100% of
the CGC on December 31, 1998.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 2000 AS COMPARED TO
THREE MONTHS ENDED JUNE 30, 1999
REVENUES. Revenues increased 1.9% to $2,475,540 in 2000 compared to
$2,428,001 in 1999. Revenue for the CGC increased 12.3% to $590,246 in 2000
compared to $525,767 in 1999 due to increased traffic flow and per capita
spending. Revenue for the Rainbow retail store increased 15.8% to $835,298 in
2000 compared to $721,073 in 1999 due to a 2.9% increase in customer traffic
and a 12.6% increase in per capita customer spending. Revenue for the
SportPark declined 11.7% to $1,037,180 in 2000 compared to $1,174,911 in 1999.
This decline is due mainly to lower attendance levels in 2000 compared to 1999
due to very little advertising by the SportPark in January and February 2000
because of cash constraints and fewer operating days in 2000 versus 1999.
Effective January 10, 2000, management of the Company made the decision to
close the SportPark to the general public Monday through Wednesday because the
revenue generated on these days was not covering variable expenses. As part
of this strategy, management reserved Monday through Wednesday for group sales
and special events. This decision by management was agreed to by the industry
consultant hired by the Company in December 1999 and is a key part of the
SportPark's plan going forward to capitalize on the higher margin group sales
market.
COST OF REVENUES. Cost of revenues decreased 19.3% to $866,706 in 2000
compared to $1,074,604 in 1999. Cost of revenues as a percentage of Revenues
was 35.0% in 2000 compared to 44.3% in 1999. This decrease is due mainly to
fewer operating days at the SportPark, lower staffing and payroll costs in
2000 at both the SportPark and CGC, and significantly higher gross margins at
the Rainbow retail store.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A). These expenses consist
principally of administrative payroll, rent, professional fees and other
corporate costs. These expenses decreased 15.7% to $1,482,629 in 2000 compared
to $1,757,915 in 1999. Corporate overhead decreased 22.7% in 2000 versus
1999. Retail store SG&A decreased 11.6% due to streamlined payroll. SG&A
costs for the CGC increased 7.7% due mainly to the 12.3% increase in CGC
revenue. SG&A for the SportPark decreased 24.0% due to reduced marketing
expenses, fewer operating days and streamlined payroll costs.
14
<PAGE>
DEPRECIATION AND AMORTIZATION. These costs increased to $429,792 in 2000
compared to $419,494 in 1999 reflecting the higher overall depreciable base of
fixed assets resulting from fixed asset additions throughout 1999 and in 2000.
NET INTEREST (EXPENSE) INCOME. Net interest expense increased 2.2% to
$406,963 in 2000 compared to $398,060 in 1999 due mainly to lower interest
income in 2000 compared to 1999 because of substantially lower cash balances.
INCOME TAXES. Due to operating losses, the Company has recorded no tax
provision nor has it recorded any tax benefits.
MINORITY INTEREST. Minority interest in loss of subsidiary was $0 in
2000 and $320,882 in 1999. This amount is generally calculated as
approximately one-third of AASP's net loss. Minority interest is recorded to
the extent that a liability exists on the Company's balance sheet unless
losses in excess of such liability are guaranteed by the minority owners which
is not the case for the Company.
NET LOSS. Net loss for 2000 of $710,550 represents a 21.2% decrease from
the net loss incurred in the comparable 1999 period of $901,190. The lower
net loss in 2000 is due to primarily to the reasons already described which
includes significant cost reductions at the SportPark property and in
corporate overhead. Comparing 2000 to 1999, the SportPark net loss decreased
27.2%; the retail operations recorded net income in 2000 of $84,466 compared
to a net loss in 1999 of $78,431; CGC recorded net income of 63,509 in 2000
compared to a net loss in 1999 of $7,032, and the decrease in 2000 compared to
1999 in the corporate overhead portion of the net loss was 15.4%.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2000 AS COMPARED TO SIX
MONTHS ENDED JUNE 30, 1999
REVENUES. Revenues increased 5.8% to $4,658,630 in 2000 compared to
$4,403,460 in 1999. Revenue for the CGC increased 22.6% to $1,236,592 in 2000
compared to $1,008,770 in 1999 due to increased traffic flow and per capita
spending. Revenue for the Rainbow retail store increased 16.3% to $1,454,992
in 2000 compared to $1,251,542 in 1999 due to a 5.4% increase in customer
traffic and a 10.3% increase in per capita customer spending. Revenue for the
SportPark declined 8.8% to $1,943,863 in 2000 compared to $2,130,648 in 1999.
This decline is due mainly to lower attendance levels in 2000 compared to 1999
due to very little advertising by the SportPark in January and February 2000
because of cash constraints and fewer operating days in 2000 versus 1999.
Effective January 10, 2000, management of the Company made the decision to
close the SportPark to the general public Monday through Wednesday because the
revenue generated on these days was not covering variable expenses. As part of
this strategy, management reserved Monday through Wednesday for group sales
and special events. This decision by management was agreed to by the industry
consultant hired by the Company in December 1999 and is a key part of the
SportPark's plan going forward to capitalize on the higher margin group sales
market.
COST OF REVENUES. Cost of revenues decreased 5.8% to $1,691,081 in 2000
compared to $1,795,206 in 1999. Cost of revenues as a percentage of Revenues
was 36.3% in 2000 compared to 40.8% in 1999. This decrease is due mainly to
fewer operating days at the SportPark and lower staffing and payroll costs in
2000 at both the SportPark and CGC, and significantly higher gross margins at
the Rainbow retail store.
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SELLING, GENERAL AND ADMINISTRATIVE (SG&A). These expenses consist
principally of administrative payroll, rent, professional fees and other
corporate costs. These expenses decreased 7.9% to $2,986,531 in 2000 compared
to $3,241,215 in 1999. Corporate overhead decreased 23.1% in 2000 versus
1999. Retail store SG&A increased 3.4%. SG&A costs for the CGC increased
21.8% due mainly to the 22.6% increase in CGC revenue. SG&A for the SportPark
decreased 16.6% due to reduced marketing expenses, fewer operating days and
streamlined payroll costs.
DEPRECIATION AND AMORTIZATION. These costs increased to $868,899 in 2000
compared to $829,787 in 1999 reflecting the higher overall depreciable base of
fixed assets resulting from fixed asset additions throughout 1999 and in 2000.
NET INTEREST (EXPENSE) INCOME. Net interest expense increased 6.7% to
$819,169 in 2000 compared to $767,905 in 1999 due mainly to lower interest
income in 2000 compared to 1999 because of substantially lower cash balances.
INCOME TAXES. Due to operating losses, the Company has recorded no tax
provision nor has it recorded any tax benefits.
MINORITY INTEREST. Minority interest in loss of subsidiary was $116,730
in 2000 and $607,100 in 1999. This amount is generally calculated as
approximately one-third of AASP's net loss. Minority interest is recorded to
the extent that a liability exists on the Company's balance sheet unless
losses in excess of such liability are guaranteed by the minority owners which
is not the case for the Company.
NET LOSS. Net loss for 2000 of $1,590,320 represents a 2.7% increase
from the net loss incurred in the comparable 1999 period of $1,548,666. The
marginally higher net loss in 2000 is due to primarily to the reasons already
described which includes significant cost reductions at the SportPark property
and in corporate overhead. Comparing 2000 to 1999, the SportPark net loss
decreased 10.4%; the retail operations recorded net income in 2000 of $48,299
compared to a net loss in 1999 of $133,230; CGC recorded a 74.7% increase in
net income of 143,080 in 2000 compared to a net income in 1999 of $81,889, and
the decrease in 2000 compared to 1999 in the corporate overhead portion of the
net loss was 7.8%.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company had negative working capital of
$15,126,686. This deficit in working capital is largely due to the SportPark
note payable that is in default (see discussion below). Since it is in
default, the entire balance of the note is classified as current for financial
reporting purposes. If this note was classified for financial reporting
purposes under its normal amortization schedule, the working capital deficit
at June 30, 2000 would be approximately $900,000.
On September 15, 1998, AASP entered into a $13,500,000 loan agreement
with Nevada State Bank ("Lender"). The original term of the loan is 15 years
with interest measured at a fixed rate of 4% above the Lender's five-year
LIBOR rate measured September 1, 1998, 2003 and 2008. The initial interest
rate through 2003 is 9.38%. Debt service for this loan approximates $140,000
per month. The loan is secured by substantially all the assets of AASP that
existed at the time the financing was completed as well as corporate
guarantees of AASP and the Company. The Callaway Golf Center was not owned by
AASP at the time this financing was completed and therefore is not security
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for this loan. 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, AASP's President and CEO, its Chairman, and a
related entity pledged their stock in SPEN to the landlord. The landlord was
also issued 75,000 stock options exercisable at $4.00 per share through the
year 2005. Additionally, the Chairman of AASP pledged three parcels of land
owned by him (the "Chairman's parcels") as additional collateral to secure the
loan. Provisions in the loan agreement allowed for the reconveyance of these
three parcels to the Chairman of AASP upon the SportPark achieving certain
debt service coverage milestones.
AASP has not been in compliance with certain debt covenants related to
this loan since September 1999. Also, because of cash constraints, the
Company did not make its September loan payment to the Lender and since then
has not made any loan payments. AASP has had discussions with the Lender in
an attempt to renegotiate the terms of the loan. As part of these
discussions, the Lender and AASP agreed that an amusement park industry
consultant should be retained to evaluate all operational aspects of the
SportPark and provide recommendations to improve the SportPark performance
from revenue, utilization, and cost standpoints. This consultant, Management
Resources, Inc. ("MRI") was hired in December 1999 and completed its
assignment in February 2000. The Lender hired a different industry consultant
to review MRI's recommendations. AASP met with the Lender's representative on
March 21, 2000 to discuss the results of both consultant's reports and to
present AASP's proposal for a work-out plan. Since that meeting, the Lender
had its consultant update its analysis of MRI's report based on detailed
information provided to the Lender by the Company at the March 21 meeting.
The Lender did not accept the SportPark's plan as presented at the March 21
meeting.
MRI's report includes detailed revenue and cost projections and a
detailed sales and marketing plan. This report suggests (1) refocusing on the
local individual customer base rather than individual tourists, (2) focusing
significant resources on group sales and special events, (3) adding new
products to supplement the performance of the Park during peak operating times
(weekends) to maximize revenue, and (4) simplifying and providing consistency
in the Park's ticketing programs. Management of AASP believes that the plans
included in this report provide the necessary focus and detailed goals and
action plans to substantially improve the SportPark's operating results in the
Year 2000 and beyond. Although AASP is confident it can eventually achieve
profitability and positive cash flow by successfully executing this plan,
there can be no assurance that the Company will be successful in doing so.
AASP has been working diligently for some time with the objective to
either (1) sell the SportPark to a buyer that will assume, renegotiate, or
refinance the bank loan and provide for the full release of AASP and its
related parties from any further obligation on the loan, or (2) locate another
lender or partner to facilitate a refinancing of the bank loan. Since these
efforts were initiated, AASP has received two formal offers from independent
buyers to acquire the SportPark. Both offers were rejected because they were
not deemed to be in the best interest of the Company and its shareholders.
AASP is in active discussions with other prospective buyers to determine their
degree of interest and ability to consummate a possible transaction.
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The Lender has filed a notice of sale and foreclosure on the Chairman's
parcels with a sale date set for August 17, 2000. On August 3, 2000, AASP met
with the Lender's representative again to discuss final negotiating points for
a possible work-out arrangement that would include delaying the sale and
foreclosure on the Chairman's parcels. The Lender is aware of AASP's efforts
to sell or refinance the SportPark. AASP expects to submit a final proposal
to the Bank requesting sufficient time to consummate a transaction that
satisfies AASP's obligation to the Bank. Although management of the Company
is optimistic that a favorable resolution will be achieved with regard to this
Bank issue, there can be no assurance that the Company will be successful in
doing so.
Also, management is continually evaluating new revenue opportunities that
provide a more broad and exciting customer experience as well as maximizing
the utilization of the Rainbow Store, SportPark and CGC. At the same time,
management has instituted aggressive cost containment strategies that began in
September 1999 and will continue until the Company is operating as efficiently
as possible. Also, since September 1999, the Company's President and AASP's
President have deferred half of their salaries until such time as the Company
and AASP have sufficient capital resources.
On December 31, 1998 AASP purchased substantially all the assets and
assumed certain liabilities of the Callaway Golf Center for $1,000,000
payable in quarterly installments of $25,000 for a 10 year period with no
interest. The Golf Center has generated positive cash flow in 2000 and 1999.
If required to fund corporate operations, management believes that additional
borrowings against the CGC could be arranged although there can be no
assurance that AASP would be successful in securing such financing, or at
terms acceptable to AASP.
The Company's Chairman through personal loans and through advances from
his personally owned retail store (one of the "Affiliated Stores") has
historically loaned funds to the Company as needed. Loans from the Company's
Chairman along with accrued interest payable were $1,543,553 and $1,484,616 at
June 30, 2000 and December 31, 1999, respectively. Loans from his personally
owned retail store along with accrued interest payable were $313,544 and
$292,712 at June 30, 2000 and December 31, 1999, respectively. The increases
relate to accrued interest payable on the balances outstanding. The loans are
due beginning in November 2000 and bear interest at ten percent per annum.
Accrued interest payable of $332,428 at June 30, 2000 has been deferred, a
practice which is expected to continue in 2000, if necessary.
There are no planned material capital expenditures in 2000.
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. Such amounts are typically earned over the term
of the contract with the applicable sponsor. Deferred income was $780,464 at
June 30, 2000 compared to $694,396 at December 31, 1999. A sponsorship fee of
$250,000 was received in the first quarter of 2000. It is anticipated, but
cannot be guaranteed, that sponsorship fees and advances will be a continued
source of cash flow in 2000.
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Operating Activities. Net cash provided by operating activities was
$173,727 for the six months ended June 30, 2000 compared to net cash used in
operating activities of $723,046 for the six months ended June 30, 1999. The
primary reason for the positive operating cash flow in 2000 versus negative
operating cash flow in 1999 relates to a larger increase in 2000 in accounts
payable and accrued expenses.
Investing Activities. Net cash used in investing activities was $39,107
and $540,525 for the six months ended June 30, 2000 and 1999, respectively.
The larger expenditures in 1999 are attributed to the SportPark being newly
opened (the SportPark opened in October 1998) and the refinements that were
being made to the facility at that time.
Financing Activities. Net cash provided by financing activities was
$29,747 for the six months ended June 30, 2000 compared to net cash used in
financing activities of $373,453 for the six months ended June 30, 1999. The
primary reason for this difference is due to AASP not paying the debt service
on the SportPark loan in 2000.
The Company's current and expected sources of working capital are its
cash balances that were $364,868 at June 30, 2000 and cash flow from
operations including sponsorship fees and advance deposits of various kinds.
Working capital needs have been helped by deferring payments to the Lender on
the SPLV, land lease payments to the landlord for both the SPLV and CGC, and
interest and notes payable balances due to the Company's Chairman and
Affiliated Store. Deferrals of payments to the Company's Chairman and
Affiliated Store and landlord are expected to continue until the Company has
sufficient cash flow to begin making payments.
The Company has raised considerable capital in the past 5 years for
development projects. The SportPark is now fully operational and well into its
second full year of operation. The Callaway Golf Center is generating
positive cash flow and its prospects are expected to become even more positive
as it moves into its third full year of operation. The Rainbow Store is now
generating positive cash flow, which is expected to continue. 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. Management believes that additional
borrowings against the CGC could be arranged to fund corporate operations.
However, there can be no assurance that any borrowings would be available or
at terms acceptable to the Company. Expansion programs in other locations are
not expected to take place until the Company resolves the issue with the
SportPark loan, achieves an appropriate level of profitability and positive
cash flow. If and when expansion does occur, such expansion is expected to be
funded primarily by third parties.
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Quarterly Report contains statements that are forward-looking such as
statements relating to plans for future expansion and other business
development activities, as well as other capital spending and financing
sources. Such forward-looking information involves important risks and
uncertainties that could significantly affect anticipated results in the
future and, accordingly, such results may differ from those expressed in any
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forward-looking statements made by or on behalf of the Company. These risks
and uncertainties include, but are not limited to, those relating to
development and construction activities, dependence on existing management,
leverage and debt service (including sensitivity to fluctuations in interest
rates), domestic or global economic conditions, changes in federal or state
tax laws or the administration of such laws, changes in regulations and
application for licenses and approvals under applicable jurisdictional laws
and regulations.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On March 22, 2000, D&R Builders, Inc., doing business as Breslin
Builders, filed a complaint in the District Court of Clark County, Nevada
against AASP and its landlord, seeking damages for breach of contract,
mechanics' lien foreclosure and unjust enrichment. The plaintiff contends
that it is entitled to $243,883 for work performed. The Company has not yet
filed an answer to this complaint. At June 30, 2000 and December 31, 1999,
AASP had accrued a liability for the amount claimed.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27 Financial Data Schedule Filed herewith electronically
(b) Reports on Form 8-K. None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPORTS ENTERTAINMENT ENTERPRISES, INC.
Dated: August 11, 2000 By:/s/ Voss Boreta
Voss Boreta, President and
Chief Executive Officer
By:/s/ Kirk Hartle
Kirk Hartle, Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT METHOD OF FILING
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27. FINANCIAL DATA SCHEDULE Filed herewith electronically
