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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended: December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from: _____ to ____
Commission File No. 0-17436
SPORTS ENTERTAINMENT ENTERPRISES, INC.
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(Name of Small Business Issuer in its Charter)
COLORADO 84-1034868
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(State or Other Jurisdiction of (I.R.S. Employer Identi-
Incorporation or Organization) fication No.)
6730 South Las Vegas Boulevard, Las Vegas, NV 89119
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(Address of Principal Executive Offices, Including Zip Code)
Issuer's Telephone Number: (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, $.001 PAR VALUE
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(Title of class)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 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 there is no disclosure of delinquent filers in response 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: $9,794,600
As of March 2, 2000, 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 $479,237.
Transitional Small Business Disclosure Format (check one): Yes __ No X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
BUSINESS DEVELOPMENT
Sports Entertainment Enterprises, Inc. (formerly Las Vegas Discount Golf
& Tennis, Inc.) (the "Company") as of December 31, 1999 (1) owns and operates
one retail golf store in Las Vegas, Nevada; and (2) owns two-thirds of the
outstanding shares of common stock and one-third of the Convertible Preferred
Stock of All-American SportPark, Inc. ("AASP"), a publicly traded company.
The Company's ownership position in AASP represents the Company's largest
asset and the financial results of AASP have a significant impact on the
Company's consolidated financial statements included in this Form 10-KSB.
Although this report contains much disclosure about AASP and its business,
readers should keep in mind that AASP operates as a separate company with its
own management. For further information on AASP, please see AASP's Form
10-KSB.
The Company's business began in 1974 when Vaso Boreta, the President and
Chairman of the Board of the Company, opened a "Las Vegas Discount Golf &
Tennis" retail store in Las Vegas, Nevada. This store, which is still owned
by Mr. Boreta, subsequently began distributing catalogs and developing a mail
order business for the sale, principally of golf, and, to a lesser extent,
tennis products. In 1984, the Company began to franchise the "Las Vegas
Discount Golf & Tennis" retail store concept and commenced the sale of
franchises. As of February 26, 1997, when the franchise business was sold,
the Company had 43 franchised stores in operation in 17 states and 2 foreign
countries.
Beginning in late 1989, the Company began to implement its business
strategy of promoting retail sales at franchised stores rather than through
mail order, and mail order sales declined. In July, 1990, the Company
discontinued all direct mail order sales.
In 1990, the Company opened its first company-owned store in Las Vegas,
which served as a showcase and training center for franchisees. In 1993, the
Company opened a second store in the Los Angeles, California area, and during
1995 the Company opened a store in the Westwood area of Los Angeles and a
store in Encino, California.
In addition to its ownership of AASP, the Company also has a wholly-owned
subsidiary, Las Vegas Discount Golf & Tennis Rainbow, Inc., which operates the
company-owned store in Las Vegas, Nevada. Unless the context indicates
otherwise, all references to the Company includes the business of Sports
Entertainment Enterprises, Inc. and these wholly owned subsidiaries from the
dates of their organization.
The AASP subsidiary operated the business of franchising "Las Vegas
Discount Golf & Tennis" stores and has developed a concept for and has
currently constructed a sports-oriented theme park, as described below. AASP
was a wholly owned subsidiary of the Company until December 1994 when AASP
completed an initial public offering of its securities. The net proceeds to
AASP from this public offering were approximately $3,686,000.
On December 16, 1996, the Company and All-American SportPark, Inc.
("AASP") entered into negotiations pursuant to an "Agreement for the Purchase
and Sale of Assets" to dispose of all but one of the Company-owned retail
stores, all wholesale operations and the entire franchising business of AASP.
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On February 26, 1997, the Company and AASP completed this transaction,
and as a result the Company's operations, assets and liabilities now consist
of one retail store and, through its ownership of AASP, the development and
operation of "All-American SportParks." See "BUSINESS OF THE COMPANY."
In connection with the sale of the above-described assets, SPEN and AASP
agreed not to compete with the Buyer in the golf equipment business except
that the Company is permitted to sell golf equipment at its All-American
SportPark business and driving range facilities which it may operate. In
addition, the Buyer granted Boreta Enterprises, Ltd., a limited partnership
owned by Vaso Boreta, the President of SPEN, Ron Boreta, the President of the
Company, and John Boreta, a principal shareholder of SPEN, the right to
operate "Las Vegas Discount Golf & Tennis" stores in southern Nevada, except
for the Summerlin area of Las Vegas, Nevada.
AASP is a Nevada corporation that was incorporated on March 6, 1984,
under the name "Sporting Life, Inc." The Company's name was changed to "St.
Andrews Golf Corporation" on December 27, 1988, to "Saint Andrews Golf
Corporation" on August 12, 1994, and to All-American SportPark, Inc. on
December 14, 1998. Saint Andrews Golf Corporation changed its name to
All-American SportPark, Inc. to more accurately reflect its main line of
business activity.
AASP was acquired by the Company in February 1988, from Vaso Boreta, who
was its sole shareholder. As of December 31, 1999, Vaso Boreta owns 22.6% of
the outstanding common stock of the Company, and serves as its Chairman of the
Board, President and CEO. He also serves as the Chairman of the Board of
AASP. As of December 31, 1999, the Company owned 2,000,000 shares of AASP's
common stock, which represented approximately two-thirds of the AASP's common
stock outstanding. In October 1998, the Company purchased 250,000 shares of
Series B Convertible Preferred Stock of AASP which represents one-third of
AASP's outstanding preferred stock.
On July 12, 1996, AASP entered into a lease agreement covering
approximately 65 acres of land in Las Vegas, Nevada, on which AASP has
developed its first All-American SportPark. The property is located on the
world famous Las Vegas "Strip" at the corner of Las Vegas Boulevard and Sunset
Road which is just south of McCarran International Airport and several of Las
Vegas' major hotel/casino properties such as Mandalay Bay and the MGM Grand.
The property is also adjacent to the new Interstate 215 beltway that will
completely encircle the Las Vegas Valley. On 42 acres of the property is the
Callaway Golf Center that opened for business in October 1997. The remaining
23 acres is home to the All-American SportPark (also known as SportPark Las
Vegas, "SPLV") which opened for business in October 1998. See "BUSINESS OF
THE COMPANY".
On June 20, 1997, the lessor of the 65 acre tract agreed with AASP to
cancel the original lease and replace it with two separate leases: one lease
for the Callaway Golf Center and the second lease for the All-American
SportPark. Both leases are fifteen-year leases with options to extend for two
additional five-year terms. The lease for the Callaway Golf Center[TM]
commenced on October 1, 1997 when the golf center opened and has a base rent
of $33,173 per month. The other lease commenced on February 1, 1998 and has a
base rent of $18,910 per month.
During June 1997 AASP and Callaway Golf Company formed All-American Golf
LLC, a California limited liability company which was owned 80% by AASP and
20% by Callaway Golf Company, and which owned and operated the Callaway Golf
Center. In May 1998, AASP sold its 80% interest in All-American Golf LLC to
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Callaway Golf Company. (See "BUSINESS OF THE COMPANY"). On December 31, 1998
AASP acquired substantially all the assets subject to certain liabilities of
All-American Golf, LLC which resulted in AASP owning 100% of the Callaway Golf
Center.
On October 19, 1998 AASP sold 250,000 shares of the Series B Convertible
Preferred Stock to SPEN for $2,500,000. SPEN had earlier 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 stock options for SPEN
Common Stock 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, a professional tennis player, and Sunbelt Communications Company that
is engaged in the broadcasting business including the NBC affiliate in Las
Vegas.
BUSINESS OF THE COMPANY
RETAIL STORE
The Company currently owns and operates a "Las Vegas Discount Golf &
Tennis" retail store located at 2200 Rainbow Boulevard South in Las Vegas,
Nevada. The products available in the Company's Las Vegas retail store
consist of a wide variety of golf and tennis equipment. These products are
generally offered at a discount from prices found in golf and tennis pro
shops, sporting goods stores and other non-discount retail stores.
Golf merchandise includes golf apparel, clubs, shoes, balls, bags and a
range of accessories including caps, tees and golf instruction videotapes.
The merchandise is sold under nationally known name brands and equipment such
as St. Andrews, Callaway, Spalding, Wilson, Mac Gregor, Titleist, Taylor Made,
Ping, Dunlop, Yamaha, and others.
Tennis merchandise includes a selection of tennis equipment such as
tennis rackets, apparel, balls, shoes and other miscellaneous items. Name
brands include Wilson, Prince, Dunlop, Kennex, Head, Yamaha, Adidas, Fila and
others.
The Company's retail business is seasonal, with the heaviest sales during
March, April and May, when outdoor spring activities commence, and in November
and December because of holiday gift purchases.
PURCHASING OF MERCHANDISE AND INVENTORY
Merchandise is obtained from numerous manufacturers, based on purchase
orders for specific products and quantities. The Company does not have any
long term supply agreements although certain suppliers require minimum
purchase commitments. In addition, the Company does not believe it is
dependent on any one supplier and that there are alternate sources available.
Although the Company has not experienced the inability to obtain desired
goods as a result of its discount retail practice, certain manufacturers of
name brand products do prohibit the Company from advertising their products at
a discounted price. There is no assurance that name brand manufacturers will
supply the Company with merchandise as needed. The Company believes it is
important to continue to offer name brands for certain items.
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ALL-AMERICAN SPORTPARK
AASP has developed a concept for family-oriented sports-themed amusement
parks named "All-American SportPark". The All-American SportPark is a
live-action, 65-acre, sports and entertainment venue located at the south end
of the world famous Las Vegas "Strip" at the corner of Las Vegas Boulevard and
Sunset Road. The SportPark is strategically positioned within a few miles of
the largest hotels and casinos in the world. There are over 125,000 hotel
rooms in Las Vegas, and seven of the top ten largest hotels in the world are
within a few miles from the SportPark including the MGM Grand, Mandalay Bay,
Luxor, Bellagio, and the Monte Carlo to name a few. The SportPark is also
adjacent to McCarran International Airport that services nearly 35 million
visitors annually. The local residential population approximates 1.3 million.
The All-American SportPark is comprised of two primary businesses: The
All-American SportPark (also known as SportPark Las Vegas, "SPLV"), and the
Callaway Golf Center ("CGC").
The All-American SportPark ("AASP" or "SPLV") opened for business on
October 9, 1998 and operates on 23 acres of land. Key attractions and
alliances are as follows:
NASCAR SPEEDPARK. AASP has a license agreement with The National
Association of Stock Car Auto Racing, Inc. ("NASCAR") for the operation of
SpeedParks as a part of the All-American SportPark or as a stand-alone NASCAR
SpeedPark. The agreement, as amended, provides that 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 through December 31,
2003.
As consideration for the license, AASP paid an initial fee of $25,000 and
is required to pay a fee of $25,000 for each new SpeedPark opened after the
first SpeedPark. In addition, AASP has agreed to pay NASCAR a royalty based on
each SpeedPark's gross revenue from racing activities plus a royalty on
revenues received from sponsors and promoters of SpeedPark activities. As of
December 31, 1999, AASP is current in its required payments to NASCAR.
The SpeedPark includes three unique tracks to accommodate three styles of
racing: (1) the family Challenge track, (2) the adult Performance track and,
(3) the Sprint junior track. The Challenge track is a 1,200 linear foot
reversible road course for nine-horsepower go-karts designed for families and
children 10 and up; the Performance track is a 2,200 linear foot road course
for twenty-horsepower NASCAR-style go-karts designed for youths and adults 16
years and older; the Sprint track is a 500 linear foot figure eight track for
adults and smaller children. The SpeedParks are comprised generally of the
NASCAR Go-Kart SpeedPark, the Garage Experience, the Winner's Circle, the
Infield RV Park, Victory Lane, the NASCAR Jr. Track, the Tailgater's Dining
Circle and the NASCAR Retail Trackside Trailer Merchandising Experience.
Scale model, near emissions-free, gas-powered, stock cars complete with
sponsorship graphics and signage compete on the three tracks. The cars are
various scale versions of NASCAR replicas each designed and engineered to fit
each of the three tracks.
Jeff Gordon, Inc. In May 1996, AASP entered into an agreement with Jeff
Gordon, the 1997 and 1998 NASCAR Winston Cup Champion, 1998 and 1999 Daytona
500 Champion, 1997 Coca-Cola 600 Champion, 1995 Winston Cup Champion and
former NASCAR Winston Cup Rookie of the year, to serve as spokesperson of the
NASCAR SpeedPark through April 30, 2000. According to the original agreement,
Mr. Gordon was paid $25,000 for his services during 1996, and is to be paid
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$25,000 per SpeedPark opening per year with a minimum guarantee over the life
of the agreement. Mr. Gordon was also granted options under the AASP's stock
option plan. On November 20, 1997, the agreement with Mr. Gordon was amended
to, among other things, reduce the amount of services to be provided by him,
to make his services non-exclusive to AASP, to limit his services to the AASP
in Las Vegas and to set his base fee at $25,000 per year. As of December 31,
1999, AASP is current in its payments to Jeff Gordon, Inc. AASP is currently
evaluating its extension options under this agreement.
MAJOR LEAGUE BASEBALL SLUGGER STADIUM. The Slugger Stadium is a full
size replica of a major league ballpark for batting and baseball training.
AASP has been granted a license from Major League Baseball Properties to own
and operate Major League Baseball Slugger Stadiums. Under the license
agreement, AASP also has the right to utilize certain Major League Baseball
trademarks including those of the All Star Game, Division Series, League
Championship Series and World Series. Slugger Stadium is a nostalgic
formatted open-air batting stadium that attempts to duplicate a major league
experience for its patrons. Unlike batting cages that are the normal industry
standard, AASP's design is a full size stadium that replicates many of the
features of a modern baseball stadium. There are 16 batter boxes and 16
on-deck circles. Batters have the option of hitting hard or softballs
delivered at five different speeds. Outfield wall replicas of Fenway Park's
"Green Monster", Baltimore's Oriole Park at Camden Yards, Chicago's Wrigley
Field, Yankee Stadium, and The Ball Park in Arlington, Texas are designed to
challenge batters to hit the balls out of the park. Completing the Major
League experience is authentic turnstiles, classic ballpark food and beverage
concessions, and baseball memorabilia. In the advanced planning stage are an
electronic scoreboard and specially designed sound systems that provide
typical baseball sounds including proprietary designed umpire calls of balls
and strikes.
In December 1994, AASP entered into an agreement with Major League
Baseball ("MLB") concerning a license for the use of MLB logos, marks and
mascots in the decor, advertising and promotions of AASP's Slugger Stadium
concept. This agreement was amended during August 1997. Pursuant to the
amended agreement, AASP holds the exclusive right to identify its indoor and
outdoor baseball batting stadiums as Major League Baseball Slugger Stadiums.
The license covers the United States and expires on November 30, 2000, subject
to the right to extend for three additional years provided certain conditions
are met. As consideration for the license, AASP agreed to pay $50,000 for each
Stadium opened provided that in any year of the term of the agreement a
stadium is not opened, AASP must pay $50,000 during such year. In addition to
and as an offset against the minimum payments set out above, AASP is required
to pay to MLB a royalty based on the gross revenue derived from Slugger
Stadium. AASP has made the payments required for 1995, 1996 and 1997. As of
December 31, 1999, AASP owes MLB approximately $78,000 for 1998 and a portion
of the 1999 required payments. A payment arrangement has been established with
MLB. AASP expects to meet with MLB in the second quarter of 2000 to
renegotiate its licensing agreement.
ALL-AMERICAN SPORTPARK PAVILION. The 100,000 square foot Pavilion
Building includes a multi-purpose sports arena (the "Pepsi Allsport Arena"),
specialty retail areas, food courts, meeting rooms, special events space and
leased tenant facilities for food and beverage service and other Company and
tenant operated sports activities including the "Boston Garden Experience"
Restaurant & Bar, Augusta National Putting Experience, Namco's Time Out Arcade,
"The Rock" Sport Climbing Wall, and All-American SportPark Logo Shop.
Other attractions are planned including the RealRide SkatePark and Retail Shop
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scheduled opening March 17, 2000. The SkatePark will feature the B3 Street
Course ramps used in the ESPN X-Games.
PEPSI ALLSPORT ARENA. At the epicenter of the Pavilion building is the
25,000 square foot Allsport Arena which can be customized from in-line to
traditional skating, league play for a variety of sports, an artificial turf
indoor playing field, concerts, boxing matches, expos, seminars, cultural and
civic events, and large group functions. The Allsport Arena has played host
to indoor professional beach volleyball tournaments, professional roller
hockey exhibition games, basketball tournaments, tennis matches, ESPN2 Friday
Night Fights, annual super bowl parties, large group events featuring top
entertainers, corporate rallies, music and entertainment events. It includes
a giant 32 foot video display, state of the art audio, video, and lighting
system, and movable seating which is adaptable for 1,500 to 3,000 people to
view an event. When the arena is not in use for a scheduled event, it
accommodates the core business use for in-line skaters who are able to skate
to an entertaining multimedia light and sound performance.
Beginning March 17, 2000, the Allsport Arena will be the site of the
RealRide SkatePark featuring the ESPN X-Games B3 Street Course. The Skatepark
will be the core business in the Arena when not being used for a scheduled
event. RealRide SkatePark is a tenant that will be required to pay the Company
percentage rent at escalating rates depending on gross sales levels. In
addition to operating the SkatePark, RealRide will also be operating a retail
store inside the SportPark Pavilion building. RealRide is responsible for all
capital improvements for all facilities it uses and is required to carry
appropriate levels of insurance for its operations. Plans are for RealRide
SkatePark, at its sole expense, to construct a permanent outdoor skatepark on
the exterior of the SportPark property by Summer 2000.
SPONSORSHIP AGREEMENT WITH PEPSI-COLA COMPANY
In December 1997, AASP 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 SportPark.
The agreement with Pepsi provides that AASP 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
SportPark and Pepsi.
In consideration for the above rights, Pepsi agreed to pay AASP a fixed
payment when any portion of the SportPark was officially opened; an additional
payment when the SportPark was 100% completed and all attractions were
accessible by the public; and make additional comparable payments on an annual
basis for the remaining term of the agreement such that five total payments
are received. The sponsorship agreement terminates in October 2003, unless
earlier terminated as provided in the agreement. Pepsi is current in its
payments per the terms of the agreement.
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AGREEMENT WITH SPORTSERVICE CORPORATION
In September 1997, AASP entered into a lease and concession agreement
with Sportservice Corporation ("Sportservice") which provides that
Sportservice has the exclusive right to prepare and sell all food, beverages
(alcoholic and non-alcoholic), candy and other refreshments throughout the All
American SportPark, including the Callaway Golf Center , during the ten year
term of the agreement. Sportservice has agreed to pay rent based on a
percentage of gross sales depending upon the level of sales, whether the
receipts are from concession 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. Other
Delaware North Companies include the Fleet Center in Boston, and food service
clients which include the Ballpark in Arlington, Texas, California Speedway,
Miller Park in Milwaukee, Space Port USA at Kennedy Space Center and Yosemite
National Park.
The agreement also provides Sportservice with a right of first refusal
for future parks to be built by AASP 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. AASP is awaiting
documentation from Sportservice to determine additional monies due, if any.
CALLAWAY GOLF CENTER . In June 1997, AASP completed a final agreement
with Callaway Golf Company ("Callaway Golf") to form a limited liability
company named All American Golf LLC (the "LLC") for the purpose of operating a
golf facility, to be called the "Callaway Golf Center[TM]," on approximately
forty-two (42) acres of land which is inside the All-American SportPark
located on approximately sixty-five (65) acres adjacent to Las Vegas Boulevard
in Las Vegas. The Callaway Golf Center[TM] opened to the public on October 1,
1997.
The Callaway Golf Center[TM] includes a 110-tee driving range in a
two-tiered format. The driving range is designed to have the appearance of an
actual golf course with ten impact greens and a 1-1/2 acre lake with cascading
waterfalls and an island green. Pro-line equipment and popular brand name
golf balls are utilized. In addition, the golf center includes a lighted nine
hole, par three golf course named the "Divine Nine". The golf course has been
designed to be challenging, and has several water features including lakes,
creeks, water rapids and waterfalls, golf cart paths and designated practice
putting and chipping areas. At the entrance to the golf center is a 20,000
square foot clubhouse which includes an advanced state of the art golf swing
analyzing system, the St. Andrews Golf Shop featuring the latest in Callaway
Golf equipment and accessories, a restaurant and bar, and an outdoor patio
overlooking the golf course and driving range with the Las Vegas "Strip" in
the background.
The LLC was originally owned 80% by AASP and 20% by Callaway Golf.
Callaway Golf agreed to contribute $750,000 of equity capital and loan the LLC
$5,250,000. AASP contributed the value of expenses incurred by AASP relating
to the design and construction of the golf center and cash in the combined
amount of $3,000,000. Callaway Golf's loan to the LLC had a ten year term
with interest at ten percent per annum. The principal was due in 60 equal
monthly payments commencing five years after the golf center opened.
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The LLC had executed a license agreement with Callaway Golf pursuant to
which the LLC licenses the right to use the mark "Callaway Golf Center" from
Callaway Golf for an annual royalty not to exceed $50,000. Pursuant to this
agreement, Callaway Golf had the right to terminate the agreement at any time
without cause on ninety days prior written notice and with payment of
$500,000.
As a result of the sale of its interest in the LLC, on May 5, 1998, AASP
had no ownership of or involvement with the Callaway Golf Center[TM] until the
end of 1998 (as described in the following paragraph), and the Callaway Golf
Center[TM] was operated separately from the Sport Park Las Vegas. However,
AASP had the option to repurchase the 80% membership interest for a period of
two years on essentially the same financial terms that it sold its interest.
This transaction was completed in order to improve AASP's financial condition
which in turn improved the AASP's ability to complete the financing needed for
the final construction stage of the SportPark Las Vegas and for the business
activities going forward.
On December 31, 1998 AASP acquired substantially all the assets subject
to certain liabilities of All-American LLC 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
$1,000,000 in the form of a $1,000,000 promissory note payable in quarterly
installments of $25,000 over a 10-year period without interest. In turn,
Active Media delivered a trade credit of $4,000,000 to Callaway Golf.
LIABILITY INSURANCE
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 it
will be sufficient to cover all future claims.
MARKETING
The marketing programs in place for the CGC and the SPLV are separate and
distinct. The CGC is focused primarily on the local individual customers with
some emphasis on the individual tourist market because of the facility's
proximity to most of the major resorts in Las Vegas. The CGC focuses its
marketing efforts principally on print media that has proven to be effective.
The CGC, which includes the nine-hole par 3 golf course, driving range,
and clubhouse, is designed as a country club atmosphere for the general
public. This concept may be expanded into various hotel and resort areas
throughout the United States and overseas and can also be included in the
SportPark opportunities described below or as a stand alone business.
For the SPLV, differences in the marketing plan for the year 2000
compared to the 1999 plan are (1) marketing efforts will be focused on the
resident individual consumers rather than individual tourist, except where it
supports group sales and, (2) a major focus will be on group sales. In 1999,
more emphasis was placed on attracting individual tourists that did not prove
effective. A trend began developing in the latter half of 1999 that indicated
increasing demand for group and special events at the SPLV. After thorough
analysis by AASP management and Management Resources, Inc., an industry
consultant hired by the Company in December 1999, the Company determined that
it was necessary to close the SPLV to the general public during the slower and
less profitable weekdays and reserve such days for group and special events.
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Effective January 10, 2000, the SPLV closed to the general public Monday
through Wednesday, reserving these days for group sale and special event
business. Groups generally have the ability and interest in having their
events primarily on weekdays whereas the general public did not historically
visit the SPLV at the attendance levels necessary to support opening to the
general public. The SPLV marketing and sales team has been staffed with
experienced professionals in distinct market segments to capitalize on this
opportunity. Additionally, AASP has plans for new attractions and changes in
product mix to enhance efforts to entice more local resident consumers on
normal operating days as well as enhancing the experience for group sale and
special event customers.
Major League Baseball Slugger Stadium is the "Official Batting Stadium of
Major League Baseball". The unique baseball stadium concept is expected to be
expanded to other locations in the United States and overseas using the
prototype installation at the SPLV as a demonstration facility. Considerable
market research by management has indicated a large potential market for
Slugger Stadium. Possible locations include new gated sites inside major
theme parks, attachments to regional and value oriented shopping malls, inside
new sports stadium and Major League Ballpark complexes which are either in the
planning and design phase or currently under construction and other
All-American SportParks or as stand alone sites. Target consumers include the
family, adults, softball players and all youth baseball organizations.
NASCAR SpeedPark is "The Official Go-Kart Racing Facility Licensed by
NASCAR". Management plans to develop the concept to include installations
alongside Super speedways, NASCAR Team Race/Shops Racing Retail &
Entertainment Centers, stand alone facilities and as a separate gated
attraction inside major theme parks throughout the United States.
The All-American SportPark Pavilion area of the project can be recreated
as a stand alone development in a downtown urban setting alongside new arenas,
shopping malls, and football/baseball stadiums.
The Company's marketing efforts are directed towards a number of large
existing and potential markets for which there can be no assurance of
financial success. Further, to expand the concepts beyond the first location
in Las Vegas could require considerably more financial resources than the
Company presently has and more management and human resources than presently
exists at the Company.
COMPETITION
RETAIL STORE. The Company's Las Vegas retail store competes with general
sporting goods stores, other discount golf and tennis stores such as the
Nevada Bob's and Pro Golf Discount franchise stores, discount department
stores such as K-Mart, catalog stores and other retailers. The Company
believes that the greatest competition to its retail store comes from the
other discount golf and tennis stores, the number of which has grown in recent
years.
The Company also competes with entities engaged in the sale of similar
merchandise by telephone and mail order sales. The largest telephone and mail
order competitor that advertises through catalogs is much larger and has
greater financial resources than does the Company. Major competitors that
advertise through national magazine advertisements are Nevada Bob's Discount
Golf & Tennis and Edwin Watts.
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Principal competitive factors faced by the Company in the sale of
merchandise generally are price, quality, personal service, merchandise,
convenience, and customer loyalty. The Company believes that the prices of
the merchandise it offers are generally below those offered by non-discount
retail outlets.
SPORTPARKS. Any SportParks built by the Company will compete with any
other family/sports attractions in the city where the SportPark is located.
Such attractions could include amusement parks, driving ranges, water parks,
and any other type of family or sports entertainment. The Company will be
relying on the combination of active user participation in the sports
activities and uniqueness of the Park features, attractive designs, and
competitive pricing to encourage visitors and patrons.
In the Las Vegas market, the Company has competition from other golf
courses, theme parks, family entertainment centers, and hotel/casinos.
Company management believes it has a competitive advantage in the Las Vegas
market because of its strategic location, product branding, alliances, and
product mix which is unlike any competitor in the market. Also, with a new
focused marketing and sales strategy, the Company believes its aggressive
approach will further its goal of becoming the top family sports entertainment
venue in Las Vegas.
TRADE NAMES AND TRADEMARKS
The Company has filed an "intent to use" trademark application for
"All-American SportPark" and a related design and "Slugger Stadium." The
Company intends to maintain the integrity of the trademarks, other proprietary
names and marks against unauthorized use.
EMPLOYEES
As of March 2, 2000, there were 10 full time employees at the Company's
executive offices, 36 at CGC, and 57 at SPLV. There were also 46 part-time
employees at the SPLV. The Rainbow Store had 7 employees.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's corporate offices are located inside the clubhouse building
of the Company's Callaway Golf Center property at 6730 South Las Vegas
Boulevard, Las Vegas, Nevada 89119. The Company's other principal asset, the
SportPark Las Vegas is located adjacent to the CGC at 121 East Sunset Road.
The two properties occupy approximately 65 acres of leased land described in
"ITEM 1. DESCRIPTION OF BUSINESS BUSINESS DEVELOPMENT." The CGC was opened
October 1, 1997 and the SPLV was opened October 9, 1998. Both properties are
in good condition both structurally and in appearance. The CGC is owned 100%
by AASP through a wholly-owned subsidiary, All-American Golf Center, Inc. The
SPLV is owned 100% by AASP through a wholly-owned subsidiary, SportPark Las
Vegas, Inc.
A ten-year note payable secured by a first deed of trust exists on the
CGC in the original amount of $1 million payable without interest, in
quarterly installments of $25,000 beginning December 1998. A fifteen-year
note payable secured by a first deed of trust exists on the SPLV in the
original amount of $13.5 million with interest at 4% above the Bank's
five-year LIBOR rate (9.38% at December 31, 1999) payable in monthly
installments of approximately $140,000 beginning November 1998. This note is
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currently in default. (See "ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS").
ITEM 3. LEGAL PROCEEDINGS.
Except for the matters described in the following paragraphs, the Company
is not presently a party to any legal proceedings, except for routine
litigation that is incidental to the Company's business.
On December 28, 1998 Sorensen Construction, Inc. filed a complaint in the
District Court of Clark County, Nevada against All-American SportPark LLC
seeking damages in the amount of $104,514. Sorensen claims that it provided
steel and labor to the All-American SportPark pursuant to a contract but was
not paid. The complaint alleged breach of contract, unjust enrichment,
declaratory relief, and interest and attorneys fees. No discovery has been
conducted and a trial has not been set. Management intends to vigorously
defend the case.
On October 14, 1999, Joel Rubenstein, Oracle One Partners, Inc., and Hal
Price, doing business as Mach One Marketing Group, filed a complaint against
AASP in the U.S. District Court of the District of Nevada, seeking
compensatory damages in the amount of $333,333, as well as an accounting and
other relief based on an alleged breach of an agreement to develop sponsors
for the SPLV. This case is in the discovery stage.
On December 22, 1999, Nevada State Bank recorded a formal notice of
default with respect to indebtedness alleged to be in default. The bank
asserts an unpaid principal balance of $13,049,922 plus late charges, interest
and expenses. See ITEM 6 "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES" for a
discussion of the negotiations with Nevada State Bank.
On March 22, 2000, D&R Builders, Inc., doing business as Breslin
Builders, filed a complaint against the Company 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. AASP has not yet
filed an answer to this complaint. At December 31, 1999, AASP had accrued a
liability for the amount claimed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION. The Company's Common Stock is traded in the
over-the-counter market and is presently quoted on the OTC Bulletin Board
under the symbol "SPEN." The following table sets forth the closing high and
low sales prices of the Common Stock for the periods indicated.
HIGH LOW
----------------------------- ------- -------
Year Ended December 31, 1999:
First Quarter $1.000 $0.469
Second Quarter $0.938 $0.313
Third Quarter $0.688 $0.250
Fourth Quarter $0.313 $0.125
Year Ended December 31, 1998:
First Quarter $3.500 $0.688
Second Quarter $2.500 $1.000
Third Quarter $1.188 $0.656
Fourth Quarter $1.250 $0.469
HOLDERS. The number of holders of record of the Company's no par value
common stock at March 2, 2000, was approximately 985. This does not include
approximately 1,500 shareholders that hold stock in their accounts at
broker/dealers.
DIVIDENDS. Holders of common stock are entitled to receive such
dividends as may be declared by the Company's Board of Directors. No
dividends have been paid with respect to the Company's common stock and no
dividends are anticipated to be paid in the foreseeable future. It is the
present policy of the Board of Directors to retain all earnings to provide for
the growth of the Company. Payment of cash dividends in the future will
depend, among other things, upon the Company's future earnings, requirements
for capital improvements and financial condition.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following information should be read in conjunction with the
Company's Consolidated Financial Statements and the Notes thereto included in
this report.
OVERVIEW
The Company's operations consist of a single retail store and the
management and operation of a family and sport-oriented theme park under the
name "All-American SportPark". Results of operations for 1999 include results
of the All-American SportPark in Las Vegas, Nevada which includes the
SportPark Las Vegas and the Callaway Golf Center. The SportPark Las Vegas
commenced operations on October 9, 1998. The Callaway Golf Center commenced
operations on October 1, 1997, the Company sold its 80% interest in the
Callaway Golf Center on May 5, 1998 and then reacquired 100% of the Callaway
Golf Center on December 31, 1998.
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RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 1999 VERSUS YEAR ENDED
DECEMBER 31, 1998
REVENUES. Revenues increased to $9,794,600 in 1999 compared to
$4,545,000 in 1998. Revenues from SPLV were $4,814,575 in 1999 compared to
$811,400 in 1998. This increase is attributed to (1) a full year of SPLV
operations in 1999 compared to only 2-1/2 months in 1998; the SPLV opened for
business on October 9, 1998 and (2) Group sales revenues in 1999 of about $1.4
million compared to essentially no group sales in 1998. Revenues from the CGC
were $2,154,222 in 1999 compared to $724,900 in 1998. The increase for CGC is
due mainly to the fact that the Company operated the CGC for just slightly
over four months in 1998 compared to a full twelve months in 1999. The CGC
commenced operations on October 1, 1997, the Company sold its 80% interest in
the CGC on May 5, 1998 and then acquired 100% of the CGC on December 31, 1998.
Revenues from retail operations were $2,782,993 in 1999 compared to $2,926,600
in 1998. This 5% decrease is due primarily to a continued general slump in
the retail golf equipment business nationally which has carried over from
1998.
OTHER INCOME. Other income in 1999 remained consistent with 1998 and
relates primarily to credit card royalty income.
COST OF REVENUES. Cost of revenues increased by $1,851,698 in 1999
compared to 1998. Cost of revenues as a percentage of revenues was 46% in
1999 and 57% in 1998. The decrease is due mainly to a full 12 months of
operations for the SPLV and CGC in 1999 compared to only 2-1/2 months for SPLV
and 4 months for CGC in 1998. The full year of operations for each in 1999
provides for a seasonal blend of costs to revenues which was not the case in
1998.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A"). SG&A expenses consist
principally of payroll, rent, professional fees and other corporate costs.
The increase to $6,621,909 in 1999 from $3,540,400 in 1998 reflects higher
payroll, sales and marketing, and other costs associated with a full twelve
months of operation in 1999 at SPLV and CGC compared to 2-1/2 and 4 months,
respectively, in 1998. In 1998 compared with 1999, a greater proportion of
professional fees were incurred, mostly accounting and legal, related to
multiple financing transactions in 1998. In 1999, significantly more sales
and marketing costs were incurred in increasing customer traffic to create
heightened awareness and repeat visitation to both properties.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization was
$1,696,354 in 1999 compared to $424,000 in 1998 due mainly to the SPLV being
in operation for a full twelve months in 1999 compared to 2-1/2 in 1998.
PREOPENING EXPENSES. In 1998, preopening expenses were $1,179,300, which
consisted of payroll and operating expenses incurred before opening the SPLV.
OTHER INCOME (EXPENSE). Net interest expense was $1,629,484 in 1999
compared to $538,700 in 1998. This increase is due mainly to interest on debt
associated with the SPLV that was incurred for twelve months in 1999 compared
to 2-1/2 in 1998. Interest costs incurred prior to the opening of the SPLV in
1998 were capitalized due to it being under development. The Company recorded
a gain of $1,638,000 in 1998 related to the sale of its 80% interest in the
CGC on May 5, 1998.
INCOME TAXES. Due to net losses in 1999 and 1998, the Company has
recorded no tax provision. However, the benefit of $516,819 in 1999 relates
to (1) a tax refund of $156,832 which arose from the carryback of the 1998 net
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loss for income tax purposes to 1997 where the Company had net taxable income;
this had resulted from the Company's 1997 sale of its franchised retail
stores, (2) $212,387 related to overpayment of taxes from 1997, and (3) a
$147,600 decrease in the deferred tax liability. The benefit in 1998 results
from a decrease in the deferred tax liability.
MINORITY INTEREST. Minority interest was $607,100 in 1999 compared to
$490,800 in 1998. This caption reflects the portion of operating losses that
are allocated to the minority shareholders of AASP.
NET LOSS. The Company incurred a net loss of $3,491,526 in 1999 compared
to $1,057,000 in 1998. 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 this non-recurring transaction, the Company's net loss for 1998 was
$2,695,000. The larger net loss in 1999 is due primarily to continued first
year start up, sales and marketing, and other fixed costs of the SPLV that
opened in October 1998 and similar expenses for the CGC due to the
reacquisition of this facility on December 31, 1998. The SPLV accounted for
approximately 92% of the 1999 net loss, Retail operations accounted for 4%,
the CGC accounted for 1%, and the remainder relates to corporate overhead.
The Company spent the majority of 1999 aggressively marketing the SPLV to
increase traffic flow. Included in this marketing campaign were aggressive
sales strategies to lure large groups and special events to the Park which are
expected to create the basis for recurring events and groups returning year
after year for group parties. Management of the Company is committed to this
strategy and will continue to focus on methods to attract and retain customer
loyalty. 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 Park. 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.
In this regard, in December 1999 the Company hired an amusement industry
consultant, Management Resources, Inc. ("MRI") to evaluate all operational and
marketing elements of the SPLV. MRI completed Phase I of its report January
2000 and Phase II in February 2000. See further discussion under the heading:
"LIQUIDITY AND CAPITAL RESOURCES."
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had a working capital deficit of
approximately $14,505,566 compared to positive working capital of $2,051,800
at December 31, 1998. Approximately $13.5 million of the 1999 working capital
deficit relates to the note payable secured by a first deed of trust on the
SPLV that has been in default since September 1999. Because of the default on
the note, accounting rules require that the full amount owing be classified as
current for financial reporting purposes. If this note was not classified as
all current, the Company's working capital deficit at December 31, 1999 would
be about $1.4 million. This decrease in working capital resulted mainly from
heavy first year start-up type costs incurred in 1999 to operate, promote and
market the SPLV. In addition, working capital was used to acquire certain
equipment and leasehold improvements totaling approximately $1 million.
On September 15, 1998 AASP entered into a $13,500,000 loan agreement 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 measured 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 AASP 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
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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, CEO and its Chairman and a related entity pledged their stock in
SPEN to the landlord as collateral to protect the leased property from
foreclosure. Debt service for this loan approximates $140,000 per month.
AASP has not been in compliance with certain covenants related to this
loan since September 30, 1999. Also, because of cash constraints, AASP did
not make its September loan payment to the Bank and since then has not made
any loan payments. The Bank has notified AASP that failure to make such
monthly payments constitutes a default under the terms of the loan; the Bank
filed a formal notice of default on December 22, 1999. AASP has had
discussions with the Bank in an attempt to renegotiate the terms of the loan.
As part of these discussions, the Bank and AASP agreed that an amusement park
industry management 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 Bank hired a different industry
consultant to review MRI's recommendations. AASP met with the Bank's
representative on March 21, 2000 to discuss the results of both reports and
begin negotiations of a work-out plan. AASP presented its proposal to the
Bank; the Bank is now in the process of evaluating the proposal and is
expected to respond by early April 2000. There can be no assurance that AASP
will be successful in negotiating a work-out plan with the Bank.
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 AASP will be successful in doing so.
In addition to the Plan recommended by MRI, AASP is aggressively pursuing
several other opportunities. The Company is developing, with the assistance
of independent qualified professionals, a comprehensive business plan that
will be used as the basis for seeking financing to either (1) refinance
existing debt, (2) infuse sufficient working capital into AASP to insure
future success, and (3) accelerate expansion plans into other markets.
Several options are being evaluated to raise capital for AASP. Also,
management is in discussions with several established companies in its
industry that have the necessary capital and human resources that could
facilitate AASP's expansion plans; several possible business structures will
be evaluated. An important element of AASP's plan will be to increase the
Company's exposure in the financial community. There can be no assurance that
AASP will be successful in its efforts to raise capital nor can there be any
assurance that AASP will be successful in its efforts to structure a
relationship with a well-known, established company in its industry to
facilitate its expansion plans.
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There are no planned material capital expenditures in 2000.
AASP 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 $694,396 at
December 31, 1999 compared to $877,100 at December 31, 1998. Pursuant to the
AASP's agreement with Pepsi, the Company received its fourth of five
sponsorship installment payments in January 2000. It is anticipated but
cannot be guaranteed that other sponsorship fees and advances will be a source
of cash flow in 2000.
On December 31, 1998 AASP purchased substantially all the assets and
assumed certain liabilities of the Callaway Golf Center[TM] for $1,000,000
payable in quarterly installments of $25,000 for a 10 year period with no
interest. The Golf Center generated positive cash flow in 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.
The Company's Chairman through personal loans and through advances from
his personally owned retail store (the "Paradise Store") has historically
loaned funds to the Company as needed. Such lendings were $1,705,300 at
December 31, 1998 and have increased to $1,777,328 at December 31, 1999. The
Company paid back $225,000 of these amounts in late March 1999; the offsetting
increase relates to accrued interest payable on the remaining balances
outstanding. The loans are due in the year 2001 and bear interest at ten
percent per annum. Accrued interest payable of $297,328 at December 31, 1999
has been deferred, a practice which is expected to continue in 2000, if
necessary.
The Company's accounts payable and accrued expenses increased in 1999 to
$2,464,068 from $1,513,000 in 1998. The 1999 balance includes $520,280 of
accrued interest payable to Nevada State Bank.
OPERATING ACTIVITIES. During 1999, net cash used in operating activities
was $968,935 compared to $3,601,000 in 1998. The primary reasons for the
difference relate to (1) more favorable changes in accounts receivable and
inventories in 1999 compared to 1998 of approximately $1.6 million, (2) a
larger increase in accounts payable and accrued expense balances of
approximately $700,000, (3) a $1,638,000 gain on sale of the AASP's investment
in CGC in 1998; no such transaction occurred in 1999, (4) higher depreciation
and amortization of approximately $1.9 million in 1999 compared to $424,000 in
1998, (5) a smaller operating loss in 1999 compared to 1998 by about $220,000,
and (5) a decrease in deferred income in 1999 compared to an increase in
deferred income in 1998 resulting in a less favorable change in 1999 of about
$540,000.
INVESTING ACTIVITIES. During 1999, net cash used in investing activities
totaled $1,009,812 compared to $14,200,000 in 1998. The primary uses of cash
for investing activities in 1998 relate to the development of the SportPark.
Of the 1999 cash used in investing activities, approximately $765,000 was used
at SPLV for leasehold and land improvements, furniture and equipment.
Approximately $220,000 was used at the CGC for leasehold improvements.
FINANCING ACTIVITIES. During 1999, net cash used in financing activities
was $405,652 compared to net cash provided by financing activities during 1998
of $19,956,900. The sources of borrowings in 1998 related to increases in
notes payable to shareholder, the Nevada State Bank financing of $13,500,000,
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and to proceeds of $2,500,000 from issuance of common stock to ASI, LLC. The
1999 uses relate principally to normal paydowns on various forms of debt.
The Company's current and expected sources of working capital are its
cash balances, which were $200,501 at December 31, 1999, 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 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 likely 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 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.
GAIN ON SALE OF INVESTMENT IN ALL-AMERICAN GOLF, LLC
On May 5, 1998, AASP sold its 80% interest in All-American Golf, LLC to
Callaway Golf Company in exchange for $1.5 million in cash and the
cancellation of a $3 million collateralized note evidencing amounts loaned to
AASP in March 1998 by Callaway, and related accrued interest thereon. In
connection with the sale of its membership units, AASP resigned as manager of
the LLC and agreed not to compete with the Callaway Golf Center in Clark
County, Nevada for a period of two years. The agreement also provided for a
buy back option to AASP which enabled it to repurchase its 80% equity
ownership for a period of 2 years on essentially the same financial terms that
it sold its interest to the Callaway Golf Company. The Company recorded a
gain of $1,638,000 on the disposal of its 80% interest in All-American Golf,
LLC.
On December 31, 1998, AASP acquired substantially all of the assets
subject to certain liabilities of All-American Golf, LLC that had been
managing and operating the Callaway Golf Center. Under terms of this asset
purchase agreement, AASP paid Active Media Services, an entity related to
Callaway Golf Company, $1,000,000 in the form of a promissory note payable in
quarterly installments of $25,000 over a 10-year period without interest. In
turn, Active Media Services issued a $4 million trade credit to Callaway Golf
Company.
YEAR 2000 COMPLIANCE
The Company's accounting system was updated during the first quarter of
1998 and is year 2000 compliant. The Company experienced no significant
problems as a result of the changeover to the Year 2000 and does not expect
any residual effects to significantly impact the Company.
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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 regulations 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 by or on behalf of the Company.
These risks and uncertainties include, but are not limited to, those relating
to dependence on existing management, leverage and debt service (including
sensitivity to fluctuations in interest rates), domestic or global economic
conditions (including sensitivity to fluctuations in foreign currencies),
changes in federal or state tax laws or the administration of such laws,
changes in regulations and application for licenses and approvals under
applicable jurisdictional laws and regulations.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements are set forth on pages F-1 through F-23 hereto.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On December 16 1999, management of the Company with Board of Directors
approval selected new auditors Piercy, Bowler, Taylor & Kern through a
formal bid process. This resulted in the dismissal of Arthur Andersen, LLP as
the Company's auditors. For the year ended December 31, 1998, Arthur
Andersen, LLP issued a qualified opinion modified as to a going concern
uncertainty. There were no disagreements with Arthur Andersen LLP on any
matter of accounting principles or practices, financial statement disclosure,
or auditing scope or procedure.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The Directors and Executive Officers of the Company are as follows:
NAME AGE POSITIONS AND OFFICES HELD
- ------------------ --- -------------------------------------------------
Vaso Boreta 66 Chairman of the Board, President, Chief Executive
Officer, Treasurer and Secretary
Ronald S. Boreta 37 Director
Robert R. Rosburg 72 Director
William Kilmer 59 Director
Kirk Hartle 34 Chief Financial Officer
Except for the fact that Vaso Boreta and Ronald Boreta are father and
son, respectively, there is no family relationship between any Director or
Officer of the Company.
In February 1998, the Board of Directors of the Company established an
audit committee whose members are William Kilmer and Robert Rosburg, both of
whom are independent Directors of the Company. The Company presently has no
compensation or nominating committee.
All Directors hold office until the next Annual Meeting of Shareholders.
Officers of the Company are elected annually by, and serve at the
discretion of, the Board of Directors.
The following sets forth biographical information as to the business
experience of each officer and director of the Company for at least the past
five years.
VASO BORETA has been Chairman of the Board of Directors since December
1989, President since July 1994, and Treasurer and Secretary since June 1992,
and a Director of the Company since February 1988. He also served as the
Company's President from February 1988 to December 1989, and October 1990 to
June 1992. Mr. Boreta has also been an Officer and a Director of All-American
SportPark, Inc. since its formation in March 1984. In 1974, Mr. Boreta first
opened a specialty business named "Las Vegas Discount Golf & Tennis," which
retailed golf and tennis equipment and accessories. Mr. Boreta's original
store is now an Affiliated Store of the Company. Mr. Boreta devotes
approximately 80% of his time to the business of the Company and the balance
to operating his Affiliated Store.
RONALD S. BORETA has been a Director since February 1988, and served as
President of the Company from June 1992 until July 1994, when he resigned to
become President and Chief Executive Officer of AASP. He also previously
served as Vice President, Secretary and Treasurer of the Company. He has been
employed by All-American SportPark, Inc. ("AASP") since its inception in March
1984, with the exception of a 6-month period in 1985 when he was employed by a
franchisee of AASP located in San Francisco, California. Mr. Ron Boreta has
also been a Director of All-American SportPark, Inc. since 1984, and an
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Officer since 1986. Prior to his employment by AASP, Mr. Boreta was an
assistant golf professional at San Jose Municipal Golf Course in San Jose,
California, and had worked for two years in the areas of sales and warehousing
activities with a golf discount store in South San Francisco, California.
ROBERT R. ROSBURG has served as a Director of the Company since November
1989, and has been a director of AASP since August 1994. Mr. Rosburg has been
a professional golfer since 1953. From 1953 to 1974 he was active on the
Professional Golf Association tours, and since 1974 he has played
professionally on a limited basis. Since 1975 he has been a sportscaster on
ABC Sports golf tournament telecasts. Since 1985 he has also been the
Director of Golf for Rams Hill Country Club in Borrego Springs, California.
Mr. Rosburg received a Bachelor's Degree in Humanities from Stanford
University in 1948.
WILLIAM KILMER has served as a Director of the Company since July 1990,
and has been a director of AASP since August 1994. Mr. Kilmer is a retired
professional football player, having played from 1961 to 1978 for the San
Francisco Forty-Niners, the New Orleans Saints and the Washington Redskins.
Since 1978, he has toured as a public speaker and also has served as a
television analyst. Mr. Kilmer received a Bachelor's Degree in Physical
Education from the University of California at Los Angeles.
KIRK HARTLE has served as Chief Financial Officer of the Company and AASP
since June 1, 1999. Prior to his employment with the Company that began April
5, 1999, Mr. Hartle was a Senior Manager with KPMG LLP. His experience spans
over 11 years in public accounting with both KPMG LLP and Deloitte & Touche
LLP, 6 of which were in a management capacity. Mr. Hartle is a Nevada CPA and
received a Bachelor's Degree in Business Administration-Accounting from the
University of Nevada, Las Vegas. He devotes 100% of his time to the business
of the Company and AASP.
SECTION 16(A) BENEFICIAL REPORTING COMPLIANCE
Based solely on a review of Forms 3 and 4 and amendments thereto
furnished to the Company during its most recent fiscal year, and Forms 5 and
amendments thereto furnished to the Company with respect to its most recent
fiscal year and certain written representations, no persons who were either a
director, officer, beneficial owner of more than ten percent of the Company's
common stock, failed to file on a timely basis reports required by Section
16(a) of the Exchange Act during the most recent fiscal year except that the
Form 3 for Kirk Hartle, the Company's Chief Financial Officer, was filed late.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth information regarding the executive
compensation for the Company's President and each other executive officer who
received compensation in excess of $100,000 for the years ended December 31,
1999, 1998 and 1997 from the Company:
21
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------ -----------------------
SECURITIES
OTHER RE- UNDERLYING ALL
ANNUAL STRICTED OPTIONS/ OTHER
NAME AND PRINCIPAL COMPEN- STOCK SARs COMPEN-
POSITION YEAR SALARY BONUS SATION AWARD(S) (NUMBER) SATION
- ------------------ ---- -------- -------- ------- --------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Vaso Boreta, 1999 $102,381 -- $30,250 -- -- --
President and <FN1> <FN2>
Chairman of the 1998 $100,000 -- $25,833 -- -- --
Board 1997 $100,000 -- $40,000 -- -- --
Ronald S. Boreta, 1999 $121,939 -- $29,301 -- 281,000 --
President and <FN1> <FN3>
CEO of Subsidiary 1998 $100,000 -- $39,348 -- -- --
1997 $101,000 $100,000 $58,183 -- -- $4,231
<FN4> <FN5>
_________________
<FN>
<FN1>
Includes $21,074 deferred by Ron Boreta and $17,445 deferred by Vaso Boreta
until such time as the Company's cash flow is stabilized. This election was
made by Ron Boreta and Voss Boreta in September 1999. All of Ron Boreta's
salary in paid by AASP. All of Vaso Boreta's salary is paid by SPEN.
<FN2>
Represents amounts contributed by the Company to the Company's Supplemental
Retirement Plan on behalf of Vaso Boreta.
<FN3>
Represents amounts paid for country club memberships for Ronald S. Boreta, an
automobile for his personal use, and contributions made by the Company to
retirement plans on his behalf. For 1999, these amounts were $13,446 for club
memberships, $7,188 for an automobile, and $8,667 to the Company's
Supplemental Retirement Plan. For 1998, these amounts were $11,148 for club
memberships, $7,200 for an automobile and $21,000 to the Company's
Supplemental Retirement Plan.
<FN4>
Ronald Boreta received $68,202 of this bonus in 1998.
<FN5>
Represents premiums paid on a life insurance policy for Ronald S. Boreta's
benefit.
</FN>
</TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR - INDIVIDUAL GRANTS
PERCENT
NUMBER OF OF TOTAL
SECURITIES OPTIONS/SARs
UNDERLYING GRANTED TO EXERCISE
OPTIONS/SARs EMPLOYEES IN OR BASE EXPIRATION
NAME GRANTED(#) FISCAL YEAR PRICE($/SH) DATE
- ---------------- ----------- ------------ ---------- ----------
Ronald S. Boreta(1) 281,000 68% $1.085 8/11/04
____________
(1) Represents options issued in exchange for equivalent options that had
expired unexercised in 1999.
22
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
SECURITIES
UNDERLYING VALUE OF UNEXER-
SHARES UNEXERCISED CISED IN-THE
ACQUIRED OPTIONS MONEY OPTIONS/
ON SARs AT FY-END SARs AT FY-END
EXERCISE VALUE EXERCISABLE/ EXERCISABLE/
NAME (NUMBER) REALIZED UNEXERCISABLE UNEXERCISABLE
- ---------------- -------- -------- --------------- ---------------
Ronald S. Boreta -0- -0- 281,000/281,000 $0 / $0
EMPLOYMENT AGREEMENTS
The Company's President, Vaso Boreta, does not have an employment
agreement with the Company. Since July 31, 1994, Mr. Vaso Boreta has been
paid an annual salary of $100,000 by the Company.
Effective August 1, 1994, AASP entered into an employment agreement with
Ronald S. Boreta, AASP's President and Chief Executive Officer, pursuant to
which he receives a base salary of $100,000 per year plus annual increases as
determined by the Board of Directors. His salary was increased to $120,000
for the year ended December 31, 1996. The employment agreement is
automatically extended for additional one-year periods unless 60 days' notice
of the intention not to extend is given by either party. In addition to his
base salary, Ronald S. Boreta also will receive a royalty equal to 2% of all
gross revenues directly related to the All-American SportPark and Slugger
Stadium concepts. However, such royalty is only payable to the extent that
AASP's annual consolidated income before taxes after the payment of the
royalty exceeds $1,000,000. Ronald S. Boreta also receives the use of an
automobile, for which AASP pays all expenses, and full medical and dental
coverage. AASP also pays all dues and expenses for membership at two local
country clubs at which Ronald S. Boreta entertains business contacts for AASP.
Ronald S. Boreta has agreed that for a period of three years from the
termination of his employment agreement that he will not engage in a trade or
business similar to that of AASP.
In June 1997, AASP's Board of Directors awarded a $100,000 bonus to
Ronald S. Boreta for his extraordinary services related to the raising of
capital and development of AASP's Las Vegas SportPark. $68,202 of this bonus
was paid in October 1998.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company do not receive any fees
for Board meetings they attend but are entitled to be reimbursed for
reasonable expenses incurred in attending such meetings.
STOCK OPTION PLANS
In December 1989, the Company's Board of Directors adopted an Incentive
Stock Option Plan (the "1989 Plan") under which options granted are intended
to qualify as "incentive stock options" under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). This Plan replaced an earlier
incentive stock option plan of the Company. Pursuant to the Plan, options to
purchase up to 300,000 shares of the Company's Common Stock could have been
granted to employees of the Company. No options are outstanding under the 1989
Plan and the Plan has now expired.
23
<PAGE>
In June 1991, the Company's Board of Directors adopted a Stock Option
Plan (the "1991 Plan"), and it was approved by the Company's shareholders in
June 1992. The 1991 Plan allows the Board to grant stock options from time to
time to employees, officers and directors of the Company and consultants to
the Company. The Board of Directors has the power to determine at the time
the option is granted whether the option will be an Incentive Stock Option (an
option that qualifies under Section 422 of the Internal Revenue Code of 1986)
or an option that is not an Incentive Stock Option. However, Incentive Stock
Options will only be granted to persons who are employees or officers of the
Company. Vesting provisions are determined by the Board of Directors at the
time options are granted. The total number of shares of Common Stock subject
to options under the 1991 Plan may not exceed 500,000, subject to adjustment
in the event of certain recapitalizations, reorganizations and so forth. The
option price must be satisfied by the payment of cash and will be no less than
the fair market value of the Common Stock on the date the option is granted.
Under the 1991 Plan, in July 1999, options to purchase 421,000 shares of
the Company's common stock expired unexercised. In August 1999, the Company's
Board of Directors granted options to purchase 421,000 shares of the Company's
common stock for a period of 5 years from the grant date. All such options
are all 100% vested were issued to the following people and were still
outstanding as of March 20, 2000.
RELATIONSHIP SHARES SUBJECT EXERCISE
NAME TO THE COMPANY TO OPTION PRICE
- ---------------- -------------------- -------------- --------
Ronald S. Boreta Officer and Director 281,000 $1.085
John Boreta Employee 130,000 $1.085
Theodore Abbruzzese Consultant 10,000 $1.085
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company do not receive any fees
for Board meetings they attend but are entitled to be reimbursed for
reasonable expenses incurred in attending such meetings.
401(k) PLAN
The Company maintains a 401(k) employee retirement and savings program
(the "401(k) Plan") which covers the Company's employees. Under the 401(k)
Plan, an employee may contribute up to 15% of his or her gross annual
earnings, subject to a statutory maximum, for investment in one or more funds
identified under the plan. The Company's Parent makes matching contributions
equal to 50% of participants' contributions up to six percent of the
participants' salary.
SUPPLEMENTAL RETIREMENT PLAN
In November 1996, the Company established a Supplemental Retirement Plan,
pursuant to which certain employees selected by the Company's Chief Executive
Officer receive benefits based on the amount of compensation elected to be
deferred by the employee and the amount of contributions made on behalf of the
employee by the Company. Company contributions to the Supplemental Retirement
Plan are immediately vested for Category I employees, and vest 20% per year of
employment for Category II employees. Vested amounts under the Supplemental
Retirement Plan are paid out over 5 to 20 years upon retirement, disability,
death or termination of employment.
24
<PAGE>
In 1997, Vaso Boreta (President and Chairman of the Board of the
Company), John Boreta (a principal shareholder of the Company), and Ronald S.
Boreta (a Director of the Company and President of AASP) were designated as
Category I employees. The Company made contributions to the Supplemental
Retirement Plan on behalf of Vaso Boreta and Ron Boreta of $30,250 and $8,667,
respectively, for 1999, and $25,833 and $25,000, respectively, for 1998.
The Company's Board of Directors has not yet determined the amounts, if
any, which will be contributed to the Supplemental Retirement Plan for 2000.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of December 31, 1999, the stock
ownership of each person known by the Company to be the beneficial owner of
five percent or more of the Company's Common Stock, each Officer and Director
individually, and all Directors and Officers of the Company as a group.
Except as noted, each person has sole voting and investment power with respect
to the shares shown.
AMOUNT AND
NAME AND ADDRESS NATURE OF BENE- PERCENT
OF BENEFICIAL OWNERS FICIAL OWNERSHIP OF CLASS
- ------------------------- --------------- --------
Vaso Boreta 1,837,637 (1) 22.6%
6730 South Las Vegas Blvd.
Las Vegas, Nevada 89119
Ronald S. Boreta 1,723,288 (2) 20.5%
6730 South Las Vegas Blvd.
Las Vegas, Nevada 89119
Robert R. Rosburg 5,000 0.1%
49-425 Avenida Club La Quinta
La Quinta, CA 92253
William Kilmer 5,000 0.1%
1500 Sea Breeze
Ft. Lauderdale, FL 33316
Kirk Hartle -0- --
6730 South Las Vegas Blvd.
Las Vegas, Nevada 89119
John Boreta 1,059,374 (3) 12.8%
6730 South Las Vegas Blvd.
Las Vegas, Nevada 89119
Boreta Enterprises, Ltd. (4) 1,304,445 16.0%
6730 South Las Vegas Blvd.
Las Vegas, Nevada 89119
ASI Group LLC (5) 2,651,265 (6) 31.3%
c/o Agassi Enterprises, Inc.
Suite 750
3960 Howard Hughes Parkway
Las Vegas, NV 89109
25
<PAGE>
All Directors and Officers 3,570,925 42.4%
as a Group (5 persons)
___________________
(1) Includes 1,823,810 shares held directly and 13,827 shares which
represents Vaso Boreta's share of the Common Stock held by Boreta
Enterprises.
(2) Includes 544,699 shares held directly, 897,589 shares which represents
Ronald Boreta's share of the Common Stock held by Boreta Enterprises
Ltd., and 281,000 shares underlying Stock Options held by Ronald Boreta.
(3) Includes 536,345 shares held directly, 393,029 shares which represents
John Boreta's share of the Common Stock held by Boreta Enterprise Ltd.
and 130,000 shares underlying Stock Options held by John Boreta.
(4) Boreta Enterprises Ltd. is a Nevada limited liability company whose
members and respective percentage ownership are as follows:
Ronald Boreta - 68.81%
John Boreta - 30.13%
Vaso Boreta - 1.06%
Ronald Boreta is the sole manager of Boreta Enterprises Ltd.
(5) ASI Group LLC is a Nevada limited liability company whose members are
Andre K. Agassi, Perry Craig Rogers and Sunbelt Communications Company.
(6) Includes 2,303,290 shares owned directly and 347,975 shares underlying
options held by ASI Group LLC.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
As of December 31, 1999 the Company 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.
AASP has extensive transactions and relationships with the Company and
subsidiaries ("Related Entities"), Vaso Boreta, the Chairman, President and a
principal shareholder of the Company, the golf retail store owned by Vaso
Boreta (the "Paradise Store") and the SAGS which is the golf retail store in
the Callaway Golf Center owned by Ronald Boreta, a Director of the Company,
and John Boreta, his brother, who is also a principal shareholder of the
Company (the "Affiliated Stores"). The Paradise Store operates in Las Vegas,
Nevada. The types of activities that are shared amongst all of these entities
are advertising, payroll and employee benefits, warehouse rent, equipment
leases, and miscellaneous office expenses. Costs are allocated to each entity
based on relative benefits received.
AASP has unsecured, ten percent notes payable of $230,000 and $455,300
for December 31, 1999 and 1998 with the Paradise Store. A payment of $225,300
was made on these notes in late March 1999. These notes are due at various
dates in 2001. The principal amount, interest rate, and payment terms are
substantially similar to borrowings that the Paradise Store obtained from a
bank to fund these loans to the Company. Accrued interest payable of $62,712
26
<PAGE>
and $35,500 at December 31, 1999 and 1998, respectively, is included with the
note payable. Interest payments of $27,212 and $35,500 have been deferred in
1999 and 1998, respectively, a practice which is expected to continue in 2000
if necessary.
AASP has unsecured, ten percent notes payable of $1,250,000 as of
December 31, 1999 and 1998 with Vaso Boreta. These notes are due at various
dates from November 30, 2000 to July 20, 2001. Amounts due in 2000 are
$200,000 with the balance due in 2001. The principal amount, interest rate,
and payment terms are substantially similar to borrowings which Vaso Boreta
obtained from a bank to fund these loans to the Company. Accrued interest
payable of $234,616 and $107,200 at December 31, 1999 and 1998, respectively,
is included in the balance due. Interest payments of $127,397 and $102,200
have been deferred in 1999 and 1998, respectively, a practice which is
expected to continue in 2000 if necessary.
Effective October 1, 1990, a franchise agreement between AASP and Vaso
Boreta, the Company's President and Chairman of the Board, was mutually
terminated, and a new agreement was entered into with him pursuant to which he
was permitted to operate a Las Vegas Discount Golf & Tennis store in Las
Vegas, Nevada, which is not a franchise store. The agreement also provided
that Mr. Boreta may purchase certain merchandise for his store at the same
cost as the Company, use the facilities and personnel of the Company on a
limited basis, and operate a limited mail order business from his store. In
exchange for these rights, Mr. Boreta paid AASP a fee of $3,000 per month.
This agreement with AASP was terminated on July 31, 1994, when Mr. Boreta
entered into a similar agreement with the Company. This store is referred to
herein as the "Paradise Store."
During 1999 and 1998, the Paradise Store purchased $46,567 and $85,600,
respectively, in sporting goods merchandise from the Company. Also during
1999 and 1998, the Paradise Store sold $899,613 and $950,574, respectively, in
merchandise to the Company. The Company's Board of Directors believes that
the terms of these transactions were on terms no less favorable to the Company
than if the transactions were with unaffiliated third parties.
The Company owns a retail store in Las Vegas and the Company and the
Affiliated Store share advertising costs in the Las Vegas market on an equal
basis. During 1999 and 1998, the Company paid $148,376 and $259,000,
respectively, for advertising shared with the Paradise Store, which
represented approximately one-half of the costs of such advertising.
Vaso Boreta, the Company's Chairman of the Board, loaned the Company a
total of $1,780,000 and $600,000 in 1998 and 1997, respectively. These loans
are evidenced by demand notes bearing interest at ten percent per annum.
Approximately $220,000 of these amounts were paid back in late March 1999.
In October 1992, the Board of Directors established 512,799 shares of
Series A Convertible Preferred Stock and issued such shares to Vaso Boreta in
exchange for services valued at $5,128. These shares were issued to Mr.
Boreta to replace shares that he previously relinquished in order to
facilitate a proposed public offering in early 1990. Each share of the Series
A Convertible Preferred Stock was convertible into one share of Common Stock
in the event that the Company has annual income before taxes of at least
$1,000,000 for any fiscal year. Each share of Series A Preferred Stock was
entitled to one vote and with respect to that vote the holder was entitled to
vote with the holders of the Company's Common Stock as a single class. In the
event of liquidation, the holder of the Series A Convertible Preferred Stock
was entitled to receive $.01 per share before any assets are distributed to
27
<PAGE>
the holders of Common Stock. The Series A Convertible Preferred Stock had no
redemption or dividend rights. During 1994, Vaso Boreta transferred all of
his shares of Series A Convertible Preferred Stock to Ronald Boreta, a son of
Vaso Boreta and a Director of the Company. In April 1996, the Board of
Directors approved an agreement with Ronald Boreta that in the event that the
Company were to spin off its shares of AASP to the Company's shareholders or
otherwise distribute or issue shares of AASP in any form of reorganization
involving the Company, that the Company would allow Ronald Boreta to convert
the 512,799 shares of Series A Convertible Preferred Stock into Common Stock
of the Company even if the conversion requirements have not been met. In June
1997, the Board of Directors determined that since the Company would have net
income before taxes of at least $1,000,000 during 1997, and in recognition of
his services in connection with the development of the SportPark, that the
Company would exchange 512,799 shares of the Company's Common Stock for all of
his shares of Series A Convertible Preferred Stock.
On October 19, 1998, the Company issued 2,303,290 shares of its Common
Stock to ASI Group, L.L.C. ("ASI"), for $2,500,000 in cash in a private
transaction. As part of this transaction, ASI also received an option to
purchase 347,975 shares of Common Stock at an exercise price of $1.8392 per
share through October 19, 2008 (the "Option"). As a result of this
transaction, ASI is now deemed to beneficially own approximately 31.3% of the
Company's Common Stock.
ASI is a Nevada limited liability company whose members are Andre K.
Agassi, a professional tennis player, Perry Craig Rogers, an attorney and
business manager, and Sunbelt Communications Company ("Sunbelt"). Sunbelt is
engaged in the broadcasting business and is owned by James Earl Rogers.
On October 19, 1998, immediately following the transaction between the
Company and ASI described above, the Company used the $2,500,000 received from
ASI to purchase 250,000 shares of the Series B Convertible Preferred Stock of
AASP. AASP used these funds together with the proceeds of the $13,500,000
loan which AASP had recently obtained from the Nevada State Bank toward the
completion of AASP's All-American SportPark in Las Vegas, Nevada, to pay down
short-term debt obligations and for working capital.
During September 1997, a majority of the Board of Directors of the
Company agreed to sell the Company's rights to the St. Andrews name to Boreta
Enterprises, Ltd. for a $20,000 promissory note since the Company has
committed all of its efforts to the development and management of the
All-American SportPark and no longer intends to engage in the business of
selling golf equipment or apparel.
On September 15, 1998 the Company entered into a $13,500,000 loan
agreement 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
measured 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. The Company and SPEN are corporate guarantors on 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, CEO and its Chairman and a related entity
pledged their stock in SPEN to the landlord as collateral to protect the
leased property from foreclosure and the landlord was issued 75,000 stock
options exercisable at $4.00 per share through the year 2005.
28
<PAGE>
A majority of the Company's Board of Directors believes that the terms of
the above transactions were on terms no less favorable to the Company than if
the transactions were with unaffiliated third parties.
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)
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 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
10.2 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
10.3 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)
10.4 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)
29
<PAGE>
10.5 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)
10.6 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)
10.7 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)
10.8 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)
10.9 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
10.10 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
10.11 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)
10.12 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)
10.13 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)
10.14 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)
30
<PAGE>
10.15 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)
10.16 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)
10.17 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)
10.18 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
10.19 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
10.20 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.
10.21 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.
10.22 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.
10.23 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.
31
<PAGE>
10.24 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. A Form 8-K was filed on December 16, 1999 to
report a change in the Company's certifying accountants. No other reports on
Form 8-K were filed during the year ended December 31, 1999.
32
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Sports Entertainment Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of Sports
Entertainment Enterprises, Inc. (a Colorado corporation) and subsidiaries (the
"Company") as of December 31, 1999, and the related consolidated statements of
operations, shareholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides 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 Sports
Entertainment Enterprises, Inc. and subsidiaries as of December 31, 1999, and
the results of their operations and their cash flows for the year then ended
in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 1d to the consolidated financial statements, the Company has had
recurring losses from continuing operations and has generated negative cash
flow from continuing operations for the year ended December 31, 1999, that
raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1d.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
/s/ Piercy Bowler Taylor & Kern
PIERCY BOWLER TAYLOR & KERN
Las Vegas, Nevada
March 17, 2000
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Sports Entertainment Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of SPORTS
ENTERTAINMENT ENTERPRISES, INC. (formerly LAS VEGAS DISCOUNT GOLF & TENNIS,
INC.) (a Colorado corporation)) and subsidiaries (the "Company") as of
December 31, 1998, and the related consolidated statements of operations,
shareholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides 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 Sports Entertainment
Enterprises, Inc. and subsidiaries as of December 31, 1998, and the results of
their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discusssed in Note 1d
to the consolidated financial statements, the Company has had recurring
operating losses from continuing operations and generated negative cash flow
from continuing operations for the year ended December 31, 1998, which raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1d.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
March 24, 1999
F-2
<PAGE>
SPORTS ENTERTAINMENT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31,
1999 1998
----------- -----------
Current assets:
Cash and cash equivalents $ 200,501 $ 2,584,900
Accounts receivable 135,823 1,028,800
Inventory 643,332 569,900
Prepaid expenses and other 246,300 61,900
----------- -----------
Total current assets 1,225,956 4,245,500
Leasehold improvements and equipment, net 24,191,040 24,675,100
Due from affiliated stores 168,779 19,000
Note receivable - related party 20,000 20,000
Debt issuance costs, net 353,425 393,300
Deposit for land lease 37,821 225,600
Other assets 61,761 121,600
----------- -----------
Total assets $26,058,782 $29,700,100
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
SPORTS ENTERTAINMENT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
DECEMBER 31,
1999 1998
----------- -----------
Current liabilities:
Current portion of long-term debt $13,102,310 $ 559,300
Current portion of obligations under
capital leases 165,144 121,400
Accounts payable and accrued expenses 2,464,068 1,513,000
----------- -----------
Total current liabilities 15,731,522 2,193,700
Note payable to shareholder 1,484,616 1,357,200
Due to affiliated stores 1,634,842 1,540,000
Long-term debt, net of current portion 570,527 13,408,100
Obligation under capital leases, net
of current portion 395,505 530,400
Deferred income 694,396 877,100
Deferred income tax liability - 147,600
----------- -----------
Total liabilities 20,511,408 20,054,100
----------- -----------
Minority interest 5,000,000 5,607,100
Shareholders' equity:
Series A Convertible Preferred stock, no
par value, 500,000,000 shares authorized;
no shares issued and outstanding for 1999
and 1998 - -
Common stock, no par value, 15,000,000
shares authorized, 8,135,097 shares
issued and outstanding at December 31,
1999 and 1998 6,107,700 6,107,700
Stock options issued 268,300 268,300
Accumulated deficit (5,828,626) (2,337,100)
----------- -----------
Total shareholders' equity 547,374 4,038,900
----------- -----------
Total liabilities and shareholders'
equity $26,058,782 $29,700,100
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
SPORTS ENTERTAINMENT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
----------- -----------
Revenues:
SportPark Las Vegas $ 4,814,575 $ 811,400
Retail operations 2,782,993 2,926,600
Callaway Golf Center[TM] 2,154,222 724,900
Other 42,810 82,100
----------- -----------
Total revenues 9,794,600 4,545,000
Cost of Revenues:
SportPark Las Vegas 1,845,074 225,400
Retail operations 2,193,280 2,273,200
Callaway Golf Center[TM] 423,944 112,000
----------- -----------
Total cost of revenues 4,462,298 2,610,600
----------- -----------
Gross profit 5,332,302 1,934,400
Operating expenses:
Selling, general and administrative 6,621,909 3,540,400
Depreciation and amortization 1,696,354 424,000
Preopening expenses - 1,179,300
----------- -----------
Total Operating Expenses 8,318,263 5,143,700
----------- -----------
Operating loss (2,985,961) (3,209,300)
----------- -----------
Other income (expense):
Interest income (expense), net (1,629,484) (538,700)
Gain on sale of interest in All-American
Golf, LLC - 1,638,000
----------- -----------
Loss from continuing operations before
income taxes and minority interest (4,615,445) (2,110,000)
Provision (benefit) for income taxes (516,819) (381,500)
----------- -----------
Loss from continuing operations before
minority interest (4,098,626) (1,728,500)
Minority interest in loss of subsidiary 607,100 490,800
DISCONTINUED OPERATIONS:
Gain on disposal of franchise operations - 180,700
----------- -----------
Income from discontinued operations - 180,700
----------- -----------
Net loss $(3,491,526) $(1,057,000)
=========== ===========
NET LOSS PER SHARE:
Basic and Diluted:
Loss from continuing operations $ (0.43) $ (0.20)
Income from discontinued operations - .03
----------- -----------
Net loss per share $ (0.43) $ (0.17)
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
SPORTS ENTERTAINMENT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
STOCK
PREFERRED OPTIONS ACCUMULATED
STOCK COMMON STOCK ISSUED DEFICIT TOTAL
--------- ------------ -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
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) (1,057,500)
------- ---------- -------- ----------- -----------
Balance,
December 31, 1998 - 6,107,700 268,300 (2,337,100) 4,038,900
Net loss - - - (3,491,526) (3,491,526)
------- ---------- -------- ----------- -----------
Balance,
December 31, 1999 $ - $6,107,700 $268,300 $(5,828,626) $ 547,374
======= ========== ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
SPORTS ENTERTAINMENT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,491,526) $(1,057,000)
Adjustment to reconcile net loss to
net cash used in operating activities:
Minority interest (607,100) (490,800)
Depreciation and amortization 1,696,375 424,400
Amortization of land lease deposit 187,779 -
Bad debt expense 41,844 -
Gain on sale of investment in Callaway
Golf Center[TM] - (1,638,000)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 780,922 (802,000)
Increase in inventories (73,432) (91,000)
Decrease in due from officer - 3,000
Increase in prepaid expenses and other (124,561) (169,100)
Increase in accounts payable and accrued
expenses 951,068 241,000
Increase (decrease) in deferred income (182,704) 360,000
Decrease in deferred tax liability (147,600) (381,500)
----------- -----------
Net cash used in operating activities (968,935) (3,601,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of interest in
80% owned subsidiary of AASP - 1,205,000
Leasehold improvements expenditures (1,009,812) (15,405,000)
----------- -----------
Net cash used in investing activities (1,009,812) (14,200,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in due to Affiliated
Stores (54,937) 1,477,000
Payments on notes payable and notes payable
to shareholder and related entity (206,994) (1,362,100)
Loan fees paid - (226,000)
Proceeds from issuance of common stock/options - 2,500,000
Payments on bank line of credit - (668,000)
Proceeds from notes payable and note payable
to shareholder and related entity - 18,335,000
Principal payments on capital leases (143,721) (99,000)
----------- -----------
Net cash provided by (used in)
financing activities (405,652) 19,956,900
----------- -----------
NET INCREASE(DECREASE)IN CASH AND CASH
EQUIVALENTS (2,384,399) 2,155,900
CASH AND CASH EQUIVALENTS, Beginning of year 2,584,900 429,000
----------- -----------
CASH AND CASH EQUIVALENTS, End of year 200,501 2,584,900
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest, net of amounts capitalized 901,888 321,900
=========== ===========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Equipment financed through notes and
capital leases 92,417 699,600
=========== ===========
Issuance of subsidiary stock options
in connection with financing - 174,000
=========== ===========
Asset acquisition through reduction in
note receivable 70,211 -
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
SPORTS ENTERTAINMENT ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATIONAL STRUCTURE AND BASIS OF PRESENTATION
a. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Sports Entertainment Enterprises,
Inc. ("SPEN") (formerly Las Vegas Discount Golf & Tennis, Inc. ("LVDG")), a
Colorado corporation, include the accounts of SPEN and its subsidiaries,
All-American SportPark, Inc. ("AASP"), LVDG Development Corporation
("Development") and LVDG Rainbow, Inc. ("Rainbow"). SPEN and its subsidiaries
are collectively referred to as "the Company". All significant inter-company
accounts and transactions have been eliminated.
b. COMPANY BACKGROUND AND PRIMARY BUSINESS ACTIVITIES
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 "Paradise Store." (See Note
4).
Prior to 1997, SPEN's primary business segments 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.
On February 26, 1997, the Company and AASP completed the sale of certain of
their franchised store and golf distribution system assets and transferred
certain related liabilities to an unrelated buyer who has incorporated under
the name Las Vegas Golf & Tennis, Inc. as described below in subpart "c" of
this section. After this transaction, the Company continues to operate a
single retail store (the "Rainbow Store") located in Las Vegas, Nevada.
On June 13, 1997 AASP and Callaway Golf Company ("Callaway") formed
All-American Golf, LLC (the "LLC") to construct, manage and operate the
Callaway Golf Center , a premier golf facility on 42 acres located at the
south end of the world famous Las Vegas "Strip" at Las Vegas Boulevard and
Sunset Road. AASP contributed $3 million for 80 percent of the members' units
of the LLC while Callaway purchased the remaining 20 percent for $750,000.
The Callaway Golf Center opened for business in October 1997. Through May 5,
1998 AASP managed the Callaway Golf Center for a fee of five percent of gross
revenues pursuant to the LLC Operating Agreement.
On May 5, 1998, AASP sold its 80% membership interest in the LLC to Callaway
for $1.5 million in cash and the forgiveness of $3 million of debt, including
accrued interest thereon, owed to Callaway by AASP. This transaction resulted
in a gain to the Company of $1,638,000. In connection with this transaction,
AASP resigned as the manager of the LLC, and agreed not to compete with the
Callaway Golf Center[TM] in Clark County, Nevada for a period of two years.
However, AASP retained the option to repurchase the 80% membership interest
for a period of two years. On December 31, 1998 AASP acquired substantially
all the assets subject to certain liabilities of the LLC from Callaway. This
acquisition resulted in AASP owning 100% of the Callaway Golf Center.
F-8
<PAGE>
The Callaway Golf Center 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.
AASP has developed a concept for family-oriented sports-themed amusement
venues named "All-American SportPark" ("SportPark" or "SPLV"). The first
SportPark, comprising 23 acres adjacent to the Callaway Golf Center, opened
for business on October 9, 1998. The SportPark 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.
As of December 31, 1999, SPEN owns two-thirds of the outstanding common stock
of AASP and one-third 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.
c. CONCENTRATIONS OF RISK
In addition to its single retail outlet, the Company operates one SportPark
and the Callaway Golf Center in Las Vegas, Nevada. The level of sustained
customer demand for these types of recreational facilities is undetermined.
The Company has implemented 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 not 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 years ended
December 31, 1999 and 1998, the Company had a net loss of $3,491,526 and
$1,057,000, and negative cash flow from operations of $968,935 and $3,601,000,
respectively. Additionally, as of December 31, 1999 the Company had a working
capital deficit of $14,505,566 and cash and cash equivalents of $200,501.
Approximately $13.5 million of the 1999 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 December 31, 1999
would be about $1.4 million. See Note 7 for further information on the note
payable in default.
F-9
<PAGE>
Additionally, the Company negotiated an agreement with the landlord to defer
the land lease payments, totaling $52,083 per month, on both the SportPark and
Callaway Golf Center beginning September 1999 with no specified ending date.
Management of the Company believes that the landlord is willing to defer land
lease payments until such time as adequate capital resources are available to
the Company to make such payments.
Management of AASP believes that (1) negotiation of a reasonable work-out plan
with the Bank, (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.
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 may require revision in future periods.
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 from the sale of merchandise
and/or services.
c. INVENTORIES
Inventories, which consist primarily of sporting goods merchandise, are stated
at the lower of cost (retail average cost method) or market.
d. PREOPENING EXPENSES
Preopening costs are expensed as incurred and represent direct personnel and
other operating costs incurred before the opening of the SportPark in October
1998.
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:
F-10
<PAGE>
Furniture and equipment 3-10 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 AASP. Deferred income is amortized to income over
the life of the applicable agreement.
g. ADVERTISING
The Company expenses advertising costs as incurred. Advertising costs
amounted to $806,563 and $430,590 in 1999 and 1998, respectively.
h. RECOVERABILITY OF LONG-LIVED ASSETS
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 of undiscounted future operating cash flows directly
related to the asset, including disposal value if any, is less than its
carrying amount. If an asset is determined to be impaired, the loss is
measured as the amount by which the carrying amount of the asset exceeds fair
value. The Company generally measures fair value by discounting estimated
cash flows. Considerable management judgement is necessary to estimate
discounted cash flows. Accordingly, actual results could vary significantly
from such estimates. Based upon the short duration of operations at the
SportPark and cash flow projections for the SportPark, the Company does not
believe that a triggering event has occurred with respect to the operating
losses incurred.
i. LOSS PER SHARE
Basic and diluted loss per share is 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 for 1999 and 1998 were
8,135,097 and 6,298,685, respectively.
j. RECLASSIFICATIONS
Certain items previously reported in specific financial statement captions
have been reclassified to conform with the 1999 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 sporting good merchandise. 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." The golf facilities are comprised of an
executive golf course, driving range, putting course, clubhouse and training
center.
F-11
<PAGE>
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, 1999, is as follows (thousands of dollars):
1999
Sports-Oriented
Retail Theme Park
Operations Operations Adjustments Total
---------- --------------- ----------- -----------
Revenues from External
Customers $2,787,930 $7,006,670 $ - $ 9,794,600
Interest Income 652 53,951 - 54,603
Interest Expense 107,009 1,522,475 - 1,629,484
Depreciation & Amorti-
zation 21,081 1,675,273 - 1,696,354
Minority Interest - - 607,100 607,100
Segment Assets 5,021,000 25,710,373 (4,672,591) 26,058,782
Capital Expenditures $ 9,789 $ 1,000,023 $ - $ 1,009,812
1998
Sports-Oriented
Retail Theme Park
Operations Operations Adjustments Total
---------- --------------- ----------- -----------
Revenues from External
Customers $2,961,200 $ 1,583,800 $ - $ 4,545,000
Interest Income 9,124 25,056 - 34,180
Interest Expense 56,824 579,056 (63,000) 572,880
Depreciation & Amorti-
zation 26,000 465,000 (67,000) 424,000
Minority Interest - - 490,800 490,800
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
4. RELATED PARTY TRANSACTIONS
The Company has extensive transactions and relationships with its chairman and
principal shareholder, the Paradise Store, AASP, and the golf retail store
located inside the Callaway Golf Center[TM] Saint Andrews Golf Shop ("SAGS"),
which is owned by AASP's President, and another principal shareholder of the
Company. The Paradise Store and SAGS are collectively referred to as the
"Affiliated Stores." The types of activities that take place or are shared
between these entities are inventory purchases, advertising, payroll and
employee benefits, warehouse rent, equipment leases, and miscellaneous office
expenses. Costs are allocated to the respective companies based on relative
benefit received. The Affiliated Stores purchased merchandise at the same
cost as the Company. The Paradise Store and the Company owned store share
advertising costs equally in the Las Vegas market area. These advertising
F-12
<PAGE>
costs were $148,376 and $259,000 in 1999 and 1998, respectively. Sales of
merchandise made by the Paradise Store to the Company totaled $899,613 and
$950,574 for the years ended December 31, 1999 and 1998, respectively. The
Paradise store purchased $46,567 and $85,600, respectively, in sporting goods
merchandise from the Company.
AASP has unsecured, ten percent notes payable of $230,000 and $455,300 as of
December 31, 1999 and 1998 with the Paradise Store. A payment of $225,300 was
made on these notes in late March 1999. These notes are due at various dates
beginning in 2001. The principal amount, interest rate, and payment terms are
substantially similar to borrowings which the Paradise Store obtained from a
bank to fund these loans to AASP. Accrued interest payable of $62,712 and
$35,500 at December 31, 1999 and 1998, respectively, is included with the note
payable balance under the caption "Due to Affiliated Stores" in the
accompanying consolidated balance sheets. Interest payments of $27,212 and
$35,500 have been deferred in 1999 and 1998, respectively, a practice which is
expected to continue in 2000 if necessary.
AASP has unsecured, ten percent notes payable of $1,250,000 for December 31,
1999 and 1998 with the Company's chairman and principal shareholder. These
notes are due at various dates from November 30, 2000 to July 20, 2001.
Amounts due in 2000 are $200,000 with the balance due in 2001. 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 AASP. Accrued interest payable of $234,616
and $107,200 at December 31, 1999 and 1998, respectively, is included in the
balance due under the caption "Note payable to Shareholder" in the
accompanying consolidated balance sheets. Interest payments of $127,397 and
$102,200 have been deferred in 1999 and 1998, respectively, a practice which
is expected to continue in 2000 if necessary.
5. LEASEHOLD IMPROVEMENTS AND EQUIPMENT
Leasehold improvements and equipment included the following as of December 31:
1999 1998
----------- -----------
Building $18,049,814 $17,959,987
Go-Karts 457,115 457,115
Land Improvement 3,446,069 3,139,445
Signs 745,299 651,077
Furniture and equipment 2,184,835 1,794,294
Leasehold improvements 654,485 372,522
Assets under capital leases 734,296 672,600
Other 98,704 152,060
----------- -----------
26,370,617 25,199,100
Less accumulated depreciation
and amortization (2,179,577) (524,000)
----------- -----------
$24,191,040 $24,675,100
=========== ===========
6. BANK LINE OF CREDIT
As of December 31, 1997, the Company had an $800,000 bank line of credit,
which was paid off and canceled in February 1998.
F-13
<PAGE>
7. LONG-TERM DEBT
On September 15, 1998 AASP completed a $13,500,000 secured loan with Nevada
State Bank. The loan is for 15 years with the interest measured at a fixed
rate of 4% above the Bank's five-year LIBOR rate measured September 1, 1998,
2003 and 2008. Through August 31, 2003, the loan bears interest of 9.38%. The
loan is secured by substantially all the assets of AASP 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 Bank 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 SPEN to the
landlord as collateral. Additionally, the landlord was issued 75,000 stock
options exercisable at $4.00 per share through the year 2005.
AASP is not in compliance with certain debt covenants related to this loan as
of September 30, 1999. Also, because of cash constraints, AASP did not make
its September loan payment to the Bank and since then has not made any loan
payments. The Bank has notified the Company that failure to make such monthly
payments constitutes a default under the terms of the loan; the Bank filed a
formal notice of default on December 22, 1999. AASP management has had
discussions with the Bank in an attempt to renegotiate the terms of the loan.
As part of these discussions, the Bank and AASP agreed that an amusement park
industry management 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 Bank hired a different industry
consultant to review MRI's recommendations. AASP management met with the
Bank's representative on March 21, 2000 to discuss the results of both reports
and begin negotiations of a work-out plan. AASP presented its proposal to the
Bank; the Bank is now in the process of evaluating the proposal and is
expected to respond by early April 2000. There can be no assurance that AASP
will be successful in negotiating a work-out plan with the Bank. As a result
of the default, the entire outstanding balance of the note is classified as a
current liability in the accompanying consolidated balance sheet at December
31, 1999.
On December 31, 1998 AASP reacquired substantially all the assets subject to
certain liabilities of the Callaway Golf Center. Under terms of the asset
purchase agreement, the consideration paid by AASP consisted of payment to
Active Media Services $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 to reflect the notes' present value. As
of December 31, 1999 and 1998 the note is recorded at $588,719 and $645,000,
respectively, in the accompanying consolidated balance sheets.
The only other note payable is for equipment at the SportPark in the original
amount of $39,055. Payments are $808 per month with interest at 8.75% per
annum. The note matures March 18, 2004. The balance owing at December 31,
1999 was $34,196.
Aggregate maturities of long-term debt for the five years subsequent to
December 31, 1999, are as follows:
F-14
<PAGE>
Year ending:
2000 $13,102,310
2001 57,515
2002 63,145
2003 69,326
2004 68,400
Thereafter 312,141
-----------
$13,672,837
===========
8. LEASES
SPEN and AASP share office and warehouse facilities leased from the Chairman
of the Board under a non-cancelable operating lease agreement, which expires
on January 31, 2005. Rent is allocated 50% to SPEN and 50% to AASP. Rent
expense for the Company's allocated share of this lease was $7,924 and $33,970
for 1999 and 1998, respectively.
The land underlying the All-American SportPark and Callaway Golf Center is
leased to AASP at a base amount of $52,083 per month allocated $18,910 and
$33,173, respectively. Also, the lease has provisions for contingent rent to
be paid by AASP upon reaching certain levels of gross revenues. The lease
commenced October 1, 1997 for the Callaway Golf Center and February 1, 1998
for the SportPark. The terms of both leases are 15 years with two five-year
renewal options. The minimum rent shall be increased at the end of the fifth
year of the term and every five years thereafter by an amount equal to ten
percent of the minimum monthly installment immediately preceding the
adjustment date.
As a condition to the lease, AASP 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 prepaid rent to be amortized until a balance of
$37,821 remains which is the balance at December 31, 1999.
Due to cash constraints, AASP negotiated an agreement with the landlord to
defer the land lease payments on both the SportPark and Callaway Golf Center
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 also leases retail space for the Company-owned store under a
non-cancelable operating lease agreement which will expire on July 31, 2000
and provides for a base monthly rental payment of $10,370. 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 $124,525 and $117,100
in 1999 and 1998, 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 $757,449 and $621,380 for
1999 and 1998, respectively.
F-15
<PAGE>
At December 31, 1999, minimum future lease payments are as follows:
Capital Operating
Year Leases Leases Total
---- -------- --------- ----------
2000 $215,225 $ 790,385 $ 1,005,610
2001 199,262 764,550 963,812
2002 143,417 725,307 868,724
2003 108,600 726,140 834,740
2004 9,051 697,700 706,751
Thereafter - 5,853,950 5,853,950
-------- ---------- -----------
Total $675,555 $9,558,032 $10,233,587
========== ===========
Less amount representing
interest (114,907)
--------
Present value of net minimum
capital leases payments 560,648
Current portion 165,145
--------
Obligations under capital
leases net of current portion $395,503
========
INCOME TAXES
The federal income tax provision (benefit) from continuing operations
consisted of the following for the years ended December 31:
1999 1998
------------ ---------
Current $(3,310,739) $(380,000)
Deferred 1,470,759 (483,200)
Less valuation allowance 1,323,161 481,700
----------- ---------
Total $ (516,819) $(381,500)
=========== =========
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:
F-16
<PAGE>
Deferred Tax Liabilities: 1999 1998
----------- ---------
Temporary differences related to
Property and Equipment $(1,894,158) $ (49,900)
Book/tax basis difference in AASP (214,000)
Other - -
----------- ---------
Total Deferred Tax Liabilities (1,894,158) (263,900)
Deferred Tax Assets:
Deferred Income 236,094 298,500
Other 125,498 29,500
Net Operating Loss Carryforward 3,469,427 402,000
----------- ---------
Net Deferred Tax Asset Before valuation
Allowance 1,936,861 466,100
Valuation allowance (1,936,861) (613,700)
----------- ---------
Net Deferred Tax asset (liability) $ - $(147,600)
=========== =========
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. A valuation allowance has been established to reserve the
net deferred tax asset (liability)since management does not believe it is more
likely than not that they will be realized.
The provision (benefit) for income taxes attributable to income (loss) from
continuing operations, does not differ naterially from the amount computed at
the federal income tax stautory rate.
10. CAPITAL STOCK, STOCK OPTIONS, AND INCENTIVES
a. CAPITAL STOCK
On October 19, 1998, SPEN 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, a 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
F-17
<PAGE>
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 had expired prior to 1999
while the remaining 421,000 shares expired in July 1999. An additional 11,000
shares were granted in 1995 at an exercise price of $.80. These options
expired in 1998. Total options outstanding under the 1991 Plan were 421,000
and 432,000 at December 31, 1999 and 1998, respectively, of which the options
outstanding at December 31, 1999 and 1998 were all exercisable at $1.09 and
$.80, respectively.
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 1999: 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 1.88; and a weighted-average expected life of the option of 6.51
years. The assumptions for 1998 were: risk-free interest rate of 4.20%;
dividend yield of 0.0%; volatility factor of the expected market price of the
Company's common stock of 1.36; and a weighted average expected life 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
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:
F-18
<PAGE>
Year ended December 31,
1999 1998
----------- ------------
Net loss
As reported $(3,491,526) $(1,057,000)
Pro forma (3,491,526) (1,057,000)
Basic and diluted net
loss per share
As reported (.43) (.17)
Pro forma $ (.43) $ (.17)
A summary of changes in the status of the Company's outstanding stock options
for the years ended December 31, 1999 and 1998 is presented below:
1999 1998
--------------------- ----------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
-------------------- ----------------------
Outstanding at beginning
of year 768,975 $1.27 432,000 $0.80
Granted 421,000 1.09 347,975 1.84
Exercised - - - -
Forfeited - - (11,000) 0.80
Expired (421,000) 0.80 - -
-------------------- ----------------------
Outstanding at end of year 768,975 $1.43 768,975 $1.27
==================== ======================
Exercisable at end of year 768,975 $1.43 768,975 $1.27
==================== ======================
Weighted average fair value
of options granted $0.45 $0.77
==================== ======================
The following table summarizes information about stock options outstanding at
December 31, 1999:
Options Outstanding Options Exercisable
------------------------- ---------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Outstanding Life (Years) Price Exercisable Price
------------------------- --------------------------------
Range of exercise
prices $1.09-$1.84 768,975 6.51 $1.43 768,975 $1.43
========================= ================================
c. PREFERRED STOCK
On June 1, 1992, the shareholders approved an amendment to the Articles of
Incorporation authorizing the issuance of up to 5,000,000 shares of preferred
stock. On October 21, 1992, the Board of Directors authorized the creation of
F-19
<PAGE>
Series A convertible preferred stock with no par value. The Board also
authorized the issuance of 512,799 shares of the Series A convertible
preferred stock to the Company's chairman and principal shareholder in
exchange for services rendered valued at $5,128. The Series A Convertible
Preferred Stock shares are not entitled to any dividend, have a liquidation
preference of $.01 per share or $5,128 and are automatically convertible into
512,799 shares of the Company's common stock once the audited financial
statements of the Company for any fiscal year reports pre-tax income of at
least $1,000,000. Each share of Series A Convertible Preferred Stock entitles
the holder to one vote with full voting rights and powers of a holder of
shares of common stock. During 1994 all of 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 at $10.00 per share for a total of $5,000,000. The agreement
also resulted in the assignment of certain rights. 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 in the accompanying consolidated
balance sheets.
Each share of the Series A Convertible Preferred Stock is convertible 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 meeting
certain conditions.
The rights granted to the Series A preferred stockholder 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 ending
July 29, 2001 (2) an obligation to obtain electrical and electronic equipment
for such SportParks for a period of 5 years, (3) certain signage rights for
the holder or its designees at the first two SportParks and (4) other
miscellaneous rights as defined. Pursuant to the agreement, AASP also granted
the holder an option to purchase up to 250,000 shares of AASP's common stock
at $3.06 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.
F-20
<PAGE>
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, SPEN for $2,500,000 in cash.
Each share of the Series B Convertible Preferred Stock issued to SPEN is
convertible at the option of SPEN 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 meeting
certain conditions.
f. AASP COMMON STOCK AND COMMON STOCK PURCHASE WARRANTS
In 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
purposes. The Class A Warrants expired unexercised March 15, 1999.
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. These
warrants expired unexercised December 12, 1999.
11. 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 1999 and 1998, 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 $6,770 and
$10,400 for 1999 and 1998, respectively.
12. SUPPLEMENTAL NON-QUALIFIED RETIREMENT PLAN
In 1995, the Company entered into a Supplemental Retirement Plan for certain
key employees of which the President of the Company and AASP is included.
This plan became effective on January 1, 1996. The Company made contributions
to the plan of $30,250 and $45,900 for 1999 and 1998, respectively.
F-21
<PAGE>
13. COMMITMENTS AND CONTINGENCIES
The Company has employment agreements with its President, as well as other key
employees which require the payment of fixed and incentive based compensation.
In 1994, AASP entered into an agreement with Major League Baseball ("MLB") to
license 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, AASP
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. As consideration
for the license, AASP agreed to pay $50,000 for each Stadium opened provided
that in any year of the term of the agreement a stadium is not opened, AASP
must pay $50,000 during such year. In addition to and as an offset against the
minimum payments set out above, AASP is required to pay to MLB a royalty based
on the gross revenue derived from Slugger Stadium. AASP has made the payments
required for 1995, 1996 and 1997.
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.
AASP has a license agreement with The National Association of Stock Car Auto
Racing, Inc. ("NASCAR") for the operation of SpeedParks as a part of SPLV or
as a stand-alone 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 through December 31, 2003.
In 1997, AASP entered into an agreement with the Pepsi-Cola Company ("Pepsi")
concerning an exclusive sponsorship agreement. Under the agreement, Pepsi
receives certain exclusive rights related to soft drinks, tea products, juice
products, bottled water and similar products in exchange for a series of
payments beginning when the SportPark opened. The rights granted to Pepsi
include that Pepsi's products will be exclusively sold for the categories
listed, that only Pepsi identified cups will be used in SPLV, and that Pepsi
would have the right to name the multipurpose arena the AllSport Arena. In
addition, Pepsi will provide the equipment needed to dispense its products at
the SportPark. The agreement with Pepsi provides that AASP and Pepsi will
participate in joint marketing programs such as promotions on Pepsi's products
and local radio advertising. 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 SportPark and Pepsi. The sponsorship agreement
terminates in October 2003, unless earlier terminated as provided in the
agreement.
In 1997, AASP entered into a lease and concession agreement with Sportservice
Corporation ("Sportservice") which provides SportService with the exclusive
right to prepare and sell all food, beverages (alcoholic and non-alcoholic),
candy and other refreshments throughout SPLV, including the Callaway Golf
Center , during the ten year term of the agreement. Sportservice has agreed
to pay rent based on a percentage of gross sales depending upon the level of
sales, whether the receipts are from concession sales, the Arena restaurant,
the Clubhouse, vending machines, mobile stands, or catering sales. The
F-22
<PAGE>
agreement also provides Sportservice with a right of first refusal for future
parks to be built by AASP in consideration for a fixed payment.
In 1998, 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 SPLV.
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.
14. SUBSEQUENT EVENT
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.
F-23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned thereunder duly authorized.
SPORTS ENTERTAINMENT ENTERPRISES, INC.
Dated: April 28, 2000 By: /s/ Vaso Boreta
Vaso Boreta, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
- ----------------------- -------------------------- -------------
/s/ Vaso Boreta President, Chairman of the April 28, 2000
Vaso Boreta Board, Secretary, Treasurer
and Director
/s/ Ronald S. Boreta Director April 28, 2000
Ronald S. Boreta
/s/ Kirk Hartle Chief Financial Officer April 28, 2000
Kirk Hartle
/s/ Robert S. Rosburg Director April 28, 2000
Robert S. Rosburg
/s/ William Kilmer Director April 28, 2000
William Kilmer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheets and statements of operations found on pages F-3 through F-6 of
the Company's Form 10-KSB for the fiscal year ended December 31, 1999, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 200,501
<SECURITIES> 0
<RECEIVABLES> 135,823
<ALLOWANCES> 0
<INVENTORY> 643,332
<CURRENT-ASSETS> 1,225,956
<PP&E> 26,370,617
<DEPRECIATION> 2,179,577
<TOTAL-ASSETS> 26,058,782
<CURRENT-LIABILITIES> 15,731,522
<BONDS> 0
0
0
<COMMON> 6,107,700
<OTHER-SE> (5,560,326)
<TOTAL-LIABILITY-AND-EQUITY> 26,058,782
<SALES> 9,794,600
<TOTAL-REVENUES> 9,794,600
<CGS> 4,462,298
<TOTAL-COSTS> 4,462,298
<OTHER-EXPENSES> 8,318,263
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,629,484
<INCOME-PRETAX> (4,615,445)
<INCOME-TAX> (516,819)
<INCOME-CONTINUING> (3,491,526)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,491,526)
<EPS-BASIC> (.43)
<EPS-DILUTED> (.43)
