U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
Commission File Number: 0-17436
SPORTS ENTERTAINMENT ENTERPRISES, INC.
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(Exact name of small business issuer as specified in its charter)
Colorado 84-1034868
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(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
6730 South Las Vegas Boulevard, Las Vegas, Nevada 89119
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(Address of principal executive offices including zip code)
(702) 798-7777
---------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No___
As of November 14, 2000, 8,135,097 shares of common stock were outstanding.
Transitional Small Business Disclosure Format (check one): Yes___ No X
<PAGE>
SPORTS ENTERTAINMENT ENTERPRISES, INC. AND SUBSIDIARIES
FORM 10-QSB
INDEX
Page Number
PART I: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets
September 30, 2000 and December 31, 1999 3
Consolidated Statements of Operations
Three Months Ended September 30, 2000 and 1999 5
Consolidated Statements of Operations
Nine Months Ended September 30, 2000 and 1999 6
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2000 and 1999 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis or
Plan of Operation 13
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
2
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SPORTS ENTERTAINMENT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------ ------------
(UNAUDITED)
Current assets:
Cash and cash equivalents $ 204,722 $ 200,501
Accounts receivable 179,975 135,823
Inventory 757,870 643,332
Prepaid expenses and other 225,575 246,300
------------ ------------
Total current assets 1,368,142 1,225,956
Leasehold improvements and equipment, net 22,881,786 24,191,040
Due from affiliated stores 138,610 168,779
Note receivable - related party 20,000 20,000
Debt issuance costs, net 323,476 353,425
Deposit for land lease 37,821 37,821
Other assets 60,333 61,761
------------ ------------
Total assets $ 24,830,168 $ 26,058,782
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
3
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SPORTS ENTERTAINMENT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------ ------------
(UNAUDITED)
Current liabilities:
Current portion of long-term debt $ 13,106,109 $ 13,102,310
Current portion of obligations under
capital leases 119,605 165,144
Accounts payable and accrued expenses 3,885,537 2,464,068
------------ ------------
Total current liabilities 17,111,251 15,731,522
Note payable to shareholder 1,575,046 1,484,616
Due to affiliated stores 1,588,094 1,634,842
Long-term debt, net of current portion 527,899 570,527
Obligation under capital leases, net
of current portion 236,119 395,505
Deferred income 718,892 694,396
------------ ------------
Total liabilities 21,757,301 20,511,408
Minority interest 5,000,000 5,000,000
------------ ------------
Shareholders' equity (deficit):
Series A Convertible Preferred stock,
no par value, 500,000,000 shares
authorized; no shares issued and
outstanding for 2000 and 1999 - -
Common stock, no par value, 15,000,000
shares authorized, 8,135,097 shares
issued and outstanding at September 30,
2000 and December 31, 1999 6,107,700 6,107,700
Stock options issued 268,300 268,300
Accumulated deficit (8,303,133) (5,828,626)
------------ ------------
Total shareholders' equity (deficit) (1,927,133) 547,374
------------ ------------
Total liabilities and shareholders'
equity (deficit) $ 24,830,168 $ 26,058,782
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
4
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SPORTS ENTERTAINMENT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
2000 1999
------------ ------------
Revenues:
SportPark Las Vegas $ 867,318 $ 1,232,657
Retail operations 659,692 687,282
Callaway Golf Center[TM] 650,747 548,724
Other 1,482 7,281
------------ ------------
Total revenues 2,179,239 2,475,944
------------ ------------
Cost of Revenues:
SportPark Las Vegas 175,431 404,524
Retail operations 504,418 526,274
Callaway Golf Center[TM] 146,637 114,618
------------ ------------
Total cost of revenues 826,486 1,045,416
------------ ------------
Gross profit 1,352,753 1,430,528
------------ ------------
Operating expenses:
Selling, general and administrative 1,401,898 1,769,239
Depreciation and amortization 429,253 429,845
------------ ------------
Total operating expenses 1,831,151 2,199,084
------------ ------------
Operating loss (478,398) (768,556)
Interest income (expense), net (405,789) (423,637)
------------ ------------
Loss before income tax benefit (884,187) (1,192,193)
Income tax benefit - (156,832)
------------ ------------
Loss before minority interest (884,187) (1,035,361)
Minority interest in loss of subsidiary - -
------------ ------------
Net loss $ (884,187) $ (1,035,361)
============ ============
NET LOSS PER SHARE:
Basic and diluted $ (0.11) $ (0.13)
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
5
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SPORTS ENTERTAINMENT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
2000 1999
------------ ------------
Revenues:
SportPark Las Vegas $ 2,811,181 $ 3,363,305
Retail operations 2,114,684 1,938,824
Callaway Golf Center[TM] 1,887,339 1,557,494
Other 24,665 19,781
------------ ------------
Total revenues 6,837,869 6,879,404
------------ ------------
Cost of Revenues:
SportPark Las Vegas 622,018 986,634
Retail operations 1,551,542 1,569,917
Callaway Golf Center[TM] 344,007 284,071
------------ ------------
Total cost of revenues 2,517,567 2,840,622
------------ ------------
Gross profit 4,320,302 4,038,782
------------ ------------
Operating expenses:
Selling, general and administrative 4,388,429 5,010,454
Depreciation and amortization 1,298,152 1,259,632
------------ ------------
Total operating expenses 5,686,581 6,270,086
------------ ------------
Operating loss (1,366,279) (2,231,304)
Interest income (expense), net (1,224,958) (1,191,542)
------------ ------------
Loss before income tax benefit (2,591,237) (3,422,846)
Income tax benefit - (231,719)
------------ ------------
Loss before minority interest (2,591,237) (3,191,127)
Minority interest in loss of subsidiary 116,730 607,100
------------ ------------
Net loss $ (2,474,507) $ (2,584,027)
============ ============
NET LOSS PER SHARE:
Basic and diluted $ (0.30) $ (0.32)
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
6
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SPORTS ENTERTAINMENT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,474,507) $ (2,584,027)
Adjustment to reconcile net loss to net cash
provided by (used in) operating activities:
Minority interest (116,730) (607,100)
Depreciation and amortization 1,298,152 1,447,522
Loss on sale of equipment 1,669 -
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (44,152) 206,482
Increase in inventories (114,538) (64,220)
(Increase) decrease in prepaid expenses and other 138,883 (111,520)
Increase in accounts payable and accrued expenses 1,421,469 677,597
Increase (decrease) in deferred income 24,496 (96,825)
------------ ------------
Net cash provided by (used in) operating
activities 134,742 (1,132,091)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Leasehold improvements expenditures (108,467) (884,149)
Proceeds from sale of equipment 37,023 -
------------ ------------
Net cash used in investing activities (71,444) (884,149)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in due to Affiliated Stores (16,579) 234,937
Increase (decrease)in notes payable and notes
payable to shareholder and related entity 51,601 (582,486)
Principal payments on capital leases (94,099) (104,373)
------------ ------------
Net cash used in financing activities (59,077) (451,922)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,221 (2,468,162)
CASH AND CASH EQUIVALENTS, beginning of period 200,501 2,584,900
------------ ------------
CASH AND CASH EQUIVALENTS, end of period 204,722 116,738
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 59,685 $ 913,291
============ ============
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Equipment financed through notes and capital leases $ - $ 92,417
============ ============
Common stock of subsidiary issued in exchange for
consulting services $ 116,730 $ -
============ ============
Capital lease obligation reduced in connection
with sale of equipment $ 110,826 $ -
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
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SPORTS ENTERTAINMENT ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements include the
accounts of Sports Entertainment Enterprises, Inc. ("SPEN") a Colorado
corporation, and its subsidiaries, All-American SportPark, Inc. ("AASP"), LVDG
Development Corporation ("Development") and LVDG Rainbow, Inc.
("Rainbow")(collectively, the "Company"). As of September 30, 2000, SPEN owns
63.5% of the outstanding common stock and one-third of the outstanding
convertible preferred stock of AASP, a publicly traded company. All
significant inter-company accounts and transactions have been eliminated.
The accompanying financial statements have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange
Commission relating to interim financial statements. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. In the opinion of management, all necessary adjustments
consisting of normal recurring adjustments have been made to present fairly,
in all material respects, the financial position, results of operations and
cash flows of the Company at September 30, 2000, and for all periods
presented.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that may require revision in future periods.
Certain reclassifications have been made to amounts in the 1999 statements of
operations to conform to the 2000 presentation.
These consolidated financial statements should be read in conjunction with the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1999
and the Company's reports on From 10-QSB for the quarters ended March 31 and
June 30, 2000. The balance sheet information presented as of December 31,
1999, is derived from the Company's audited financial statements included in
its Form 10-KSB for the year then ended.
The Company's current operations consist of one Company-owned retail store in
Las Vegas, Nevada and the management and operation of 65 acres of sports
entertainment located on the south end of the Las Vegas "Strip" including the
following: (1) The Callaway Golf Center located on 42 acres of land that
includes the Divine Nine par 3 golf course fully lighted for night golf, a
110-tee two-tiered driving range which has been ranked the Number 2 golf
practice facility in the United States since it opened in October 1997, a
20,000 square foot clubhouse which includes the St. Andrews Golf Shop,
Callaway Performance Center, Giant Golf teaching academy, and the Bistro 10
restaurant and bar. (2) The SportPark Las Vegas which is a family-oriented
sports-themed amusement venue named "All-American SportPark" ("SportPark" or
"SPLV"). The SportPark comprises 23 acres adjacent to the Callaway Golf
Center and opened for business on October 9, 1998. The SportPark's major
attractions include NASCAR SpeedPark, Major League Baseball Slugger Stadium,
the 100,000 square foot Arena Pavilion which houses the Pepsi AllSport Arena,
"The Rock" 47-foot rock climbing wall, Namco Timeout Arcade, Indoor putting
challenge, Boston Garden restaurant and bar, Skybox suites and several other
interactive experiences and retail shops.
8
<PAGE>
2. SPORTPARK LAS VEGAS LOAN AGREEMENT
On September 15, 1998 AASP entered into a $13,500,000 loan agreement with
Nevada State Bank ("Lender"). The original term of the loan is 15 years with
interest measured at a fixed rate of 4% above the Lender's five-year LIBOR
rate measured September 1, 1998, 2003 and 2008. The initial interest rate
through 2003 is 9.38%. The loan is secured by substantially all the assets of
AASP that existed at the time the financing was completed as well as corporate
guarantees of AASP and SPEN. The Callaway Golf Center was not owned by AASP at
the time this financing was completed and therefore is not security for this
loan. To facilitate this financing transaction, the owner of the leasehold
interest in the land underlying the SportPark executed a trust deed granting a
security interest in the leased property to the Lender to secure repayment of
the loan. As consideration for the Landlord's willingness to provide
collateral for the loan, AASP's President and CEO, its Chairman, and a related
entity pledged their stock (the "Boreta Stock") in SPEN to the landlord. The
landlord was also issued 75,000 stock options exercisable at $4.00 per share
through the year 2005. Additionally, the Chairman of the Company pledged three
parcels of land owned by him (the "Chairman's parcels") as additional
collateral to secure the loan. Provisions in the loan agreement allowed for
the reconveyance of these three parcels to the Chairman of the Company upon
the SportPark achieving certain debt service coverage milestones.
AASP has not been in compliance with certain debt covenants related to this
loan since September 1999. Also, because of cash constraints, AASP did not
make its September 1999 loan payment to the Lender and since then has not made
any loan payments. In November 1999, AASP began discussions with the Lender
in an attempt to renegotiate the terms of the loan. As a result of these
discussions, an amusement park industry consultant was retained to evaluate
all operational aspects of the SportPark and provide recommendations to
improve the SportPark performance. This industry consultant completed its
assignment in February 2000. AASP met with the Lender on March 21, 2000 to
discuss the results of the consultant's reports and to present AASP's proposal
for a work-out plan. The Lender did not accept the SportPark's plan as
presented at the March 21 meeting.
AASP has been working diligently for some time with the objective to either
(1) sell the SportPark to a buyer that will assume, renegotiate, or refinance
the bank loan and provide for the full release of AASP, SPEN, and its related
parties from any further obligation on the loan, or (2) locate another lender
or partner to facilitate a refinancing of the bank loan.
In July 2000, the Lender filed a notice of sale and foreclosure on the
Chairman's parcels. In October, 2000, the Company's Chairman sold the
property within which the Chairman's parcels were located and paid the Lender
$2,750,000 to fully release the obligations associated with this collateral.
The Lender applied the $2,750,000 as a reduction to the outstanding SportPark
loan obligation.
On November 13, 2000, the Company reached an agreement with the Lender whereby
the Lender agreed to release AASP and SPEN from their guarantees on the
SportPark Note Payable, a note payable on certain SportPark equipment
("Equipment Note"), and a lease agreement for certain SportPark equipment
("Equipment Lease"). In exchange, AASP, SPEN and certain other related
parties agreed to fully release the Lender and its affiliates from any claims
related to the SportPark Note Payable, Equipment Note, and Equipment Lease.
At the same time, the Landlord purchased from the Lender the SportPark Note
9
<PAGE>
Payable, Equipment Note, and Equipment Lease. As a result, the Landlord
became the first lien holder on the SportPark property, and also became the
lender on the Equipment Note and Equipment Lease, with exactly the same rights
that the previous Lender had except that the guarantees of AASP and SPEN no
longer exist on any of these three obligations. The Landlord and the Company
are negotiating with two unrelated parties to possibly manage and operate the
SportPark. Several other strategies are also being considered. It is
uncertain at this time how the ongoing relationship with the Landlord will be
structured for the SportPark property. Management of the Company is currently
negotiating with the Landlord to further resolve this SportPark issue. It is
uncertain at this time as to how each of the foregoing transactions will be
structured. AASP may or may not have continuing involvement with the
SportPark property.
Although management of AASP believes that a favorable resolution may be
achieved with regard to this SportPark issue, there can be no assurance that
AASP will be successful in doing so. Also, see Note 8.
3. EARNINGS PER SHARE AND SHAREHOLDER'S EQUITY
Basic and diluted earnings per share are computed by dividing reported
earnings by the weighted average number of common shares outstanding during
the period. The weighted-average number of common and common equivalent shares
used in the calculation of basic and diluted earnings per share were 8,135,097
for the three and nine month periods ended September 30, 2000 and 1999.
In January and February 2000, AASP issued an aggregate of 150,000 shares of
its common stock to a consultant and a person affiliated with the consultant
in exchange for business consulting services. The issuance of these shares
was valued at a forty percent discount from the closing market price of AASP's
common stock on or about the date that the shares were issued.
4. RELATED PARTY TRANSACTIONS
AASP has unsecured, ten percent notes payable to its Chairman of $1,259,702
and $1,250,000 at September 30, 2000 and December 31, 1999, respectively.
Accrued interest payable of $315,344 and $234,616 at September 30, 2000 and
December 31, 1999, respectively, is included in the balance due under the
caption "Note payable to Shareholder" in the accompanying consolidated balance
sheets.
AASP has unsecured, ten percent notes payable to the Paradise Store of
$264,967 and $230,000 as of September 30, 2000 and December 31, 1999,
respectively. The Paradise Store is a golf retail store owned 100% by the
Company's Chairman. Accrued interest payable of $55,202 and $62,712 at
September 30, 2000 and December 31, 1999, respectively, is included with the
note payable balance under the caption "Due to Affiliated Stores" in the
accompanying consolidated balance sheets.
The Company normally has extensive transactions with its chairman and
principal shareholder, and a retail store owned by the Company's chairman (the
"Affiliated Store" or "Paradise Store"). The Paradise Store operates in Las
Vegas, Nevada. The Paradise Store and the Company's Rainbow retail store
benefit through volume purchasing together and shared costs of local and
national advertising conducted by the Paradise Store. The Paradise Store and
the Company-owned store share advertising costs equally in the Las Vegas
10
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market area. These advertising costs were $80,879 and $99,701 for the nine
months ended September 30, 2000 and 1999, respectively. Purchases of
merchandise from the Paradise Store are recorded at the Company's cost and
totaled $321,394 and $573,238 for the nine months ended September 30, 2000 and
1999, respectively.
5. LEASEHOLD IMPROVEMENTS AND EQUIPMENT
Leasehold improvements and equipment include the following as of September 30,
2000 and December 31, 1999:
2000 1999
----------- -----------
Building $18,105,736 $18,049,814
Land improvements 3,468,434 3,446,069
Furniture and equipment 2,203,257 2,184,835
Leased equipment 530,693 734,296
Signs 745,299 745,299
Go-Karts 457,115 457,115
Leasehold improvements 659,824 654,485
Other 103,604 98,704
----------- -----------
26,273,962 26,370,617
Accumulated depreciation and
amortization (3,392,176) (2,179,577)
----------- -----------
$22,881,786 $24,191,040
=========== ===========
6. LEASES
The land underlying the SPLV and CGC is leased to AASP at a base amount of
$52,083 per month allocated $33,173 to CGC and $18,910 to SPLV. Also, the
lease has provisions for contingent rent to be paid by AASP upon reaching
certain gross revenue levels. The lease commenced October 1, 1997 for CGC and
February 1, 1998 for SPLV. The terms of both leases are 15 years with two
five-year renewal options.
Due to cash constraints, AASP negotiated an agreement with the landlord to
defer the land lease payments on both the SPLV and CGC beginning September
1999 with no specified ending date. Management of AASP believes that the
landlord is willing to defer land lease payments until such time as adequate
capital resources are available to AASP to make such payments.
The Company is also obligated under various other capital and non-cancelable
operating leases for equipment that expire at various dates over the next five
years.
The Company leases retail space for the Company-owned store under a
non-cancelable operating lease agreement that expires on June 30, 2005. The
lease provides for a base monthly rental payment of $10,550. Under this
lease, the base monthly rental may increase based on increases in the consumer
price index and taxes.
7. COMMITMENTS AND CONTINGENCIES
AASP has employment agreements with its President, as well as other key
employees, which will require the payment of fixed and incentive based
compensation.
11
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The Company has a comprehensive general liability insurance policy to cover
possible claims for injury and damages from accidents and similar activities.
Although management of the Company believes that its insurance levels are
sufficient to cover all future claims, there is no assurance that it will be
sufficient to cover all future claims.
The Company is involved in certain litigation as both plaintiff and defendant
related to its business activities. Management, based upon consultation with
legal counsel, does not believe that the resolution of these matters will have
a materially adverse effect on the Company. Also, see Note 8.
8. GOING CONCERN MATTERS
The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown in the
accompanying consolidated financial statements, for the nine months ended
September 30, 2000, the Company had a net loss of $2,474,507 and has
experienced cash flow problems since September of 1999. For the year ended
December 31, 1999, the Company had a net loss of $3,491,526 and negative cash
flow from operations of $968,935. Additionally, as of September 30, 2000, the
Company had a working capital deficit of $15,743,109 and cash and cash
equivalents of $204,722. Approximately $14.5 million of this working capital
deficit relates to the note payable secured by a first deed of trust on the
SportPark that has been in default since September 1999. Because of AASP's
default on the note, accounting rules require that the full amount owing be
classified as current for financial reporting purposes. See Note 2 for
further information on the note payable in default.
Management believes that (1) successful negotiation of a reasonable work-out
plan for the SportPark which may include the sale or refinancing of the
SportPark, (2) the successful execution of its business plan in the Year 2000
and beyond, and (3) a working capital infusion to the Company of at least $1.5
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.
Management of AASP has considered the provisions of Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to Be Disposed Of, in its evaluation as to
whether the carrying amount of the SportPark assets is recoverable. Based on
the relevant facts and circumstances, management of AASP does not believe that
an impairment loss should be recognized at this time.
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.
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9. RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated statements of operations and of cash flows for
the three and nine month periods ended September 30, 1999 have been restated
to present, in the proper 1999 quarter, audit adjustments that were made in
the fourth quarter of 1999. The impact of this restatement is as follows:
THREE NINE
MONTHS MONTHS
ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30
------------ ------------
Decrease in revenues from the SportPark $ (93,750) $ (281,250)
Increase in interest expense (26,352) ( 79,056)
------------ ------------
Increase in net loss $ (120,102) $ (360,306)
============ ============
Increase in net loss per share $ (.02) $ (.05)
============ ============
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following information should be read in conjunction with the Company's
consolidated financial statements and related footnotes included in this
report.
OVERVIEW
The Company's continuing operations consist of the retail location on Rainbow
Boulevard in Las Vegas, Nevada and the management and operation of 2 sports
entertainment venues in Las Vegas, Nevada: The Callaway Golf Center ("CGC")
and the All-American SportPark ("SportPark"). Results of operations for the
three and nine months ended September 30, 2000 and 1999 include the results of
the Rainbow Store, CGC and the SportPark. The SportPark commenced operations
on October 9, 1998. The CGC commenced operations in October 1997, AASP sold
its 80% interest in it on May 5, 1998 and, AASP reacquired 100% of the CGC on
December 31, 1998.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2000 AS COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 1999
REVENUES. Revenues decreased 11.9% to $2,179,239 in 2000 compared to
$2,475,944 in 1999. Revenue for the CGC increased 18.6% to $650,747 in 2000
compared to $548,724 in 1999 due to increased traffic flow and per capita
spending. Revenue for the Rainbow retail store decreased 4.0% to $659,692 in
2000 compared to $687,282 in 1999 due mainly to a 4.1% decrease in per capita
customer spending with essentially the same customer traffic for each period.
Revenue for the SportPark declined 29.6% to $867,318 in 2000 compared to
$1,232,657 in 1999. This decline is due mainly to lower attendance levels in
2000 compared to 1999 due to very little advertising by the SportPark in 2000
because of cash constraints and fewer operating days in 2000 versus 1999.
Effective January 10, 2000, management of AASP made the decision to close the
SportPark to the general public Monday through Wednesday because the revenue
generated on these days was not covering variable expenses. As part of this
strategy, management reserved Monday through Wednesday for group sales and
special events.
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COST OF REVENUES. Cost of revenues decreased 20.9% to $826,486 in 2000
compared to $1,045,416 in 1999. Cost of revenues as a percentage of Revenues
was 37.9% in 2000 compared to 42.2% in 1999. This decrease is due mainly to
fewer operating days at the SportPark, lower staffing and payroll costs in
2000 at both the SportPark and CGC, and higher gross margins at the Rainbow
retail store.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A). These expenses consist
principally of administrative payroll, rent, professional fees and other
corporate costs. These expenses decreased 20.8% to $1,401,898 in 2000 compared
to $1,769,239 in 1999. Corporate overhead increased 13.8% in 2000 versus 1999
due mainly to professional fee in AASP. Retail store SG&A decreased 18.7% due
to streamlined payroll. SG&A costs for the CGC decreased 15.9% due mainly to
streamline payroll and lower property taxes. SG&A for the SportPark decreased
31.0% due to reduced marketing expenses, fewer operating days and streamlined
payroll costs.
DEPRECIATION AND AMORTIZATION. These costs decreased nominally to $429,253 in
2000 compared to $429,845 in 1999.
NET INTEREST (EXPENSE) INCOME. Net interest expense decreased 4.2% to
$405,789 in 2000 compared to $423,637 in 1999 due to lower principal balances
of debt in 2000 compared to 1999.
INCOME TAXES. Due to operating losses and valuation allowances for certain
deferred tax assets, the Company has recorded no tax provision nor has it
recorded any tax benefits.
NET LOSS. Net loss for 2000 of $884,187 represents a 14.6% decrease from the
net loss incurred in the comparable 1999 period of $1,035,361. The lower net
loss in 2000 is due to primarily to the reasons already described which
includes significant cost reductions at the SportPark and CGC properties.
Comparing 2000 to 1999, the SportPark net loss decreased 18.3%; the retail
operations net loss decreased 59.4%; CGC recorded net income of 45,094 in 2000
compared to a net loss in 1999 of $115,586; and the net loss attributed to
corporate overhead increased 11.6% due mainly to increased professional fees
in AASP.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2000 AS COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 1999
REVENUES. Revenues decreased .6% to $6,837,869 in 2000 compared to $6,879,404
in 1999. Revenue for the CGC increased 21.2% to $1,887,339 in 2000 compared
to $1,557,494 in 1999 due to increased traffic flow and per capita spending.
Revenue for the Rainbow retail store increased 9.1% to $2,114,684 in 2000
compared to $1,938,824 in 1999 due to a 3.5% increase in customer traffic and
a 5.4% increase in per capita customer spending. Revenue for the SportPark
declined 16.4% to $2,811,181 in 2000 compared to $3,363,305 in 1999. This
decline is due mainly to lower attendance levels in 2000 compared to 1999 due
to very little advertising by the SportPark in 2000 because of cash
constraints and fewer operating days in 2000 versus 1999. Effective January
10, 2000, management of AASP made the decision to close the SportPark to the
general public Monday through Wednesday because the revenue generated on these
days was not covering variable expenses. As part of this strategy, management
reserved Monday through Wednesday for group sales and special events.
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COST OF REVENUES. Cost of revenues decreased 11.4% to $2,517,567 in 2000
compared to $2,840,622 in 1999. Cost of revenues as a percentage of Revenues
was 36.8% in 2000 compared to 41.3% in 1999. This decrease is due mainly to
fewer operating days at the SportPark and lower staffing and payroll costs in
2000 at both the SportPark and CGC, and higher gross margins at the Rainbow
retail store.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A). These expenses consist
principally of administrative payroll, rent, professional fees and other
corporate costs. These expenses decreased 12.4% to $4,388,429 in 2000 compared
to $5,010,454 in 1999. Corporate overhead decreased 13.6% in 2000 versus
1999. Retail store SG&A decreased 4.9%. SG&A costs for the CGC increased 5.6%
due mainly to increased revenue. SG&A for the SportPark decreased 21.5% due
to reduced marketing expenses, fewer operating days and streamlined payroll
costs.
DEPRECIATION AND AMORTIZATION. These costs increased to $1,298,152 in 2000
compared to $1,259,632 in 1999 reflecting the higher overall depreciable base
of fixed assets resulting from fixed asset additions throughout 1999 and in
2000.
NET INTEREST (EXPENSE) INCOME. Net interest expense increased 2.8% to
$1,224,958 in 2000 compared to $1,191,542 in 1999 due mainly to lower interest
income in 2000 compared to 1999 because of substantially lower cash balances.
INCOME TAXES. Due to operating losses and valuation allowances for certain
deferred tax assets, the Company has recorded no tax provision nor has it
recorded any tax benefits.
MINORITY INTEREST. Minority interest in loss of subsidiary was $116,730 in
2000 and $607,100 in 1999. This amount is generally calculated as
approximately one-third of AASP's net loss. Minority interest is recorded to
the extent that a liability exists on the Company's balance sheet unless
losses in excess of such liability are guaranteed by the minority owners which
is not the case for the Company.
NET LOSS. Net loss for 2000 of $2,474,507 represents a 4.2% decrease from the
net loss incurred in the comparable 1999 period of $2,584,027. The lower net
loss in 2000 is due to primarily to the reasons already described which
includes significant cost reductions at the SportPark property and in
corporate overhead. Comparing 2000 to 1999, the SportPark net loss decreased
13.1%; the retail operations recorded net income in 2000 of $32,574 compared
to a net loss in 1999 of $171,943; CGC recorded net income of $188,174 in 2000
compared to a net loss in 1999 of $33,697; and the decrease in 2000 compared
to 1999 in the corporate overhead portion of the net loss was 2.0%.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had negative working capital of
$15,743,109. Approximately $14.5 million of this working capital deficit
relates to the note payable secured by a first deed of trust on the SportPark
that has been in default since September 1999 (see discussion below). Since
it is in default, the entire balance of the note is classified as current for
financial reporting purposes.
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On September 15, 1998 AASP entered into a $13,500,000 loan agreement with
Nevada State Bank ("Lender"). The original term of the loan is 15 years with
interest measured at a fixed rate of 4% above the Lender's five-year LIBOR
rate measured September 1, 1998, 2003 and 2008. The initial interest rate
through 2003 is 9.38%. The loan is secured by substantially all the assets of
AASP that existed at the time the financing was completed as well as corporate
guarantees of AASP and SPEN. The Callaway Golf Center was not owned by AASP at
the time this financing was completed and therefore is not security for this
loan. To facilitate this financing transaction, the owner of the leasehold
interest in the land underlying the SportPark executed a trust deed granting a
security interest in the leased property to the Lender to secure repayment of
the loan. As consideration for the Landlord's willingness to provide
collateral for the loan, AASP's President and CEO, its Chairman, and a related
entity pledged their stock (the "Boreta Stock") in SPEN to the landlord. The
landlord was also issued 75,000 stock options exercisable at $4.00 per share
through the year 2005. Additionally, the Chairman of the Company pledged three
parcels of land owned by him (the "Chairman's parcels") as additional
collateral to secure the loan. Provisions in the loan agreement allowed for
the reconveyance of these three parcels to the Chairman of the Company upon
the SportPark achieving certain debt service coverage milestones.
AASP has not been in compliance with certain debt covenants related to this
loan since September 1999. Also, because of cash constraints, AASP did not
make its September 1999 loan payment to the Lender and since then has not made
any loan payments. In November 1999, AASP began discussions with the Lender
in an attempt to renegotiate the terms of the loan. As a result of these
discussions, an amusement park industry consultant was retained to evaluate
all operational aspects of the SportPark and provide recommendations to
improve the SportPark performance. This industry consultant completed its
assignment in February 2000. AASP met with the Lender on March 21, 2000 to
discuss the results of the consultant's reports and to present AASP's proposal
for a work-out plan. The Lender did not accept the SportPark's plan as
presented at the March 21 meeting.
AASP has been working diligently for some time with the objective to either
(1) sell the SportPark for an acceptable price to a buyer that will assume,
renegotiate, or refinance the bank loan and provide for the full release of
AASP, SPEN, and its related parties from any further obligation on the loan,
or (2) locate another lender or partner to facilitate a refinancing of the
bank loan.
In July 2000, the Lender filed a notice of sale and foreclosure on the
Chairman's parcels. In October, 2000, the Company's Chairman sold the
property within which the Chairman's parcels were located and paid the Lender
$2,750,000 to fully release the obligations associated with this collateral.
The Lender applied the $2,750,000 as a reduction to the outstanding SportPark
loan obligation.
On November 13, 2000, the Company reached an agreement with the Lender whereby
the Lender agreed to release AASP and SPEN from their guarantees on the
SportPark Note Payable, a note payable on certain SportPark equipment
("Equipment Note"), and a lease agreement for certain SportPark equipment
("Equipment Lease"). In exchange, AASP, SPEN and certain other related
parties agreed to fully release the Lender and its affiliates from any claims
related to the SportPark Note Payable, Equipment Note, and Equipment Lease.
At the same time, the Landlord purchased from the Lender the SportPark Note
Payable, Equipment Note, and Equipment Lease. As a result, the Landlord
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became the first lien holder on the SportPark property, and also became the
lender on the Equipment Note and Equipment Lease, with exactly the same rights
that the previous Lender had except that the guarantees of AASP and SPEN no
longer exist on any of these three obligations. The Landlord and the Company
are negotiating with two unrelated parties to possibly manage and operate the
SportPark. Several other strategies are also being considered. It is
uncertain at this time how the ongoing relationship with the Landlord will be
structured for the SportPark property. Management of the Company is currently
negotiating with the Landlord to further resolve this SportPark issue. AASP
may or may not have continuing involvement with the SportPark property.
Although management of AASP is optimistic that a favorable resolution will be
achieved with regard to this SportPark issue, there can be no assurance that
AASP will be successful in doing so.
Also, management is continually evaluating new revenue opportunities that
provide a more broad and exciting customer experience as well as maximizing
the utilization of the Rainbow Store, SportPark and CGC. At the same time,
management has instituted aggressive cost containment strategies that began in
September 1999 and will continue until the Company is operating as efficiently
as possible. In addition, because of the Company's cash constraints, the
Company's President and AASP's President began deferring half of their
salaries in September 1999 and will continue to do so until such time as the
Company has sufficient capital resources.
On December 31, 1998 AASP purchased substantially all the assets and assumed
certain liabilities of the Callaway Golf Center for $1,000,000 payable in
quarterly installments of $25,000 for a 10 year period with no interest. The
Golf Center has generated positive cash flow in 2000 and 1999. If required to
fund corporate operations, management believes that additional borrowings
against the CGC could be arranged although there can be no assurance that AASP
would be successful in securing such financing, or at terms acceptable to
AASP.
The Company's Chairman through personal loans and through advances from his
personally owned retail store (one of the "Affiliated Stores") has
historically loaned funds to the Company as needed. Loans from the Company's
Chairman along with accrued interest payable were $1,575,046 and $1,484,616 at
September 30, 2000 and December 31, 1999, respectively. Loans from his
personally owned retail store along with accrued interest payable were
$320,169 and $292,712 at September 30, 2000 and December 31, 1999,
respectively. The increases relate to accrued interest payable on the
balances outstanding. The loans are due beginning in November 2000 and bear
interest at ten percent per annum. Accrued interest payable of $370,546 at
September 30, 2000 has been deferred, a practice which is expected to continue
in 2000, if necessary.
There are no planned material capital expenditures in 2000.
The Company in the normal course of its business receives sponsorship fees and
various advance payments of different kinds, which are recorded as deferred
income until earned. Such amounts are typically earned over the term of the
contract with the applicable sponsor. Deferred income was $718,892 at
September 30, 2000 compared to $694,396 at December 31, 1999. A sponsorship
fee of $250,000 was received in the first quarter of 2000. It is anticipated,
but cannot be guaranteed, that sponsorship fees and advances will be a
continued source of cash flow in 2000.
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Operating Activities. Net cash provided by operating activities was $134,742
for the nine months ended September 30, 2000 compared to net cash used in
operating activities of $1,132,091 for the nine months ended September 30,
1999. The primary reason for the positive operating cash flow in 2000 versus
negative operating cash flow in 1999 relates to a larger increase in 2000 in
accounts payable and accrued expenses.
Investing Activities. Net cash used in investing activities was $71,444 and
$884,149 for the nine months ended September 30, 2000 and 1999, respectively.
The larger expenditures in 1999 are attributed to the SportPark being newly
opened (the SportPark opened in October 1998) and the refinements that were
being made to the facility at that time.
Financing Activities. Net cash used in financing activities was $59,077 and
$451,922 for the nine months ended September 30, 2000 and 1999, respectively.
The primary reason for this difference is due to AASP not paying the debt
service on the SportPark loan in 2000.
The Company's current and expected sources of working capital are its cash
balances that were $204,722 at September 30, 2000 and cash flow from
operations including sponsorship fees and advance deposits of various kinds.
Working capital needs have been helped by deferring payments to the Lender on
the SPLV, land lease payments to the landlord for both the SPLV and CGC, and
interest and notes payable balances due to the Company's Chairman and
Affiliated Store. Deferrals of payments to the Company's Chairman and
Affiliated Store and landlord are expected to continue until the Company has
sufficient cash flow to begin making payments.
The Company has raised considerable capital in the past 5 years for
development projects. The SportPark is now fully operational and well into its
second full year of operation. The Callaway Golf Center is generating
positive cash flow and its prospects are expected to become even more positive
as it moves into its fourth full year of operation. The Rainbow Store is now
generating positive cash flow, which is expected to continue. The Company
believes that any working capital deficiency that may occur could be funded
from a combination of existing cash balances and, if necessary, additional
borrowings from lenders or other sources. Management believes that additional
borrowings against the CGC could be arranged to fund corporate operations.
However, there can be no assurance that any borrowings would be available or
at terms acceptable to the Company. Expansion programs in other locations are
not expected to take place until the Company resolves the issue with the
SportPark loan, achieves an appropriate level of profitability and positive
cash flow. If and when expansion does occur, such expansion is expected to be
funded primarily by third parties.
Special Cautionary Notice Regarding Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this
Quarterly Report contains statements that are forward-looking such as
statements relating to plans for future expansion and other business
development activities, as well as other capital spending and financing
sources. Such forward-looking information involves important risks and
uncertainties that could significantly affect anticipated results in the
future and, accordingly, such results may differ from those expressed in any
forward-looking statements made by or on behalf of the Company. These risks
and uncertainties include, but are not limited to, those relating to
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development activities, dependence on existing management, leverage and debt
service (including sensitivity to fluctuations in interest rates), domestic or
global economic conditions, changes in federal or state tax laws or the
administration of such laws, changes in regulations and application for
licenses and approvals under applicable jurisdictional laws and regulations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On March 22, 2000, D&R Builders, Inc., doing business as Breslin
Builders, filed a complaint in the District Court of Clark County, Nevada
against the Company and its landlord, seeking damages for breach of contract,
mechanics' lien foreclosure and unjust enrichment. The plaintiff contends
that it is entitled to $243,883 for work performed. The Company has not filed
an answer to this complaint. At September 30, 2000 and December 31, 1999, the
Company had accrued a liability for the amount claimed.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27 Financial Data Schedule Filed herewith electronically
(b) Reports on Form 8-K.
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPORTS ENTERTAINMENT ENTERPRISES, INC.
Date: November 14, 2000 By:/s/ Voss Boreta
Voss Boreta, President and
Chief Executive Officer
Date: November 14, 2000 By:/s/ Kirk Hartle
Kirk Hartle, Chief Financial Officer
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