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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 March 31, 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
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(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 May 12, 2000, 8,135,097 shares of common stock were outstanding.
Transitional Small Business Disclosure Format (check one): Yes___ No X
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SPORTS ENTERTAINMENT ENTERPRISES, INC.
FORM 10-QSB
INDEX
Page Number
PART I: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets
March 31, 2000 and December 31, 1999 3
Consolidated Statements of Operations
Three Months Ended March 31, 2000 and 1999 5
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis or
Plan of Operation 12
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of
Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
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SPORTS ENTERTAINMENT ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
2000 1999
----------- -----------
Current assets:
Cash and cash equivalents $ 216,932 $ 200,501
Accounts receivable 138,869 135,823
Inventory 737,586 643,332
Prepaid expenses and other 376,027 246,300
----------- -----------
Total current assets 1,469,414 1,225,956
Leasehold improvements and equipment, net 23,783,017 24,191,040
Due from affiliated stores 219,397 168,779
Note receivable - related party 20,000 20,000
Debt issuance costs, net 343,442 353,425
Deposit for land lease 37,821 37,821
Other assets 60,963 61,761
----------- -----------
Total assets $25,934,054 $26,058,782
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
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SPORTS ENTERTAINMENT ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, December 31,
2000 1999
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Current liabilities:
Current portion of long-term debt $13,102,927 $13,102,310
Current portion of obligations under
capital leases 166,505 165,144
Accounts payable and accrued expenses 2,959,729 2,464,068
----------- -----------
Total current liabilities 16,229,161 15,731,522
Note payable to shareholder 1,512,060 1,484,616
Due to affiliated stores 1,748,447 1,634,842
Long-term debt, net of current portion 557,268 570,527
Obligation under capital leases, net
of current portion 357,021 395,505
Deferred income 862,493 694,396
----------- -----------
Total liabilities 21,266,450 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 March 31,
2000 and December 31, 1999 6,107,700 6,107,700
Stock options issued 268,300 268,300
Accumulated deficit (6,708,396) (5,828,626)
----------- -----------
Total shareholders' equity (deficit) (332,396) 547,374
Total liabilities and shareholders'
equity $25,934,054 $26,058,782
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
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SPORTS ENTERTAINMENT ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
2000 1999
----------- -----------
Revenues:
SportPark Las Vegas $ 906,683 $ 955,737
Retail operations 619,694 530,469
Callaway Golf Center[TM] 646,346 483,003
Other 10,367 6,250
----------- -----------
Total revenues 2,183,090 1,975,459
Cost of Revenues:
SportPark Las Vegas 233,148 219,434
Retail operations 467,978 430,038
Callaway Golf Center[TM] 123,249 71,130
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Total cost of revenues 824,375 720,602
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Gross profit 1,358,715 1,254,857
Operating expenses:
Selling, general and administrative 1,503,902 1,483,300
Depreciation and amortization 439,107 410,293
----------- -----------
Total Operating Expenses 1,943,009 1,893,593
----------- -----------
Operating loss (584,294) (638,736)
----------- -----------
Interest income (expense), net (412,206) (369,845)
----------- -----------
Loss before provision (benefit) for
income taxes (996,500) (1,008,581)
Provision (benefit) for income taxes - (74,887)
----------- -----------
Loss before minority interest (996,500) (933,694)
Minority interest in loss of subsidiary 116,730 286,218
----------- -----------
Net loss $ (879,770) $ (647,476)
=========== ===========
NET LOSS PER SHARE:
Basic and Diluted:
Net loss per share $ (0.11) $ (0.08)
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
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SPORTS ENTERTAINMENT ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (879,770) $ (647,476)
Adjustment to reconcile net loss
to net cash used in operating activities:
Minority interest (116,730) (286,218)
Depreciation and amortization 439,107 566,508
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (3,046) 237,209
Increase in inventories (94,254) (4,650)
Increase in prepaid expenses and ot (12,199) (180,947)
Increase (decrease) in accounts payable
and accrued expenses 495,661 (242,205)
Increase in deferred income 168,097 108,513
----------- -----------
Net cash used in operating activities (3,134) (449,266)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Leasehold improvements expenditures (21,101) (154,488)
----------- -----------
Net cash used in investing activities (21,101) (154,488)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in due to Affiliate
Stores 62,987 (11,465)
Increase (decrease) in notes payable and
notes payable to shareholder and
related entity 14,802 (345,499)
Principal payments on capital leases (37,123) (30,588)
----------- -----------
Net cash provided by (used in)
financing activities 40,666 (387,552)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 16,431 (991,306)
----------- -----------
CASH AND CASH EQUIVALENTS, Beginning of
period 200,501 2,584,900
----------- -----------
CASH AND CASH EQUIVALENTS, End of period $ 216,932 $ 1,593,594
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest, net of amounts capitalized $ 13,905 $ 341,387
=========== ===========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Equipment financed through notes and
capital leases $ - $ 39,847
=========== ===========
Common stock of subsidiary issued in
exchange for consulting services $ 116,730 $ -
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
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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 March 31, 2000, SPEN owns
63.5% of the outstanding common stock and one-third of the outstanding
convertible preferred stock of AASP, a publicly traded company. All
significant inter-company accounts and transactions have been eliminated.
The accompanying financial statements have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange
Commission relating to interim financial statements. Accordingly, certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. In the opinion of management,
all necessary adjustments have been made to present fairly, in all material
respects, the financial position, results of operations and cash flows of
the Company at March 31, 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.
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.
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; and (2) The SportPark Las Vegas which is a
family-oriented sports-themed amusement venue named "All-American
SportPark" ("SportPark" or "SPLV"). The SportPark, comprising 23 acres
adjacent to the Callaway Golf Center, 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 RealRide SkatePark featuring the
ramps used in the ESPN X-Games, "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.
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2. SPOPTPARK LAS VEGAS LOAN AGREEMENT
On September 15, 1998, AASP entered into a $13,500,000 loan agreement with
Nevada State Bank ("Lender"). The 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, the Company's
President, CEO and its Chairman, AASP's President and CEO, and a related
entity pledged their stock in SPEN to the landlord. Additionally, the
landlord was issued 75,000 stock options in AASP exercisable at $4.00 per
share through the year 2005.
AASP has not been in compliance with certain debt covenants related to this
loan since September 30, 1999. Also, because of cash constraints, AASP did
not make its September loan payment to the Lender and since then has not
made any loan payments. AASP has had discussions with the Lender in an
attempt to renegotiate the terms of the loan. As part of these
discussions, the Lender and AASP agreed that an amusement park industry
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 Lender hired a
different industry consultant to review MRI's recommendations. AASP met
with the Lender's representative on March 21, 2000 to discuss the results
of both consultant's reports and to present AASP's proposal for a work-out
plan. Since that meeting, the Lender had its consultant update its
analysis of MRI's report based on detailed information provided to the
Lender by AASP at the March 21 meeting. The Lender has not yet responded
to AASP's proposal. Although management of AASP is optimistic that a work-out
plan will be negotiated, there can be no assurance that AASP will be
successful in doing so.
3. EARNINGS PER SHARE AND SHAREHOLDER'S EQUITY
Basic and diluted earnings 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 were
8,135,097 for the three-month periods ended March 31, 2000 and 1999,
respectively.
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 of the closing market
price of AASP's common stock on or about the date that the shares were
issued.
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4. RELATED PARTY TRANSACTIONS
AASP has unsecured, ten percent notes payable to its Chairman of $1,259,702
and $1,250,000 at March 31, 2000 and December 31, 1999, respectively.
Accrued interest payable of $252,358 and $234,616 at March 31, 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 March 31, 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 $41,953 and $62,712 at
March 31, 2000 and December 31, 1999, respectively, is included with the
note payable balance under the caption "Due to Affiliated Stores" in the
accompanying consolidated balance sheets.
The Company normally has extensive transactions and relationships with its
chairman and principal shareholder, a retail store owned by the Company's
chairman (the "Affiliated Store" or "Paradise Store") and AASP. The
Paradise Store operates in Las Vegas, Nevada. The Paradise Store and the
Company benefit through volume purchasing together and shared costs of
local and national advertising conducted by AASP. The Paradise Store and
the Company owned store share advertising costs equally in the Las Vegas
market area. These advertising costs were $33,907 and $19,600 for the
three months ended March 31, 2000 and 1999, respectively. Purchases of
merchandise from the Paradise Store are recorded at the Company's cost and
totaled $67,035 and $133,851 for the three months ended March 31, 2000 and
1999, respectively.
5. LEASEHOLD IMPROVEMENTS AND EQUIPMENT
Leasehold improvements and equipment include the following as of March 31,
2000 and December 31, 1999:
2000 1999
----------- -----------
Building $18,049,814 $18,049,814
Land Improvements 3,461,461 3,446,069
Furniture and equipment 2,190,547 2,184,835
Leased equipment 734,296 734,296
Signs 745,299 745,299
Go-Karts 457,115 457,115
Leasehold improvements 654,485 654,485
Other 98,704 98,704
----------- -----------
26,391,721 26,370,617
----------- -----------
Accumulated depreciation and
amortization (2,608,704) (2,179,577)
----------- -----------
$23,783,017 $24,191,040
=========== ===========
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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.
ue 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 which will expire on July 31, 2000
and provides for a base monthly rental payment of $10,300. Under this
lease, the base monthly rental may increase based on increases in the
consumer price index and taxes.
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.
The Company has a comprehensive general liability insurance policy to cover
possible claims for injury and damages from accidents and similar
activities. Although management of the Company believes that its insurance
levels are sufficient to cover all future claims, there is no assurance
that it will be sufficient to cover all future claims.
The Company is involved in certain litigation as both plaintiff and
defendant related to its business activities. Management, based upon
consultation with legal counsel, does not believe that the resolution of
these matters will have a materially adverse effect on the Company.
8. GOING CONCERN MATTERS
The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown in
the accompanying consolidated financial statements, for the three months
ended March 31, 2000, the Company had a net loss of $879,770 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 March 31, 2000,
the Company had a working capital deficit of $14,759,747 and cash and cash
equivalents of $216,932. Approximately $14 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
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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 March 31, 2000 would be about $800,000. See Note 2 for
further information on the note payable in default.
Management believes that (1) negotiation of a reasonable work-out plan with
the Bank, (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 the Company of at least $1 million will be necessary to sufficiently
fund operating cash needs and debt service requirements over at least the
next twelve months. If required to fund corporate operations, management
believes that additional borrowings against the Callaway Golf Center could
be arranged. Should additional financing to fund operations be required,
the Company will explore all funding options, as necessary. There can be
no assurance such lending sources would be willing, on terms acceptable to
the Company, to provide additional financing.
The consolidated financial statements do not include any adjustments
relating to the recoverability of assets and the classification of
liabilities, except the note payable referred to above, that might be
necessary should the Company be unable to continue as a going concern.
9. RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated statements of operations and of cash flows
for the three months ended March 31, 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:
Decrease in revenues of the SportPark $ (93,750)
Increase in interest expense (26,352)
Increase in minority interest 42,496
---------
Increase in net loss $ (77,606)
=========
Increase in net loss per share $ (.01)
=========
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following information should be read in conjunction with the
Company's condensed 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
two sports entertainment venues in Las Vegas, Nevada through its All-American
SportPark, Inc. subsidiary ("AASP"): The Callaway Golf Center
("CGC") and the All-American SportPark ("SportPark"). Results of
operations for the quarters ended March 31, 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 MARCH 31, 2000 AS COMPARED TO
THREE MONTHS ENDED MARCH 31, 1999
REVENUES. Revenues increased 10.5% to $2,183,090 in 2000 compared to
$1,975,459 in 1999. Revenue for the retail store increased 16.8% to
$619,694 in 2000 compared to $530,469 in 1999. Revenue for the CGC
increased 33.8% to $646,346 in 2000 compared to $483,003 in 1999 due to
increased traffic flow and per capita spending. Revenue for the SportPark
declined 5.1% to $906,683 in 2000 compared to $955,737 in 1999. This
decline is due in part to lower attendance levels in the first quarter of
2000 compared to 1999 due to very little advertising by the SportPark in
January and February 2000 because of cash constraints. The decline was
also due to 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. This decision by management was recommended by the
industry consultant hired by AASP in December 1999 and is a key part of the
SportPark's plan going forward to capitalize on the higher margin group
sales market. Although attendance for the SportPark was down in the first
quarter of 2000 versus 1999, net per capita customer spending increased
nearly 54% primarily due to the increased emphasis on group sales.
COST OF REVENUES. Cost of revenues increased 14.4% to $824,375 in
2000 compared to $720,602 in 1999. Cost of revenues as a percentage of
Revenues was 37.7% in 2000 compared to 34.8% in 1999. This increase is due
mainly to costs for the CGC which are higher as a percentage of revenue in
2000 because, in the first quarter of 1999, the operating cost structure
was not fully established as the CGC had just been acquired from Callaway
Golf Company on December 31, 1998.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A). These expenses consist
principally of administrative payroll, rent, professional fees and other
corporate costs. These expenses increased nominally to $1,503,902 in 2000
compared to $1,483,300 in 1999. Although corporate overhead decreased
approximately 25% in 2000 versus 1999, SG&A costs for the CGC increased for
the same reason described above in "Cost of Revenues." SG&A for the
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SportPark decreased approximately 2.5% and may have decreased more if not
for increased legal and professional fees related to the SportPark loan
default issue discussed in "LIQUIDITY AND CAPITAL RESOURCES" below.
DEPRECIATION AND AMORTIZATION. These costs increased to $439,107 in
2000 compared to $410,293 in 1999 reflecting the higher overall depreciable
base of fixed assets resulting from fixed asset additions throughout 1999.
NET INTEREST (EXPENSE) INCOME. Net interest expense increased to
$412,206 in 2000 compared to $369,845 in 1999 due primarily to interest
costs on debt secured by the Sportpark Las Vegas and lower interest income
in 2000 because of substantially lower cash balances.
INCOME TAXES. Due to operating losses, the Company has recorded no tax
provision. The tax benefit for 1999 relates to a refund of taxes paid in
prior years.
MINORITY INTEREST. This amount is calculated as one-third of AASP's
net loss for 1999. Although one-third of AASP's net loss for 2000 is
$297,362, only $116,730 is recorded as minority interest because accounting
rules limit the recording of minority interest to the extent a liability
exists on the Company's balance sheet unless such losses are guaranteed by
the minority owners which is not the case for the Company.
NET LOSS. Net loss for 2000 was $879,770 compared to $647,476 for
1999. The increased net loss for 2000 is due primarily to the reasons
already described. The SPLV accounted for approximately 79% of the 2000
net loss; the Rainbow store accounted for approximately 3% of the net loss;
the CGC achieved net income in 2000 of $79,571; and the remainder relates
to corporate overhead.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company had negative working capital of
$14,759,747. This deficit in working capital is largely due to the SPLV
note payable that is in default (see discussion below). Since it is in
default, the entire balance of the note is classified as current for
financial reporting purposes. If this note was classified for financial
reporting purposes under its normal amortization schedule, the working
capital deficit at March 31, 2000 would be approximately $800,000.
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. 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. Debt service
for this loan approximates $140,000 per month.
AASP has not been in compliance with certain debt covenants related to
this loan since September 30, 1999. Also, because of cash constraints,
AASP did not make its September loan payment to the Lender and since then
has not made any loan payments. AASP has had discussions with the Lender
in an attempt to renegotiate the terms of the loan. As part of these
discussions, the Lender and AASP agreed that an amusement park industry
management consultant should be retained to evaluate all operational
aspects of the SportPark and provide recommendations to improve the
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SportPark performance from revenue, utilization, and cost standpoints.
This consultant, Management Resources, Inc. ("MRI") was hired in December
1999 and completed its assignment in February 2000. The Lender hired a
different industry consultant to review MRI's recommendations. AASP met
with the Lender's representative on March 21, 2000 to discuss the results
of both consultant's reports and to present AASP's proposal for a work-out
plan. Since that meeting, the Lender had its consultant update its
analysis of MRI's report based on detailed information provided to the
Lender by AASP at the March 21 meeting. The Lender has not yet responded
to AASP's proposal although a response is expected before the end of the
second quarter. Although management of AASP is optimistic that a work-out
plan will be negotiated, there can be no assurance that AASP will be
successful in doing so.
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, the Company 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 the Company to insure future success, and (3)
accelerate expansion plans into other markets. Several options are being
evaluated to raise capital for the Company. Also, management is in
discussions with several established companies in its industry that have
the necessary capital and human resources that could facilitate the
profitability objectives of the existing SportPark as well as the Company's
expansion plans; several possible business structures will be evaluated.
An important element of the Company's plan will be to increase the
Company's exposure in the financial community. There can be no assurance
that the Company will be successful in its efforts to raise capital for the
Company nor can there be any assurance that the Company will be successful
in its efforts to structure a relationship with a well-known, established
company in its industry to facilitate the profitability objectives of the
existing SportPark or the Company's expansion plans.
Also, management is continually evaluating new revenue opportunities
that would provide a broader and more exciting customer experience as well
as maximize 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, since September 1999
the Company's President and AASP's President have each been deferring half
of their salary until such time as the Company has sufficient capital
resources.
14
<PAGE>
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 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 were $1,512,060 and $1,484,616 at March 31, 2000 and
December 31, 1999, respectively. Loans from his personally owned retail
store were $306,920 and $292,712 at March 31, 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
$294,311 at March 31, 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
$862,493 at March 31, 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 source of cash flow in 2000.
Operating Activities. Net cash used in operating activities was
$3,134 and $449,266 for the three months ended March 31, 2000 and 1999,
respectively. The primary reason for the difference relates to a more
favorable change in 2000 in accounts payable and accrued expenses offset by
higher collections of receivables in 1999.
Investing Activities. Net cash used in investing activities was
$21,101 and $154,488 for the three months ended March 31, 2000 and 1999,
respectively. The larger expenditures in 1999 are attributed to the
SportPark being newly opened (the SportPark opened in October 1998) and the
refinements that were being made to the facility at that time.
Financing Activities. Net cash provided by financing activities was
$16,431 for the three months ended 2000 compared to net cash used in
financing activities of $387,552 for the three months ended March 31, 1999.
The primary reason for this difference is due to AASP not paying the debt
service on the SportPark loan in 2000.
The Company's current and expected sources of working capital are its
cash balances that were $216,932 at March 31, 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
15
<PAGE>
and CGC, and interest and notes payable balances due to the Company's
Chairman and Affiliated Store. Deferrals of payments to the Company's
Chairman and Affiliated Store and landlord are expected to continue until
the Company has sufficient cash flow to begin making payments.
The Company has raised considerable capital in the past 5 years for
development projects. The SportPark is now fully operational and well into
its second full year of operation. The Callaway Golf Center is generating
positive cash flow and its prospects are expected to become even more
positive as it moves into its third full year of operation. The Rainbow
Store is now generating positive operating 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 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
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.
16
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On March 22, 2000, D&R Builders, Inc., doing business as Breslin
Buildings, filed a complaint in the District Court of Clark County, Nevada
against AASP and its landlord, seeking damages for breach of contract,
mechanics' lien foreclosure and unjust enrichment. The plaintiff contends
that it is entitled to $243,883 for work performed. AASP has not yet filed
an answer to this complaint. At March 31, 2000 and December 31, 1999, AASP
had accrued a liability for the amount claimed.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27 Financial Data Schedule Filed herewith electronically
(b) Reports on Form 8-K.
None.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
SPORTS ENTERTAINMENT ENTERPRISES, INC.
Date: May 15, 2000 By:/s/ Voss Boreta
Voss Boreta, President and
Chief Executive Officer
Date: May 15, 2000 By:/s/ Kirk Hartle
Kirk Hartle, Chief Financial Officer
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited condensed balance sheets and unaudited condensed statements of
income found on pages 3 and 4 of the Company's Form 10-QSB for the year to
date, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 216,932
<SECURITIES> 0
<RECEIVABLES> 138,869
<ALLOWANCES> 0
<INVENTORY> 737,586
<CURRENT-ASSETS> 1,469,414
<PP&E> 23,783,017
<DEPRECIATION> 0
<TOTAL-ASSETS> 25,934,054
<CURRENT-LIABILITIES> 16,229,161
<BONDS> 0
<COMMON> 6,107,700
0
0
<OTHER-SE> (6,440,096)
<TOTAL-LIABILITY-AND-EQUITY> 25,934,054
<SALES> 2,183,090
<TOTAL-REVENUES> 2,183,090
<CGS> 824,375
<TOTAL-COSTS> 824,375
<OTHER-EXPENSES> 1,943,009
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (412,206)
<INCOME-PRETAX> (996,500)
<INCOME-TAX> 0
<INCOME-CONTINUING> (996,500)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (879,770)
<EPS-BASIC> (.11)
<EPS-DILUTED> (.11)
</TABLE>
