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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, 1998
Commission File Number: 0-24970
SAINT ANDREWS GOLF CORPORATION
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(Exact name of small business issuer as specified in its charter)
Nevada 88-0203976
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(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
5325 South Valley View Boulevard, Suite 4, Las Vegas, Nevada 89118
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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, 1998, 3,000,000 shares of common stock were outstanding.
Transitional Small Business Disclosure Format (check one): Yes___ No X
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SAINT ANDREWS GOLF CORPORATION
FORM 10-QSB
INDEX
Page No.
Part I: Financial Information
Item 1. Financial Information:
Unaudited Condensed Consolidated Balance Sheets 3
Unaudited Condensed Consolidated Statements of
Operations 5
Unaudited Condensed Consolidated Statement of
Cash Flows 7
Notes to Unaudited Condensed Consolidated
Financial Statements 9
Item 2. Management's Discussion and Analysis or Plans
of Operations 16
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 19
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SAINT ANDREWS GOLF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
1998 1997
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(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 146,100 $ 176,000
Accounts receivable 291,000 67,100
Due from Affiliated Store 46,500 102,700
Due from officer 3,000 3,000
Prepaid expenses and other 35,900 30,600
Preopening costs, net 77,000 99,800
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Total current assets 599,500 479,200
Leasehold improvements and equipment, net 9,844,900 9,981,400
Note receivable - related party 20,000 20,000
Deposit for land lease 395,800 433,700
Project development costs 13,467,700 7,850,100
Other assets 7,700 29,300
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$24,335,600 $18,793,700
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The accompanying notes are an integral part of these financial statements.
(Continued)
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SAINT ANDREWS GOLF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, December 31,
1998 1997
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(Unaudited)
CURRENT LIABILITIES:
Bank line of credit $ - $ 668,400
Current portion of notes payable 5,350,800 500,000
Current portion of obligations under
capital leases 72,200 72,200
Accounts payable and accrued expenses 4,103,100 1,973,600
Due to Affiliated Store 149,500 33,200
Payable to Related Entities 457,000 371,100
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Total current liabilities 10,132,600 3,618,500
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Note payable to shareholder 400,000 600,000
Note payable 5,250,000 5,250,000
Obligation under capital leases, net
of current portion 191,000 211,200
Deferred income 570,500 516,700
Minority interest 595,600 650,000
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000
shares authorized, no shares issued and
outstanding - -
Series A Convertible Preferred Stock,
$1 par value, 500,000 shares authorized
and outstanding at March 31, 1998
and December 31, 1997 4,740,000 4,740,000
Options issued in connection with Series A
Convertible Preferred Stock to purchase
250,000 shares of common stock 260,000 260,000
Common stock, $.001 par value, 10,000,000
shares authorized, 3,000,000 shares
issued and outstanding at March 31, 1998
and December 31, 1997 3,000 3,000
Additional paid-in-capital 3,333,300 3,333,300
Common stock purchase warrants, Class A,
1,000,000 warrants authorized and
outstanding at March 31, 1998 and
December 31, 1997 187,500 187,500
Accumulated deficit (1,327,900) (576,500)
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Total shareholders' equity 7,195,900 7,947,300
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Total Liabilities and Shareholders' Equity $24,335,600 $18,793,700
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The accompanying notes are an integral part of these financial statements.
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SAINT ANDREWS GOLF CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
1998 1997
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REVENUE:
Callaway Golf Center $ 501,700 $ -
Other 36,400 10,000
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Total revenue 538,100 10,000
COST OF REVENUE:
Callaway Golf Center 503,000 -
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Total cost of revenue 503,000 10,000
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GROSS PROFIT 35,100 10,000
OPERATING EXPENSES:
Selling, general and administrative 566,400 121,000
Depreciation and amortization 116,600 2,000
Preopening expense 22,800 77,000
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705,800 200,000
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OPERATING LOSS (670,700) (190,000)
Interest (expense) income, net (135,100) 68,000
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Loss from continuing operations before
income taxes and minority interest (805,800) (122,000)
Provision for income taxes - -
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Loss from continuing operations before
minority interest (805,800) (122,000)
Minority interest loss 54,400 -
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LOSS FROM CONTINUING OPERATIONS (751,400) (122,000)
DISCONTINUED OPERATIONS:
Loss from operations of franchise business
disposed of (no income taxes were recorded
in 1998 or 1997) - (41,000)
Gain on disposal of franchise operations
(less applicable income taxes of $450,000) - 2,049,000
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Income from discontinued operations - 2,008,000
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NET INCOME (LOSS) $ (751,400) $ 1,886,000
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The accompanying notes are an integral part of these financial statements.
(Continued)
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SAINT ANDREWS GOLF CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Continued)
1998 1997
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INCOME (LOSS) PER SHARE:
BASIC
Loss from continuing operations $ (.25) $ (.04)
Income from discontinued operations - .67
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Net Income (Loss) per Share $ (.25) $ .63
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DILUTED
Loss from continuing operations $ (.25) $ (.04)
Income from discontinued operations - .46
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Net Income (Loss) per Share $ (.25) $ .42
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The accompanying notes are an integral part of these financial statements.
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SAINT ANDREWS GOLF CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ (751,400) $ 1,886,000
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Minority interest (54,400) -
Depreciation and amortization 116,600 2,000
Gain on sale of franchise operations,
net of income taxes - (2,499,000)
Preopening expense amortization 22,800 -
Amortization of land lease 37,900 -
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (223,900) 274,000
Increase in prepaid expenses and other (5,300) (13,000)
Increase in accounts payable
and accrued expenses 2,129,500 762,000
Increase (decrease) in deferred income 53,800 (68,000)
Increase in income tax payable - 450,000
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Net cash provided by operating
activities 1,325,600 794,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds received from sale of franchise
wholesale and assets held for sale - 2,688,000
Project development costs (5,617,600) (1,238,000)
Decrease in other assets 21,600 -
Leasehold improvement and equipment
disposals, net 19,900 -
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Net cash (used in) provided by investing
activities (5,576,100) 1,450,000
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The accompanying notes are an integral part of these financial statements.
(Continued)
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SAINT ANDREWS GOLF CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Continued)
1998 1997
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of line of credit (668,400) -
Proceeds from notes payable and note
payable to shareholder, net 4,650,800 -
Increase in payable to Affiliate Store
and Related Entities, net 258,400 -
Repayment of capital lease obligations (20,200) -
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Net cash provided by (used in)
financing activities: 4,220,600 -
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NET (DECREASE)INCREASE IN CASH
AND CASH EQUIVALENTS (29,900) 2,244,000
CASH AND CASH EQUIVALENTS,
Beginning of period 176,000 5,818,000
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CASH AND CASH EQUIVALENTS,
End of period $ 146,100 $ 8,062,000
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The accompanying notes are an integral part of these financial statements.
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SAINT ANDREWS GOLF CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. CONDENSED FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements include
the accounts of Saint Andrews Golf Corporation ("SAGC"), and its subsidiaries,
All-American SportPark Inc., a Nevada corporation and All-American Golf LLC, a
California limited liability company (collectively the "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 adjustments necessary
to present fairly, in all material respects, the financial position, results
of operations and cash flows at March 31, 1998 and for all periods presented
have been made.
Certain reclassifications have been made to previously reported amounts to
conform them to current classifications.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
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, 1997.
The Company's current operations consist of the development and operation of
sport-oriented theme parks under the name "All-American SportPark". The
Company's concept of a sport-oriented theme park 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.
2. SALE OF ASSETS AND DISCONTINUED OPERATIONS
On February 26, 1997, SAGC and Las Vegas Discount Golf & Tennis, Inc. ("LVDG")
(the majority shareholder of SAGC) completed the sale of certain of their
assets and transferred certain liabilities to an unrelated buyer who has
incorporated under the name Las Vegas Golf & Tennis, Inc. in a transaction
whose terms were substantially in accordance with the "Agreement for the
Purchase and Sale of Assets". The total consideration received was $5.3
million of which $4.6 million was paid in cash, $264,000 was received in the
form of a short-term receivable, $200,000 was placed in escrow pending the
accounting for inventory and trade payables, and $200,000 was placed in escrow
for two years to cover potential indemnification obligations. Of the total
consideration received, approximately $2.75 million was allocated to SAGC.
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This transaction resulted in the disposal of the Company's franchise business,
and the assignment of all franchise rights, trade names, and trade marks
associated with the business The agreement also contains certain provisions
not to compete in the franchised retail golf equipment business. Accordingly,
the sale of all assets, and assumption of liabilities and rights related to
the these businesses have been presented as "Discontinued Operations" in the
accompanying statement of operations for the period ended March 31, 1997.
3. PROPOSED MERGER WITH LAS VEGAS DISCOUNT GOLF & TENNIS, INC.
On January 20, 1998, the officers of SAGC and LVDG executed a merger agreement
pursuant to which SAGC would merge with and into LVDG which is intended to
constitute a tax-free plan of reorganization. As a result, the separate
corporate existence of SAGC would cease and LVDG would change its name to
All-American SportPark, Inc. to reflect the primary business of the surviving
corporation.
At the effective date of the merger each share of SAGC's common stock issued
and outstanding immediately prior to the effective date (except for shares of
SAGC's common stock held by LVDG) will be converted into 2.4 shares of LVDG
common stock. Each share of SAGC's Series A Preferred Stock will be converted
into 2.4 shares of LVDG Series B Preferred Stock, and each share of SAGC's
common stock held by LVDG immediately prior to the effective date and all
rights in respect thereof will be canceled. This would result in the current
shareholders of SAGC (other than LVDG) owning approximately 38.2% of the
surviving corporation, assuming there are no dissenting shareholders.
At the effective date each option or warrant granted by SAGC to purchase
shares of SAGC's common stock which is outstanding and unexercised immediately
prior to the effective date will be assumed by LVDG and converted into an
option or warrant to purchase shares of LVDG common stock in such number and
at such exercise price similar to that previously discussed (2.4 to 1). The
exercise price per share of LVDG common stock under the new option or warrant
will be equal to the quotient of the exercise price per share of SAGC's common
stock under the original option or warrant divided by the exchange ratio.
4. GOING CONCERN MATTERS
The accompanying 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
financial statements the Company incurred operating losses of $670,700 and
$190,000 for the periods ended March 31, 1998 and 1997, respectively.
Additionally, as of March 31, 1998 the Company had negative working capital of
approximately $9.5 million. The Company has entered into several short-term
financing transactions as noted below in order to fund ongoing operating cash
requirements as well as the continuing construction of the All-American
SportPark.
On January 26, 1998 and April 2, 1998 the Company's chairman and majority
shareholder loaned SAGC $200,000 and $400,000, respectively. The loans are
due in 2001 and bear interest at a rate of 10 percent per annum.
On February 5, 1998, SAGC secured a $4.0 million short-term bank loan bearing
interest at a rate of 10 percent per annum. This loan requires interest only
payments, which commenced on March 10, 1998, with the full loan plus all
unpaid interest due August 10, 1998.
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On March 18, 1998, SAGC obtained an additional $3.0 million short-term
promissory note bearing interest at a rate of 10 percent per annum from
Callaway Golf Company. As security the Company pledged its equity in
All-American Golf LLC, a subsidiary of SAGC. The note is due in full with
principal and interest on June 18, 1998. As of March 31, 1998, the Company
had borrowed approximately $1.4 million under this agreement. The balance was
borrowed in April 1998.
On May 7, 1998, the Company received a Bridge Mortgage Loan Commitment Letter
(the "Commitment Letter") from First Connecticut Consulting Group, Inc. (the
"Lender") pursuant to which the Lender would loan up to $18 million to the
Company for one year. The loan would bear interest at the rate of 12% per
annum and be secured by a first mortgage on all the All-American SportPark in
Las Vegas. The loan would be guaranteed by LVDG and SAGC. The Commitment
Letter requires that the Company pay a non-refundable commitment fee of
$180,000 on acceptance of the commitment. The Company must pay a financing
fee of 4% of the loan amount at closing, however the $180,000 financing fee
will be credited against the financing fee. The Company must also pay all of
the Lender's loan expenses, and a 2% fee to the person who brokered the loan.
The loan can be prepaid at any time, provided that at least nine months of
interest must be paid on the loan. The commitment is subject to a number of
terms and conditions set forth in the Commitment Letter including completion
by the Lender of its due diligence and the completion and execution of the
definitive loan documentation. The Company would use the proceeds of this
loan to repay the $4 million short term bank loan and other outstanding
indebtedness and for the completion of the construction of the SportPark.
The Company's continuation as a going concern is dependent upon its ability to
generate positive cash flows and to obtain additional financing or refinancing
which will be required in order to complete the All-American SportPark. The
Company currently has not secured sufficient financing to complete
construction of the SportPark portion of the Las Vegas facility. The Company
expects to receive the balance of the financing from a combination of sources
including outside equity and/or debt investors and bank financing. There is
no assurance that financing will be obtained from any of these sources. The
financial statements do not include any adjustments relating to the
recoverability and classification of assets and liabilities that might be
necessary should the Company be unable to continue as a going concern.
5. EARNINGS PER SHARE AND STOCK OPTIONS
Net income (loss) per share is computed by dividing net income (loss) by the
weighted average number of shares of common stock outstanding during the
periods presented. Diluted earnings per share reflects the additional
dilution for all potentially dilutive securities such as convertible preferred
stock, stock options and warrants. Options having an exercise price greater
than the average market price of the underlying common stock during the period
are excluded from the computation of diluted earnings per share. None of the
Company's outstanding stock options are included in the calculations for the
periods presented.
The weighted-average number of common and common equivalent shares used in the
calculation of basic and diluted earnings per share for the periods ended
March 31, 1998 and 1997 consisted of the following:
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1998 1997
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Weighted-average common shares outstanding
(used in the computation of basic earnings
per share) 3,000,000 3,000,000
Potential dilution from the assumed exercise
of common stock equivalents 500,000 1,517,000
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Weighted-average common and common equivalent
shares (used in the computation of diluted
earnings per share) 3,500,000 4,517,000
========== ==========
6. RELATED PARTY TRANSACTIONS
The Company has extensive transactions and relationships with LVDG and
subsidiaries ("Related Entities"), the chairman and principal shareholder of
LVDG, and the retail store owned by the Chairman of LVDG (the "Affiliated
Store"). Because of these relationships, it is possible that the terms of
transactions between these parties are not the same as those which would
result from transactions among unrelated parties. The Affiliated Store
operates in Las Vegas, Nevada and was not a franchise of SAGC during the
period ended March 31, 1997. As a result, this store paid no royalties to
SAGC but purchased merchandise at the same cost as SAGC. The Affiliated Store
also benefited from the SAGC's activities, including any local and national
advertising conducted by the SAGC.
7. LEASEHOLD IMPROVEMENTS AND EQUIPMENT
Leasehold improvements and equipment included the following as of March 31,
1998 and December 31, 1997, respectively:
1998 1997
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Furniture and equipment $ 575,500 $ 566,500
Leasehold improvements 9,343,500 9,378,400
Other 206,900 200,912
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10,125,900 10,145,800
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Less - accumulated amortization and
depreciation (281,000) (164,400)
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$9,844,900 $9,981,400
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8. PROJECT DEVELOPMENT COSTS
SAGC is currently engaged in the planning and design of All-American
SportParks. The All-American SportPark in Las Vegas, Nevada is currently
under construction and is expected to be completed in June 1998. Project
development costs represent the continuing construction costs of the
All-American SportPark and totaled approximately $13,468,000 as of March 31,
1998. These costs consists primarily of $10,592,000 in buildings, $1,601,000
in land improvements, and $1,275,000 furniture, equipment and other.
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9. LEASES
SAGC's lease for approximately 23 acres of undeveloped land on which the
All-American SportPark is being constructed became effective on February 1,
1998. The base rental on the lease is $18,910 per month and contains
contingent rentals based on a percentage of gross revenues in the park. The
lease term is 15 years with two five-year renewal options.
10. 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 December 1994, the Company entered into an agreement with Major League
Baseball ("MLB") concerning a license for the use of MLB logos, trade marks
and mascots in the decor, advertising and promotions of the Company's Slugger
Stadium concept. This agreement was amended during 1997. Pursuant to the
amended agreement, the Company holds the exclusive right to identify its
indoor and outdoor baseball batting stadiums as Major League Baseball Slugger
Stadiums. The license covers the United States and expires on November 30,
2000, subject to the right to extend for three additional years provided
certain conditions are met. As consideration for the license, the Company
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, the Company must pay $50,000
during such year. The Company has made the payments required for 1995, 1996
and 1997. In addition to and as an offset against the minimum payments set
out above, the Company is required to pay to MLB a royalty based on the
revenue from the batting cages of the greater of (i) six and one-quarter
percent (6-1/4%) or (ii) the royalty rate payable by the Company to any other
individual or entity for the right to open or operate any attraction or event
in the Sports Entertainment Complex. The Company's right to exclusively use
MLB logos and other marks at its baseball-batting stadiums is dependent upon
certain conditions set forth in the agreement.
In May 1996, SAGC entered into an agreement with Jeff Gordon, the 1997 NASCAR
Winston Cup Champion, 1997 Daytona 500 Champion, 1997 Coca-Cola 600 Champion,
1995 Winston Cup Champion and former NASCAR Winston Cup Rookie of the year, to
serve as spokesperson of the NASCAR SpeedPark through April 30, 2000. Mr.
Gordon is to be paid $25,000 per SpeedPark opening per year with a minimum
guarantee over the life of the agreement. Under the agreement, he is to
receive 1% of the net profits of each SpeedPark and additional fees for
recording television and radio spots and making more than six appearances per
year. Mr. Gordon was also granted options under the Company'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 the Company, to limit his services to the
Las Vegas SportPark and to set his base fee at $25,000 per year.
SAGC has an exclusive license agreement with The National Association of Stock
Car Auto Racing, Inc. ("NASCAR") for the operation of SpeedParks as a part of
the All-American SportPark or as a standalone NASCAR SpeedPark. The
agreement, as amended, provides that the Company 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. The agreement
provides that the exclusive rights to Las Vegas are subject to the condition
that the Las Vegas SpeedPark is opened by March 1, 1998, and that the
exclusive rights to Southern California are subject to the condition that the
Southern California SpeedPark is opened by March 1, 1999, the license for that
site would continue until December 31,
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2003, and if the Company opens the Southern California site by March 1, 1999,
the license for that site will continue until December 31, 2004. NASCAR has
verbally agreed to extend the March 1, 1998, deadline for the Las Vegas
SportPark, but no new deadline has yet been determined.
In January 1997, SAGC entered into an agreement with the Pepsi-Cola Company
("Pepsi") concerning an exclusive sponsorship agreement. Under the agreement,
Pepsi would receive certain exclusive rights related to soft drinks, tea
products, juice products, bottled water and similar products in exchange for a
series of payments totaling $1,250,000 beginning when the SportPark opens.
SAGC received $250,000 as the first payment on this contract on December 31,
1997. The remaining amounts are due annually over a four year period starting
with the commencement of operations of the All-American SportPark. The rights
granted to Pepsi are to include that Pepsi's products will be exclusively sold
for the categories listed, that only Pepsi identified cups will be used in the
SportPark, 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 will provide
that SAGC and Pepsi will participate in joint marketing programs such as
promotions on Pepsi's products and local radio advertising.
In September 1997, SAGC 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 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. Rents from the Callaway Golf Center will be
paid to All-American Golf LLC and all other rents will be paid to SAGC.
Sportservice is expected to invest approximately $3.85 million into the
concessions and operations which includes all food service leasehold
improvements. The agreement also provides Sportservice with a right of first
refusal for future parks to be built by SAGC 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 do not exceed the estimate of $3.85 million. The agreement has
a number of other terms and conditions including a requirement that SAGC and
the LLC must develop and construct the SportPark in accordance with certain
specifications provided to Sportservice, and provide all necessary building
structure and shell components. SAGC and the LLC must operate the SportPark
on a year-round, seven days a week basis throughout the term of the agreement.
The Company has entered into a two year agreement with Integrated Sports
International ("ISI") whereby ISI has been retained to assist the Company in
obtaining corporate sponsorship for various areas of the SportPark.
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.
11. SUBSEQUENT EVENT
During 1997, SAGC and Callaway Golf Company ("Callaway") formed All-American
Golf LLC, a California limited liability company to construct, manage and
operate the "Callaway Golf Center", a premier golf facility at the site of the
All-American
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SportPark. SAGC contributed the value of expenses incurred relating to the
design and construction of the golf center plus cash in the combined amount of
$3 million for 80% of the membership units. Callaway contributed equity
capital of $750,000 and loaned the LLC $5.25 million for the remaining 20% of
the membership units.
The Callaway loan bears interest at a rate of 10 percent per annum with
interest only payments commencing 60 days after the opening of the golf center
(which occurred on October 1, 1997). All-American Golf was unable to make the
interest payments due in December 1997 and January, February and March 1998.
Accordingly, on March 18, 1998, All-American Golf entered into a forbearance
agreement with Callaway Golf Company which cured the default and established
terms to repay the amounts in arrears.
Subsequently, on May 5, 1998, SAGC sold its 80% interest in All-American Golf
to Callaway in exchange for $1.5 million in cash and the cancellation of the
$3 million note, including any interest thereon, owed by SAGC to Callaway. Of
the cash payment, $500,000 was held back by Callaway until it has assured
itself that it has obtained all of the rights necessary to operate the
Callaway Golf Center. In connection with the sale of its membership units
SAGC 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.
Results of operations of All-American Golf included in the unaudited condensed
consolidated financial statements for the quarter ended March 31, 1998 were as
follows:
Revenue $ 501,700
=========
Cost of revenue $ 503,000
Depreciation and amortization 112,900
Amortization of preopening costs 22,800
Interest expense 135,200
---------
Total expenses 773,900
---------
(272,200)
Minority interest loss 54,400
---------
Net loss $(217,800)
=========
Assets and liabilities included in the accompanying unaudited consolidated
financial statements as of March 31, 1998 and December 31, 1997 were as
follows:
1998 1997
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents $ 124,400 $ 45,500
Accounts receivable, net 38,100 57,800
Due from Affiliated Store 46,600 33,500
Prepaid expenses and other 18,700 27,900
Preopening costs 77,000 99,900
---------- ----------
Total current assets 304,800 264,600
-15-
<PAGE>
Leasehold improvements and equipment,
net 9,705,200 9,840,700
----------- -----------
$10,010,000 $10,105,300
=========== ===========
CURRENT LIABILITIES:
Current portion of obligations under $ 65,100 $ 65,100
capital leases
Accounts payable and accrued expenses 921,300 769,100
Due to Affiliated Store 12,600 21,000
Due to Related Entities 616,400 564,900
---------- ----------
Total current liabilities 1,615,400 1,420,100
LONG TERM LIABILITIES:
Obligation under capital leases, net 166,700 185,200
of current portion
Note payable 5,250,000 5,250,000
---------- ----------
Total long term liabilities 5,416,700 5,435,200
---------- ----------
Total liabilities $7,032,100 $6,855,300
========== ==========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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
development and construction activities, dependence on existing management,
leverage and debt service (including sensitivity to fluctuations in interest
rates), domestic or global economic conditions, changes in federal or state
tax laws or the administration of such laws, changes in regulations and
application for licenses and approvals under applicable jurisdictional laws
and regulations.
The Company's continuing operations consist solely of the development
and operation of sport-oriented theme parks under the name "All-American
SportPark". Results of operations for the quarter ended March 31, 1998
include the results of All-American Golf LLC, a majority-owned subsidiary,
engaged in the operation of a premier golf facility called the "Callaway Golf
Center" located at the site of the All-American SportPark under construction
in Las Vegas, Nevada. This facility commenced operations in October 1997.
The Company sold its majority interest in this subsidiary in May 1998.
-16-
<PAGE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1998 AS COMPARED TO THREE
MONTHS ENDED MARCH 31, 1997
DISCONTINUED OPERATIONS
On February 26, 1997, the Company and LVDG sold certain assets and
transferred certain liabilities to an unrelated buyer. The total
consideration received was approximately $5.3 million of which approximately
$2.75 million was allocated to the Company. Specifically, the Company sold
all of its interest in its franchise business, including its rights under
agreements with franchisees, the right to franchise such stores and the rights
to related trademarks. The buyer also assumed certain trade payables of the
Company and LVDG. The sale of all assets, liabilities and rights related to
the franchise and wholesale businesses have been presented as "Discontinued
Operations" in the accompanying statement of operations for the period ended
March 31, 1997.
CONTINUING OPERATIONS
REVENUE. Revenue increased to $538,100 in 1998 from $10,000 in 1997 due
primarily to the opening of the Callaway Golf Center on October 1, 1997.
First quarter 1998 revenues of the golf center were $501,700. Other income
was $36,400 in 1998 versus $10,000 in 1997 representing primarily management
fees of $25,200 for managing the operations of the Callaway Golf Center.
COST OF REVENUE. Retail cost of revenues represents the direct
operating costs of the Callaway Golf Center. As noted in revenues, above, the
Callaway Golf Center opened on October 1, 1997 and accordingly there were no
comparable costs for the 1997 period.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses relating to continuing operations consist principally
of administrative payroll, office rent, professional fees and other corporate
costs. The $445,400 increase to $566,400 in 1998 from $121,000 in 1997 is
attributable to costs relating to the general administration of the Company
and its All-American SportPark subsidiary.
DEPRECIATION AND AMORTIZATION. The opening of the Callaway Golf Center
resulted in depreciation and amortization expense of approximately $112,900
for 1998 accounting for substantially all the increase over 1997 expense of
$2,000.
PREOPENING EXPENSE. Preopening expense of $22,800 in 1998 represents
the amortization of costs (consisting primarily of direct personnel and other
operating costs) incurred prior to the opening of the Callaway Golf Center.
These costs are being amortized over a 12 month period. The costs incurred
during 1997 related to the development of the "All-American SportPark" concept
were expensed as of December 31, 1997.
INTEREST EXPENSE. Interest expense in 1998 was $135,100 compared to
interest income of $68,000 in 1997. 1998 interest expense primarily
represents interest expense on the $5.2 million note of the Callaway Golf
Center. 1997 income resulted from interest earned on cash balances.
INCOME TAXES. Due to operating losses, the Company has no tax provision
nor has it recorded any tax benefits. Income taxes of $450,000 relating to
the Company's sale of its franchise operations during 1997 were offset against
the gain on disposal of the discontinued operations.
-17-
<PAGE>
NET LOSS. The loss from continuing operations for 1998 was $751,400
compared to a loss of $122,000 in 1997. The losses are principally attributed
to the startup nature of the Company's new business focus involving the
development of the "All-American SportPark".
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had negative working capital of
approximately $9.5 million as compared to a negative working capital of
approximately $3.1 million at December 31, 1997, a decrease of approximately
$6.4 million. Of this decrease, approximately $5.6 million resulted from the
financing of construction costs of the All-American SportPark. These costs
were funded primarily with short term loans including a bank loan of $4
million and $1.4 million in borrowings under a $3 million short term loan from
Callaway. Accounts payable and accrued expenses increased approximately $2.1
million primarily representing outstanding bills for construction of the
All-American SportPark.
Capital expenditures for the remainder of 1998, which relate
predominantly to construction of the All-American SportPark complex, are
expected to be approximately $9.7 million.
The Company currently has not secured long term financing for the
construction of the sports entertainment complex portion of the SportPark.
The Company has been holding discussions with a number of potential corporate
sponsors who have expressed an interest in participating in the SportPark, and
management expects that corporate sponsors will contribute a portion of the
financing needed. The Company expects to receive the balance of the financing
from a combination of sources including outside equity and/or debt investors,
and bank financing. The Company has been holding discussions with a number of
potential financial sources concerning long term financing although no formal
commitments have yet been received. There is no assurance that required
financing will be obtained from any of these sources. Until long term
financing can be obtained the Company will continue to fund its construction
and operations with short term sources of funds. As previously discussed, on
February 13, 1998, The Company secured a $4 million short-term loan at an
interest rate of 10% per annum from Nevada State Bank. The Company will pay
interest only commencing March 10, 1998, with the full loan plus unpaid
interest due August 10, 1998. Additionally, on March 19, 1998, the Company
obtained a $3 million short-term loan bearing interest at a rate of 10 percent
per annum from Callaway Golf Company. $1.4 million of this facility was drawn
down in March 1998, and the balance was drawn down in April 1998. This loan
was forgiven as part of the May 1998 sale of the Company's 80% membership
interest in All-American Golf LLC to Callaway. On January 26, 1998, the
Company's chairman loaned the Company $200,000, and in April 1998 loaned an
additional $400,000. The loans are due in 2001 and bear interest at a rate of
10 percent per annum. Additionally, the Company has received a commitment
letter for an $18 million short term loan as discussed in Note 4 of Notes to
Unaudited Condensed Consolidated Financial Statements. The Company intends to
use the proceeds from these loans towards completing the construction of the
All-American SportPark and repayment of other outstanding indebtedness of the
Company.
During the three months ended March 31, 1998, operating activities
provided approximately $1.3 million in cash vs. approximately $800,000
provided in 1997. Increases in outstanding vendor invoices accounted for the
majority of this increase. This cash along with funds provided from the
Company's financing activities discussed below were reinvested into the
All-American SportPark.
-18-
<PAGE>
Cash used in investing activities totaled approximately $5.6 million
during the 1998 quarter as the Company continued construction of the
All-American SportPark. The investment in the SportPark totaled $1.2 million
during the comparable period in 1997. 1997 was favorably impacted by $2.7
million in proceeds from the sale of the Company's franchise and wholesale
business.
Financing activities in 1998 provided cash of approximately $4.2
million. This resulted from the previously described loans and notes offset
by the repayment of the $688,000 bank line of credit and $500,000 note
payable.
The Company's anticipated sources of working capital are its current
cash balance and future cash flows from operation of the All-American
SportPark which is scheduled to commence operations in June 1998. The Company
has in the past funded a portion of its cash needs through loans from LVDG,
however, any future loans from LVDG are likely to be limited. If the proposed
merger with LVDG is completed, the current assets and cash flow, if any, of
LVDG will be available to help fund the All-American SportPark. The Company
does not expect to have any significant capital expenditures other than the
development of the SportPark.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. None.
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. None.
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.
SAINT ANDREWS GOLF CORPORATION
Date: May 15, 1998 By:/s/ Ronald Boreta
Ronald Boreta, President and Chief
Financial Officer
-19-
<PAGE>
EXHIBIT INDEX
EXHIBIT METHOD OF FILING
- ------- -----------------------------
27. Financial Data Schedule Filed herewith electronically
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited condensed balance sheets and unaudited condensed statements of
operations 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> MAR-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 146,100
<SECURITIES> 0
<RECEIVABLES> 291,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 599,500
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 24,335,600
<CURRENT-LIABILITIES> 10,132,600
<BONDS> 0
<COMMON> 3,000
0
4,740,000
<OTHER-SE> 2,425,900
<TOTAL-LIABILITY-AND-EQUITY> 24,335,600
<SALES> 0
<TOTAL-REVENUES> 538,100
<CGS> 503,000
<TOTAL-COSTS> 503,000
<OTHER-EXPENSES> 705,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (805,800)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (751,400)
<EPS-PRIMARY> (.25)
<EPS-DILUTED> (.25)
</TABLE>
