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: 0-24970
ALL-AMERICAN SPORTPARK, INC.
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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)
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, 3,150,000 shares of common stock were outstanding.
Transitional Small Business Disclosure Format (check one): Yes___ No X
<PAGE>
ALL-AMERICAN SPORTPARK, INC.
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 - 6
Nine Months Ended September 30, 2000 and 1999
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 19
2
<PAGE>
ALL-AMERICAN SPORTPARK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------ ------------
(UNAUDITED)
Current assets:
Cash and cash equivalents $ 178,650 $ 118,796
Accounts receivable 165,628 122,847
Inventory 39,021 52,796
Prepaid expenses and other 220,879 231,251
------------ ------------
Total current assets 604,178 525,690
Leasehold improvements and equipment, net 22,739,282 24,040,832
Due from related entities 160,382 588,051
Due from affiliated stores 138,610 123,243
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 25,466 21,311
------------ ------------
Total assets $ 24,049,215 $ 25,710,373
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
ALL-AMERICAN SPORTPARK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
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 119,605 164,897
Accounts payable and accrued expenses 3,580,215 2,184,624
------------ ------------
Total current liabilities 16,805,929 15,451,831
Note payable to shareholder 1,575,046 1,484,616
Due to affiliated stores 385,887 408,254
Due to related entities 785,338 1,389,931
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 21,035,110 20,395,060
Shareholders' equity:
Series A Convertible Preferred stock,
$.001 par value, 500,000 shares
authorized and outstanding at
September 30, 2000 and December 31, 1999 4,740,000 4,740,000
Series B Convertible Preferred Stock,
$.001 par value, 250,000 shares
authorized and outstanding at
September 30, 2000 and December 31, 1999 2,500,000 2,500,000
Options issued in connection with Series A
Convertible Preferred Stock to purchase
250,000 shares of Common stock 260,000 260,000
Options issued in connection with
financing 174,000 174,000
Common stock, $.001 par value,
10,000,000 shares authorized, 3,150,000
and 3,000,000 shares issued and
outstanding at September 30, 2000 and
December 31, 1999, respectively 3,150 3,000
Additional paid-in-capital 3,637,380 3,520,800
Accumulated deficit (8,300,425) (5,882,487)
------------ ------------
Total shareholders' equity 3,014,105 5,315,313
------------ ------------
Total liabilities and shareholders'
equity $ 24,049,215 $ 25,710,373
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
ALL-AMERICAN SPORTPARK, 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
Callaway Golf Center[TM] 650,747 548,724
Other (380) 7,281
------------ ------------
Total revenues 1,517,685 1,788,662
------------ ------------
Cost of Revenues:
SportPark Las Vegas 175,431 404,524
Callaway Golf Center[TM] 146,637 114,618
------------ ------------
Total cost of revenues 322,068 519,142
------------ ------------
Gross profit 1,195,617 1,269,520
------------ ------------
Operating expenses:
Selling, general and administrative 1,198,537 1,537,223
Depreciation and amortization 423,838 424,748
------------ ------------
Total operating expenses 1,622,375 1,961,971
------------ ------------
Operating loss (426,758) (692,451)
Interest income (expense), net (375,932) (392,268)
------------ ------------
Loss before income tax benefit (802,690) (1,084,719)
Income tax benefit - (156,832)
------------ ------------
Net loss $ (802,690) $ (927,887)
============ ============
NET LOSS PER SHARE:
Basic and diluted $ (0.25) $ (0.31)
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
ALL-AMERICAN SPORTPARK, 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
Callaway Golf Center[TM] 1,887,339 1,557,494
Other 20,056 19,781
------------ ------------
Total revenues 4,718,576 4,940,580
------------ ------------
Cost of Revenues:
SportPark Las Vegas 622,018 986,634
Callaway Golf Center[TM] 344,007 284,071
------------ ------------
Total cost of revenues 966,025 1,270,705
------------ ------------
Gross profit 3,752,551 3,669,875
------------ ------------
Operating expenses:
Selling, general and administrative 3,753,765 4,312,211
Depreciation and amortization 1,282,161 1,243,862
------------ ------------
Total operating expenses 5,035,926 5,556,073
------------ ------------
Operating loss (1,283,375) (1,886,198)
Interest income (expense), net (1,134,563) (1,115,133)
------------ ------------
Loss before income tax benefit (2,417,938) (3,001,331)
Income tax benefit - (156,832)
------------ ------------
Net loss $ (2,417,938) $ (2,844,499)
============ ============
NET LOSS PER SHARE:
Basic and diluted $ (0.77) $ (0.95)
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
ALL-AMERICAN SPORTPARK, 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 $ (2,417,938) $ (2,844,499)
Adjustment to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,282,161 1,431,641
Loss on sale of equipment 1,669 -
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (42,781) 210,965
(Increase) decrease in inventories 13,775 (5,232)
(Increase) decrease in prepaid expenses and other 122,947 (104,480)
Increase in accounts payable and accrued expenses 1,395,591 658,910
Increase (decrease) in deferred income 24,496 (96,825)
------------ ------------
Net cash provided by (used in) operating
activities 379,920 (749,520)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Leasehold improvements expenditures (100,180) (874,596)
Proceeds from sale of equipment 37,023 -
------------ ------------
Net cash used in investing activities (63,157) (874,596)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in due to affiliated stores and
related entities (214,658) (95,295)
Increase (decrease) in notes payable and notes
payable to shareholder and related entity 51,601 (582,486)
Principal payments on capital leases (93,852) (101,769)
------------ ------------
Net cash used in financing activities (256,909) (779,550)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 59,854 (2,403,666)
------------ ------------
CASH AND CASH EQUIVALENTS, beginning of period 118,796 2,494,300
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 178,650 $ 90,634
============ ============
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 issued in exchange for consulting
services $ 116,730 $ -
============ ============
Capital lease obligations reduced in connection
with sale of equipment $ 110,826 $ -
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
ALL-AMERICAN SPORTPARK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements include the
accounts of All-American SportPark, Inc. ("AASP"), a Nevada corporation, and
its subsidiaries, All-American Golf Center, Inc. ("AAGC"), and SportPark Las
Vegas, Inc. ("SPLV"), (collectively the "Company"). All significant
inter-company accounts and transactions have been eliminated. The operations
of the All-American SportPark facility are included in SPLV. The operations
of the Callaway Golf Center ("CGC") are included in AAGC.
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 Form 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 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>
As of September 30, 2000, Sports Entertainment Enterprise, Inc. ("SPEN"), a
publicly traded company, owns approximately 63.5% of the Company's outstanding
common stock and one-third of the Company's outstanding preferred stock.
2. SPORTPARK LAS VEGAS LOAN AGREEMENT
On September 15, 1998 the Company entered into a $13,500,000 loan agreement
with Nevada State Bank ("Lender"). The original term of the loan is 15 years
with interest measured at a fixed rate of 4% above the Lender's five-year
LIBOR rate measured September 1, 1998, 2003 and 2008. The initial interest
rate through 2003 is 9.38%. The loan is secured by substantially all the
assets of the Company that existed at the time the financing was completed as
well as corporate guarantees of AASP and SPEN. The Callaway Golf Center was
not owned by the Company at the time this financing was completed and
therefore is not security for this loan. To facilitate this financing
transaction, the owner of the leasehold interest in the land underlying the
SportPark executed a trust deed granting a security interest in the leased
property to the Lender to secure repayment of the loan. As consideration for
the Landlord's willingness to provide collateral for the loan, the Company's
President and CEO, its Chairman, and a related entity pledged their stock (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.
The Company has not been in compliance with certain debt covenants related to
this loan since September 1999. Also, because of cash constraints, the
Company did not make its September 1999 loan payment to the Lender and since
then has not made any loan payments. In November 1999, the Company 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. The Company met with
the Lender on March 21, 2000, to discuss the results of the consultant's
reports and to present the Company's proposal for a work-out plan. The Lender
did not accept the SportPark's plan as presented at the March 21 meeting.
The Company 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 the Company 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.
9
<PAGE>
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
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. The
Company may or may not have continuing involvement with the SportPark
property. Although management of the Company believes that a favorable
resolution may be achieved with regard to this SportPark issue, there can be
no assurance that the Company will be successful in doing so. Also, see Note
8.
3. LOSS PER SHARE AND SHAREHOLDER'S EQUITY
Basic and diluted loss per share is computed by dividing the reported net loss
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 loss per share were 3,136,314 and 3,000,000
for the nine-month periods ended September 30, 2000 and 1999, respectively,
and 3,150,000 and 3,000,000 for the three-month periods ended September 30,
2000 and 1999, respectively.
In January and February 2000, the Company issued an aggregate of 150,000
restricted 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
The Company 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.
The Company 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.
10
<PAGE>
The Company has historically had extensive transactions with SPEN and
subsidiaries ("Related Entities"), the chairman and principal shareholder of
SPEN, and the Paradise Store. In 2000, no significant transactions occurred
with the Related Entities or the Paradise Store.
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 3,456,134 3,433,769
Furniture and equipment 2,045,348 2,030,412
Leased equipment 530,693 734,296
Signs 685,400 685,400
Leasehold improvements 477,058 476,519
Go-Karts 457,115 457,115
Other 103,604 98,704
----------- -----------
25,861,088 25,966,029
Accumulated depreciation and
amortization (3,121,806) (1,925,197)
----------- -----------
$22,739,282 $24,040,832
=========== ===========
6. LEASES
The land underlying the SPLV and CGC is leased to the Company 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 the Company 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, the Company 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 the Company believes that
the landlord is willing to defer land lease payments until such time as
adequate capital resources are available to the Company to make such payments.
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.
7. COMMITMENTS AND CONTINGENCIES
The Company 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.
11
<PAGE>
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 $2,417,938 and has
experienced cash flow problems since September of 1999. For the year ended
December 31, 1999, the Company had a net loss of $3,818,787 and negative cash
flow from operations of $697,710. Additionally, as of September 30, 2000, the
Company had a working capital deficit of $16,201,751 and cash and cash
equivalents of $178,650. 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 the
Company'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.
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:
12
<PAGE>
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 $ (.04) $ (.12)
============ ============
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 current operations consist of 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 CGC and the SportPark. The SportPark commenced operations on
October 9, 1998. The CGC commenced operations in October 1997, the Company
sold its 80% interest in it on May 5, 1998 and, the Company 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 15.2% to $1,517,685 in 2000 compared to
$1,788,662 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 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 the Company made
the decision to close the SportPark to the general public Monday through
Wednesday because the revenue generated on these days was not covering
variable expenses. As part of this strategy, management reserved Monday
through Wednesday for group sales and special events.
COST OF REVENUES. Cost of revenues decreased 37.9% to $322,068 in 2000
compared to $519,142 in 1999. Cost of revenues as a percentage of Revenues
was 21.2% in 2000 compared to 29.0% 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.
13
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE (SG&A). These expenses consist
principally of administrative payroll, rent, professional fees and other
corporate costs. These expenses decreased 22.0% to $1,198,537 in 2000 compared
to $1,537,223 in 1999. Corporate overhead increased 24.3% in 2000 versus 1999
due mainly to professional fees. SG&A costs for the CGC decreased 15.9% due
mainly to streamlined 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 $423,838 in
2000 compared to $424,748 in 1999.
NET INTEREST (EXPENSE) INCOME. Net interest expense decreased slightly to
$375,932 in 2000 compared to $392,268 in 1999 due to lower principal balances
of debt in 2000 compared to 1999.
INCOME TAXES. Due to operating losses and valuation allowances related to
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 $802,690 represents a 13.5% decrease from the
net loss incurred in the comparable 1999 period of $927,887. 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%; 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 18.8% due mainly to
increased professional fees.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2000 AS COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 1999
REVENUES. Revenues decreased 4.5% to $4,718,576 in 2000 compared to
$4,940,580 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 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 because of cash constraints and fewer operating days in 2000
versus 1999. Effective January 10, 2000, management of the Company made the
decision to close the SportPark to the general public Monday through Wednesday
because the revenue generated on these days was not covering variable
expenses. As part of this strategy, management reserved Monday through
Wednesday for group sales and special events.
COST OF REVENUES. Cost of revenues decreased 23.9% to $966,025 in 2000
compared to $1,270,705 in 1999. Cost of revenues as a percentage of Revenues
was 20.5% in 2000 compared to 25.7% 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.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A). These expenses consist
principally of administrative payroll, rent, professional fees and other
corporate costs. These expenses decreased 13.0% to $3,753,765 in 2000 compared
to $4,312,211 in 1999. Corporate overhead decreased 10.7% in 2000 versus
1999. 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.
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DEPRECIATION AND AMORTIZATION. These costs increased to $1,282,161 in 2000
compared to $1,243,862 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 1.7% to
$1,134,563 in 2000 compared to $1,115,133 in 1999 due mainly to lower interest
income in 2000 compared to 1999 because of substantially lower cash balances.
INCOME TAXES. Due to operating losses, the Company has recorded no tax
provision nor has it recorded any tax benefits.
NET LOSS. Net loss for 2000 of $2,417,938 represents a 15.0% decrease from
the net loss incurred in the comparable 1999 period of $2,844,499. 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%; 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 8.2%.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had negative working capital of $16,201,751
and cash and cash equivalents of $178,650. 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.
On September 15, 1998 the Company entered into a $13,500,000 loan agreement
with Nevada State Bank ("Lender"). The original term of the loan is 15 years
with interest measured at a fixed rate of 4% above the Lender's five-year
LIBOR rate measured September 1, 1998, 2003 and 2008. The initial interest
rate through 2003 is 9.38%. The loan is secured by substantially all the
assets of the Company that existed at the time the financing was completed as
well as corporate guarantees of AASP and SPEN. The Callaway Golf Center was
not owned by the Company at the time this financing was completed and
therefore is not security for this loan. To facilitate this financing
transaction, the owner of the leasehold interest in the land underlying the
SportPark executed a trust deed granting a security interest in the leased
property to the Lender to secure repayment of the loan. As consideration for
the Landlord's willingness to provide collateral for the loan, the Company's
President and CEO, its Chairman, and a related entity pledged their stock (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.
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The Company has not been in compliance with certain debt covenants related to
this loan since September 1999. Also, because of cash constraints, the
Company did not make its September 1999 loan payment to the Lender and since
then has not made any loan payments. In November 1999, the Company 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. The Company met with
the Lender on March 21, 2000 to discuss the results of the consultant's
reports and to present the Company's proposal for a work-out plan. The Lender
did not accept the SportPark's plan as presented at the March 21 meeting.
The Company 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 the Company 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
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. The
Company may or may not have continuing involvement with the SportPark
property. Although management of the Company is optimistic that a favorable
resolution will be achieved with regard to this SportPark issue, there can be
no assurance that the Company will be successful in doing so.
Also, management is continually evaluating new revenue opportunities that
provide a more broad and exciting customer experience as well as maximizing
the utilization of the 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 began deferring half of his salary in September 1999 and will
continue to do so until such time as the Company has sufficient capital
resources.
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On December 31, 1998 the Company 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 the Company would be successful in securing such financing, or
at terms acceptable to the Company.
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.
Operating Activities. Net cash provided by operating activities was $379,920
for the nine months ended September 30, 2000 compared to net cash used in
operating activities of $749,520 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 $63,157 and
$874,596 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 $256,909 and
$779,550 for the nine months ended September 30, 2000 and 1999, respectively.
The primary reason for the smaller use of cash in 2000 is due to the Company
not paying the debt service on the SportPark loan.
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The Company's current and expected sources of working capital are its cash
balances that were $178,650 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 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 Bank on
the SportPark loan, and 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
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.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On March 22, 2000, D&R Builders, Inc., doing business as Breslin
Builders, filed a complaint in the District Court of Clark County, Nevada
against 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.
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.
ALL-AMERICAN SPORTPARK, INC.
Date: November 14, 2000 By:/s/ Ronald Boreta
Ronald Boreta, President and
Chief Executive Officer
Date: November 14, 2000 By:/s/ Kirk Hartle
Kirk Hartle, Chief Financial Officer
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