UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended: December 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from: _____ to ____
Commission File No. 0-024970
ALL-AMERICAN SPORTPARK, INC.
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(Name of Small Business Issuer in its Charter)
NEVADA 88-0203976
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(State or Other Jurisdiction of (I.R.S. Employer Identi-
Incorporation or Organization) fication No.)
6730 South Las Vegas Boulevard, Las Vegas, NV 89119
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(Address of Principal Executive Offices, Including Zip Code)
Issuer's Telephone Number: (702) 798-7777
Securities Registered Pursuant to Section 12(b) of the Act: None.
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
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(Title of each class)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $2,218,617
As of March 19, 2004, 3,400,000 shares of common stock were outstanding, and
the aggregate market value of the common stock of the Registrant held by
non-affiliates was approximately $96,300.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
BUSINESS DEVELOPMENT
The Company's business began in 1974 when Vaso Boreta, the Company's
Chairman of the Board, opened a "Las Vegas Discount Golf & Tennis" retail
store in Las Vegas, Nevada. This store, which is still owned by Mr. Boreta,
subsequently began distributing catalogs and developing a mail order business
for the sale of golf and tennis products. In 1984, the Company began to
franchise the "Las Vegas Discount Golf & Tennis" retail store concept and
commenced the sale of franchises. As of February 26, 1997, when the franchise
business was sold, the Company had 43 franchised stores in operation in 17
states and 2 foreign countries.
The Company was incorporated in Nevada on March 6, 1984, under the name
"Sporting Life, Inc." The Company's name was changed to "St. Andrews Golf
Corporation" on December 27, 1988, to "Saint Andrews Golf Corporation" on
August 12, 1994, and to All-American SportPark, Inc. ("AASP") on December 14,
1998.
Sports Entertainment Enterprises, Inc. ("SPEN"), formerly known as Las
Vegas Discount Golf & Tennis, Inc. ("LVDG"), a publicly traded company,
acquired the Company in February 1988, from Vaso Boreta, who was the Company's
sole shareholder. Vaso Boreta also serves as SPEN's Chairman of the Board,
President and CEO.
In December 1994, the Company completed an initial public offering of
1,000,000 Units, each Unit consisting of one share of Common Stock and one
Class A Warrant. The net proceeds to the Company from this public offering
were approximately $3,684,000. The Class A Warrants expired unexercised on
March 15, 1999.
In 1996, the Company sold 500,000 shares of Series A Convertible
Preferred Stock to Three Oceans Inc. ("TOI"), an affiliate of SANYO North
America Corporation, for $5,000,000 in cash pursuant to an Investment
Agreement between the Company and TOI. The Company used these proceeds to
fund part of the development costs of its All-American SportPark property in
Las Vegas. In March 2001, the Company repurchased all of the shares of Series
A Convertible Preferred Stock from TOI for $5,000 in cash. Once repurchased,
the shares were retired.
On December 16, 1996, the Company and its majority shareholder, SPEN,
entered into negotiations pursuant to an "Agreement for the Purchase and Sale
of Assets" to sell all but one of the four retail stores owned by SPEN, all of
SPEN's wholesale operations and the entire franchising business of the Company
to Las Vegas Golf & Tennis, Inc., an unaffiliated company. On February 26,
1997, the Company and SPEN completed this transaction.
In connection with the sale of the above-described assets, SPEN and the
Company agreed not to compete with the Buyer in the golf equipment business
except that the Company is permitted to sell golf equipment at its Callaway
Golf Center business. In addition, the Buyer granted Boreta Enterprises,
Ltd., a limited partnership owned by Vaso Boreta, Ron Boreta, Vaso's son and
President of the Company, and John Boreta, Vaso's son and a principal
shareholder of SPEN, the right to operate "Las Vegas Discount Golf & Tennis"
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stores in southern Nevada, except for the Summerlin area of Las Vegas, Nevada.
Likewise, the Buyer is restricted from operating stores in southern Nevada
except for the Summerlin area of Las Vegas, Nevada.
On July 12, 1996, the Company entered into a lease agreement covering
approximately 65 acres of land in Las Vegas, Nevada, on which the Company
developed its Callaway Golf Center and All-American SportPark ("SportPark")
properties. The property is located on the world famous Las Vegas "Strip" at
the corner of Las Vegas Boulevard and Sunset Road which is just south of
McCarran International Airport and several of Las Vegas' major hotel/casino
properties such as Mandalay Bay and the MGM Grand. The property is also
adjacent to the new Interstate 215 beltway that will eventually encircle the
entire Las Vegas Valley. On 42 acres of the property is the Callaway Golf
Center that opened for business in October 1997. The remaining 23 acres was
home to the now discontinued SportPark that opened for business in October
1998; the Company disposed of the SportPark business in May 2001.
On June 20, 1997, the lessor of the 65-acre tract ("Landlord") agreed
with the Company to cancel the original lease and replace it with two separate
leases. The lease for the SportPark commenced on February 1, 1998 with a base
rent of $18,910 per month and was cancelled in connection with the disposition
of the SportPark in May 2001; the lease for the Callaway Golf Center is for
fifteen years with options to extend for two additional five-year terms. The
lease for the Callaway Golf Center[TM] commenced on October 1, 1997 when the
golf center opened; base rent is $33,173 per month.
During June 1997 the Company and Callaway Golf Company ("Callaway")
formed All-American Golf LLC ("LLC"), a California limited liability company
that was owned 80% by the Company and 20% by Callaway; the LLC owned and
operated the Callaway Golf Center . In May 1998, the Company sold its 80%
interest in LLC to Callaway. On December 31, 1998 the Company acquired
substantially all the assets of LLC subject to certain liabilities that
resulted in the Company owning 100% of the Callaway Golf Center .
On October 19, 1998 the Company sold 250,000 shares of the Series B
Convertible Preferred Stock to SPEN for $2,500,000. SPEN had earlier issued
2,303,290 shares of its Common Stock for $2,500,000 in a private transaction
to ASI Group, L.L.C. ("ASI"). ASI also received 347,975 stock options for
SPEN Common Stock. ASI is a Nevada limited liability company whose members
include Andre Agassi, a professional tennis player.
Beginning in September 1999, the Company ceased making loan payments on
its SportPark property due to financial difficulties. Ultimately, this
resulted in the disposition of the SportPark property in May 2001.
SPEN owned 2,000,000 shares of the Company's common stock and 250,000
shares of the Company's Series B Convertible Preferred Stock. In the
aggregate, this represented approximately two-thirds ownership in the Company.
On April 5, 2002, SPEN elected to convert its Series B Convertible Preferred
Stock into common stock on a 1 for 1 basis. On May 8, 2002, SPEN completed a
spin-off of the Company's shares held by SPEN to SPEN's shareholders. This
resulted in SPEN no longer having any ownership interest in the Company.
BUSINESS OF THE COMPANY
The Company's operations consist of the Callaway Golf Center ("CGC"), on
42 acres of leased land and is strategically positioned within a few miles of
the largest hotels and casinos in the world. There are over 125,000 hotel
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rooms in Las Vegas, and seven of the top ten largest hotels in the world are
within a few miles of the CGC including the MGM Grand, Mandalay Bay, Luxor,
Bellagio, and the Monte Carlo to name a few. The CGC is also adjacent to
McCarran International Airport that services nearly 35 million visitors
annually. The local residential population approximates 1.5 million.
In June 1997, the Company completed a final agreement with Callaway to
form a limited liability company named All American Golf LLC (the "LLC") for
the purpose of operating a golf facility, to be called the "Callaway Golf
Center[TM]," on approximately forty-two (42) acres of land on Las Vegas
Boulevard in Las Vegas, Nevada. The Callaway Golf Center[TM] opened to the
public on October 1, 1997.
The Callaway Golf Center[TM] includes a 110-station, two-tiered driving
range. The driving range is designed to have the appearance of an actual golf
course with ten impact greens, waterfall features, and an island green.
Pro-line equipment and popular brand name golf balls are utilized. In
addition, the CGC includes a lighted nine hole, par three golf course named
the "Divine Nine". The golf course has been designed to be challenging, and
has several water features including lakes, creeks, water rapids and
waterfalls, golf cart paths and designated practice putting and chipping
areas. At the entrance to the CGC is a 20,000 square foot clubhouse which
includes an advanced state of the art golf swing analyzing system developed by
Callaway Golf Company, and three tenant operations: (a) the St. Andrews Golf
Shop featuring the latest in Callaway Golf equipment and accessories, (b) the
Bistro 10 restaurant and bar which features an outdoor patio overlooking the
golf course and driving range with the Las Vegas "Strip" in the background,
and (c) the Giant Golf teaching academy for group and individual golf
instruction.
The CGC has a lease agreement with St. Andrews Golf Shop for the
provision of sales of golf retail merchandise. The lease is for fifteen years
ending in October 2012. The lessee pays a fixed monthly rental for its office
and retail space.
The CGC has a lease and concession agreement with Giant Golf Academy for
the provision of golf instruction services. The lessee pays a fixed monthly
rental for use of the golf facilities for golf instruction and for office
space inside the clubhouse building.
The LLC was originally owned 80% by the Company and 20% by Callaway Golf.
Callaway Golf agreed to contribute $750,000 of equity capital and loan the LLC
$5,250,000. The Company contributed the value of expenses incurred relating to
the design and construction of the golf center and cash in the combined amount
of $3,000,000. Callaway Golf's loan to the LLC had a ten-year term with
interest at ten percent per annum. The principal was due in 60 equal monthly
payments commencing five years after the golf center opened.
On May 5, 1998, the Company sold its 80% interest in the LLC to Callaway
for $1.5 million in cash and the forgiveness of $3 million in debt, including
accrued interest thereon, owed to Callaway by the Company. The Company
retained the option to repurchase the 80% interest for a period of two years
on essentially the same financial terms that it sold its interest. The sale
of the Company's 80% interest in the LLC was completed in order to improve the
Company's financial condition that, in turn, improved the Company's ability to
complete the financing needed for the final construction stage of the
SportPark.
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On December 30, 1998 the Company acquired substantially all the assets of
the LLC subject to certain liabilities. This resulted in the Company owning
100% of the Callaway Golf Center. Under terms of the asset purchase
agreement, the Company paid $1 million to Active Media Services in the form of
a promissory note payable in quarterly installments of $25,000 over a 10-year
period without interest. In turn, Active Media delivered a trade credit of
$4,000,000 to Callaway Golf.
In connection with this acquisition, the Company executed a trademark
license agreement with Callaway Golf pursuant to which the Company licenses
the right to use the marks "Callaway Golf Center " and "Divine Nine" from
Callaway Golf for a term beginning on December 30, 1998 and ending upon
termination of the land lease on the Golf Center. The Company paid a one-time
fee for this license agreement that was a component of the purchase price the
Company paid for the Callaway Golf Center upon acquisition of the facility on
December 30, 1998. Pursuant to this agreement, Callaway Golf has the right to
terminate the agreement upon the occurrence of any Event of Termination as
defined in the agreement.
On June 1, 2001, the Company completed a transaction pursuant to a
Restructuring and Settlement Agreement with Urban Land of Nevada, Inc. (the
"Landlord") to terminate the land lease for the discontinued SportPark, and to
transfer all of the leasehold improvements and personal property located on
the premises to the Landlord.
As part of the agreement, the Landlord agreed to waive all liabilities of
the Company to the Landlord with respect to the discontinued SportPark, and
with the exception of a limited amount of unsecured trade payables, the
Landlord agreed to assume responsibility of all other continuing and
contingent liabilities related to the SportPark. The Landlord also agreed to
cancel all of the Company's back rent obligations for the Callaway Golf Center
for periods through April 30, 2001. The Callaway Golf Center remains an
operating business of the Company.
As part of the transaction, the Company transferred to the Landlord a 35
percent ownership interest in the Company's subsidiary that owns and operates
the Callaway Golf Center. This subsidiary is All-American Golf Center, Inc.
("AAGC"). In connection with the issuance of the 35 percent interest in AAGC
to the Landlord, the Company and the Landlord entered into a Stockholders
Agreement that provides certain restrictions and rights on the AAGC shares
issued to the Landlord. The Landlord is permitted to designate a non-voting
observer of meetings of AAGC's board of directors. In the event of an uncured
default of the lease for the CGC, so long as the Landlord holds a 25% interest
in AAGC, the Landlord will have the right to select one director of AAGC. As
to matters other than the election of Directors, the Landlord has agreed to
vote its shares of AAGC as designated by the Company.
SPONSORSHIP AGREEMENT WITH PEPSI-COLA COMPANY
In December 1997, the Company entered into a sponsorship agreement with
the Pepsi-Cola Company ("Pepsi") under which Pepsi received certain exclusive
rights related to the dispensing of its products at the SportPark and CGC.
In exchange for certain rights, Pepsi agreed to pay the Company a fixed
annual cash payment for the term of the agreement such that five total cash
payments were received. The Company received all required payments from
Pepsi. The sponsorship agreement terminated in October 2003.
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AGREEMENT WITH SPORTSERVICE CORPORATION
In September 1997, the Company entered into a lease and concession
agreement with Sportservice Corporation ("Sportservice") that provides
Sportservice with the exclusive right for all food, beverages (alcoholic and
non-alcoholic), candy and other refreshments throughout the SportPark and CGC,
during the ten-year term of the agreement. Sportservice pays rent based on a
percentage of gross sales.
Sportservice is a wholly-owned subsidiary of Delaware North Company. The
agreement remains in effect for the CGC and the portion related to the
SportPark was assumed by the Landlord in connection with his acquisition of
the SportPark.
LIABILITY INSURANCE
The Company has a comprehensive general liability insurance policy to
cover possible claims for injury and damages from accidents and similar
activities. Although management of the Company believes that its insurance
levels are sufficient to cover all future claims, there is no assurance it
will be sufficient to cover all future claims.
MARKETING
The marketing program for the CGC is focused primarily on the local
individual customers with increasing emphasis on the individual tourist market
because of the facility's proximity to most of the major resorts in Las Vegas.
The CGC focuses its marketing efforts principally on print media that has
proven to be effective for the local market. For the tourist market, the
Company has instituted taxi programs, rack cards, and print media in tourist
publications that are located in the Las Vegas hotels and hotel rooms. Also,
the CGC, along with its teaching academy tenant Giant Golf, has implemented
programs to attract more group events, clinics, and other special promotional
events.
The CGC, which includes a nine-hole par 3 golf course, driving range, and
clubhouse, is designed as a country club atmosphere for the general public.
The Company's marketing efforts are directed towards a number of large
existing and potential markets for which there can be no assurance of
financial success. Further, to expand the concepts beyond the Las Vegas
location could require considerably more financial and human resources than
presently exists at the Company.
FIRST TEE
In March 2002, the CGC became the official home in Southern Nevada for
the national First Tee program. The First Tee program is a national
initiative started in November 1997 by the World Golf Foundation. First Tee
is sponsored by the PGA Tour, the LPGA, the PGA of America, the United States
Golf Association, and Augusta National Golf Club. The First Tee program was
formed to eliminate access and affordability issues for children, especially
economically disadvantaged children, to participate in the game of golf. In
research conducted by the National Golf Foundation, it was noted that only two
percent of children through age 17 ever try golf and only five percent of our
nation's golfers were minorities. The CGC is proud to be part of the First
Tee program and believes it will offer many opportunities for the Company in
the years ahead.
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COMPETITION
Any golf/amusement facilities developed by the Company will compete with
any other family/sports attractions in the city where such facilities are
located. Such attractions could include amusement parks, driving ranges,
water parks, and any other type of family or sports entertainment. The
Company will be relying on the combination of active user participation in the
sports activities and uniqueness of the Park features, attractive designs, and
competitive pricing to encourage visitation and patronage.
In the Las Vegas market, the Company has competition from other golf
courses, family entertainment centers, and entertainment provided by
hotel/casinos. Company management believes the CGC has a competitive
advantage in the Las Vegas market because of its strategic location, product
branding, alliances, and extent of facilities balanced with competitive
pricing that is unlike any competitor in the market.
EMPLOYEES
As of March 12, 2004, there were 3 full-time and 1 part-time employees at
the Company's executive offices, and 7 full-time and 12 part-time employees at
CGC.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's corporate offices are located inside the clubhouse building
of the Company's Callaway Golf Center property at 6730 South Las Vegas
Boulevard, Las Vegas, Nevada 89119. The Callaway Golf Center property
occupies approximately 42 acres of leased land described in "ITEM 1.
DESCRIPTION OF BUSINESS BUSINESS DEVELOPMENT." The CGC was opened October
1, 1997. The property is in good condition both structurally and in
appearance. The Company owns 65% of the CGC through a subsidiary,
All-American Golf Center, Inc.
A ten-year note payable secured by a first deed of trust exists on the
CGC in the original amount of $1 million payable without interest, in
quarterly installments of $25,000 beginning December 1998.
The CGC has three tenants: (1) The St. Andrews Golf Shop that occupies
approximately 4,000 square feet for golf retail sales and pays a fixed monthly
rental of $13,104 for its retail and office space. The lease is for fifteen
years ending in 2012; (2) Sierra Sportservice occupies about 2,500 square feet
for food and beverage services and pays percentage rent depending on the type
of sale made (i.e. restaurant, catering, beverage cart). The lease is for ten
years ending in 2007; (3) Giant Golf Academy occupies approximately 900 square
feet and pays a fixed monthly rental for office space and for use of the golf
facilities of approximately $6,500 per month. The lease is for five years
ending in 2006 with one five-year option to renew.
ITEM 3. LEGAL PROCEEDINGS
Except for the complaints described in the following paragraphs, the
Company is not presently a party to any legal proceedings, except for routine
litigation that is incidental to the Company's business.
On September 12, 2000, the Company filed a complaint against Bentar
Development, Inc. and Contractors Bonding & Insurance Company in the District
Court of Clark County, Nevada, seeking damages for breach of contract, unjust
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enrichment, and license bond claim. Bentar Development, Inc. was the general
contractor on the construction of the Callaway Golf Center. The Company's
claim asserts construction defects related to the CGC's driving range tee line
which has experienced large cracks in the concrete and ground level
differentials on each side of the cracks of more than one inch as the result
of ground subsidence arising primarily from Bentar's failure to properly
compact the earth in and around the tee line. The Company settled the case in
March 2003 with Bentar and all other involved parties, except for one
subcontractor named Western Technologies. The settlement with Bentar resulted
in the Company receiving $880,000 in cash. Subsequent to the settlement, the
Company continued its suit against Western Technologies and was awarded a
judgment against Western Technologies of $660,000 in March 2003. Western
Technologies has appealed the judgment and they are in the process of
obtaining the court records needed to draft their appeal. Their opening brief
is due April 12, 2004. Western Technologies was required to and did file a
bond in the amount of the judgment to date, which is approximately $1,180,000
(including the judgment, interest, and attorneys fees).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION. The Company's Common Stock is traded in the
over-the-counter market and is quoted on the OTC: Bulletin Board under the
symbol "AASP." The following table sets forth the closing high and low sales
prices of the Common Stock for the periods indicated.
HIGH LOW
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Year Ended December 31, 2003:
First Quarter $ 0.03 $ 0.01
Second Quarter $ 0.15 $ 0.01
Third Quarter $ 0.17 $ 0.04
Fourth Quarter $ 0.12 $ 0.03
Year Ended December 31, 2002:
First Quarter $ 0.05 $ 0.03
Second Quarter $ 0.06 $ 0.02
Third Quarter $ 0.06 $ 0.01
Fourth Quarter $ 0.02 $ 0.01
HOLDERS. The number of holders of record of the Company's $.001 par
value common stock at March 1, 2004 was approximately 1,000. This does not
include approximately 1,000 shareholders who hold stock in their accounts at
broker/dealers.
DIVIDENDS. Holders of common stock are entitled to receive such
dividends as may be declared by the Company's Board of Directors. No
dividends have been paid with respect to the Company's common stock and no
dividends are expected to be paid in the foreseeable future. It is the
present policy of the Board of Directors to retain all earnings to provide for
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the growth of the Company. Payment of cash dividends in the future will
depend, among other things, upon the Company's future earnings, requirements
for capital improvements and financial condition.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following information should be read in conjunction with the
Company's Consolidated Financial Statements and the Notes thereto included in
this report.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees and related interpretations in
accounting for its employee stock options.
The Company does not employ any other accounting policies and estimates
that are either selected from among available alternatives or require the
exercise of significant management judgment to apply.
OVERVIEW
The Company's operations consist of the management and operation of a
golf course and driving range property called the Callaway Golf Center.
RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 2003 VERSUS YEAR ENDED
DECEMBER 31, 2002
REVENUES. Revenues decreased 4.4% to $2,218,617 in 2003 compared to
$2,320,184 in 2002. The decrease is due mainly to an approximate 10% decrease
in golf course rounds played in 2003 attributed to less favorable weather
conditions in the second and fourth quarters of 2003.
COST OF REVENUES. Cost of revenues increased 11.9% to $347,301 in 2003
compared to $310,501 in 2002. Cost of revenues as a percentage of revenues
was 15.6% in 2003 compared to 13.4% in 2002. The increase for 2003 is
primarily due to higher direct payroll costs related to restructuring of
staffing in 2003, and driving range equipment repairs in 2003 that did not
occur in 2002.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A"). SG&A expenses consist
principally of payroll, rent, professional fees and other corporate costs.
The increase of 4.5% to $2,041,668 in 2003 from $1,954,172 in 2002 is due to a
combination of (1) a net increase of about $150,000 in legal fees and costs
mainly attributed to the Company's lawsuit as plaintiff against the general
contractor that built the CGC; this lawsuit was settled with the general
contractor in March 2003, offset by (2) lower administrative payroll costs.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased
20.9% to $67,903 in 2003 compared to $85,848 in 2002 due to a lower
depreciable asset base in 2003 because several short-lived assets became fully
depreciated in 2002.
INTEREST EXPENSE, NET. Net interest expense decreased 6.7% to $470,895
in 2003 from $504,766 in 2002. The decrease is due mainly to the December
2002 debt forgiveness totaling $239,425 on which interest did not accrue in
2003.
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NET INCOME (LOSS). The Company recorded net income in 2003 of $337,424
compared to a net loss in 2002 of $207,064. The primary differences in 2003
compared to 2002 are as follows: (1) the Company received an $880,000
settlement from a lawsuit filed against the general contractor that built the
CGC; (2) about $80,000 more in income in 2003 related to debt forgiveness;
these two items were offset by (3) approximately $200,000 more in operating
costs in 2003 due mainly to increase legal fees related to the aforementioned
lawsuit, and (4) a $240,000 change in minority interest calculated as 35% of
the income or loss generated by the CGC.
LIQUIDITY AND CAPITAL RESOURCES
For reasons described below and in Note 1.d. to the consolidated
financial statements, in its report dated February 20, 2004, the Company's
independent auditors have expressed substantial doubt as to the Company's
ability to continue as a going concern.
At December 31, 2003, the Company had a working capital deficit of
$1,051,418 and a shareholders' equity deficiency of $6,446,712.
In March 2003, the Company reached a settlement with the general
contractor and other entities responsible for building the CGC wherein the
Company received $880,000. Of this amount, approximately $300,000 was used to
pay outstanding legal and expert fee costs related to the lawsuit. Also,
approximately $350,000 was used to reduce obligations to related parties. The
balance of the proceeds have been used in funding operations.
In connection with the settlement described above, a subcontractor
involved in that matter elected not to settle and subsequently, the Company
prevailed in a judgment against said subcontractor in the amount of $660,000,
plus interest and attorneys fees, which combined total well over $1 million.
The judgement is currently being appealed, and it is possible that it could be
reversed. However, management believes that the likelihood of a favorable
outcome is good. The subcontractor has since been required to post a bond in
excess of $1 million.
AASP management believes that its continuing operations may not be
sufficient to fund operating cash needs and debt service requirements over at
least the next 12 months. As such, management plans on seeking other sources
of funding as needed, which may include Company officers or directors or other
related parties. In addition, management continues to analyze all operational
and administrative costs of the Company and has made and will continue to make
the necessary cost reductions as appropriate.
In 2004, the Company began implementing new marketing strategies that are
expected to result in increased revenues during the year.
In January 2004, AAGC completed Phase I of its turf conversion program
that could result in significant cost savings going forward. This turf
conversion program, named the Water Smart Landscapes Program, is sponsored by
the Southern Nevada Water Authority ("SNWA") and provides a financial
incentive to business properties to convert grass areas to "xeriscape", an
approach to landscaping that is beautiful and water-efficient. AAGC incurred
costs of $94,554 for Phase I of this project, all of which was incurred in
2004. The incentive provided by the SNWA is a price per square foot rebate for
area converted, and totaled $187,553 for Phase I. More significantly, ongoing
costs for water, electricity, and landscape maintenance are expected to
decrease by as much as $50,000 annually.
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Phase II of the Company's turf conversion on approximately 130,000 square feet
of the golf course is scheduled for later in 2004 at a cost of approximately
$39,000. Completion of this phase of the project will further reduce expenses
for water and landscaping costs. It is expected that the rebate from the SNWA
will more than cover the expenses of this phase of the project.
The Callaway Golf Center has generated positive cash flow since 1998.
However, this positive cash flow is used to fund corporate overhead that is in
place in support of the CGC and public company operations.
Management continues to seek out financing to help fund working capital
needs of the Company. In this regard, 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
with terms acceptable to the Company.
The Company's current and expected sources of working capital are its
cash balances that were $17,521 at December 31, 2003, its operating cash flow
of its CGC property, and the settlement proceeds discussed previously.
Working capital needs have been helped by deferring payments of interest and
notes payable balances due to an Affiliate. Management believes that
additional deferrals of such payments could be negotiated, if necessary.
Among its alternative courses of action, management of the Company may
seek out and pursue a business combination transaction with an existing
private business enterprise that might have a desire to take advantage of the
Company's status as a public corporation. There is no assurance that the
Company will acquire a favorable business opportunity through a business
combination. In addition, even if the Company becomes involved in such a
business opportunity, there is no assurance that it would generate revenues or
profits, or that the market price of the Company's common stock would be
increased thereby.
There are no planned material capital expenditures in 2004 other than the
turf conversion program described above.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements.
SAFE HARBOR PROVISION
Certain information included in this Annual Report contains statements
that are forward-looking, such as statements relating to plans for future
expansion and other business development activities, as well as other capital
spending, financing sources, the effects of regulations and competition. Such
forward-looking information involves important risks and uncertainties that
could significantly affect anticipated results in the future and, accordingly,
such results may differ from those expressed in any forward-looking statements
by or on behalf of the Company. These risks and uncertainties include, but are
not limited to, those relating to dependence on existing management, leverage
and debt service (including sensitivity to fluctuations in interest rates),
domestic or global economic conditions (including sensitivity to fluctuations
in foreign currencies), changes in federal or state tax laws or the
administration of such laws, changes in regulations and application for
licenses and approvals under applicable jurisdictional laws and regulations.
11
ITEM 7. FINANCIAL STATEMENTS.
The financial statements are set forth on pages F-1 through F-16 hereto.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 8A. CONTROLS AND PROCEDURES.
As of December 31, 2003, under the supervision and with the participation
of the Company's Chief Executive Officer and Principal Financial Officer,
management has evaluated the effectiveness of the design and operations of the
Company's disclosure controls and procedures. Based on that evaluation, the
Chief Executive Officer and Principal Financial Officer concluded that the
Company's disclosure controls and procedures were effective as of December 31,
2003. There have been no changes in internal control over financial reporting
that occurred during the fourth quarter of the fiscal year covered by this
report that have materially affected, or are reasonably likely to affect, the
Company's internal control over financial reporting.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The Directors and Executive Officers of the Company are as follows:
NAME AGE POSITIONS AND OFFICES HELD
------------------ --- ------------------------------------------------
Ronald S. Boreta 41 President, Chief Executive Officer, Treasurer,
Secretary and Director
Vaso Boreta 69 Chairman of the Board and Director
Robert R. Rosburg 76 Director
William Kilmer 63 Director
Except for the fact that Vaso Boreta and Ronald Boreta are father and
son, respectively, there is no family relationship between any Director or
Officer of the Company.
The company does not currently have an audit committee. The full Board
of Directors serves as the audit committee. The Company has no "audit
committee financial expert" on the Board of Directors because, due to the
limited size of the Company's operations, it is not deemed necessary to have
one. The Company presently has no compensation or nominating committee.
All Directors hold office until the next Annual Meeting of Shareholders.
Officers of the Company are elected annually by, and serve at the
discretion of, the Board of Directors.
12
The following sets forth biographical information as to the business
experience of each officer and director of the Company for at least the past
five years.
RONALD S. BORETA has served as President of the Company since 1992, Chief
Executive Officer since August 1994, and a Director since its inception in
1984. The Company has employed him since its inception in March 1984, with the
exception of a 6-month period in 1985 when he was employed by a franchisee of
the Company located in San Francisco, California. Prior to his employment by
the Company, Mr. Boreta was an assistant golf professional at San Jose
Municipal Golf Course in San Jose, California, and had worked for two years in
the areas of sales and warehousing activities with a golf discount store in
South San Francisco, California. Mr. Boreta devotes 90% of his time to the
business of the Company.
VASO BORETA has served as Chairman of the Board of Directors since August
1994, and has been an Officer and Director of the Company since its formation
in 1984. In 1974, Mr. Boreta first opened a specialty business named "Las
Vegas Discount Golf & Tennis," which retailed golf and tennis equipment and
accessories. He was one of the first retailers to offer pro-line golf
merchandise at a discount. He also developed a major mail order catalog sales
program from his original store. Mr. Boreta continues to operate his original
store, which has been moved to a new location near the corner of Flamingo and
Paradise roads in Las Vegas. Mr. Boreta devotes approximately ten percent of
his time to the business of the Company.
ROBERT R. ROSBURG has served as a Director of the Company since August
1994. Mr. Rosburg has been a professional golfer since 1953. From 1953 to
1974 he was active on the Professional Golf Association tours, and since 1974
he has played professionally on a limited basis. Since 1975 he has been a
sportscaster on ABC Sports golf tournament telecasts. Since 1985 he has also
been the Director of Golf for Rams Hill Country Club in Borrego Springs,
California. Mr. Rosburg received a Bachelor's Degree in Humanities from
Stanford University in 1948.
WILLIAM KILMER has served as a Director of the Company since August 1994.
Mr. Kilmer is a retired professional football player, having played from 1961
to 1978 for the San Francisco Forty-Niners, the New Orleans Saints and the
Washington Redskins. Since 1978, he has toured as a public speaker and also
has served as a television analyst. Mr. Kilmer received a Bachelor's Degree
in Physical Education from the University of California at Los Angeles.
SECTION 16(A) BENEFICIAL REPORTING COMPLIANCE
Based solely on a review of Forms 3 and 4 and amendments thereto
furnished to the Company during its most recent fiscal year, and Forms 5 and
amendments thereto furnished to the Company with respect to its most recent
fiscal year and certain written representations, no persons who were either a
director, officer, beneficial owner of more than ten percent of the Company's
common stock, failed to file on a timely basis reports required by Section
16(a) of the Exchange Act during the most recent fiscal year.
13
CODE OF ETHICS
The Company has not yet adopted a code of ethics that applies to the
Company's principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions, due
to the limited size of the Company's operations and limited financial
resources. The Board of Directors may consider adopting a code of ethics in
the future.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth information regarding the executive
compensation for the Company's President and each other executive officer who
received compensation in excess of $100,000 for the years ended December 31,
2003, 2002 and 2001 from the Company:
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------- -----------------------
SECURITIES
OTHER RE- UNDERLYING ALL
ANNUAL STRICTED OPTIONS/ OTHER
NAME AND PRINCIPAL COMPEN- STOCK SARs COMPEN-
POSITION YEAR SALARY(1) BONUS SATION(2) AWARD(S) (NUMBER) SATION
------------------ ---- --------- -------- ------- --------- ------------ ------
Ronald S. Boreta, 2003 $120,000 -- $26,482 -- -- --
President and CEO 2002 $120,000 -- $26,482 -- -- --
2001 $120,000 -- $25,648 -- 325,000 --
Kirk Hartle, Chief 2003 $120,000 -- -- -- -- --
Financial Officer 2002 $116,723 -- -- -- -- --
(3)
________________
(1) Includes $27,877 for 2001 deferred by Ron Boreta. Ron Boreta made this election in
September 1999 and the deferral ended in June 2001.
(2) Represents amounts paid for country club memberships for Ronald S. Boreta, an
automobile for his personal use, and contributions made by the Company to retirement
plans on his behalf. For 2003, 2002, 2001, respectively, these amounts were
$11,132, $7,808, and $7,992 for club memberships; $14,600, $18,674, and $14,656
for an automobile; and $0, $0, $3,000 to the Company's supplemental retirement plan.
(3) Mr. Hartle resigned as Chief Financial Officer effective February 20, 2004.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company do not receive any fees
for Board meetings they attend but are entitled to be reimbursed for
reasonable expenses incurred in attending such meetings.
14
EMPLOYMENT AGREEMENTS
Effective August 1, 1994, the Company entered into an employment
agreement with Ronald S. Boreta, the Company's President and Chief Executive
Officer, pursuant to which he receives a base salary of $100,000 per year plus
annual increases as determined by the Board of Directors. His salary was
increased to $120,000 beginning the year ended December 31, 1996. The
employment agreement is automatically extended for additional one-year periods
unless 60 days' notice of the intention not to extend is given by either
party. Ronald S. Boreta also receives the use of an automobile, for which the
Company pays all expenses, and full medical and dental coverage. The Company
also pays all dues and expenses for membership at a local country club at
which Ronald S. Boreta entertains business contacts for the Company. Ronald
S. Boreta has agreed that for a period of three years from the termination of
his employment agreement that he will not engage in a trade or business
similar to that of the Company.
STOCK OPTION PLAN
During July 1994, the Board of Directors adopted a Stock Option Plan (the
"Plan"). The Plan allows the Board to grant stock options from time to time to
employees, officers, directors and consultants of the Company. The number of
shares of Common Stock that may be issued under the Plan is 700,000. The
Board has the power to determine at the time the option is granted whether the
option will be an Incentive Stock Option (an option which qualifies under
Section 422 of the Internal Revenue Code of 1986) or an option that is not an
Incentive Stock Option. The Board determines vesting provisions at the time
options are granted. The option price for any option will be no less than the
fair market value of the Common Stock on the date the option is granted.
Since all options granted under the Plan must have an exercise price no
less than the fair market value on the date of grant, the Company will not
record any expense upon the grant of options, regardless of whether or not
they are incentive stock options. Generally, there will be no federal income
tax consequences to the Company in connection with Incentive Stock Options
granted under the Plan. With regard to options that are not Incentive Stock
Options, the Company will ordinarily be entitled to deductions for income tax
purposes of the amount that option holders report as ordinary income upon the
exercise of such options, in the year such income is reported.
In April 1996, the Company's Board of Directors granted stock options for
325,000 shares at an exercise price of $3.0625 to Ronald S. Boreta, the
Company's President, that expired in April 2001. In April 2001, 325,000 new
options were granted to Ronald S. Boreta at the price of $0.055 per share that
is equivalent to the closing market price on the date of grant. These options
vested upon grant and expire April 30, 2006.
In October 1999, the Company's Board of Directors approved the grant of
an option to Kirk Hartle, the Company's former Chief Financial Officer, to
purchase an aggregate 50,000 shares of the Company's common stock at the price
of $0.65625 per share that is equivalent to the closing market price on the
date of grant. The options are fully vested and expire October 28, 2004.
In April 2000, the Company's Board of Directors approved the grant of an
option to Kirk Hartle, the Company's former Chief Financial Officer, to
purchase an aggregate 50,000 shares of the Company's common stock at the price
of $0.8125 per share that is equivalent to the closing market price on the
date of grant. The options are fully vested and expire April 24, 2005.
15
SUPPLEMENTAL RETIREMENT PLAN
In November 1996, the Company and its majority shareholder, SPEN
established a Supplemental Retirement Plan, pursuant to which certain
employees selected by the Company's Chief Executive Officer received benefits
based on the amount of compensation elected to be deferred by the employee and
the amount of contributions made on behalf of the employee by the Company.
For 2001, the Company made or accrued contributions to the Supplemental
Retirement Plan on behalf of Ronald S. Boreta (the President of the Company)
in the amount of $3,000. Contributions to this plan ceased in 2002 due to
cash flow constraints.
1998 STOCK INCENTIVE PLAN
During October 1998, the Board of Directors approved, subject to
stockholder approval, the 1998 Stock Incentive Plan (the "Plan"), and the
Company's shareholders approved the Plan during December 1998.
The purpose of the Plan is to advance the interests of the Company and
its subsidiaries by enhancing their ability to attract and retain employees
and other persons or entities who are in a position to make significant
contributions to the success of the Company and its subsidiaries, through
ownership of shares of Stock of the Company and cash incentives. The Plan is
intended to accomplish these goals by enabling the Company to grant awards in
the form of options, stock appreciation rights, restricted stock or
unrestricted stock awards, deferred stock awards, or performance awards (in
cash or stock), other stock-based awards, or combinations thereof, all as more
fully described below. Up to 750,000 shares of Stock may be issued under the
Plan.
GENERAL
The Plan is administered and awards are granted by the Company's Board of
Directors (the "Board"). Key employees of the Company and its subsidiaries
and other persons or entities, not employees of the Company and its
subsidiaries, who are in a position to make a significant contribution to the
success of the Company or its subsidiaries are eligible to receive awards
under the Plan. In addition, individuals who have accepted offers of
employment from the Company and who the Company reasonably believes will be
key employees upon commencing employment with the Company ("New Hires") are
eligible to receive awards under the Plan.
STOCK OPTIONS. The exercise price of an incentive stock option ("ISO")
granted under the Plan or an option intended to qualify for the
performance-based compensation exception under Section 162(m) of the Code may
not be less than 100% of the fair market value of the Stock at the time of
grant. The exercise price of a non-ISO granted under the Plan is determined
by the Board. Options granted under the Plan will expire and terminate not
later than 10 years from the date of grant. The exercise price may be paid in
cash or by check, bank draft or money order, payable to the order of the
Company. Subject to certain additional limitations, the Board may also permit
the exercise price to be paid with Stock, a promissory note, an undertaking by
a broker to deliver promptly to the Company sufficient funds to pay the
exercise price, or a combination of the foregoing.
16
STOCK APPRECIATION RIGHTS (SARs). Stock appreciation rights ("SARs") may
be granted either alone or in tandem with stock option grants. Each SAR
entitles the holder on exercise to receive an amount in cash or Stock or a
combination thereof (such form to be determined by the Board) determined in
whole or in part by reference to appreciation in the fair market value of a
share of Stock. SARs may be based solely on appreciation in the fair market
value of Stock or on a comparison of such appreciation with some other measure
of market growth. The data at which such appreciation or other measure is
determined shall be the exercise date unless the Board specifies another date.
If an SAR is granted in tandem with an option, the SAR will be exercisable
only to the extent the option is exercisable. To the extent the option is
exercised, the accompanying SAR will cease to be exercisable, and vice versa.
An SAR not granted in tandem with an option will become exercisable at such
time or times, and on such conditions, as the Board may specify.
On February 16, 1999, the Board of Directors of the Company approved an
award to Ron Boreta, President of the Company, Stock Appreciation Rights
("SAR's") as to 125,000 shares independent of any stock option under the
Company's 1998 Stock Incentive Plan. The base value of the SAR's shall be
equal to $6 per share, however no SAR may be exercised unless and until the
market price of the Company's Common Stock equals or exceeds $10 per share.
Amounts to be paid under this agreement are solely in cash and are not to
exceed $500,000. The SAR's expire on October 26, 2008.
RESTRICTED AND UNRESTRICTED STOCK AWARDS: DEFERRED STOCK. The Plan
provides for awards of nontransferable shares of restricted Stock subject to
forfeiture ("Restricted Stock"), as well as awards of unrestricted shares of
Stock. Except as otherwise determined by the Board, shares of Restricted
Stock may not be sold, transferred, pledged, assigned, or otherwise alienated
or hypothecated until the end of the applicable restriction period and the
satisfaction of any other conditions or restrictions established by the Board.
Other awards under the Plan may also be settled with Restricted Stock. The
Plan also provides for deferred grants entitling the recipient to receive
shares of Stock in the future at such times and on such conditions as the
Board may specify.
OTHER STOCK-BASED AWARDS. The Board may grant other types of awards
under which stock is or may in the future be acquired. Such awards may
include debt securities convertible into or exchangeable for shares of Stock
upon such conditions, including attainment of performance goals, as the Board
may determine.
PERFORMANCE AWARDS. The Plan provides that at the time any stock
options, SARs, stock awards (including restricted stock, unrestricted stock or
deferred stock) or other stock-based awards are granted, the Board may impose
the additional condition that performance goals must be met prior to the
participant's realization of any vesting, payment or benefit under the award.
In addition, the Board may make awards entitling the participant to receive an
amount in cash upon attainment of specified performance goals.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of March 1, 2004, the stock ownership
of each person known by the Company to be the beneficial owner of five percent
or more of the Company's Common Stock, each Officer and Director individually,
and all Directors and Officers of the Company as a group. Except as noted,
each person has sole voting and investment power with respect to the shares
shown.
17
AMOUNT AND
NAME AND ADDRESS NATURE OF BENE- PERCENT
OF BENEFICIAL OWNERS FICIAL OWNERSHIP OF CLASS
------------------------- ---------------- --------
Ronald S. Boreta 975,484 (1) 26.2%
6730 South Las Vegas Blvd.
Las Vegas, Nevada 89119
ASI Group LLC (5) 637,044 (6) 18.7%
c/o Agassi Enterprises, Inc.
Suite 750
3960 Howard Hughes Parkway
Las Vegas, NV 89109
John Boreta 500,439 (2) 14.7%
6730 South Las Vegas Blvd.
Las Vegas, Nevada 89119
Boreta Enterprises, Ltd. 360,784 (4) 10.6%
6730 South Las Vegas Blvd.
Las Vegas, Nevada 89119
Vaso Boreta 3,853 (3) 0.1%
6730 South Las Vegas Blvd.
Las Vegas, Nevada 89119
Robert R. Rosburg 1,383 --
49-425 Avenida Club La Quinta
La Quinta, CA 92253
William Kilmer 1,383 --
1853 Monte Carlo Way
Coral Springs, FL 33071
All Directors and Officers 982,103 (7) 25.7%
as a Group (4 persons)
___________________
(1) Includes 402,229 shares held directly, 248,255 shares which represents
Ronald Boreta's share of the Common Stock held by Boreta Enterprises
Ltd., and 325,000 shares underlying options exercisable within 60 days
held by Ronald Boreta.
(2) Includes 391,735 shares held directly, and 108,704 shares which
represents John Boreta's share of the Common Stock held by Boreta
Enterprises Ltd.
(3) Includes 28 shares held directly, and 3,825 shares which represents
Vaso Boreta's share of the Common Stock held by Boreta Enterprises
Ltd.
(4) Direct ownership of shares held by Boreta Enterprise Ltd., a limited
liability company owned by Vaso, Ronald and John Boreta. Boreta
Enterprises Ltd. percentage ownership is as follows:
Ronald S. Boreta 68.81%
John Boreta 30.13%
Vaso Boreta 1.06%
18
(5) ASI Group LLC is a Nevada limited liability company whose members are
Andre K. Agassi and Perry Craig Rogers.
(6) All shares are owned directly.
(7) Includes shares beneficially held by the four named Directors and
executive officers.
EQUITY COMPENSATION PLAN INFORMATION
The following table summarizes share and exercise price information about
the Company's equity compensation plans as of December 31, 2003:
------------------------------------------------------------------------------------
Number of
securities remain-
ing available for
future issuance
Number of securi- under equity
ties to be issued Weighted-average compensation plans
upon exercise of exercise price of (excluding securi-
outstanding options, outstanding options, ties reflected
warrants and rights warrants and rights in column (a))
Plan Category (a) (b) (c)
-----------------------------------------------------------------------------------
Equity compensation 500,000 $0.78 950,000
plans approved by
security holders
-----------------------------------------------------------------------------------
Equity compensation 0 -- 0
plans not approved
by security holders
-----------------------------------------------------------------------------------
Total 500,000 $0.78 950,000
-----------------------------------------------------------------------------------
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Sports Entertainment Enterprises, Inc. ("SPEN"), a publicly-held
corporation, owned approximately 67% of the Company's outstanding shares prior
to May 8, 2002. Effective as of that date, the shares of the Company held by
SPEN were distributed to SPEN's shareholders. Vaso Boreta, the Company's
Chairman of the Board, is an Officer and Director of SPEN. Ronald S. Boreta,
President and a Director of the Company, is a Director and principal
shareholder of SPEN. Robert S. Rosburg and William Kilmer, Directors of the
Company, are also Directors of SPEN. In addition, John Boreta, the son of
Vaso Boreta and the brother of Ronald S. Boreta, is a principal shareholder of
SPEN.
The Company has transactions and relationships with (a) SPEN ("Related
Entities"), (b) Vaso Boreta and his wholly owned golf retail stores in Las
Vegas, Nevada (the "Paradise Store" and "Rainbow Store") and, (c) two golf
retail stores, both named Saint Andrews Golf Shop ("SAGS"), owned by the
Company's President, Ron Boreta, and his brother, John Boreta. The Paradise
19
store, Rainbow store, and SAGS are referred to herein as the "Affiliated
Stores." The types of costs and expenses that are shared by these entities
are advertising, payroll and employee benefits, warehouse rent, equipment
leases, and miscellaneous office expenses. Costs are allocated to each entity
based on relative benefits received. Amounts allocated to these related
parties by the Company approximated $240,000 in both 2003 and 2002.
The Company has various notes payable ("Chairman Notes") to an entity
owned by the Company's Chairman. These notes are due in varying amounts on
December 1 each year through year 2008. The notes bear interest at 10% per
annum and are secured by the assets of the Company. The amounts due are shown
as notes payable to affiliate and interest payable to affiliate in the
accompanying consolidated balance sheets. The note payable and accrued
interest payable balances at December 31, 2003 are $4,113,473 and $1,614,607,
respectively. The note payable and accrued interest payable balances at
December 31, 2002 are $4,313,473 and $1,301,918, respectively.
In February 2002, the Company repaid $76,306 in principal on the Chairman
Notes. The Company did not have the resources to pay the required note
payments due December 1, 2002 and 2003. The Chairman forgave the 2002 note
balance due of $168,363 and the related accrued interest payable of $71,062
for a total of $239,425; Also, the Chairman forgave the 2003 note balance due
of $200,000 and the related accrued interest payable of $116,991 for a total
of $316,991. The Lender also agreed to not accelerate the maturities of the
remaining notes due to these defaults.
Interest payments on the Notes have been deferred since inception. The
Chairman has agreed to continue deferring payment of the accrued interest
until such time as the Company has adequate capital resources to pay such
amounts.
In the third quarter of 2003, SAGS secured financing on behalf of AAGC to
construct a pylon sign at the entrance of the golf center facility. The total
financing for the sign will be approximately $170,000; $45,000 has been drawn
down to begin fabrication of the sign. The balance of $125,000 is expected to
be drawn down when the sign is installed which is expected to be early 2004.
SAGS pays the debt service on the financing and bills AAGC for the amount
paid. The financing is for five years with monthly payments of approximately
$3,500.
In November and December 2003, SAGS loaned the Company a total of
$100,000 to fund operations. The loans are $50,000 each and are both due one
year from date of issuance with interest accruing at ten percent per annum.
Interest payable at December 31, 2003 is $1,096.
The Company's Board of Directors believes that the terms of the above
transactions were on terms no less favorable to the Company than if the
transactions were with unaffiliated third parties.
20
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION LOCATION
------- -------------------------- ------------------------------
2 Agreement for the Purchase Incorporated by reference to
and Sale of Assets, as Exhibit 10 to the Registrant's
amended Current Report on Form 8-K
dated February 26, 1997
3.1 Restated Articles of Incorporated by reference to
Incorporation Exhibit 3.1 to the Registrant's
Form SB-2 Registration Statement
(No. 33-84024)
3.2 Certificate of Amendment Incorporated by reference to
to Articles of Incorporation Exhibit 3.2 to the Registrant's
Form SB-2 Registration Statement
(No. 33-84024)
3.3 Revised Bylaws Incorporated by reference to
Exhibit 3.3 to the Registrant's
Form SB-2 Registration Statement
(No. 33-84024)
3.4 Certificate of Amendment Incorporated by reference to
Articles of Incorporation Exhibit 3.4 to the Registrant's
Series A Convertible Annual report on Form 10-KSB for
Preferred the year ended December 31, 1998
3.5 Certificate of Designation Incorporated by reference to
Series B Convertible Exhibit 3.5 to the Registrant's
Preferred Annual Report on Form 10-KSB for
the year ended December 31, 1998
3.6 Certificate of Amendment to Incorporated by reference to
Articles of Incorporation - Exhibit 3.6 to the Registrant's
Name change Annual Report on Form 10-KSB for
the year ended December 31, 1998
10.1 Employment Agreement with Incorporated by reference to
Ronald S. Boreta Exhibit 10.1 to the Registrant's
Form SB-2 Registration Statement
(No. 33-84024)
10.2 Stock Option Plan Incorporated by reference to
Exhibit 10.2 to the Registrant's
Form SB-2 Registration Statement
(No. 33-84024)
10.11 Promissory Note to Vaso Incorporated by reference to
Boreta Exhibit 10.11 to the Registrant's
Form SB-2 Registration Statement
(No. 33-84024)
21
10.16 Lease Agreement between Incorporated by reference to
Urban Land of Nevada and Exhibit 10.16 to the Registrant's
All-American SportPark, Form SB-2 Registration Statement
Inc. (No. 33-84024)
10.17 Lease Agreement between Incorporated by reference to
Urban Land of Nevada and Exhibit 10.17 to the Registrant's
All-American Golf Center, Form SB-2 Registration Statement
LLC (No. 33-84024)
10.18 Operating Agreement for Incorporated by reference to
All-American Golf, LLC, Exhibit 10.18 to the Registrant's
a limited liability Form SB-2 Registration Statement
Company (No. 33-84024)
10.20 Lease and Concession Agree- Incorporated by reference to
ment with Sportservice Exhibit 10.20 to the Registrant's
Corporation Form SB-2 Registration Statement
(No. 33-84024)
10.23 Promissory Note of All- Incorporated by reference to
American SportPark, Inc. Exhibit 10.23 to the Registrant's
for $3 million payable to Annual Report on Form 10-KSB for
Callaway Golf Company the year ended December 31, 1998
10.24 Guaranty of Note to Incorporated by reference to
Callaway Golf Company Exhibit 10.24 to the Registrant's
Annual Report on Form 10-KSB for
the year ended December 31, 1998
10.25 Forbearance Agreement dated Incorporated by reference to
March 18, 1998 with Callaway Exhibit 10.25 to the Registrant's
Golf Company Annual Report on Form 10-KSB for
the year ended December 31, 1998
21 Subsidiaries of the Incorporated by reference to
Registrant Exhibit 21 to the Registrant's
Form SB-2 Registration Statement
(No. 33-84024)
23 Consent of Piercy, Bowler Filed herewith electronically
Taylor & Kern
31 Certification of Chief Filed herewith electronically
Executive Officer and
Principal Financial
Officer Pursuant to
Section 302 of the
Sarbanes-Oxley Act of 2002
32 Certification of Chief Filed herewith electronically
Executive Officer and
Principal Financial
Officer Pursuant to
Section 18 U.S.C.
Section 1350
22
(a) REPORTS ON FORM 8-K.
None.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
AUDIT FEES
The aggregate fees billed for each of the last two fiscal years ended
December 31, 2003 and 2002 by Piercy Bowler Taylor & Kern for professional
services rendered for the audit of the Company's annual financial statements
and review of financial statements included in the Company's quarterly reports
on Form 10-QSB were $22,500 and $25,000, respectively.
AUDIT RELATED FEES
None.
TAX FEES
The aggregate fees billed for tax services rendered by Piercy Bowler
Taylor & Kern for tax compliance and tax advice for the two fiscal years ended
December 31, 2003 and 2002, were $3,000 and $4,000, respectively.
ALL OTHER FEES
None.
AUDIT COMMITTEE PRE-APPROVAL POLICY
Under provisions of the Sarbanes-Oxley Act of 2002, the Company's
principal accountant may not be engaged to provide non-audit services that are
prohibited by law or regulation to be provided by it, and the Board of
Directors (which serves as the Company's audit committee) must pre-approve the
engagement of the Company's principal accountant to provide permissible
non-audit services. The Company's Board of Directors has not established any
policies or procedures other than those required by applicable laws and
regulations. The non-audit services provided by the Company's principal
accountant in 2003 were not pre-approved by the Board of Directors, but were
incurred prior to the effectiveness of related rules.
23
REPORT OF INDEPENDENT PUBLIC ACCOUNTANT
To the Board of Directors and Shareholders of
All-American SportPark, Inc.:
We have audited the accompanying consolidated balance sheets of All-American
SportPark, Inc. and subsidiary (the " Company") as of December 31, 2003 and
2002, and the related consolidated statements of operations, shareholders'
equity deficiency and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
All-American SportPark, Inc. and subsidiary as of December 31, 2003 and 2002,
and the results of their operations and their cash flows for the years then
ended in conformity with accounting principles generally accepted in the
United States.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1d to
the consolidated financial statements, the Company has had recurring losses
from continuing operations, and has a working capital deficit and substantial
shareholders' equity deficiency at December 31, 2003; these factors raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1d.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
/s/ Piercy Bowler Taylor & Kern
PIERCY BOWLER TAYLOR & KERN
Las Vegas, Nevada
February 20, 2004
F-1
ALL-AMERICAN SPORTPARK, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2003 AND 2002
ASSETS
2003 2002
----------- -----------
Current assets:
Cash $ 17,521 $ 30,108
Accounts receivable 23,696 36,968
Prepaid expenses and other 16,278 54,431
----------- -----------
Total current assets 57,495 121,507
Leasehold improvements and equipment, net 808,112 801,513
Due from affiliated stores 132,375 136,507
Note receivable - related party - 20,000
Due from other related entities 110,221 20,017
Other assets 3,872 3,488
----------- -----------
Total assets $ 1,112,075 $ 1,103,032
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
ALL-AMERICAN SPORTPARK, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2003 AND 2002
(CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY DEFICIENCY
2003 2002
----------- -----------
Current liabilities:
Current portion of long-term debt $ 66,210 $ 106,917
Current portion of notes payable to
affiliates 500,000 200,000
Interest payable to affiliates 230,983 98,658
Accounts payable and accrued expenses 311,720 726,981
----------- -----------
Total current liabilities 1,108,913 1,132,556
Notes payable to affiliate, net of
current portion 3,713,473 4,113,473
Interest payable to affiliate 1,384,720 1,203,260
Due to affiliated stores 187,966 157,910
Due to other related entities 414,547 534,099
Long-term debt, net of current portion 312,141 378,352
Deferred income 1,500 82,408
----------- -----------
Total liabilities 7,123,260 7,602,058
----------- -----------
Minority interest in subsidiary 435,527 285,110
----------- -----------
Shareholders' equity deficiency:
Series B Convertible Preferred Stock,
$.001 par value, no shares issued
and outstanding - -
Common Stock, $.001 par value, 10,000,000
shares authorized, 3,400,000 shares
issued and outstanding at December 31,
2003 and 2002, respectively 3,400 3,400
Additional paid-in capital 11,462,882 11,462,882
Accumulated deficit (17,912,994) (18,250,418)
----------- -----------
Total shareholders' equity deficiency (6,446,712) (6,784,136)
Total liabilities and shareholders'
equity deficiency $ 1,112,075 $ 1,103,032
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
ALL-AMERICAN SPORTPARK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
(CONTINUED)
2003 2002
----------- -----------
Revenues $ 2,218,617 $ 2,320,184
Cost of revenues 347,301 310,501
----------- -----------
Total cost of revenues 347,301 310,501
----------- -----------
Gross profit 1,871,316 2,009,683
----------- -----------
Operating expenses:
Selling, general and administrative 2,041,668 1,954,172
Depreciation and amortization 67,903 85,848
----------- -----------
Total operating expenses 2,109,571 2,040,020
----------- -----------
Operating loss (238,255) (30,337)
Interest expense, net (470,895) (504,766)
Gain on extinguishment of debt 316,991 239,425
Other income 880,000 -
----------- -----------
Income (loss) before minority
interest 487,841 (295,678)
Minority interest in (income) loss of
subsidiary (150,417) 88,614
----------- -----------
Net income (loss) $ 337,424 $ (207,064)
=========== ===========
NET INCOME (LOSS) PER SHARE:
Basic and diluted net income (loss)
per share $ 0.10 $ (0.06)
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
ALL-AMERICAN SPORTPARK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
ADDITIONAL
PREFERRED COMMON PAID-IN ACCUMULATED
STOCK STOCK CAPITAL DEFICIT TOTAL
----------- ------ ----------- ------------ -----------
Balances,
January 1, 2002 $ 2,500,000 $3,150 $ 8,963,132 $(18,043,354) $(6,577,072)
Conversion of Series
B Preferred Stock to
Common stock (2,500,000) 250 2,499,750 -
Net loss (207,064) (207,064)
----------- ------ ----------- ------------ -----------
Balances,
December 31, 2002 - 3,400 11,462,882 (18,250,418) (6,784,136)
Net income 337,424 337,424
----------- ------ ----------- ------------ -----------
Balances,
December 31, 2003 $ - $3,400 $11,462,882 $(17,912,994) $(6,446,712)
=========== ====== =========== ============ ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
ALL-AMERICAN SPORTPARK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 337,424 $ (207,064)
Adjustment to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Gain on extinguishment of debt (316,991) (239,425)
Minority interest 150,417 (88,614)
Depreciation and amortization 67,903 85,848
Gain on sale of securities - (1,061)
Changes in operating assets and
liabilities:
Decrease in accounts receivable 13,272 53,299
Decrease in prepaid expenses and other 37,769 38,405
Decrease in accounts payable and
accrued expenses (415,261) (59,485)
Increase in interest payable to
shareholder and affiliated stores 434,545 447,955
Decrease in deferred income (80,908) (96,521)
----------- -----------
Net cash provided by (used in)
operating activities 228,170 (66,663)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of securities - 76,306
Leasehold improvements expenditures (74,502) (5,576)
----------- -----------
Net cash provided by (used in)
investing activities (74,502) 70,730
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in due to affiliated
stores and other related entities (159,337) 58,193
Proceeds of loan from affiliated store 100,000 66,346
Principal payments on notes payable
to shareholder - (76,306)
Principal payments on notes payable and
capital leases (106,918) (49,514)
----------- -----------
Net cash used in financing
activities (166,255) (1,281)
----------- -----------
NET INCREASE (DECREASE) IN CASH (12,587) 2,786
CASH, beginning of period 30,108 27,322
----------- -----------
CASH, end of period $ 17,521 $ 30,108
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 69,145 $ 50,656
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
ALL-AMERICAN SPORTPARK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATIONAL STRUCTURE AND BASIS OF PRESENTATION
a. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of All-American SportPark, Inc.
("AASP"), include the accounts of AASP and its 65% owned subsidiary,
All-American Golf Center, Inc. ("AAGC"), collectively the "Company". Urban
Land of Nevada, Inc. ("ULN") owns the remaining 35% of AAGC. All significant
intercompany accounts and transactions have been eliminated. The company's
business operations of the Callaway Golf Center ("CGC") are included in AAGC.
b. COMPANY BACKGROUND AND CONTINUING BUSINESS ACTIVITIES
Prior to April 5, 2002, the Company had issued and outstanding 3,150,000
shares of common stock and 250,000 shares of Series B convertible preferred
stock. Sports Entertainment Enterprises, Inc. (a publicly traded company,
"SPEA") owned 2,000,000 of the Company's common shares outstanding and all of
the Series B preferred shares that combined represented an approximate 66%
ownership in the Company. On April 5, 2002, SPEA elected to convert its
Series B convertible preferred stock into common stock on a 1 for 1 basis. As
such, commencing April 5, 2002, the Company had issued and outstanding
3,400,000 shares of common stock and no Series B preferred stock.
On May 8, 2002, SPEA completed a spin-off of its AASP common stock holdings to
SPEA shareholders that resulted in SPEA having no ownership interest in the
Company.
The Callaway Golf Center includes the Divine Nine par 3 golf course fully
lighted for night golf, a 110-tee two-tiered driving range which has been
ranked the Number 2 golf practice facility in the United States since it
opened in October 1997, a 20,000 square foot clubhouse which includes the
Callaway Golf fitting center and three tenants: the St. Andrews Golf Shop
retail store, Giant Golf teaching academy, and the Bistro 10 restaurant and
bar.
ULN's ownership in AAGC is governed by a Stockholders Agreement that provides
certain restrictions and rights on the AAGC shares issued to ULN. ULN is also
the landlord for the CGC. Pursuant to the Stockholders Agreement, ULN is
permitted to designate a non-voting observer of meetings of AAGC's board of
directors. In the event of an uncured default of the lease for the CGC, so
long as the Landlord holds a 25% interest in AAGC, the Landlord will have the
right to select one director of AAGC. As to matters other than the election
of Directors, the Landlord has agreed to vote its shares of AAGC as designated
by the Company.
c. CONCENTRATIONS OF RISK
The Company operates one Callaway Golf Center in Las Vegas, Nevada. The level
of sustained customer demand for this type of recreational facility is
undetermined. The Company has implemented various strategies to market the
Callaway Golf Center to both tourists and local residents. Should attendance
levels at the Golf Center not meet expectations in the short-term, management
believes existing cash balances would not be sufficient to fund operating
expenses and debt service requirements for at least the next twelve months.
The inability to build attendance to profitable levels beyond a twelve-month
F-7
period may require the Company to seek additional debt or equity financing to
meet its obligations as they come due. There is no assurance that the Company
would be successful in securing such debt or equity financing in amounts or
with terms acceptable to the Company.
d. GOING CONCERN MATTERS
The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown in the
accompanying consolidated financial statements, for the years ended December
31, 2003 and 2002, the Company had net income of $337,424 and a net loss of
$207,064, respectively. As of December 31, 2003, the Company had a working
capital deficit of $1,051,418 and a shareholders' equity deficiency of
$6,446,712.
In March 2003, the Company reached a settlement with the general contractor
and other entities responsible for building the CGC wherein the Company
received $880,000. Of this amount, approximately $300,000 was used to pay
outstanding legal and expert fee costs related to the lawsuit. Also,
approximately $350,000 was used to reduce obligations to related parties. The
balance of the proceeds have been used in funding operations.
In connection with the settlement described above, a subcontractor involved in
that matter elected not to settle and subsequently, the Company prevailed in a
judgment against said subcontractor in the amount of $660,000. The
subcontractor has appealed and has since been required to post a bond in
excess of $1 million.
AASP management believes that its continuing operations may not be sufficient
to fund operating cash needs and debt service requirements over at least the
next 12 months. As such, management plans on seeking other sources of funding
as needed, which may include Company officers or directors or other related
parties. In addition, management continues to analyze all operational and
administrative costs of the Company and has made and will continue to make the
necessary cost reductions as appropriate.
In January 2004, AAGC completed part of its turf conversion program that could
result in significant cost savings going forward. This turf conversion
program, named the Water Smart Landscapes Program, is sponsored by the
Southern Nevada Water Authority ("SNWA") and provides a financial incentive to
business properties to convert their grass areas to xeriscape, an approach to
landscaping that is beautiful and water-efficient. The incentive provided by
the SNWA is a price per square foot rebate for area converted; it is expected
that this rebate from SNWA will pay for the costs incurred to complete the
conversion. More significantly, ongoing costs for water, electricity, and
landscape maintenance are expected to decrease by as much as $50,000 annually.
Among its alternative courses of action, management of the Company may seek
out and pursue a business combination transaction with an existing private
business enterprise that might have a desire to take advantage of the
Company's status as a public corporation. There is no assurance that the
Company will acquire a favorable business opportunity through a business
combination. In addition, even if the Company becomes involved in such a
business opportunity, there is no assurance that it would generate revenues or
profits, or that the market price of the Company's common stock would be
increased thereby.
F-8
The Callaway Golf Center has generated positive cash flow since 1998.
However, this positive cash flow is used to fund corporate overhead that is in
place in support of the CGC and public company operations.
Management continues to seek out financing to help fund working capital needs
of the Company. In this regard, 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
with terms acceptable to the Company.
The consolidated financial statements do not include any adjustments relating
to the recoverability of assets and the classification of liabilities that
might be necessary should the Company be unable to continue as a going
concern.
e. ESTIMATES USED IN THE PREPARATION OF FINANCIAL STATEMENTS
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that may require revision in future periods.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. STOCK BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB25) and related Interpretations
in accounting for its employee stock options. Under APB 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.
b. LEASEHOLD IMPROVEMENTS AND EQUIPMENT
Leasehold improvements and equipment (Note 5) are stated at cost.
Depreciation and amortization is provided for on a straight-line basis over
the lesser of the lease term or the following estimated useful lives of the
assets:
Furniture and equipment 3-10 years
Leasehold improvements 15 years
c. ADVERTISING
The Company expenses advertising costs as incurred. Advertising costs charged
to continuing operations amounted to $64,337 and $41,361 in 2003 and 2002,
respectively.
d. RECOVERABILITY OF LONG-LIVED ASSETS
The Company reviews its long-lived assets for impairment whenever events or
changes in the circumstances indicate that the carrying amount of an asset or
a group of assets may not be recoverable. The Company deems an asset to be
impaired if a forecast of undiscounted future operating cash flows directly
related to the asset, including disposal value if any, is less than its
carrying amount. If an asset is determined to be impaired, the loss is
measured as the amount by which the carrying amount of the asset exceeds fair
F-9
value. The Company generally measures fair value by discounting estimated
cash flows. Considerable management judgment is necessary to estimate
discounted cash flows. Accordingly, actual results could vary significantly
from such estimates.
3. INCOME (LOSS) PER SHARE
Basic and diluted income (loss) per share is computed by dividing reported net
income (loss) by the weighted-average number of common and common equivalent
shares outstanding during the period. The weighted-average number of common
and common equivalent shares used in the calculation of basic and diluted
income (loss) per share was 3,400,000 in 2003 and 3,335,616 in 2002.
4. RELATED PARTY TRANSACTIONS
The Company has transactions and relationships with (a) The Company Chairman's
two wholly-owned golf retail stores in Las Vegas, Nevada (the "Paradise Store"
and "Rainbow Store") and, (b) two golf retail stores, both named Saint Andrews
Golf Shop ("SAGS"), owned by the Company's President and his brother. One of
the SAGS stores is the retail tenant in the Callaway Golf Center. The
Paradise Store, Rainbow Store, and SAGS are referred to herein as the
"Affiliated Stores." The types of costs and expenses that are shared by these
entities are advertising, payroll and employee benefits, warehouse rent,
equipment leases, and miscellaneous office expenses. Costs are allocated to
each entity based on relative benefits received. Amounts allocated to these
related parties by the Company approximated $240,000 in both 2003 and 2002.
The Company has various notes payable ("Chairman Notes") to an entity owned by
the Company's Chairman. These notes are due in varying amounts on December 1
each year through year 2008. The notes bear interest at 10% per annum and are
secured by the assets of the Company. The amounts due are shown as notes
payable to affiliate and interest payable to affiliate in the accompanying
consolidated balance sheets. The note payable and accrued interest payable
balances at December 31, 2003 are $4,113,473 and $1,614,607, respectively.
The note payable and accrued interest payable balances at December 31, 2002
are $4,313,473 and $1,301,918, respectively.
In February 2002, the Company repaid $76,306 in principal on the Chairman
Notes. The Company did not have the resources to pay the required note
payments due December 1, 2002 and 2003. The Chairman forgave the 2002 note
balance due of $168,363 and the related accrued interest payable of $71,062
for a total of $239,425. Also, the Chairman forgave the 2003 note balance due
of $200,000 and the related accrued interest payable of $116,991 for a total
gain on extinguishment of $316,991. The Lender also agreed to not accelerate
the maturities of the remaining notes due to these defaults.
In the third quarter of 2003, SAGS secured financing on behalf of AAGC to
construct a pylon sign at the entrance of the golf center facility. The total
financing for the sign will be approximately $170,000; $45,000 has been drawn
down to begin fabrication of the sign. The balance of $125,000 is expected to
be drawn down when the sign is installed which is expected to be early 2004.
SAGS pays the debt service on the financing and bills AAGC for the amount
paid. The financing is for five years with monthly payments of approximately
$3,500.
In November and December 2003, SAGS loaned the Company a total of $100,000 to
fund operations. The loans are $50,000 each and are both due one year from
date of issuance with interest accruing at ten percent per annum. Interest
payable at December 31, 2003 is $1,096.
F-10
Aggregate maturities of related party notes and the related accrued interest
payable for the five years subsequent to December 31, 2003 are as follows:
Year ending: Principal Interest Total
----------- ---------- -----------
2004 $ 500,000 $ 230,983 $ 730,983
2005 350,000 197,690 547,690
2006 220,000 157,651 377,651
2007 110,000 58,788 168,788
2008 3,033,473 970,591 4,004,064
----------- ---------- -----------
$ 4,213,473 $1,615,703 $ 5,829,176
=========== ========== ===========
Interest payments on the Chairman Notes have been deferred since inception.
The Chairman has agreed to continue deferring future monthly interest as it
accrues until such time as the Company has adequate capital resources to pay
such amounts.
5. LEASEHOLD IMPROVEMENTS AND EQUIPMENT
Leasehold improvements and equipment included the following as of December 31:
2003 2002
---------- ---------
Building $ 252,866 $ 252,866
Land Improvements 338,637 338,637
Furniture and equipment 287,994 258,490
Signs 52,691 7,691
Leasehold improvements 324,414 324,414
Other 13,789 13,789
----------- ----------
1,270,391 1,195,887
Less accumulated depreciation and
amortization (462,279) (394,374)
----------- ----------
$ 808,112 $ 801,513
=========== ==========
6. LONG-TERM DEBT
The Company has outstanding a promissory note payable to an unrelated party,
Active Media Services ("Active"), due in quarterly installments of $25,000
through September 2008 without interest. This note has been discounted to
reflect its present value.
F-11
Aggregate maturities of this obligation for the five years subsequent to
December 31, 2003, are as follows:
Year ending:
2004 $ 66,210
2005 72,760
2006 79,957
2007 87,801
2008 71,623
-----------
Balance, net of
unamortized discount
of $96,649 $ 378,351
===========
7. LEASES
The land underlying the Callaway Golf Center is leased to AAGC. The lease
expires in 2012 and has two five-year renewal options. Also, the lease has a
provision for contingent rent to be paid by AAGC upon reaching certain levels
of gross revenues. The lease has a corporate guarantee of AASP.
The Company is obligated under various other non-cancelable operating leases
for equipment that expire at various dates over the next two years. Total
rent expense for operating leases was $432,613 for 2003 and $437,674 for 2002.
At December 31, 2003, minimum future lease payments under non-cancelable
operating leases are as follows:
Year ending:
2004 $ 438,329
2005 429,935
2006 404,558
2007 398,077
2008 398,077
Thereafter 2,060,005
----------
Total $4,128,981
==========
F-12
8. INCOME TAXES
The components of the deferred tax asset (liability) consisted of the
following at December 31:
2003 2002
----------- -----------
Deferred Tax Liabilities:
Temporary differences related to:
Property and Equipment $ (209,088) $ (185,333)
Minority interest (87,209) (87,209)
Deferred Tax Assets:
Net operating loss carryforward 5,733,181 5,817,741
Related party interest 548,966 449,961
Deferred Income 510 28,019
Other 3,016 39,211
----------- -----------
Net Deferred Tax Asset Before
Valuation Allowance 5,989,377 6,062,390
Valuation allowance (5,989,377) (6,062,390)
----------- -----------
Net Deferred Tax asset $ - $ -
=========== ===========
As of December 31, 2002, the Company has available for income tax purposes
approximately $17.4 million in federal net operating loss carryforwards, which
may offset future taxable income. These loss carryforwards begin to expire in
fiscal year 2018. A one hundred percent valuation allowance has been
established against the net deferred tax asset since it appears more likely
than not that it will not be realized.
The provision (benefit) for income taxes attributable to income (loss) from
continuing operations does not differ materially from the amount computed at
the federal income tax statutory rate.
9. CAPITAL STOCK, STOCK OPTIONS, AND INCENTIVES
a. STOCK OPTION PLANS
1994 Plan. The Company's Board of Directors adopted an incentive stock option
plan (the "1994 Plan") on August 8, 1994; total shares of the Company's common
stock eligible for grant are 700,000.
In April 1996, 325,000 options were granted to the Company's President at an
exercise price of $3.06, the fair market value on the grant date. These
options expired unexercised in April 2001. Because of this expiration,
325,000 new options were granted to the Company's President at an exercise
price of $0.055, the market value on the date of grant; these options expire
April 30, 2006.
In October 1999, 50,000 options were granted at an exercise price of $0.65625
per share, the closing market price on the date of grant. These options
expire October 28, 2004. In April 2000, 50,000 options were granted at an
exercise price of $0.8125 per share, the closing market price on the date of
grant. These options expire April 24, 2005.
F-13
1998 Plan. In 1998, the Board of Directors and shareholders approved the 1998
stock incentive plan (the "1998 Plan"). The purpose of the Plan is to advance
the interests of the Company and its subsidiaries by enhancing their ability
to attract and retain employees and other persons or entities who are in a
position to make significant contributions to the success of the Company and
its subsidiaries, through ownership of shares of stock in the Company and cash
incentives. The Plan is intended to accomplish these goals by enabling the
Company to grant awards in the form of options, stock appreciation rights,
restricted stock or unrestricted stock awards, deferred stock awards, or
performance awards (in cash or stock), other stock-based awards, or
combinations thereof, all as more fully described below.
Pursuant to the 1998 Plan, on February 16, 1999, the Board of Directors of the
Company approved an award to the President of the Company, stock appreciation
rights ("SARs") as to 125,000 shares independent of any stock option under the
Company's 1998 Plan. The base value of the SARs is $6 per share, however no
SAR may be exercised unless and until the market price of the Company's Common
Stock equals or exceeds $10 per share. Amounts to be paid under this
agreement are solely in cash and are not to exceed $500,000. The SARs expire
on October 26, 2008.
Other options issued. In 1998, the landlord of the property underlying the
CGC was granted 75,000 stock options. These options are exercisable at $4.00
per share through the year 2008. These options vested as to 10,000 shares
upon grant, and vest as to 10,000 shares per year until fully vested.
Pro forma information regarding net income (loss) and earnings (loss) per
share has been determined as if the Company had accounted for its employee
stock options under the fair value method of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following assumptions for 2003: risk-free
interest rate of 4.20; dividend yield of 0.0%; volatility factor of the
expected market price of the Company's common stock of 3.95; and a
weighted-average expected life of 2.43 years. The assumptions for 2002 were
the same except: volatility factor of the expected market price of the
Company's common stock of 2.26, and a weighted average expected life of 3.43
years.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
YEARS ENDED DECEMBER 31,
2003 2002
------------ ------------
Net income (loss)
As reported $ 337,424 $ (207,064)
Pro forma 337,424 (207,064)
Basic and diluted net income (loss)
per share
As reported 0.10 (0.06)
Pro forma 0.10 (0.06)
A summary of changes in the status of the Company's outstanding stock options
for the years ended December 31, 2003 and 2002 is presented below:
F-14
2003 2002
--------------------- ----------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
--------------------- ----------------------
Beginning of year 500,000 $0.78 500,000 $0.78
Granted - - - -
Exercised - - - -
Forfeited - - - -
Expired - - - -
--------------------- ----------------------
End of year 500,000 $0.78 500,000 $0.78
===================== ======================
Exercisable at end of year 485,000 $0.68 475,000 $0.61
===================== ======================
Weighted average fair value
of options granted $0.05 $0.02
===================== ======================
The following table summarizes information about stock options outstanding at
December 31, 2003:
Options Outstanding Options Exercisable
------------------------------------- ---------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Outstanding Life (Years) Price Exercisable Price
------------------------------------- ---------------------
Range of exer-
cise prices
$0.055-$4.00 500,000 2.43 $0.78 485,000 $0.68
===================================== =====================
10. COMMITMENTS AND CONTINGENCIES
The Company has employment agreements with its President, as well as other key
employees who require the payment of fixed and incentive based compensation.
The Company has a lease and concession agreement with Sportservice Corporation
("Sportservice"), an unrelated party, that provides SportService with the
exclusive right to prepare and sell all food, beverages (alcoholic and
non-alcoholic), candy and other refreshments, during the term of the agreement
ending in 2006. Sportservice pays rent based on a percentage of gross sales.
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.
F-15
11. SUBSEQUENT EVENT
In January 2004, an affiliate, SAGS, loaned the Company $40,000 to fund
operations, and approximately $75,000 to fund the CGC's turf conversion
described in Note 1.d. These loans are for one year with interest accruing at
ten percent per annum.
In February 2004, the Company received approximately $187,000 from the
Southern Nevada Water Authority as a rebate for its completed turf conversion.
Of these proceeds, approximately $147,000 was used to repay SAGS for a
majority of the monies it had loaned to the Company since November 2003.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned thereunder duly authorized.
ALL-AMERICAN SPORTPARK, INC.
Dated: March 26, 2004 By:/s/ Ronald S. Boreta
Ronald S. Boreta, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
/s/ Vaso Boreta Chairman of the Board March 26, 2004
Vaso Boreta and Director
/s/ Ronald S. Boreta President (Chief March 26, 2004
Ronald S. Boreta Executive Officer),
Treasurer (Principal
Financial Officer)
and Director
/s/ Robert S. Rosburg Director March 26, 2004
Robert S. Rosburg
/s/ William Kilmer Director March 26, 2004
William Kilmer