U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
AMENDMENT NO. 1
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2007
Commission File Number: 0-24970
ALL-AMERICAN SPORTPARK, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 88-0203976
------------------------------- ---------------------------------
(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
6730 South Las Vegas Boulevard, Las Vegas, Nevada 89119
----------------------------------------------------------
(Address of principal executive offices including zip code)
(702) 798-7777
---------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or
for such shorter period that the Registrant was required to file such
reports), and (2)has been subject to such filing requirements for the past 90
days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of September 30, 2007 3,502,000 shares of common stock were outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
EXPLANATORY NOTE: On March 10, 2008, the President and Principal Financial
and Accounting Officer of All-American SportPark, Inc. (the "Company")
concluded that the previously issued financial statements contained in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 2006,
and its Quarterly Reports on Form 10-QSB for the quarters ended March 31,
2007, June 30, 2007 and September 30, 2007 should not be relied upon because
of the accounting errors contained therein. In particular the Company has
determined that it has not correctly account for its land lease in accordance
with Statement of Financial Accounting Standards No. 13 - Accounting for
Leases ("SFAS 13"). SFAS 13 provides that operating leases with fixed rent
escalations should be recognized on a straight-line basis over the lease
term. This amended Form 10-QSB is filed to make changes needed to restate
the financial information as a result of the previous error.
ALL-AMERICAN SPORTPARK, INC.
FORM 10-QSB
INDEX
Page
Number
PART I: FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets
September 30, 2007 (unaudited) and December 31, 2006........ 3
Condensed Consolidated Statements of Operations
Three Months Ended September 30, 2007 and 2006 (unaudited).. 4
Condensed Consolidated Statements of Operations
Nine Months Ended September 30, 2007 and 2006 (unaudited)... 5
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2007 and 2006 (unaudited)... 6
Notes to Condensed Consolidated Financial Statements
(unaudited) ................................................ 7
Item 2. Management's Discussion and Analysis or
Plan of Operation .......................................... 9
Item 3. Controls and Procedures .................................... 15
PART II: OTHER INFORMATION
Item 1. Legal Proceedings .......................................... 18
Item 2. Changes in Securities ...................................... 19
Item 3. Defaults Upon Senior Securities ............................ 19
Item 4. Submission of Matters to a Vote of Security
Holders .................................................... 19
Item 5. Other Information .......................................... 19
Item 6. Exhibits and Reports on Form 8-K ........................... 19
SIGNATURES .......................................................... 20
2
ALL-AMERICAN SPORTPARK, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2007 AND DECEMBER 31, 2006
ASSETS
2007 2006
(restated) (restated)
----------- -----------
(Unaudited)
Current assets:
Cash $ 231,778 $ 44,914
Accounts receivable 3,421 5,446
Prepaid expenses and other 8,662 4,345
----------- -----------
Total current assets 243,861 54,705
Leasehold improvements and equipment, net 913,820 937,501
----------- -----------
Total assets $ 1,157,681 992,206
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY DEFICIENCY
Current liabilities:
Current portion of notes payable to
related entities $ 2,100,777 $ 1,966,156
Current portion of other long-term debt 94,308 87,866
Interest payable to related entities 734,732 594,486
Accounts payable and accrued expenses 246,108 280,940
----------- -----------
Total current liabilities 3,175,925 2,929,448
Notes payable to related entities, net of
current portion 3,403,227 3,361,963
Interest payable to related entities 2,137,319 1,902,300
Due to related entities 1,120,311 944,391
Long-term debt, net of current portion - 71,558
Deferred Income - 6,667
Deferred Rent Liability 680,791 644,659
----------- -----------
Total liabilities 10,517,573 9,860,986
----------- -----------
Minority interest in subsidiary - -
----------- -----------
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, 3,502,000 shares
issued and outstanding at September 30,
2007, and December 31, 2006, respectively 3,502 3,502
Additional paid-in capital 13,327,173 13,327,173
Accumulated deficit (22,690,567) (22,199,455)
----------- -----------
Total shareholders' equity deficiency (9,359,892) (8,868,780)
----------- -----------
Total liabilities and shareholders'
equity deficiency $ 1,157,681 $ 992,206
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
ALL-AMERICAN SPORTPARK, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
2007 2006
(restated) (restated)
----------- -----------
Revenues $ 529,256 $ 502,121
Cost of revenues, excluding depreciation 161,377 158,096
----------- -----------
Gross profit 367,879 344,025
----------- -----------
Operating expenses:
Selling, general and administrative 636,231 526,553
Depreciation and amortization 19,138 18,360
----------- -----------
Total operating expenses 655,369 544,913
----------- -----------
Operating loss (287,490) (200,888)
Other income (expense):
Interest expense (136,269) (125,041)
Loss on stock sale - (11,033)
Other income 300,303 812
----------- -----------
Loss before minority
interest (123,456) (336,150)
Minority interest - -
----------- -----------
Net loss $ (123,456) $ (336,150)
=========== ===========
NET LOSS PER SHARE:
Basic and diluted net loss
per share $ (0.04) $ (0.10)
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
ALL-AMERICAN SPORTPARK, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
2007 2006
(restated) (restated)
----------- -----------
Revenues $ 1,749,482 $ 1,702,976
Cost of revenues, excluding depreciation 484,979 465,288
----------- -----------
Gross profit 1,264,503 1,237,688
----------- -----------
Operating expenses:
Selling, general and administrative 1,591,130 1,578,909
Depreciation and amortization 60,576 55,317
----------- -----------
Total operating expenses 1,651,706 1,634,226
----------- -----------
Operating loss (387,203) (396,558)
Other income (expense):
Interest expense (404,472) (375,359)
Loss on stock sale - (11,033)
Other income 300,563 812
----------- -----------
Loss before minority
interest (491,112) (782,138)
Minority interest - -
----------- -----------
Net loss $ (491,112) $ (782,138)
=========== ===========
NET LOSS PER SHARE:
Basic and diluted net loss
per share $ (0.14) $ (0.23)
=========== ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
ALL-AMERICAN SPORTPARK, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
2007 2006
(restated) (restated)
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (491,112) $ (782,138)
Adjustment to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 60,576 55,317
Bad Debt Expense - 11,033
Changes in operating assets and liabilities:
(Increase) decrease in accounts 2,025 (2,781)
receivable
(Increase) decrease prepaid expenses
and other (4,316) 20,254
(Decrease)increase in accounts payable
and accrued expenses (34,832) 82,246
Increase in interest payable to
related entities 375,265 359,598
Increase (decrease) in deferred (6,667) 9,167
Expense
Increase in deferred rent liability 36,132 36,132
----------- -----------
Net cash used in operating
activities (62,929) (211,195)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital asset expenditures (36,895) -
Proceeds from sale of stock - 113,967
----------- ----------
Net cash used in
investing activities (36,895) 113,967
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in due to related entities 175,920 170,806
Proceeds from notes payable to
related entities 180,000 100,000
Principal payments on notes payable
to related entities (4,115) (84,444)
Principal payments on other notes payable (65,116) (59,255)
----------- ----------
Net cash provided by financing
activities 286,689 127,107
----------- ----------
NET INCREASE IN CASH 186,866 29,929
CASH, beginning of period 44,912 14,164
----------- -----------
CASH, end of period $ 231,778 $ 44,093
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 9,884 $ 15,745
=========== ===========
Cash paid for taxes $ - $ -
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
ALL-AMERICAN SPORTPARK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements of
All-American SportPark, Inc. ("AASP" or the "Company"), include the accounts
of AASP and its 65% owned subsidiary, All-American Golf Center, Inc.
("AAGC"), (collectively the "Company"). All significant intercompany
accounts and transactions have been eliminated. The operations of the
Callaway Golf Center ("CGC") are included in AAGC.
The accompanying interim unaudited condensed consolidated financial
statements have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission relating to interim
financial statements. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States have been
condensed or omitted. In the opinion of management, all necessary
adjustments have been made to present fairly, in all material respects, the
financial position, results of operations and cash flows of the Company at
September 30, 2007 and for all prior periods presented.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that may require revision in future periods.
These consolidated financial statements should be read in conjunction with
the Company's Annual Report on Form 10-KSB for the year ended December 31,
2006, from which the December 31, 2006, audited balance sheet information was
derived.
2. INCOME (LOSS) PER SHARE AND SHAREHOLDER'S EQUITY DEFICIENCY
Basic and diluted income (loss) per share is computed by dividing the
reported net income or loss by the weighted average number of common shares
outstanding during the period. The weighted-average number of common shares
used in the calculation of basic and diluted loss per share were 3,502,000
and 3,400,000 for the three-month and nine-month periods ended September 30,
2007 and 2006 respectively.
3. LEASES
The land underlying the Callaway Golf Center is leased by AAGC. The original
lease expires in 2012 and the Company has exercised one of two five year
renewal options extending the lease through 2017. Also, the lease has a
provision for contingent rent to be paid by AAGC upon reaching certain levels
of gross revenues. The CGC did not reach the gross revenues that would
require the payment of contingent rent as of September 30, 2007. The lease
has a corporate guarantee by AASP.
4. RELATED PARTY TRANSACTIONS
The Company provides administrative/accounting support for (a) The Company
Chairman's two wholly-owned golf retail stores in Las Vegas, Nevada, (the
"Paradise Store" and "Rainbow Store"), (b) three golf retail stores, two are
7
named Saint Andrews Golf Shop ("SAGS")and one is a Las Vegas Golf and Tennis,
owned by the Company's President and his brother. Administrative/accounting
payroll and employee benefits are allocated based on an annual review of the
personnel time expended for each entity. Amounts allocated to these related
parties by the Company approximated $47,520 and $43,449 for the nine months
ended September 30, 2007 and 2006, respectively. In July, the company decided
not to allocate certain positions to the related parties due to the
inconsistency of work done for the related parties by these positions.
During the first nine months ending September 30, 2007 four notes totaling
$135,000 were issued by the District store and each note has a maturity date
of one year and accrues interest at 10 percent per annum. Saint Andrews Golf
Shop also issued $45,000 in notes receivable with a maturity date of one year
and accrues interest at 10% per annum. Related party interest expense was
$116,165 and $120,261 for the three months period and $345,263 and $359,614
for the nine month period ending September 30, 2007 and 2006 respectively.
5. LEGAL MATTERS
The Company is plaintiff in a lawsuit against Western Technologies and was
awarded a judgment of $660,000 in March 2003. Western Technologies appealed
the judgment to the Nevada Supreme Court (the "Court"). In October 2006, the
Court ruled in favor of the defendant and remanded the case to the district
court for further action. A settlement was reached in the Western
Technologies lawsuit on September 28, 2007. The amount of the settlement was
$550,000, of which $250,000 was paid to the Company's attorneys as legal fees
and the Company received $300,000, which was recorded as part of other income
totaling $300,563.
6. 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. Historically,
with some exceptions, the Company has incurred net losses. As of September
30, 2007, the Company had a working capital deficit of $2,932,064 and a
shareholders' equity deficiency of $9,359,892. CGC did not generate a
positive cash flow before corporate overhead that is in place to support of
the CGC and public company operations and interest expense.
Management believes that its operations, and existing cash balances as of
September 30, 2007 may not be sufficient to fund operating cash needs and
debt service requirements over the next 12 months. Management continues to
seek other sources of funding, 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.
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.
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.
8
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.
7. CORRECTION OF AN ERROR - PRIOR PERIOD ADJUSTMENTS
On March 10, 2008, the President and Principal Financial and Accounting
Officer of All-American SportPark, Inc. (the "Company") concluded that the
previously issued financial statements contained in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 2006, and its Quarterly
Reports on Form 10-QSB for the quarters ended March 31, 2007; June 30, 2007
and September 30, 2007 should not be relied upon because of the accounting
errors contained therein. In particular the Company has determined that it
has not correctly account for its land lease in accordance with Statement of
Financial Accounting Standards No. 13 - Accounting for Leases ("SFAS 13").
SFAS 13 provides that operating leases with fixed rent escalations should be
recognized on a straight-line basis over the lease term.
The following table provides additional details regarding the changes to the
income statement for the three months ended September 30, 2007:
As restated As previously Change
reported
------------ ----------- --------
Revenues $ 529,256 $ 529,256 $ -
Cost of revenues 161,377 161,377 -
--------- --------- --------
367,879 367,879 -
--------- --------- --------
Operating expenses:
Selling, general & administrative 636,231 624,187 12,044
Depreciation and amortization 19,138 19,138 -
--------- --------- --------
655,369 643,325 12,044
--------- --------- --------
Operating loss (287,490) (275,446) 12,044
Interest expense, net (136,269) (136,269) -
Other income 300,303 300,303 -
--------- --------- --------
Income (loss) before
Minority interest (123,456) (111,412) 12,044
Minority interest (income) loss
of subsidiary - - -
--------- --------- --------
Net income (loss) $(123,456) $(111,412) $ 12,044
========= ========= ========
NET INCOME (LOSS) PER SHARE:
Basic and diluted net income
(loss) per share $ (0.04) $ (0.03) $ (0.01)
========= ========= ========
9
The following table provides additional details regarding the changes to the
income statement for the nine months ended September 30, 2007:
As restated As previously Change
reported
------------ ----------- --------
Revenues $1,749,482 $1,749,482 $ -
Cost of revenues 484,979 484,979 -
---------- ---------- --------
1,264,503 1,264,503 -
---------- ---------- --------
Operating expenses:
Selling, general & administrative 1,591,130 1,554,998 36,132
Depreciation and amortization 60,576 60,576 -
---------- ---------- --------
1,651,706 1,615,574 36,132
---------- ---------- --------
Operating loss (387,203) (351,071) 36,132
Interest expense, net (404,472) (404,472) -
Other income 300,563 300,563 -
---------- ---------- ---------
Income (loss) before
Minority interest (491,112) (454,980) 36,132
Minority interest (income) loss
of subsidiary - - -
----------- ---------- ---------
Net income (loss) $ (491,112) $ (454,980) $ 36,132
========== ========== =========
NET INCOME (LOSS) PER SHARE:
Basic and diluted net income
(loss) per share $ (0.14) $ (0.13) $ (0.01)
========== ========= =========
The following table provides details regarding the changes to the balance
sheet as of September 30,2007:
As restated As previously Change
reported
------------- ----------- --------
ASSETS
Current assets:
Cash $ 231,778 $ 231,778 $ -
Accounts receivable 3,421 3,421 -
Prepaid expenses and other 8,662 8,662 -
----------- ---------- --------
243,861 243,861 -
Leasehold improvements and
equipment, net of accumulated
depreciation 913,820 913,820 -
Other assets - - -
----------- ---------- --------
$ 1,157,681 $1,157,681 $ -
=========== ========== ========
10
LIABILITY AND SHAREHOLDERS' EQUITY DEFICIENCY
Current liabilities
Current portion of notes
payable to related parties $ 2,100,777 $2,100,777 $ -
Current portion of other
long-term debt 94,308 94,308 -
Interest payable to related
parties 734,732 734,732 -
Accounts payable and
accrued expenses 246,108 246,108 -
----------- ---------- --------
3,175,925 3,175,925 -
Notes payable to related parties,
net of current portion 3,403,227 3,403,227 -
Other long-term debt, net of
current portion - - -
Interest payable to related parties 2,137,319 2,137,319 -
Due to related parties 1,120,311 1,120,311 -
Deferred income - -
Deferred rent liability 680,791 - 680,791
----------- ---------- --------
10,517,573 9,836,782 680,791
----------- ---------- --------
Minority interest in subsidiary - - -
----------- ---------- --------
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,
3,502,000 shares issued and
outstanding at September 30,2007
and December 31,2006 Respectively 3,502 3,502 -
Additional paid-in capital 13,327,173 13,327,173 -
Accumulated deficit (22,690,567) (22,009,777) (680,791)
----------- ---------- --------
(9,359,892) (8,679,102) (680,791)
----------- ---------- --------
$ 1,157,680 $ 1,157,680 $ -
=========== =========== ========
The following table provides additional details regarding the changes to the
income statement for the three months ended September 30, 2006:
11
As restated As previously Change
reported
----------- ---------- --------
Revenues $ 502,121 $ 502,121 $ -
Cost of revenues 158,096 158,096 -
----------- ---------- --------
344,025 344,025 -
----------- ---------- --------
Operating expenses:
Selling, general & administrative 526,553 514,509 12,044
Depreciation and amortization 18,360 18,360 -
----------- ---------- --------
544,913 532,869 12,044
----------- ---------- --------
Operating loss (200,888) (188,844) 12,044
Interest expense, net (125,041) (125,041) -
Loss on stock sale (11,033) (11,033) -
Other income 812 812 -
----------- ---------- --------
Income (loss) before
Minority interest (336,150) (324,106) 12,044
Minority interest (income) loss
of subsidiary - 67,360 67,360
----------- ---------- --------
Net income (loss) $ (336,150) $ (256,746) 79,404
=========== ========== ========
NET INCOME (LOSS) PER SHARE:
Basic and diluted net income
(loss) per share $ (0.10) $ (0.08) $ (0.02)
=========== ========== ========
12
The following table provides additional details regarding the changes to the
income statement the nine months ended September 30, 2006:
As restated As previously Change
reported
----------- ---------- --------
Revenues $ 1,702,976 $1,702,976 -
Cost of revenues 465,288 465,288 -
----------- ---------- --------
1,237,688 1,237,688 -
----------- ---------- --------
Operating expenses:
Selling, general & administrative 1,578,909 1,542,777 36,132
Depreciation and amortization 55,317 55,317 -
----------- ---------- --------
1,634,226 1,598,094 36,132
----------- ---------- --------
Operating loss (396,538) (360,406) 36,132
Interest expense, net (375,359) (375,359) -
Loss on stock sale (11,033) (11,033)
Other income 812 812 -
----------- ---------- --------
Income (loss) before
Minority interest (782,118) (745,986) 36,132
Minority interest (income) loss
of subsidiary - 127,083 127,083
----------- ---------- --------
Net income (loss) $ (782,118) $ (618,903) $163,215
=========== ========== ========
NET INCOME (LOSS) PER SHARE:
Basic and diluted net income
(loss) per share $ (0.23) $ (0.18) $ (0.05)
========== ========= ========
The following table provides details regarding the changes to the balance
sheet as of December 31, 2006:
As restated As previously Change
reported
------------- ----------- --------
ASSETS
Current assets:
Cash $ 44,914 $ 44,914 $ -
Accounts receivable 5,446 5,446 -
Prepaid expenses and other 4,345 4,345 -
----------- ---------- --------
54,705 54,705 -
Leasehold improvements and
equipment, net of accumulated
depreciation 937,501 937,501 -
----------- ---------- --------
$ 992,206 $ 992,206 $ -
=========== ========== ========
13
LIABILITY AND SHAREHOLDERS' EQUITY DEFICIENCY
Current liabilities
Current portion of notes
payable to related parties $ 1,966,156 $1,966,156 $ -
Current portion of other
long-term debt 87,866 87,866 -
Interest payable to related
parties 594,486 594,486 -
Accounts payable and
accrued expenses 280,940 280,940 -
----------- ---------- --------
2,929,448 2,929,448 -
Notes payable to related parties,
net of current portion 3,361,963 3,361,963 -
Other long-term debt, net of
current portion 71,558 71,558 -
Interest payable to related parties 1,902,300 1,902,300 -
Due to related parties 944,391 944,391 -
Deferred income 6,667 6,667 -
Deferred rent liability 644,659 - 644,659
----------- ---------- --------
9,860,986 9,216,327 644,659
----------- ---------- --------
Minority interest in subsidiary - - -
----------- ---------- --------
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, 2006 3,502 3,502 -
Additional paid-in capital 13,327,173 13,327,173 -
Accumulated deficit (22,199,455) (21,554,796) (644,659)
----------- ---------- --------
(8,868,780) (8,224,121) (644,659)
----------- ---------- --------
$ 992,206 $ 992,206 $ -
=========== ========== ========
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following information should be read in conjunction with the Company's
consolidated financial statements and related notes included in this report.
OVERVIEW
The Company's operations consist of the management and operation of the
Callaway Golf Center (CGC). The CGC includes a par 3 golf course fully
lighted for night golf, a 110-tee two-tiered driving range, and a 20,000
square foot clubhouse which includes the Callaway Golf fitting center. Also
located within the clubhouse are two sub-leased spaces. The first is
occupied by the Saint Andrews Golf Shop retail store. The other space was for
a restaurant and bar that was unoccupied as of the beginning of 2006. A
lease was signed with a new tenant on January 25, 2006 and the restaurant re-
opened in February 2006. The lease was for an initial one-year period. The
Company and the tenant agreed to extend the lease for an additional one-year
term through January 2008.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2007 AS COMPARED TO
THE THREE MONTHS ENDED SEPTEMBER 30, 2006.
REVENUES. Revenues of the Callaway Golf Center ("CGC") for the three months
ended September 30, 2007 increased $27,135 or 5.4% to $529,256 from $502,121
reported for the three months ended September 30, 2006. The increase in
revenues is attributed to an increase in golf course green fees, and golf
club rentals offset by a decrease in golf lesson fees. Golf course green fees
increased by $40,272 to $156,859 in 2007 from $116,587 in 2006 due to an
increase in business and a change in the summer rates. Effective June 1,
2007, summer rates were increased by 22% for locals and 33.3% for tourists.
In addition, summer rates were not offered on weekends as it had in the prior
year. Golf cart rentals were flat year-to-year from $57,558 to $57,989 for
the three months ending September 30, 2007 compared to the same period in
2006. Driving range revenues decreased by $9,321 to $183,348 in 2007 from
$192,669 in 2006 due to an unseasonably hot summer. There was a decrease in
golf lesson fees of $14,229 to $41,407 in 2007 compared to $55,636 in 2006
due to turnover in golf pro staff and an unseasonably hot summer. Golf club
rentals increased by $4,882 to $26,146 for the three months ended in
September 30, 2007 compared to $21,264 for the three months ended in
September 2006.
COST OF REVENUES. Cost of revenues consists mainly of commissions paid to
the golf instructors, the payroll and benefits expenses of ACG staff, and
operating supplies. Cost of revenues increased by $3,281 to $161,377 from
$158,096 for the same period in the prior year. Commissions paid to golf
instructors decreased by $5,400 from $31,520 in 2007 to $36,920 in 2006 due
directly to reduced golf lesson fees incurred in the third quarter. In
September 2007 a purchase of $21,280 of new range balls for the course
increased golf operating supplies by $31,865 to $49,642 in 2007 from $23,600
in 2006.
SELLING, GENERAL AND ADMINISTRATIVE. These expenses consist principally of
landscaping services and professional fees, ground lease, utilities,
insurance and administrative payroll. These expenses increased $109,679 to
$636,231 from $526,553 for the three months ending September 30, 2007 and
2006 respectively. An increase was seen in two areas: legal expenses for
the Urban Land litigation of $48,731, and occupancy costs for $23,281 due to
increased water and property taxes.
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OTHER INCOME AND EXPENSE. Other income and expense consists principally of
interest expense and non-operating income. For the three months ended
September 30, 2007 there was an increased in interest expense of $11,228 due
to additional borrowings from affiliated stores to fund operations. There
was also a $300,000 increase in settlement income due to the Western
Technologies Settlement discussed more thoroughly in Part II - Item 1 - Legal
Proceedings.
NET LOSS. The net loss before minority interest for the three months ending
September 30, 2007 was $(123,456) compared to a net loss of $(336,150) in the
prior year. The difference of $212,694 is primarily due the Western
Technologies settlement for $300,000 which is partially offset by an increase
in legal fees of $48,731.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2007 AS COMPARED TO
THE NINE MONTHS ENDED SEPTEMBER 30, 2006.
REVENUES. Revenues of the Callaway Golf Center ("CGC") for the nine months
ended September 30, 2007 increased by $46,506 or 2.7% to $1,749,482 from
$1,702,976 reported for the same period in 2006. This increase in revenues
is due to golf course green fees, golf cart rentals and restaurant lease
income offset by golf lesson fees. The golf course greens fees increased by
$50,106 to $537,889 in 2007 compared to $487,783 in 2006 because of the
improved course condition that allowed summer rates to be raised by 22% for
locals and 33.3% for tourists in June 2007 and also allowed no discounts to
be on weekends and help offset the lowered revenues from the first quarter
that resulted from bad weather. Golf cart rentals also increased by $11,597
to $173,891 from $162,294 for the nine months ended 2007 and 2006. This was
due in an increase in rental rates of 12.5%. Restaurant lease income
increased by $9,280 in 2007 to $37,280 in 2007 from $28,000 in 2006 due to
the new tenant did not occupy the restaurant until end of the first quarter
of 2006 and 4% increase in the base rent after the initial one year term of
the lease. Golf lesson fees decreased by $27,594 to $155,567 in 2007 from
$183,161 in 2006 as a result of the turnover in the golf pro staff that
occurred in the second quarter, and unseasonably warm weather during third
quarter.
COST OF REVENUES. Cost of revenues consists mainly of commissions paid to
the golf instructors, the payroll and benefits expenses of CGC staff, cost of
merchandise sold and operating supplies. Cost of revenues increased by
$19,691 to $484,979 from $465,288 for the same period of the prior year.
Wages for park services increased by $12,559 to $77,603 in 2007 from $65,044
in 2006 due to additional golf course rangers added in the first quarter of
the year to help control traffic on the course and a part-time maintenance
personnel to help service the golf carts. Golf operating supplies for the
range increased by $18,765 to $81,896 in 2007 from $63,131 in 2006 due to
purchase of additional range matts and miscellaneous supplies.
SELLING, GENERAL AND ADMINISTRATIVE. These expenses consist principally of
landscaping services and professional fees, ground lease, utilities,
insurance and administrative payroll. These expenses increased by $12,221 to
$1,591,130 from $1,578,909 for the same period in the prior year. Audit and
tax expense decreased by $44,667 to $31,000 from $75,667 in the prior year.
The decrease in expenses was due to the Company had to respond to several SEC
comment letters and also changed their public accounting firm in the prior
year which resulted in billings from two separate auditing firms. The
decreased expenses were related to responding to SEC comment letters and a
change of Company's registered public accounting firm that occurred in April
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2006. As noted earlier in the three month ended 2007, there was an increase
in legal fees of $25,529 due to litigation with Urban Land discussed more
thoroughly in Part II - Item 1 - Legal Proceedings.
OTHER INCOME AND EXPENSE. Other income and expense consists principally of
interest expense and non-operating income. Interest expense increased
$29,113 to $404,472 in 2007 compared to $375,359 in 2006 due to an increase
in borrowing from affiliated stores. Other income increased by $299,751 to
$300,563 for 2007 compared to $812 in 2006. This was due to the Western
Technologies Settlement discussed more thoroughly in Part II - Item 1 - Legal
Proceedings.
NET LOSS. The net loss before minority interest for the nine months ending
September 30, 2007 is $491,112 compared to a loss of $782,138 in the prior
year. The difference of $291,026 is due to the Western Technologies
Settlement discussed further in the legal section.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2007, the Company had a working capital deficit of
$2,932,064 as compared to a working capital deficit of $2,874,743 at December
31, 2006. The CGC did not generate a positive cash flow before corporate
overhead.
Management believes that the CGC operations and existing cash balances as of
September 30, 2007, may not be sufficient to fund operating cash needs and
debt service requirements over the next 12 months. In its report on the
Company's annual financial statements for 2006, the Company's auditors
expressed substantial doubt about the Company's ability to continue as a
going concern.
The Company anticipates that the Town Square project will substantially
increase traffic flow in the area of the golf center when it opens in
November 2007, which expected to result in increased revenues for the golf
center. The Town Square is a 1.5 million square foot super regional
lifestyle center with a mix of retail, dining and office space that is being
developed across the street from the golf center. In addition, the continued
aggressive level of growth at the south end of the Las Vegas strip is
expected to draw more local and tourist business to the golf center.
Management continues to seek other sources of funding, 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.
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. At this time, management does not
intend to target any particular industry but, rather, intends to judge any
opportunity on its individual merits. Any such transaction would likely have
a dilutive effect on the interests of the Company's stockholders that would,
in turn, reduce each shareholders proportionate ownership and voting power in
the Company. 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.
17
The Company has no commitments to enter into or acquire a specific business
opportunity and, therefore, is able to disclose the risks of a business or
opportunity that it may enter into only in a general manner, and unable to
disclose the risks of any specific business or opportunity that it may enter
into. An investor can expect a potential business opportunity to be quite
risky. Any business opportunity acquired may be currently unprofitable or
present other negative factors.
Working capital needs have been helped by deferring payments of interest and
notes payable balances due to an Affiliate. Management believes that
additional deferrals or such payments can be negotiated, if necessary.
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.
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain information included in this quarterly report contains statements
that are forward-looking such as statements relating to plans for future
expansion and other business development activities, as well as other capital
spending and financing sources. Such forward-looking information involves
important risks and uncertainties that could significantly affect anticipated
results in the future and, accordingly, such results may differ from those
expressed in any forward-looking statements made by or on behalf of the
Company. These risks and uncertainties include, but are not limited to,
those relating to dependence on existing management, leverage and debt
service (including sensitivity to fluctuations in interest rates), domestic
or global economic conditions, changes in federal or state tax laws or the
administration of such laws, and changes in regulations and application for
licenses and approvals under applicable jurisdictional laws and regulations.
ITEM 3. CONTROLS AND PROCEDURES
As of September 30, 2007, 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
September 30, 2007. There have been no changes in internal control over
financial reporting that occurred during the second 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 II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is plaintiff in a lawsuit against Western Technologies and was
awarded a judgment of $660,000 in March 2003. Western Technologies appealed
the judgment to the Nevada Supreme Court (the "Court"). In October 2006, the
Court ruled in favor of the defendant and remanded the case to the district
court for further action. A settlement was reached on September 28, 2007.
The amount of the settlement was $550,000, of which $250,000 was paid to the
Company's attorneys as legal fees and the Company received $300,000.
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In December 2005, the Company commenced an arbitration proceeding before the
American Arbitration Association against Urban Land of Nevada ("Urban Land")
seeking reimbursement of the $800,000 paid in settlement of the Sierra
SportService matter plus fees and costs pursuant to the terms of the
Company's agreements with Urban Land which owns the property on which the CGC
is located. Urban Land filed a counterclaim against the Company seeking to
recover damages related to back rent allegedly owed by Company of
approximately $600,000. In addition, Urban Land claims the Company misused
an alleged $880,000 settlement related to construction defects lawsuits. The
American Arbitration Association has appointed an arbitrator and arbitration
is scheduled for February 2008.
Urban land has also filed another lawsuit against the Company and claims
against other parties in the arbitration proceeding. The claims against the
Company remain essentially identical to the claims above. The other parties
include, among others, Ronald S. Boreta, the President of the Company; Vaso
Boreta, Chairman of the Board of the Company; and Boreta Enterprise, Ltd., a
principal shareholder of the Company. The other party claims allege that the
Company and others defrauded otherwise injured Urban Land in connection with
Urban Land entering into certain agreements in which the Company is a party.
The Company has filed a motion to dismiss against the plaintiff's claims in
this lawsuit but the Court provided the plaintiff with a limited amount of
discovery. The discovery process has begun and depositions are expected to
be ongoing.
On February 10, 2006, Urban Land filed a notice of default on the CGC ground
lease claiming that certain repairs to the property had not been performed or
documented. The Company filed a lawsuit to prevent Urban land from declaring
the Company in default of its lease. These claims in the notice of default
have been added in the above arbitration proceeding.
The Company is involved in certain other 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 and the forgoing matters will have a material adverse effect, if any,
upon the Company. Accordingly, no provision has been made for any estimated
losses in connection with such matters.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. None.
Item 3. Defaults Upon Senior Securities. None
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. None.
Item 6. Exhibits
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
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
ALL-AMERICAN SPORTPARK, INC.
Date: April 14, 2008
By: /s/ Ronald Boreta
Ronald Boreta, President and
Chief Executive (Officer
Principal Executive Officer) and
Treasurer (Principal Financial Officer)
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