10QSB/A 1 spen630q.txt SPORTS ENTERTAINMENT ENTERPRISES 6-30-01 10-QSB/A U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB/A AMENDMENT NO. 1 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 Commission File Number: 0-17436 SPORTS ENTERTAINMENT ENTERPRISES, INC. ----------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Colorado 84-1034868 ------------------------------- --------------------------------- (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___ As of August 14, 2001, 8,135,097 shares of common stock were outstanding. Transitional Small Business Disclosure Format (check one): Yes___ No X SPORTS ENTERTAINMENT ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS JUNE 30, DECEMBER 31, 2001 2000 ----------- ----------- (UNAUDITED) Current assets: Cash and cash equivalents $ 423,720 $ 480,126 Marketable securities 86,878 97,394 Accounts receivable 70,644 42,435 Inventory 574,378 563,140 Prepaid expenses and other 104,471 66,385 ----------- ----------- Total current assets 1,260,091 1,249,480 Leasehold improvements and equipment, net 1,031,178 1,055,688 Due from affiliated stores 161,488 138,661 Note receivable - related party 20,000 20,000 Other assets 19,275 33,582 Net assets of discontinued segment 42,339 295,154 ----------- ----------- Total assets $ 2,534,371 $ 2,792,565 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. 2 SPORTS ENTERTAINMENT ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) JUNE 30, DECEMBER 31, 2001 2000 ----------- ----------- (UNAUDITED) Current liabilities: Current portion of long-term debt $ 52,301 $ 49,891 Current portion of obligations under capital leases 15,931 15,931 Accounts payable and accrued expenses 1,209,245 1,284,699 ----------- ----------- Total current liabilities 1,277,477 1,350,521 Note payable to shareholder 4,915,222 4,700,561 Due to affiliated stores 1,398,265 1,689,529 Long-term debt, net of current portion 466,660 493,428 Obligations under capital leases, net of current portion 11,791 23,153 Deferred income 228,929 178,919 Deferred income tax liability 94,009 - ----------- ----------- Total liabilities 8,392,353 8,436,111 ----------- ----------- Minority interest 366,103 5,000,000 ----------- ----------- Shareholders' equity (deficit): Series A Convertible Preferred Stock, no par value, 5,000,000 shares authorized; no shares issued - - Common Stock, no par value, 15,000,000 shares authorized, 8,135,097 shares issued and outstanding 6,107,700 6,107,700 Stock options issued 268,300 268,300 Accumulated other comprehensive income 55,099 65,615 Additional paid-in capital 5,012,378 - Accumulated deficit (17,667,562) (17,085,161) ----------- ----------- Total shareholders' equity (deficit) (6,224,085) (10,643,546) ----------- ----------- Total liabilities and shareholders' equity (deficit) $ 2,534,371 $ 2,792,565 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. 3 SPORTS ENTERTAINMENT ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) FOR THE THREE MONTHS ENDED JUNE 30, 2001 AND 2000 (UNAUDITED) 2001 2000 ----------- ----------- Revenues: Retail operations $ 872,175 $ 835,298 Callaway Golf Center[TM] 662,976 618,533 Other - 8,998 ----------- ----------- Total revenues 1,535,151 1,462,829 Cost of revenues: Retail operations 623,580 579,146 Callaway Golf Center[TM] 91,497 102,408 ----------- ----------- Total cost of revenues 715,077 681,554 ----------- ----------- Gross profit 820,074 781,275 Operating expenses: Selling, general and administrative 744,078 722,504 Depreciation and amortization 25,286 27,666 ----------- ----------- Total operating expenses 769,364 750,170 ----------- ----------- Operating income 50,710 31,105 Interest expense, net (148,659) (79,989) ----------- ----------- Loss from continuing operations before minority interest (97,949) (48,884) Minority interest (5,750) - ----------- ----------- Net loss from continuing operations (103,699) (48,884) DISCONTINUED OPERATIONS: Loss from disposal of discontinued segment (316,263) - Loss from discontinued operations of SportPark business - (661,666) ----------- ----------- Loss from discontinued operations (316,263) (661,666) ----------- ----------- Net loss (419,962) (710,550) Other comprehensive income: Unrealized holding gains on securities 15,949 - ----------- ----------- Comprehensive loss $ (404,013) $ (710,550) =========== =========== NET LOSS PER SHARE: Basic and diluted: Loss from continuing operations $ (0.01) $ (0.01) Loss from discontinued operations (0.04) (0.08) ----------- ----------- Net loss per share $ (0.05) $ (0.09) =========== =========== The accompanying notes are an integral part of these consolidated financial statements. 4 SPORTS ENTERTAINMENT ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (UNAUDITED) 2001 2000 ----------- ----------- Revenues: Retail operations $ 1,515,825 $ 1,454,992 Callaway Golf Center[TM] 1,283,440 1,236,592 Other - 19,365 ----------- ----------- Total revenues 2,799,265 2,710,949 Cost of revenues: Retail operations 1,102,341 1,047,124 Callaway Golf Center[TM] 170,191 197,370 ----------- ----------- Total cost of revenues 1,272,532 1,244,494 ----------- ----------- Gross profit 1,526,733 1,466,455 Operating expenses: Selling, general and administrative 1,488,353 1,457,198 Depreciation and amortization 51,956 64,581 ----------- ----------- Total operating expenses 1,540,309 1,521,779 ----------- ----------- Operating loss (13,576) (55,324) Interest expense, net (303,051) (166,619) ----------- ----------- Loss from continuing operations before minority interest (316,627) (221,943) Minority interest (5,750) 116,730 ----------- ----------- Net loss from continuing operations (322,377) (105,213) DISCONTINUED OPERATIONS: Loss from disposal of discontinued segment (260,024) - Loss from discontinued operations of SportPark business - (1,485,107) ----------- ----------- Loss from discontinued operations (260,024) (1,485,107) ----------- ----------- Net loss (582,401) (1,590,320) Other comprehensive loss: Unrealized holding losses on securities (10,516) - ----------- ----------- Comprehensive loss $ (592,917) $(1,590,320) =========== =========== NET LOSS PER SHARE: Basic and diluted: Loss from continuing operations $ (0.04) $ (0.01) Loss from discontinued operations (0.03) (0.18) ----------- ----------- Net loss per share $ (0.07) $ (0.19) =========== =========== The accompanying notes are an integral part of these consolidated financial statements. 5 SPORTS ENTERTAINMENT ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (UNAUDITED) 2001 2000 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (582,401) $(1,590,320) Adjustment to reconcile net loss to net cash provided by operating activities of continuing operations: Loss from discontinued operations 260,024 1,485,107 Common stock of subsidiary issued for services - 58,364 Minority interest 5,750 (116,730) Depreciation and amortization 51,956 64,581 Gain on sale of equipment - (1,741) Changes in operating assets and liabilities: Increase in accounts receivable (28,209) (17,077) Increase in inventories (11,238) (52,681) Increase in prepaid expenses and other (23,779) (25,712) Increase in accounts payable and accrued expenses 396,286 391,627 Increase (decrease) in deferred income 50,010 (12,678) ----------- ----------- Net cash provided by operating activities of continuing operations 118,399 182,740 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of equipment - 32,500 Leasehold improvements expenditures (27,446) (27,319) ----------- ----------- Net cash provided by (used in) investing activities of continuing operations (27,446) 5,181 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in due to affiliated stores and other related entities (332,451) 93,587 Increase in notes payable and notes payable to shareholder 190,303 36,772 Cash paid to redeem preferred stock of subsidiary (5,000) - Principal payments on capital leases (11,362) (20,302) ----------- ----------- Net cash provided by (used in) financing activities of continuing operations (158,510) 110,057 ----------- ----------- NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS 11,151 (133,611) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (56,406) 164,367 ----------- ----------- CASH AND CASH EQUIVALENTS, beginning of period 480,126 200,501 ----------- ----------- CASH AND CASH EQUIVALENTS, end of period $ 423,720 $ 364,868 =========== =========== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest $ 30,975 $ 36,041 =========== =========== NON-CASH INVESTING AND FINANCING ACTIVITIES: Common stock of subsidiary issued in exchange for consulting services $ - $ 116,730 =========== =========== Capital lease obligations transferred in connection with sale of equipment $ - $ 72,081 =========== =========== Land lease obligation exchanged for minority interest in subsidiary $ 471,740 $ - =========== =========== The accompanying notes are an integral part of these consolidated financial statements. 6 SPORTS ENTERTAINMENT ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. CONSOLIDATED FINANCIAL STATEMENTS The accompanying unaudited consolidated financial statements include the accounts of Sports Entertainment Enterprises, Inc. ("SPEN") a Colorado corporation, and its subsidiaries, All-American SportPark, Inc. ("AASP"), and LVDG Rainbow, Inc. ("Rainbow")(collectively, the "Company"). As of June 30, 2001, SPEN owns approximately 63.5% of the outstanding common stock and 100% of the outstanding convertible preferred stock which, combined, represents approximately 71.4% ownership of All-American SportPark, Inc. ("AASP"), a publicly traded company. All significant inter-company accounts and transactions have been eliminated. The accompanying financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission relating to interim financial statements. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. In the opinion of management, all necessary adjustments have been made to present fairly, in all material respects, the financial position, results of operations and cash flows of the Company at June 30, 2001 and for all periods presented. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that may require revision in future periods. These consolidated financial statements should be read in conjunction with the audited financial statements included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2000, from which information presented as of December 31, 2000, is derived. The Company's continuing operations consist of one Company-owned retail store in Las Vegas, Nevada and, through AASP, the Callaway Golf Center located on 42 acres of land on the south end of the Las Vegas "Strip". The Callaway Golf Center is operated by AASP's All-American Golf Center ("AAGC") subsidiary. 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 three tenants: the Saint Andrews Golf Shop; the Giant Golf teaching academy; and the Bistro 10 restaurant and bar. 2. DISCONTINUED OPERATIONS AASP developed a concept for family-oriented sports-themed amusement venues named "All-American SportPark" ("SportPark" or "SPLV"). The SportPark opened for business on October 9, 1998 and operated on 23 acres adjacent to the Callaway Golf Center. The SportPark included NASCAR SpeedPark, Major League Baseball Slugger Stadium, the 100,000 square foot Arena Pavilion which housed the Pepsi AllSport Arena, "The Rock" 47-foot rock climbing wall, an 8,000 square foot arcade, Indoor putting challenge, Boston Garden restaurant and bar, Skybox suites and several other interactive experiences and retail shops. As of December 31, 2000, management of AASP formalized a plan to dispose of its SportPark facility because (1) historically, the property had sustained substantial losses, and (2) it was not expected that future results would improve without substantial capital investment; AASP did not have the 7 resources to make such an investment. As part of this plan, effective January 2, 2001, the SportPark was closed to the general public, although it continued to operate on a limited basis for group parties and special events through May 31, 2001. On June 1, 2001, AASP completed a transaction pursuant to a Restructuring and Settlement Agreement with Urban Land of Nevada, Inc. (the "Landlord") to terminate the lease relating to the 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 AASP to the Landlord with respect to the 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 AASP's back rent obligations for the Callaway Golf Center for periods through April 30, 2001. The Callaway Golf Center remains an operating business of AASP. In addition, all common stock of SPEN owned by the Company's President, AASP's President and a related entity that had been pledged to and held by the Landlord pursuant to the original SportPark financing (see Note 3) has been returned unencumbered. As part of the transaction, AASP issued the Landlord a 35 percent ownership interest in AAGC. In connection with the issuance of the 35 percent interest in AAGC to the Landlord, AASP, AAGC 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 AASP. In regard to the Restructuring and Settlement Agreement, AASP recorded $360,353 as Minority Interest in the accompanying consolidated balance sheet as of June 30, 2001 representing the Landlord's 35% interest in AAGC. The difference between the amount recorded as Minority Interest and the amount of back rent cancelled by the Landlord of $471,740, has been recorded as Additional Paid-In Capital, net of deferred taxes of $94,009, in the accompanying consolidated balance sheet. Also, because of this transaction, the AAGC no longer qualifies to be included as part of AASP's consoliddated reporting entity for income tax purposes. As a result, beginning June 2001, the AAGC will be subject to income taxes on a stand alone basis. As a result of the formal plan of disposal of the SportPark described above, since December 31, 2000, the Company has accounted for AASP's SportPark business segment as "Discontinued Operations" in the accompanying consolidated financial statements for all periods presented. AASP recorded a loss from disposal of the SportPark of $260,024. As of December 31, 2000, AASP had estimated there would be no gain or loss on the disposition of the SportPark property. The difference has arisen mainly because actual net income of the SportPark business since December 31, 2000 was less than what was estimated as of December 31, 2000. 8 Net assets of AASP's discontinued Sportpark business included in the accompanying consolidated balance sheets consisted of the following: June 30, December 31, 2001 2000 ----------- ----------- Current assets $ 64,277 $ 171,182 Property and equipment, net - 14,879,510 Other assets 22,866 378,446 ----------- ----------- 87,143 15,429,138 ----------- ----------- Notes payable (See Note 3) - 13,080,776 Capital lease obligations - 290,773 Accounts payable and accrued liabilities 44,804 1,455,283 Deferred income - 307,152 ----------- ----------- 44,804 15,133,984 ----------- ----------- Net assets of discontinued segment $ 42,339 $ 295,154 =========== =========== Revenues related to discontinued operations for the six month periods ended June 30, 2001 and 2000 totaled $346,033 and $1,943,863, respectively. Revenues related to discontinued operations for the three month periods ended June 30, 2001 and 2000 totaled $10,075 and $1,037,180, respectively. 3. SPORTPARK LOAN AGREEMENT On September 15, 1998 AASP consummated a $13,500,000 secured loan with Nevada State Bank ("Lender"). The original term of the loan was 15 years with interest measured at a fixed rate of 4% above the Lender's five-year LIBOR rate measured September 1, 1998, 2003 and 2008. The initial interest rate through 2003 was 9.38%. The loan was secured by substantially all the assets of AASP that existed at the time the financing was completed and was also secured by corporate guarantees of AASP and SPEN. The Callaway Golf Center was not owned by AASP at the time this financing was completed and therefore was not security for this loan. To facilitate this financing transaction, the owner of the leasehold interest in the land underlying the Sportpark ("Landlord") executed a trust deed granting a security interest in the leased property to the Lender to secure repayment of the loan. As consideration for the Landlord's willingness to provide collateral for the loan, AASP's President and CEO, its Chairman, and a related entity pledged their stock in SPEN to the Landlord. Additionally, the Landlord was issued 75,000 stock options exercisable at $4.00 per share through the year 2005. Also, the Company's President pledged three parcels of land owned by him (the "President's Parcels") as additional collateral to secure the loan. Provisions in the loan agreement allowed for the reconveyance of these three parcels to the Company's Chairman upon the SportPark achieving certain debt service coverage milestones. AASP had been in default on this loan since September 1999 because it did not make the September 1999 loan payment and had not made any of its scheduled loan payments since. The Bank filed a formal notice of default on December 22, 1999. In an attempt to resolve the default issue, AASP, with the Bank's agreement, hired an amusement park industry consultant to evaluate all operational aspects of the SportPark and provide recommendations to improve 9 its performance. This consultant began work in December 1999 and completed it in February 2000. The product of the evaluation included a detailed plan to help the SportPark eventually achieve profitability and commence servicing the Bank's debt. The Bank hired a different industry consultant who, after a limited review, concluded that the SportPark plan as prepared by its consultant could not be achieved. AASP met and discussed possible resolutions several times with the Bank's representatives to no avail. In July 2000, the Lender filed a notice of sale and foreclosure on the President's Parcels. In October 2000, the Company's President sold the property within which the President's Parcels were located and paid the Lender $2,750,000 to fully release the obligations associated with this collateral. The Lender applied the $2.75 million as a reduction to the outstanding SportPark loan obligation. On November 13, 2000, AASP reached an agreement with the Lender whereby the Lender agreed to release AASP and SPEN from their guarantees on the SportPark Note Payable, a note payable on certain SportPark equipment ("Equipment Note"), and an operating lease agreement for certain SportPark equipment ("Equipment Lease"). In exchange, AASP, SPEN, and certain other related parties agreed to fully release the Lender and its affiliates from any claims related to the SportPark Note Payable, Equipment Note, and Equipment Lease. Concurrent with the foregoing, the Landlord bought these three obligations from the Lender for $7 million. As a result, the Landlord became the first lien holder on the SportPark property, and also became the lender on the Equipment Note and Equipment Lease, with exactly the same rights that Nevada State Bank had except that the guarantees of AASP and SPEN no longer existed on any of these three obligations. These three obligations were cancelled in connection with the Restructuring and Settlement Agreement described in Note 2 above. Also, see Note 7. 4. EARNINGS PER SHARE AND SHAREHOLDER'S EQUITY Basic and diluted loss per share is computed by dividing the reported net loss from continuing operations and discontinued operations by the weighted average number of common shares outstanding during the period. The weighted-average number of common and common equivalent shares used in the calculation of basic and diluted earnings per share were 8,135,097 for the three and six month periods ended June 30, 2001 and 2000, respectively. In March 2001, AASP acquired all of its Series A Convertible Preferred Stock from Three Oceans, Inc. ("TOI", an affiliate of Sanyo North America) for $5,000. In connection therewith, TOI's representative on AASP's Board of Directors resigned. Also, all agreements and contractual obligations between AASP and TOI were terminated. This transaction resulted in a decrease of Minority interest of $5 million with an offsetting increase of $4,995,000 to Paid-in Capital for the difference between the amount paid and the Minority Interest. 5. RELATED PARTY TRANSACTIONS The Company owned retail store has extensive transactions with a retail store owned by the Company's President (the "Affiliated Store" or "Paradise Store"). The Paradise Store operates in Las Vegas, Nevada. The Paradise Store and the Company owned store benefit through volume purchasing together and shared costs of local and national advertising. The Paradise Store and the Company owned store share advertising costs equally in the Las Vegas market area. These advertising costs were $84,922 and $57,407 for the six months ended June 30, 2001 and 2000, respectively. Purchases of merchandise from the Paradise Store are recorded at cost and totaled $214,585 and $177,983 for the six months ended June 30, 2001 and 2000, respectively. 10 As of June 30, 2001 and December 31, 2000, the Company owned store owed the Paradise store $978,864 and $1,265,306, respectively, of which $324,198 and $280,541, respectively, is accrued interest payable. This liability has arisen over the past few years as a result of inventory advances from the Paradise store to the Rainbow store. Payments made in 2001 to reduce this obligation were $110,000 in March, $60,000 in April, and $150,000 in June. This obligation is shown in the accompanying consolidated balance sheets under the caption "Due to affiliated stores." 6. LEASES The land underlying the CGC is leased to AASP at an amount of $33,173 per month. Also, the lease has provisions for contingent rent to be paid by AASP upon reaching certain gross revenue levels. The lease commenced October 1, 1997. The term of the lease is 15 years with two five-year renewal options. The lease has a corporate guarantee of AASP. 7. GOING CONCERN MATTERS The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying consolidated financial statements, for the three and six month periods ended June 30, 2001, the Company incurred net losses of $419,962 and $582,401, respectively. The Company has experienced cash flow problems since September of 1999 when payments ceased being made on the SportPark loan (see Note 2). For the year ended December 31, 2000, the Company had a net loss of $11,256,535 and a net loss from continuing operations of $225,127. As of June 30, 2001, the Company had a working capital deficit of $17,386. Excluding AASP's working capital deficit of $251,903, SPEN has positive working capital of $234,517. With the disposition of the SportPark discussed in Note 2, the Company's working capital position has improved significantly. In this regard, AASP is no longer funding cash shortfalls at the SportPark, AASP has been released from all significant continuing and contingent liabilities related to the SportPark, and all back rent through April 30, 2001 for the CGC has been cancelled. AASP recommenced paying its monthly rent on the CGC beginning May 2001. Management believes that its continuing operations will be sufficient to fund operating cash needs and debt service requirements over at least the next 12 months. However, if required to fund continuing operations, management believes that additional borrowings against the Callaway Golf Center could be arranged. Should additional financing to fund operations be required, the Company will explore all funding options. There can be no assurance that continuing operations will produce adequate cash flows or that such lending sources would be willing, on terms acceptable to the Company, to provide additional financing. The consolidated financial statements do not include any adjustments relating to the recoverability of assets and the classification of liabilities that might be necessary should the Company be unable to continue as a going concern. 11 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. SPORTS ENTERTAINMENT ENTERPRISES, INC. Date: September 7, 2001 By:/s/ Kirk Hartle Kirk Hartle, Chief Financial Officer 12