10QSB 1 spen.txt SPORTS ENTERTAINMENT 6-30-02 10-QSB U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002 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, 2002, 4,240,061 shares of common stock were outstanding. Transitional Small Business Disclosure Format (check one): Yes___ No X SPORTS ENTERTAINMENT ENTERPRISES, INC. AND SUBSIDIARIES FORM 10-QSB INDEX Page Number PART I: FINANCIAL INFORMATION Item 1. Consolidated Financial Statements: Consolidated Balance Sheets June 30, 2002 and December 31, 2001 3 Consolidated Statements of Operations and Comprehensive Income (Loss) Three Months Ended June 30, 2002 and 2001 5 Consolidated Statements of Operations and Comprehensive Income (Loss) Six Months Ended June 30, 2002 and 2001 6 Consolidated Statements of Cash Flows Six Months Ended June 30, 2002 and 2001 7 Notes to Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 PART II: OTHER INFORMATION Item 1. Legal Proceedings 14 Item 2. Changes in Securities 14 Item 3. Defaults Upon Senior Securities 14 Item 4. Submission of Matters to a Vote of Security Holders 14 Item 5. Other Information 14 Item 6. Exhibits and Reports on Form 8-K 14 SIGNATURES 15 2 SPORTS ENTERTAINMENT ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS JUNE 30, DECEMBER 31, 2002 2001 ----------- ----------- (UNAUDITED) Current assets: Cash and cash equivalents $ 67,168 $ 165,004 Marketable securities - 79,010 Accounts receivable 23,169 36,504 Inventory 592,341 550,358 Prepaid expenses and other 1,514 2,507 ----------- ----------- Total current assets 684,192 833,383 Leasehold improvements and equipment, net 95,151 100,085 Due from affiliated stores 698 12,192 Due from other related entities 528,239 463,890 Other assets 8,870 9,068 ----------- ----------- Total assets $ 1,317,150 $ 1,418,618 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. 3 SPORTS ENTERTAINMENT ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) LIABILITIES AND SHAREHOLDERS' EQUITY DEFICIENCY JUNE 30, DECEMBER 31, 2002 2001 ----------- ----------- (UNAUDITED) Current liabilities: Accounts payable and accrued expenses 560,912 573,820 ----------- ----------- Due to affiliated stores 1,013,405 966,237 Due to other related entities - 30,026 ----------- ----------- Total liabilities 1,574,317 1,570,083 Shareholders' equity deficiency: 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, 4,240,061 and 4,067,549 shares issued and outstanding at June 30, 2002 and December 31, 2001, respectively 6,114,590 6,107,700 Additional paid-in capital 268,300 268,300 Accumulated other comprehensive income - 47,234 Accumulated deficit (6,640,057) (6,574,699) ----------- ----------- Total shareholders' equity deficiency (257,167) (151,465) ----------- ----------- Total liabilities and shareholders' equity deficiency $ 1,317,150 $ 1,418,618 =========== =========== 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 LOSS FOR THE THREE MONTHS ENDED JUNE 30, 2002 AND 2001 (UNAUDITED) 2002 2001 ----------- ----------- Revenues $ 832,782 $ 872,175 Cost of revenues 609,086 623,580 ----------- ----------- Gross profit 223,696 248,595 Operating expenses: Selling, general and administrative 253,961 220,189 Depreciation and amortization 2,333 2,691 ----------- ----------- Total operating expenses 256,294 222,880 ----------- ----------- Operating income (loss) (32,598) 25,715 Interest expense, net (17,728) (21,615) ----------- ----------- Income (loss) from continuing operations (50,326) 4,100 DISCONTINUED OPERATIONS: Loss from disposal of discontinued segment - (316,263) Income (loss) from operations of discontinued component 33,094 (107,799) ----------- ----------- Income (loss) from discontinued operations 33,094 (424,062) ----------- ----------- Net loss (17,232) (419,962) Other comprehensive income: Unrealized holding gains on securities - 15,949 ----------- ----------- Comprehensive loss $ (17,232) $ (404,013) =========== =========== NET INCOME (LOSS) PER SHARE: Basic and diluted: Income (loss) from continuing operations $ (0.01) $ 0.00 Income (loss) from discontinued operations 0.01 (0.10) ----------- ----------- Net income (loss) per share $ 0.00 $ (0.10) =========== =========== The accompanying notes are an integral part of these consolidated financial statements. 5 SPORTS ENTERTAINMENT ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001 (UNAUDITED) 2002 2001 ----------- ----------- Revenues $ 1,469,289 $ 1,515,825 Cost of revenues 1,031,495 1,102,341 ----------- ----------- Gross profit 437,794 413,484 Operating expenses: Selling, general and administrative 505,947 461,483 Depreciation and amortization 4,934 6,786 ----------- ----------- Total Operating Expenses 510,881 468,269 ----------- ----------- Operating loss (73,087) (54,785) Other income (expense): Gain on sale of securities 43,469 - Interest expense, net (35,740) (46,613) ----------- ----------- 7,729 (46,613) ----------- ----------- Loss from continuing operations (65,358) (101,398) DISCONTINUED OPERATIONS: Loss from disposal of discontinued segment - (260,024) Loss from operations of discontinued component (54,014) (220,979) ----------- ----------- Loss from discontinued operations (54,014) (481,003) ----------- ----------- Net loss (119,372) (582,401) Other comprehensive loss: Unrealized holding losses on securities - (10,516) ----------- ----------- Comprehensive loss $ (119,372) $ (592,917) =========== =========== NET LOSS PER SHARE: Basic and diluted: Loss from continuing operations $ (0.02) $ (0.02) Loss from discontinued operations (0.01) (0.12) ----------- ----------- Net loss per share $ (0.03) $ (0.14) =========== =========== The accompanying notes are an integral part of these consolidated financial statements. 6 SPORTS ENTERTAINMENT ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001 (UNAUDITED) 2002 2001 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (119,372) $ (582,401) Adjustment to reconcile net loss to net cash used in operating activities of continuing operations: Loss from discontinued operations 54,014 481,003 Depreciation and amortization 4,934 6,786 Gain on sale of securities (43,469) - Common stock issued for services 6,890 - Changes in operating assets and liabilities: (Increase) decrease in accounts receivable 13,335 (14,657) Increase in inventories (41,983) (11,238) (Increase) decrease in prepaid expenses and other 1,191 (571) Increase (decrease) in accounts payable and accrued expenses (12,908) 42,064 ----------- ----------- Net cash used in operating activities of continuing operations (137,368) (79,014) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Leasehold improvements expenditures - (1,661) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in due to affiliated stores and other related entities 17,740 (272,409) ----------- ----------- NET CASH PROVIDED BY DISCONTINUED OPERATIONS 21,792 148,339 ----------- ----------- NET DECREASE IN CASH AND CASH EQUIVALENTS (97,836) (204,745) CASH AND CASH EQUIVALENTS, beginning of period 165,004 329,570 ----------- ----------- CASH AND CASH EQUIVALENTS, end of period $ 67,168 $ 124,825 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. 7 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. ("SPEA") a Colorado corporation, and its subsidiary, LVDGT Rainbow, Inc. ("Rainbow")(collectively, the "Company"). As of May 8, 2002, SPEA completed the spinoff of All-American SportPark, Inc. ("AASP"), a publicly traded company, to SPEA shareholders of record as of May 3, 2002. Operations of AASP through May 8, 2002 have been classified as "Income (loss) from operations of discontinued component" pursuant to Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-lived Assets. As a result of this spinoff, SPEA no longer owns any interest in AASP. 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, 2002 and for all periods presented. 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, 2001, from which the December 31, 2001 audited balance sheet was derived. The Company's continuing operations consist of one Company-owned retail store in Las Vegas, Nevada. 2. EARNINGS PER SHARE AND SHAREHOLDER'S EQUITY (NOTE 5) 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 4,119,890 and 4,067,549 for the six month periods ended June 30, 2002 and 2001, respectively, and 4,171,656 and 4,067,549 for the three month periods ended June 30, 2002 and 2001, respectively. Prior to April 5, 2002, SPEA owned 2,000,000 shares of AASP common stock and 250,000 shares of AASP Series B convertible preferred stock; in total, this represented approximately 66% ownership of AASP. On April 5, 2002, SPEA converted its preferred stock holdings in AASP into common stock on a 1 for 1 basis. In May 2002, after Board of Directors approval, SPEA issued 129,250 shares of its common stock to SPEA's Chief Financial Officer and an additional 43,000 shares of its common stock to a consultant in exchange for past services rendered to the Company. This transaction was valued using the closing market price on or about the date the shares were issued. 8 3. RELATED PARTY TRANSACTIONS The Company has transactions and relationships with (a) AASP and subsidiaries ("Related Entities"), (b) SPEA's President and his wholly owned golf retail store in Las Vegas, Nevada (the "Paradise Store") and, (c) two golf retail stores, both named Saint Andrews Golf Shop ("SAGS"), owned by the AASP's President and his brother. The Paradise Store and SAGS are referred to herein as the "Affiliated Stores." The types of activities 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. The Affiliated Stores purchased merchandise at the same cost as the Company. Sales of merchandise made by the Paradise Store to the Company totaled $88,312 and $84,635 for the quarters ended June 30, 2002 and 2001, respectively. For the same periods, the Paradise Store purchased $7,100 and $25,115, respectively, in merchandise from the Company. The Paradise Store and the Company owned store share advertising costs equally. The Company-owned store's share of these advertising costs was $30,568 and $34,592 in the second quarters of 2002 and 2001, respectfully. The Company-owned Rainbow retail store has loans payable to the Company's President ("Rainbow Loans") that bear interest at ten percent per annum on the unpaid principal balance and are secured by inventory, furniture, fixtures and equipment of the Rainbow Store. The balances due on the Rainbow Loans are $1,013,405 and $966,237, respectively, at June 30, 2002 and December 31, 2001. Included in these balances is accrued interest payable of $389,925 and $357,800, respectively. These balances due are included under the caption "Due to Affiliated Stores" in the accompanying consolidated balance sheets. The Rainbow Store did not make any payments on these loans in 2002. See Note 5 regarding SPEA's planned sale of the Rainbow Store. Interest payments on the Rainbow Loans 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 service these obligations. 4. 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 discussed above, in May 2002, the Company completed a spinoff of AASP. As discussed in Note 5, subsequent to June 30, 2002, the Company's shareholders approved the sale of the Company's remaining operating business, the Rainbow retail store, to the Company's President in exchange for a reduction in debt owed to the President through the Rainbow Store. The effects of these two transactions results in the Company having minimal assets, liabilities, and operating activity leaving it, in substance, a public shell. Also, since the Company will have no ongoing revenue generating business, the Company will not be able to pay its ongoing operating expenses without a cash infusion from related or unrelated parties. Management plans to solicit loans mostly from related parties to fund such expenses until the Company's strategic objective is attained. 9 The Company's strategic objective is to seek out and pursue a public shell merger transaction with a 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 such a transaction. In addition, even if the Company becomes involved in such a business opportunity, there is no assurance that it will generate revenues or profits, or that the market price of the Company's common stock will be increased thereby. 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. 5. SUBSEQUENT EVENTS On July 3, 2002, the Company's shareholders approved the sale of the Company's subsidiary, LVDGT Rainbow, Inc., to the Company's President. The purchase price is $347,000 to be paid by reducing amounts owed by SPEA to Rainbow. As additional consideration, the Company's President agreed to forgive all remaining amounts owed to Rainbow by SPEA as of the closing date which amounts to approximately $200,000. Also, on July 3, 2002, the Company's shareholders approved a one for two reverse split of the outstanding shares of Common Stock, and approved an amendment to the Company's Articles of Incorporation to increase the number of shares of authorized Common Stock from 15,000,000 shares to 100,000,000. The reverse split became effective on July 16, 2002. The reverse split has been given retroactive effect in the accompanying financial statements and notes. 10 ITEM 2. 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 related footnotes included in this report. Until the post June 30, 2002 sale of its remaining operations to its President, (Note 5 to the consolidated financial statements), the Company's continuing operations consisted of a golf and tennis retail store on Rainbow Boulevard in Las Vegas, Nevada. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2002 AS COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2001 REVENUES. Revenues decreased 4.5% to $832,782 in 2002 compared to $872,175 in 2001. Although customer traffic for the retail store increased 3.4% in 2002 compared to 2001, the average customer purchase was down 4.7%. COST OF REVENUES. Cost of revenues decreased 2.3% to $609,086 in 2002 compared to $623,580 in 2001. Cost of revenues as a percentage of revenues was 73.1 in 2002 and 71.5% in 2001. The increase in 2002 relates to lower pricing points to drive more business to the store which is reflected in the higher customer counts and lower average purchase described above for "REVENUES." SELLING, GENERAL AND ADMINISTRATIVE (SG&A). These expenses consist principally of administrative payroll, rent, professional fees and other corporate costs. These expenses increased 15.3% to $253,961 in 2002 compared to $220,189 in 2001. The increase is due mainly to higher professional, legal, and investor relations costs related to the May 2002 spinoff of AASP, the sale of the Rainbow retail store which was approved by the Company's shareholders on July 3, 2002, and the transfer agent, printing and distribution costs relating to these transactions and the shareholders' meeting. INTEREST EXPENSE, NET. Net interest expense decreased 18.0% to $17,728 in 2002 compared to $21,615 in 2001 due primarily to lower debt levels owed the Company's President in 2002 compared to 2001. INCOME (LOSS) FROM CONTINUING OPERATIONS. Loss from continuing operations was $50,326 in 2002 compared to income from continuing operations of $4,100 in 2001. The difference is related to lower gross profit margin and higher SG&A costs in 2002. SIX MONTHS ENDED JUNE 30, 2002 AS COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2001 REVENUES. Revenues decreased 3.1% to $1,469,289 in 2002 compared to $1,515,825 in 2001. Although customer traffic for the retail store increased 7% in 2002 compared to 2001, the average customer purchase was down 5.4%. COST OF REVENUES. Cost of revenues decreased 6.4% to $1,031,495 in 2002 compared to $1,102,341 in 2001. Cost of revenues as a percentage of revenues was 70.2% in 2002 72.7% in 2001. The decrease in 2002 relates mainly to lower overall labor costs due to the decrease in revenues. 11 SELLING, GENERAL AND ADMINISTRATIVE (SG&A). These expenses consist principally of administrative payroll, rent, professional fees and other corporate costs. These expenses increased 9.6% to $505,947 in 2002 compared to $461,483 in 2001. The increase is due mainly to higher professional, legal, and investor relations costs related to the May 2002 spinoff of AASP, the sale of the Rainbow retail store which was approved by the Company's shareholders on July 3, 2002, and the transfer agent, printing and distribution costs relating to these transactions and the shareholders' meeting. INTEREST EXPENSE, NET. Net interest expense decreased 23.3% to $35,740 in 2002 compared to $46,613 in 2001 due primarily to lower debt levels owed the Company's President in 2002 compared to 2001. LOSS FROM CONTINUING OPERATIONS. Loss from continuing operations was $65,358 in 2002 compared to $101,398 in 2001. The lower loss in 2002 is due mainly to a one time gain on sale of securities realized in 2002 of $43,469. LIQUIDITY AND CAPITAL RESOURCES The Company's current and expected sources of working capital are its cash balances that were $67,168 at June 30, 2002. Its operating cash flow from the Rainbow retail store will no longer be available after the sale of this store to the Company's President closes which is expected to be sometime in the third quarter of 2002. The sale of the Rainbow retail store to the Company's President was approved by the Company's shareholders on July 3, 2002. The Rainbow retail store sale transaction will result in the Company becoming a public shell having minimal assets, liabilities, and operating activity. Also, since the Company will have no ongoing revenue generating business, the Company will not be able to pay its ongoing operating expenses without a cash infusion from related or unrelated parties. Management plans to solicit loans mostly from related parties to fund such expenses until the Company's strategic objective is attained. The Company's strategic objective is to seek out and pursue a public shell merger transaction with a 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 such a transaction. In addition, even if the Company becomes involved in such a business opportunity, there is no assurance that it will generate revenues or profits, or that the market price of the Company's common stock will be increased thereby. 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 will likely have a dilutive effect on the interests of the Company's stockholders that will, in turn, reduce each shareholders proportionate ownership and voting power in the Company. The Company has no commitments to enter into or acquire a specific business opportunity and therefore can disclose the risks of a business or opportunity that it may enter into in only a general manner, and cannot 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. 12 There are no planned material capital expenditures in 2002. SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain information included in this Quarterly Report contains statements that are forward-looking such as statements relating to plans for future expansion and other business development activities, as well as other capital spending and financing sources. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by or on behalf of the Company. These risks and uncertainties include, but are not limited to, those relating to, dependence on existing management, leverage and debt service (including sensitivity to fluctuations in interest rates), domestic or global economic conditions, changes in federal or state tax laws or the administration of such laws, changes in regulations and application for licenses and approvals under applicable jurisdictional laws and regulations. 13 PART II - OTHER INFORMATION Item 1. Legal Proceedings. None. Item 2. Changes in Securities. None. Item 3. Defaults Upon Senior Securities. None Item 4. Submission of Matters to a Vote of Security Holders. None. Item 5. Other Information. None. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. None. (b) Reports on Form 8-K. The Company filed a report on Form 8-K dated May 8, 2002 reporting information under Items 2 and 7 of that Form concerning the Company's spinoff of its All-American SportPark subsidiary. No other reports on Form 8-K were filed during the quarter ended June 30, 2002. 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SPORTS ENTERTAINMENT ENTERPRISES, INC. Date: August 14, 2002 By:/s/ Voss Boreta Voss Boreta, President and Chief Executive Officer Date: August 14, 2002 By:/s/ Kirk Hartle Kirk Hartle, Chief Financial Officer CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER OF SPORTS ENTERTAINMENT ENTERPRISES, INC. PURSUANT TO 18 U.S.C. SECTION 1350 We certify that, to the best of our knowledge, the Quarterly Report on Form 10-QSB of Sports Entertainment Enterprises, Inc. for the period ended June 30, 2002: (1) Complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Sports Entertainment Enterprises, Inc. /s/ Vaso Boreta /s/ Kirk Hartle Vaso Boreta Kirk Hartle Chief Executive Officer Chief Financial Officer August 14, 2002 August 14, 2002