10KSB/A 1 aasp10k.txt ALL-AMERICAN SPORTPARK 12-31-00 10-K/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB/A AMENDMENT NO. 3 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year ended: December 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from: _____ to ____ Commission File No. 0-024970 ALL-AMERICAN SPORTPARK, INC. -------------------------------------------------------------- (Name of Small Business Issuer in its Charter) NEVADA 88-0203976 ------------------------------- ------------------------ (State or Other Jurisdiction of (I.R.S. Employer Identi- Incorporation or Organization) fication No.) 6730 South Las Vegas Boulevard, Las Vegas, NV 89119 ----------------------------------------------------------- (Address of Principal Executive Offices, Including Zip Code) Issuer's Telephone Number: (702) 798-7777 Securities Registered Pursuant to Section 12(b) of the Act: None. Securities Registered Pursuant to Section 12(g) of the Act: COMMON STOCK, $.001 PAR VALUE ----------------------------- (Title of each class) Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] State issuer's revenues for its most recent fiscal year: $5,904,040 As of March 22, 2001, 3,150,000 shares of common stock were outstanding, and the aggregate market value of the common stock of the Registrant held by non-affiliates was approximately $80,500. Transitional Small Business Disclosure Format (check one): Yes __ No X ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following information should be read in conjunction with the Company's Consolidated Financial Statements and the Notes thereto included in this report. OVERVIEW The Company's continuing operations consist of the management and operation of a golf course and driving range property called the Callaway Golf Center. The Callaway Golf Center commenced operations on October 1, 1997, the Company sold its 80% interest in the Callaway Golf Center on May 5, 1998 and then reacquired 100% of the Callaway Golf Center on December 31, 1998. RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 2000 VERSUS YEAR ENDED DECEMBER 31, 1999 DISCONTINUED OPERATIONS. On December 31, 2000, the Company formalized a plan to dispose of the SportPark facility because (1) the property continues to sustain substantial losses, and (2) it is not expected that future results would improve without substantial capital investment; the Company does not have the 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 continues to operate on a limited basis for group parties and special events until a suitable buyer/operator is found. The Company is in discussions with several prospective buyers/operators and expects to complete a transaction to dispose of the SportPark sometime in 2001. As a result of the foregoing, the Company recorded a write down of $6,510,181 to adjust the SportPark assets' carrying amount to estimated net realizable value. Also, loss from operations of the SportPark was $4,521,227 and $3,417,079 in 2000 and 1999, respectively. The larger loss in 2000 is primarily the result of interest and fees incurred related to the Bank Note in default. The Bank charged interest at the default rate of 15% beginning in September 1999 through November 2000; in addition, all fees (i.e. legal, etc.) associated with the Bank's efforts to resolve this default issue were added to the balance due on the SportPark loan. CONTINUING OPERATIONS REVENUES. Revenues increased 12.1% to $2,457,885 in 2000 compared to $2,192,095 in 1999. Revenues from the CGC were $2,433,885 in 2000 compared to $2,154,222 in 1999. The increase for CGC is due mainly to higher visitation and per capita spending in 2000 versus 1999. COST OF REVENUES. Cost of revenues increased 3% to $436,612 in 2000 compared to $423,944 in 1999. Cost of Revenues as a percentage of Revenues was 17.7% in 2000 compared to 19.3% in 1999. The increase for 2000 is primarily due to support of the increased revenues described above. SELLING, GENERAL AND ADMINISTRATIVE ("SG&A"). SG&A expenses consist principally of payroll, rent, professional fees and other corporate costs. The decrease of 11.2% to $1,863,366 in 2000 from $2,098,128 in 1999 is the result of aggressive cost containment strategies that began in the latter half of 1999 due to the problems associated with the discontinued SportPark business segment. Payroll costs decreased approximately $160,000 in 2000 2 compared to 1999 primarily due to corporate staff reductions in Finance, Human Resources, and Creative Services. Advertising costs decreased by nearly $100,000 for the Callaway Golf Center property. The remaining decrease in 2000 compared to 1999 is due mainly to lower legal fees. DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased to $98,880 in 2000 compared to $117,145 in 1999 due mainly to the disposition of certain assets of the CGC in early 2000. INTEREST EXPENSE, NET. Net interest expense decreased 5.5% to $211,642 in 2000 compared to $223,918 in 1999. This decrease is due primarily to the reduction in capital lease obligations in early 2000 in connection with the disposition of certain assets of the CGC. INCOME TAXES. Due to net losses in 2000 and 1999, the Company has recorded no tax provision. However, the benefit of $269,332 in 1999 relates to (1) a tax refund of $156,832 which arose from the carryback of the 1998 net loss for income tax purposes to 1997 where the Company had net taxable income; this had resulted from the Company's 1997 sale of its franchised retail stores, and (2) $112,500 related to overpayment of taxes from 1997. LOSS FROM CONTINUING OPERATIONS. The Company incurred a net loss from continuing operations of $152,668 in 2000 compared to $401,708 in 1999. The decreased net loss in 2000 is due primarily to increased revenue in 2000 at the CGC along with lower overall costs in 2000 resulting from the Company's aggressive cost containment strategies that began in September 1999. The Company intends to continue this strategy in order to maintain efficiency in the Company's operations and to ultimately achieve profitability. LIQUIDITY AND CAPITAL RESOURCES At December 31, 2000, the Company had a working capital deficit of $715,616. This deficit has been created primarily because of the ongoing financial problems of the discontinued SportPark business segment. The SportPark Bank Note in the original amount of $13.5 million has been in default since September 1999. This default and the related cash flow shortfalls of the SportPark business required the Company to use the positive cash flow of the CGC to fund these shortfalls. At the same time, the land lease payments for the CGC have not been made since September 1999 and have continued to accrue creating the majority of the working capital deficit. On September 15, 1998 the Company entered into a $13,500,000 loan agreement with Nevada State Bank. The loan was for 15 years with interest at 9.38%. The loan was secured by the SportPark real and personal property as well as corporate guarantees of the Company and its parent, SPEN. Also, the Landlord of the Sportpark subordinated its land underlying the SportPark to the Lender to secure repayment of the loan. As consideration for the Landlord providing collateral for the loan, the Company's President, CEO and its Chairman and a related entity pledged their stock in SPEN to the Landlord as collateral to protect the leased property from foreclosure. Additionally, the Company's Chairman pledged three parcels of land owned by him (the "Chairman's parcels") as additional collateral to secure the loan. The Company defaulted on the loan in September 1999; this default continued until October and November 2000, the Bank forced the Company's Chairman to sell the Chairman's parcels which resulted in the Chairman paying $2.75 million to the Bank to pay down the outstanding loan balance, and the 3 Landlord bought the Bank Note and all rights pertaining thereto from the Bank for $7 million. In connection with these transactions, the corporate guarantees of the Company and SPEN were released. During the period of default with the Bank, management of the Company made several attempts to resolve the SportPark's loan default by investigating several financing alternatives, making significant operational changes resulting in major cost reductions, revising marketing programs, and exploring several sale/joint venture options. Since the Landlord bought the Bank Note, the Landlord and the Company have been actively pursuing a buyer/operator to take over the SportPark from the Company. Effective January 2, 2001, the SportPark closed to the general public although it continues to operate on a limited basis for group parties and special events and will continue to do so until a suitable buyer/operator is found. The Company and the Landlord are in active discussions with several prospects to lease/buy the SportPark. The Company expects to dispose of its interest in the SportPark along with all related obligations sometime in 2001 although there can be no assurance the Company will be successful in doing so. Also, it is uncertain whether the Company will have some form of continuing interest in the SportPark. If the Company is successful in disposing of the SportPark and all of its related obligations, the Company's ability to continue as a going concern will be greatly improved although there can be no assurance the Company will be successful in doing so. While management of the Company is working diligently to achieve this end for the SportPark, the Company is aggressively pursuing several other opportunities. The Company is in various stages of adding new revenue producing elements to its CGC property that do not require significant capital investment by the Company. Also, the Company is aggressively pursuing financing sources with the CGC as collateral to improve the CGC operations and infuse working capital into the Company. Expansion plans into other markets will be facilitated by the ultimate resolution of the SportPark issues. Management of the Company is in discussions with several established companies in its industry that have the necessary capital and human resources that could facilitate the Company's expansion plans; several possible business structures will be evaluated. An important element of the Company's plan will be to increase the Company's exposure in the financial community. There can be no assurance that the Company will be successful in its efforts to raise capital for the Company nor can there be any assurance that the Company will be successful in its efforts to structure a relationship with an established company in its industry to facilitate the Company's expansion plans. There are no planned material capital expenditures in 2001. The Callaway Golf Center has generated positive cash flow in both 1999 and 2000. If required to fund corporate operations, management believes that additional borrowings against the CGC could be arranged although there can be no assurance that the Company would be successful in securing such financing or with terms acceptable to the Company. The Company's Chairman through personal loans and through advances from his personally owned retail store (one of the "Affiliated Stores") has historically loaned funds to the Company as needed. Such lendings were $1,777,328 at December 31, 1999 and have increased to $5,093,072 at December 31, 2000. The Company paid back $225,000 of these amounts in late March 1999; the offsetting increase relates to accrued interest payable on the remaining balances outstanding, and the $2.75 million along with associated costs of approximately $283,000 that the Company's chairman incurred to pay down the SportPark loan in October 2000. The loans are due at various dates beginning 4 in 2001 and bear interest at ten percent per annum. Accrued interest payable of $469,212 at December 31, 2000 has been deferred, a practice which is expected to continue in 2001, if necessary. Also, it is more likely than not that the note payable balances will be extended beyond their due dates in 2001 because the Company does not expect it will be able to pay them when due. The Company's accounts payable and accrued expenses increased in 2000 to $893,689 from $432,559 in 1999 due mainly to deferred land lease payments on the CGC. OPERATING ACTIVITIES. During 2000, net cash provided by operating activities was $532,151 compared to $147,568 of net cash used in operating activities in 1999. The primary reasons for the difference relate to (1) an approximate $300,000 smaller net loss from continuing operations in 2000 compared to 1999, and (2) a larger increase in accounts payable and accrued expense balances of approximately $440,000. INVESTING ACTIVITIES. During 2000, net cash used in investing activities totaled $62 compared to $235,038 in 1999. The primary difference is more expenditures for leasehold improvements at the CGC in 1999 compared to 2000. FINANCING ACTIVITIES. During 2000, net cash used in financing activities was $376,538 compared to net cash provided by financing activities during 1999 of $358,536. The main reason for the difference is a change in due to affiliated stores and related entities of about $840,000. The Company's current and expected sources of working capital are its cash balances that were $150,556 at December 31, 2000 and its continuing positive operating cash flow of its CGC property. Working capital needs have been helped by deferring payments on the SportPark loan, land lease payments to the Landlord for both the SportPark and CGC, and interest and notes payable balances due to the Company's Chairman and Affiliated Store. As of December 31, 2000, land lease payments owed for the CGC and SportPark are approximately $337,000 and $192,000, respectively. Deferrals of payments to the Company's Chairman and Affiliated Store and landlord are expected to continue until the Company has sufficient cash flow to begin making payments. The Company does not currently have the financial resources available to make these payments. On June 1, 2001, the Company completed a transaction pursuant to a Restructuring and Settlement Agreement with the Landlord which included a waiver of liabilities of the Company to the Landlord. The Landlord agreed to cancel all back rent obligations of the SportPark, and all back rent obligations of the CGC through April 30, 2001. See the Company's Report on Form 8-K dated June 1, 2001. The Company has raised considerable capital in the past 5 years for development projects. The Callaway Golf Center is generating positive cash flow and its prospects are expected to become even more positive as it moves into its fourth full year of operation. The Company believes that any working capital deficiency that may occur could be funded from a combination of existing cash balances and, if necessary, additional borrowings from lenders or other sources. Management believes that additional borrowings against the CGC could be arranged to fund corporate operations. However, there can be no assurance that any borrowings would be available or at terms acceptable to the Company. Expansion programs in other locations are not expected to take place until the Company achieves an appropriate level of profitability and positive cash flow. If and when expansion does occur, such expansion is expected to be funded primarily by third parties. 5 SAFE HARBOR PROVISION The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain information included in this Annual Report contains statements that are forward-looking, such as statements relating to plans for future expansion and other business development activities, as well as other capital spending, financing sources, the effects of regulations and competition. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements by or on behalf of the Company. These risks and uncertainties include, but are not limited to, those relating to dependence on existing management, leverage and debt service (including sensitivity to fluctuations in interest rates), domestic or global economic conditions (including sensitivity to fluctuations in foreign currencies), changes in federal or state tax laws or the administration of such laws, changes in regulations and application for licenses and approvals under applicable jurisdictional laws and regulations. 6 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of All-American SportPark, Inc.: We have audited the accompanying consolidated balance sheets of All-American SportPark, Inc., a Nevada Corporation, and subsidiaries (the " Company") as of December 31, 2000 and 1999 and the related consolidated statements of operations, shareholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of All-American SportPark, Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1e to the consolidated financial statements, the Company has had recurring operating losses from continuing operations and has generated negative cash flow from continuing operations for the years ended December 31, 2000 and 1999, that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1e. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Piercy Bowler Taylor & Kern PIERCY BOWLER TAYLOR & KERN Las Vegas, Nevada March 27, 2001 F-1 ALL-AMERICAN SPORTPARK, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2000 1999 ----------- ---------- ASSETS Current assets: Cash and cash equivalents $ 150,556 $ 118,796 Accounts receivable 28,150 20,860 Prepaid expenses and other 65,189 56,289 ----------- ---------- Total current assets 243,895 195,945 Leasehold improvements and equipment, net 945,002 1,114,160 Due from related entities 48,500 309,283 Due from affiliated stores 138,661 123,243 Note receivable - related party 20,000 20,000 Other assets 24,714 9,300 Net assets of discontinued operations 412,104 8,001,420 ----------- ---------- Total assets $1,832,876 $9,773,351 The accompanying notes are an integral part of these consolidated financial statements. F-2 ALL-AMERICAN SPORTPARK, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2000 1999 ------------ ----------- LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current liabilities: Current portion of long-term debt $ 49,891 $ 45,400 Current portion of obligations under capital leases 15,931 69,838 Accounts payable and accrued expenses 893,689 432,559 ----------- ---------- Total current liabilities 959,511 547,797 Note payable to shareholder 4,700,561 1,484,616 Due to affiliated stores 392,511 398,286 Due to related entities 778,461 1,214,931 Long-term debt, net of current portion 493,428 543,319 Obligation under capital leases, net of current portion 23,153 73,229 Deferred income 178,919 195,860 ------------ ----------- Total liabilities 7,526,544 4,458,038 ------------ ----------- Shareholders' equity (deficit): Series A Convertible Preferred Stock, $.001 par value, 500,000 shares authorized and outstanding at December 31, 2000 and 1999 4,740,000 4,740,000 Series B Convertible Preferred Stock, $.001 par value, 250,000 shares authorized and outstanding at December 31, 2000 and 1999 2,500,000 2,500,000 Options issued in connection with Series A Convertible Preferred Stock to purchase 250,000 shares of Common Stock 260,000 260,000 Options issued in connection with financing 174,000 174,000 Common Stock, $.001 par value, 10,000,000 shares authorized, 3,150,000 and 3,000,000 shares issued and out- standing at December 31, 2000 and December 31, 1999, respectively 3,150 3,000 Additional paid-in-capital 3,695,745 3,520,800 Accumulated deficit (17,066,563) (5,882,487) ------------ ----------- Total shareholders' equity (deficit) (5,693,668) 5,315,313 ------------ ----------- Total liabilities and shareholders' equity $ 1,832,876 $ 9,773,351 ============ =========== The accompanying notes are an integral part of these consolidated financial statements. F-3 ALL-AMERICAN SPORTPARK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 2000 1999 ------------ ----------- Revenues: Callaway Golf Center[TM] $ 2,433,885 $ 2,154,222 Other 23,947 37,873 ------------ ----------- Total revenues 2,457,832 2,192,095 Cost of Revenues: Callaway Golf Center[TM] 436,612 423,944 ------------ ----------- Total cost of revenues 436,612 423,944 ------------ ----------- Gross profit 2,021,220 1,768,151 ------------ ----------- Operating expenses: Selling, general and administrative 1,863,366 2,098,128 Depreciation and amortization 98,880 117,145 ------------ ----------- Total operating expenses 1,962,246 2,215,273 ------------ ----------- Operating income (loss) 58,974 (447,122) Interest expense, net (211,642) (223,918) ------------ ----------- Loss from continuing operations before income taxes (152,668) (671,040) Income tax benefit - (269,332) ------------ ----------- Loss from continuing operations (152,668) (401,708) DISCONTINUED OPERATIONS: Loss from discontinued operations of SportPark business before writedown of assets (4,521,227) (3,417,079) Writedown of SportPark assets to net realizable value (6,510,181) - ------------ ----------- Loss from discontinued operations (11,031,408) (3,417,079) ------------ ----------- Net Loss $(11,184,076) $(3,818,787) ============ =========== NET LOSS PER SHARE: Basic and diluted: Loss from continuing operations $ (0.05) $ (0.13) Loss from discontinued operations (3.51) (1.14) ------------ ----------- Net loss per share $ (3.56) $ (1.27) ============ =========== The accompanying notes are an integral part of these consolidated financial statements. F-4 ALL-AMERICAN SPORTPARK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
COMMON COMMON STOCK ADDITIONAL STOCK PREFERRED PURCHASE COMMON PAID-IN PURCHASE ACCUMULATED STOCK OPTIONS STOCK CAPITAL WARRANTS DEFICIT TOTAL ---------- -------- ------ ---------- ---------- ------------- ------------- Balance, 12/31/1998 $7,240,000 $434,000 $3,000 $3,333,300 $ 187,500 $ (2,063,700) $ 9,134,100 Expiration of common stock purchase warrants 187,500 (187,500) Net loss (3,818,787) (3,818,787) ---------- -------- ------ ---------- ---------- ------------- ------------- Balance, 12/31/1999 7,240,000 434,000 3,000 3,520,800 - (5,882,487) 5,315,313 Issuance of stock for services charged to continuing operations 150 174,945 175,095 Net loss (11,184,076) (11,184,076) ---------- -------- ------ ---------- ---------- ------------- ------------- Balance, 12/31/2000 $7,240,000 $434,000 $3,150 $3,695,745 $ - $(17,066,563) $ (5,693,668) ========== ======== ====== ========== ========== ============= =============
The accompanying notes are an integral part of these consolidated financial statements. F-5 ALL-AMERICAN SPORTPARK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 2000 1999 ------------ ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(11,184,076) $(3,818,787) Adjustments to reconcile net loss to net cash provided by (used in) operating activities of continuing operations: Loss from discontinued operations 11,031,408 3,417,079 Common stock issued for services 175,095 - Depreciation and amortization 98,880 117,145 Gain on sale of equipment (1,741) - Changes in operating assets and liabilities: (Increase) decrease in accounts receivable (7,290) 166,934 Increase in prepaid expenses and other (24,314) (23,713) Increase in accounts payable and accrued expenses 461,131 19,121 Decrease in deferred income (16,942) (25,347) ------------ ----------- Net cash provided by (used in) operating activities of continuing operations 532,151 (147,568) ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Leasehold improvements expenditures (32,562) (235,038) Proceeds from sale of equipment 32,500 - ------------ ----------- Net cash used in investing activities of continuing operations (62) (235,038) ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in due to affiliated stores and related entities (481,708) 359,966 Increase in notes payable and notes payable to shareholder and related entity 137,072 86,277 Principal payments on capital leases (31,902) (87,707) ------------ ----------- Net cash provided by (used in) financing activities of continuing operations (376,538) 358,536 ------------ ----------- NET CASH USED IN DISCONTINUED OPERATIONS (123,791) (2,351,434) ------------ ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 31,760 (2,375,504) CASH AND CASH EQUIVALENTS, beginning of period 118,796 2,494,300 ------------ ----------- CASH AND CASH EQUIVALENTS, end of period $ 150,556 $ 118,796 ============ =========== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest $ 58,361 $ 71,347 ============ =========== NON-CASH INVESTING AND FINANCING ACTIVITIES: Common stock issued in exchange for consulting services $ 175,095 $ - ============ =========== Capital lease obligations transferred in connection with sale of equipment $ 72,081 $ - ============ =========== Costs incurred by the Company's chairman to reduce the Company's long term debt $ 3,033,473 $ - ============ =========== The accompanying notes are an integral part of these consolidated financial statements. F-6 ALL-AMERICAN SPORTPARK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATIONAL STRUCTURE AND BASIS OF PRESENTATION a. PRINCIPLES OF CONSOLIDATION The consolidated financial statements of All-American SportPark, Inc. ("AASP"), a Nevada corporation, include the accounts of AASP and its subsidiaries, SportPark Las Vegas, Inc. ("SPLV") and All-American Golf Center, Inc. ("AAGC"), both Nevada corporations, collectively the "Company". All significant intercompany accounts and transactions have been eliminated. The operations of the All-American SportPark facility are included in SPLV. The operations of the Callaway Golf Center are included in AAGC. b. COMPANY BACKGROUND AND PRIMARY CONTINUING BUSINESS ACTIVITIES Until December 13, 1994, AASP was a wholly-owned subsidiary of Las Vegas Discount Golf & Tennis, Inc. ("LVDG") which is now known as Sports Entertainment Enterprises, Inc. ("SPEN"), a public company. On December 13, 1994, the Company completed an initial public offering of 1,000,000 Units (representing one-third of the post offering shares outstanding) at a price of $4.50 per Unit, each Unit consisting of one share of common stock and one Class A Warrant. [See Note 9.e.] As of December 31, 2000, SPEN owns approximately two-thirds (2/3) of the Company's outstanding common stock and one third (1/3) of the Company's Convertible Preferred Stock. The Company's Chairman owns one hundred percent (100%) of the original Las Vegas Discount Golf & Tennis location on Paradise Road, which opened in Las Vegas, Nevada in 1974. This store along with the St. Andrews Golf Shop ("SAGS") described below are referred to herein as the "Affiliated Stores." On June 13, 1997, the Company and Callaway Golf Company ("Callaway") formed All-American Golf, LLC (the "LLC") to construct, manage and operate the Callaway Golf Center , a premier golf facility on 42 acres located at the south end of the world famous Las Vegas "Strip" at Las Vegas Boulevard and Sunset Road. The Company contributed $3 million for 80 percent of the members' units of the LLC while Callaway purchased the remaining 20 percent for $750,000. The Callaway Golf Center opened for business in October 1997. On May 5, 1998, the Company sold its 80% membership interest in the LLC to Callaway for $1.5 million in cash and the forgiveness of $3 million of debt, including accrued interest thereon, owed to Callaway by the Company. This transaction resulted in a gain to the Company of $1,638,900. The Company retained the option to repurchase the 80% membership interest for a period of two years. On December 31, 1998 the Company acquired from Callaway substantially all the assets of the LLC subject to certain liabilities. This acquisition resulted in the Company owning 100% of the Callaway Golf Center. The Callaway Golf Center includes the Divine Nine par 3 golf course fully lighted for night golf, a 110-tee two-tiered driving range which has been ranked the Number 2 golf practice facility in the United States since it opened in October 1997, a 20,000 square foot clubhouse which includes the St. Andrews Golf Shop, Callaway Performance Center, Giant Golf teaching academy, and the Bistro 10 restaurant and bar. F-7 c. DISCONTINUED OPERATIONS The Company developed a concept for family-oriented sports-themed amusement venues named "All-American SportPark" ("SportPark" or "SPLV"). The first SportPark, comprising 23 acres adjacent to the Callaway Golf Center, opened for business on October 9, 1998. The SportPark includes NASCAR SpeedPark, Major League Baseball Slugger Stadium, the 100,000 square foot Arena Pavilion which houses the Pepsi AllSport Arena, "The Rock" 47-foot rock climbing wall, 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 the Company formalized a plan to dispose of the SportPark facility because (1) the property continues to sustain substantial losses, and (2) it is not expected that future results would improve without substantial capital investment; the Company does not have the 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 continues to operate on a limited basis for group parties and special events until a suitable buyer/operator is found. The Company is in discussions with several prospective buyers and expects to complete a transaction to dispose of the SportPark sometime in 2001. Accordingly, the Company has accounted for its SportPark business segment as "Discontinued Operations" in the accompanying consolidated financial statements as of and for the years ended December 31, 2000 and 1999. In connection with the foregoing, the Company evaluated the net realizable value of the SportPark assets in the context of its current situation and negotiations with prospective buyers. In that regard, in the fourth quarter of 2000, management of the Company determined that a write down of $6,510,181 was necessary to reflect the estimated net realizable value of the SportPark upon disposition. This writedown was determined by taking the carrying value of the SportPark's net fixed assets prior to the writedown of approximately $21.4 million and reducing it by the Company's best estimate of net proceeds from disposition. Estimated net proceeds from disposition include certain liabilities of the SportPark that are expected to be extinguished or assumed by an ultimate buyer as part of a disposition transaction. Net assets of the Company's discontinued Sportpark business included in the accompanying consolidated balance sheets consisted of the following at December 31, 2000 and 1999: 2000 1999 ----------- ----------- Current assets $ 171,182 $ 367,566 Property and equipment, net 14,879,510 22,926,672 Other assets 495,396 459,236 ----------- ----------- 15,546,088 23,753,474 ----------- ----------- Notes payable (See Note 6) 13,080,776 13,084,118 Capital lease obligations 290,773 417,335 Accounts payable and accrued liabilities 1,455,283 1,752,065 Deferred income 307,152 498,536 ----------- ----------- 15,133,984 15,752,054 ----------- ----------- Net assets to be disposed of $ 412,104 $ 8,001,420 =========== =========== Revenues related to discontinued operations totaled $3,447,949 and 4,814,575 for 2000 and 1999, respectively. F-8 AASP Management has been working with the Landlord in negotiating with several prospects to either purchase or lease the SportPark property. It remains uncertain whether the Company will retain any ownership interest in the SportPark. d. CONCENTRATIONS OF RISK The Company operates one Callaway Golf Center and one All-American SportPark in Las Vegas, Nevada. As described above, since December 31, 2000, the All-American SportPark is operating on a limited basis and is being marketed for sale. The level of sustained customer demand for these types of recreational facilities is undetermined. The Company has implemented various strategies to market the Callaway Golf Center to both tourists and local residents. Should attendance levels at the Golf Center not meet expectations in the short-term, management believes existing cash balances would not be sufficient to fund operating expenses and debt service requirements for at least the next twelve months. The inability to build attendance to profitable levels beyond a twelve month period may require the Company to seek additional debt or equity financing to meet its obligations as they come due. There is no assurance that the Company would be successful in securing such debt or equity financing in amounts or with terms acceptable to the Company. e. 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, during the years ended December 31, 2000 and 1999, the Company had a net loss of $11,184,076 and 3,818,787, respectively, and has experienced cash flow constraints since September 1999. As of December 31, 2000, the Company had a working capital deficit of $715,616. Additionally, the $13 million note payable secured by a first deed of trust on the discontinued SportPark segment (Note 6) has been in default since September 1999. The Landlord for the SportPark bought this note payable from the Lender in November 2000, and the note remains in default. In addition to not making payments on the SportPark loan since September 1999, the Company has not made any land lease payments to the Landlord since that time. The Company negotiated an agreement with the landlord to defer the land lease payments, totaling $624,996 annually, on both the SportPark and Callaway Golf Center beginning September 1999 with no specified ending date. Management of the Company believes that the landlord is willing to defer land lease payments until such time as adequate capital resources are available to the Company to make such payments. As discussed in subpart c. above, AASP Management and the Landlord are negotiating with several prospects to either purchase or lease the SportPark. AASP Management believes that, in order to sufficiently fund operating cash needs and debt service requirements over at least the next twelve months, a transaction with an unrelated party for the SportPark would need to be structured so that AASP would no longer fund cash shortfalls at the SportPark and AASP would be released from significant continuing liability for SportPark obligations. F-9 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 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. f. ESTIMATES USED IN THE PREPARATION OF FINANCIAL STATEMENTS Preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that may require revision in future periods. Management's estimates of net realizable value of assets of the discontinued segment and net loss on disposal thereof, could be subject to material change in the next year. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt instruments with an original maturity of three months or less, to be cash equivalents. b. ACCOUNTS RECEIVABLE Accounts receivable consists primarily of amounts due from tenants at the Callaway Golf Center . c. INVENTORIES Inventories, which consist primarily of sporting goods merchandise are stated at the lower of cost or market. Cost is determined using the average cost method. d. LEASEHOLD IMPROVEMENTS AND EQUIPMENT Leasehold improvements and equipment are stated at cost. Depreciation and amortization is provided for on a straight-line basis over the lesser of the lease term or the following estimated useful lives of the assets: Furniture and equipment 3-10 years Leasehold improvements 15 years e. DEFERRED INCOME Deferred income consists primarily of advance fees received from tenants and corporate sponsors. Deferred income is amortized to income over the life of the applicable agreement. f. ADVERTISING The Company expenses advertising costs as incurred. Advertising costs charged to continuing operations amounted to $77,390 and $155,958 in 2000 and 1999, respectively. F-10 g. RECLASSIFICATIONS In addition to accounts of the discontinued segment, certain items previously reported in specific financial statement captions have been reclassified to conform to the 2000 presentation. h. RECOVERABILITY OF LONG-LIVED ASSETS The Company reviews its long-lived assets for impairment whenever events or changes in the circumstances indicate that the carrying amount of an asset or a group of assets may not be recoverable. The Company deems an asset to be impaired if a forecast or undiscounted future operating cash flows directly related to the asset, including disposal value if any, is less than its carrying amount. If an asset is determined to be impaired, the loss is measured as the amount by which the carrying amount of the asset exceeds fair value. The Company generally measures value by discounting estimated cash flows. Considerable management judgment is necessary to estimate discounted cash flows. Accordingly, actual results could vary significantly from such estimates. 3. LOSS PER SHARE Basic and diluted loss per share is computed by dividing 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 loss per share were 3,139,754 for 2000, and 3,000,000 for 1999. 4. RELATED PARTY TRANSACTIONS The Company has transactions and relationships with SPEN and subsidiaries ("Related Entities"), the chairman and principal shareholder of SPEN, the golf retail store in Las Vegas, Nevada owned by the Chairman of SPEN (the "Paradise Store") and the St. Andrews Golf Shop ("SAGS") which is the golf retail store in the Callaway Golf Center owned by the President of the Company and his brother (collectively, 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 Company has unsecured, ten percent notes payable of $264,967 and $230,000 at December 31, 2000 and 1999 with the Paradise Store. A payment of $225,300 was made on these notes in late March 1999. No other payments were made on these notes in 1999 or 2000. These notes are due at various dates in 2001. The principal amount, interest rate, and payment terms are substantially similar to borrowings that the Paradise Store obtained from a bank to fund these loans to the Company. Accrued interest payable of $61,826 and $62,712 at December 31, 2000 and 1999, respectively, is included with the note payable balance under the caption "Due to Affiliated Stores" in the accompanying consolidated balance sheets. Interest payments of $26,508 and $27,212 have been deferred in 2000 and 1999, respectively, a practice which is expected to continue in 2001, if necessary. Also, it is more likely than not that the note payable balances will be extended beyond their due dates in 2001 because the Company does not expect it will be able to pay them when due. F-11 The Company has unsecured, ten percent notes payable of $1,259,702 and $1,250,000 as of December 31, 2000 and 1999 with the Company's chairman. No payments were made on these notes in 1999 or 2000. These notes are due at various dates in 2001. The principal amount, interest rate, and payment terms are substantially similar to borrowings that the Company's chairman obtained from a bank to fund these loans to the Company. Accrued interest payable of $346,836 and $234,616 at December 31, 2000 and 1999, respectively, is included with the note payable balance under the caption "Note payable to Shareholder" in the accompanying consolidated balance sheets. Interest payments of $125,964 and $127,397 have been deferred in 2000 and 1999, respectively, a practice which is expected to continue in 2001, if necessary. Also, it is more likely than not that the note payable balances will be extended beyond their due dates in 2001 because the Company does not expect it will be able to pay them when due. In connection with the discontinued SportPark segment loan resolution (see Note 6), the Company's chairman paid $2,750,000 to the Lender to release collateral he had pledged to secure the SportPark loan; this $2.75 million was used by the Lender to pay down the loan balance owed by the SportPark. In connection therewith, the Company's Chairman incurred costs and fees totaling $283,473 to consummate the transaction with the Lender. This transaction required the Company's chairman to sell the collateral so that cash could be paid to the Lender in exchange for releasing the Lender's lien on the collateral. The total amount of $3,033,473 incurred by the Company's chairman along with accrued interest payable of $60,550 is included under the caption "Note payable to Shareholder" in the accompanying consolidated balance sheet at December 31, 2000. Payment of the accrued interest payable has been deferred and the Company's chairman has agreed to continue deferring payment of the accrued interest until such time as the Company has adequate capital resources to service this obligation. 5. LEASEHOLD IMPROVEMENTS AND EQUIPMENT Leasehold improvements and equipment included the following as of December 31: 2000 1999 ----------- ----------- Building $ 252,866 $ 252,866 Land Improvements 313,637 291,272 Furniture and equipment 191,423 187,705 Signs 7,691 7,691 Leasehold improvements 321,414 319,835 Equipment under Capital leases 62,648 213,682 Other 13,789 8,889 ----------- ----------- 1,163,468 1,281,940 Less accumulated depreciation and amortization (218,466) (167,780) =========== =========== $ 945,002 $ 1,114,160 =========== =========== F-12 6. LONG-TERM DEBT On September 15, 1998, the Company consummated a $13,500,000 secured loan with Nevada State Bank. The original term of the loan was for 15 years with the interest measured at a fixed rate of 4% above the Bank's five-year LIBOR rate measured September 1, 1998, 2003 and 2008. Through August 31, 2003, the interest rate on the loan was 9.38%. The loan is secured by substantially all the assets of the Company that existed at the time the financing was completed as well as corporate guarantees of AASP and SPEN. The Callaway Golf Center was not owned by the Company at the time this financing was completed and therefore is not security for this loan. To facilitate this financing transaction, the owner of the leasehold interest in the land underlying the SportPark ("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, the Company's President and CEO, its Chairman, and a related entity pledged their stock in SPEN (the "Boreta Stock") 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 Chairman pledged three parcels of land owned by him (the "Chairman's parcels") as additional collateral to secure the loan. Provisions in the loan agreement allowed for the reconveyance of these three parcels to the Company's Chairman upon the SportPark achieving certain debt service coverage milestones. The Company has been in default on this loan since September 1999 because it did not make the September 1999 loan payment and has 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, the Company, with the Bank's agreement, hired an amusement park industry consultant to evaluate all operational aspects of the SportPark and provide recommendations to improve its performance. This consultant began its work in December 1999 and completed it in February 2000. The product of their 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 which, after a limited review, concluded that the Company's plan as prepared by its consultant could not be achieved. The Company 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 Chairman's parcels. In October 2000, the Company's Chairman sold the property within which the Chairman's parcels were located and paid the Lender $2,750,000 to fully release the obligations associated with this collateral. The Lender applied the $2.75 million as a reduction to the outstanding SportPark loan obligation. On November 13, 2000, the Company reached an agreement with the Lender whereby the Lender agreed to release AASP and SPEN from their guarantees on the SportPark Note Payable, a note payable on certain SportPark equipment ("Equipment Note"), and 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 F-13 the Equipment Note and Equipment Lease, with exactly the same rights that the previous Lender had except that the guarantees of AASP and SPEN no longer exist on any of these three obligations. The Landlord and the Company are negotiating with several prospects to either purchase or lease the Sportpark property from the Landlord. Although management of the Company believes that a favorable resolution may be achieved with regard to this SportPark issue, there can be no assurance that the Company will be successful in doing so. Also, see Note 4. The SportPark Note Payable principal balance and related accrued interest payable due as of December 31, 2000 is $13,049,922 and $310,991, respectively. The Equipment Note original amount was $39,055. Payments are $808 per month with interest at 8.75% per annum. Payments on this note have not been made since the Landlord bought the Equipment Note from the Lender. The note's scheduled maturity is March 18, 2004. The balance owing at December 31, 2000 and 1999 was $30,854 and $34,196, respectively. The SportPark Note Payable and Equipment Note are included as part of Net Assets of Discontinued Operations as described in Note 1.c above. On December 31, 1998, the Company acquired substantially all the assets of the Callaway Golf Center subject to certain liabilities for $1 million in the form of a promissory note payable due in quarterly installments of $25,000 over 10 years without interest. This note has been discounted to reflect the notes' present value. As of December 31, 2000 and 1999, the note is recorded at $543,319 and $588,719, respectively, in the accompanying consolidated balance sheets. Aggregate maturities of long-term debt of continuing operations for the five years subsequent to December 31, 2000, are as follows: Year ending: 2001 $ 49,891 2002 54,827 2003 60,250 2004 66,210 2005 72,760 Thereafter 239,381 ----------- $ 543,319 =========== 7. LEASES The Company and SPEN share office and warehouse facilities leased from the Company's Chairman under a non-cancelable operating lease agreement, which expires on January 31, 2005. Rent is allocated 50% to the Company and 50% to SPEN. Rent expense for the Company's allocated share of this lease was $5,100 and $7,924 for 2000 and 1999, respectively. F-14 The land underlying the All-American SportPark and Callaway Golf Center is leased to the Company at an aggregate amount of $52,083 per month allocated $18,910 and $33,173, respectively. Also, the leases have provisions for contingent rent to be paid by the Company upon reaching certain levels of gross revenues. The leases commenced October 1, 1997 for AAGC and February 1, 1998 for SPLV. The terms of both leases are 15 years with two five-year renewal options. The minimum rent shall be increased at the end of the fifth year of the term and every five years thereafter by an amount equal to ten percent of the minimum monthly installment immediately preceding the adjustment date. As a condition to the lease, AASP entered into a Deposit Agreement, which required the Company to post a refundable deposit to the lessor of $500,000. The deposit has been applied as prepaid rent to be amortized resulting in a balance of $0 and $37,821 as of December 31, 2000 and 1999, respectively. Due to cash constraints, the Company negotiated an agreement with the landlord to defer the land lease payments on both the SportPark and Callaway Golf Center beginning September 1999 with no specified ending date. Management of the Company believes that the landlord is willing to defer land lease payments until such time as adequate capital resources are available to the Company to make such payments. The Company is obligated under various other capital and non-cancelable operating leases for equipment that expire at various dates over the next five years. Total rent expense for operating leases was $503,732 and $625,000 for 2000 and 1999, respectively. At December 31, 2000, minimum future lease payments of continuing operations are as follows: Capital Operating Year Leases Leases Total 2001 $ 29,520 $ 450,679 $ 480,199 2002 21,267 433,966 455,233 2003 - 446,540 446,540 2004 - 442,985 442,985 2005 - 438,310 438,310 Thereafter - 3,323,943 3,323,943 -------- ----------- ----------- Total $ 50,787 $ 5,536,423 $ 5,587,210 =========== =========== Less amount representing interest (11,702) -------- Present value of net minimum capital leases payments 39,084 Current portion (15,931) -------- Obligations under capital leases net of current portion $ 23,153 ======== F-15 8. INCOME TAXES The federal income tax provision (benefit) consisted of the following for the years ended December 31: 2000 1999 ----------- ----------- Current $(2,896,198) $(2,992,134) Deferred (1,008,713) 1,675,145 Less valuation allowance 3,904,911 1,316,989 ----------- ----------- Total $ - $ - =========== =========== The components of the deferred tax asset (liability) consisted of the following at December 31: 2000 1999 ----------- ----------- Deferred Tax Liabilities: Temporary differences related to Property and Equipment $(3,071,567) $(1,887,326) Deferred Tax Assets: Deferred Income 165,264 236,094 Other 169,769 119,075 Writedown of Assets 2,213,462 - Net Operating Loss Carryforward 6,358,696 3,462,870 ----------- ----------- Net Deferred Tax Asset Before Valuation Allowance 5,835,624 1,930,713 Valuation allowance (5,835,624) (1,930,713) ----------- ----------- Net Deferred Tax asset $ - $ - =========== =========== As of December 31, 2000, the Company has available for income tax purposes approximately $18,702,047 in federal net operating loss carryforwards, which may offset future taxable income. These loss carryforwards begin to expire in fiscal year 2003. A valuation allowance has been established to reserve the net deferred tax asset since management does not believe it is more likely than not that it will be realized. The provision (benefit) for income taxes attributable to income (loss) from continuing operations does not differ materially from the amount computed at the federal income tax statutory rate. 9. CAPITAL STOCK, STOCK OPTIONS, AND INCENTIVES a. STOCK OPTION PLANS 1994 Plan. The Company's Board of Directors adopted an incentive stock option plan (the "1994 Plan") on August 8, 1994; total shares of the Company's common stock eligible for grant are 700,000. Three hundred thousand options to purchase shares of common stock of AASP at an exercise price of $5.00 per share were granted in 1994. Twenty thousand of these options expired unvested in 1997. Of the remaining 280,000 options, 240,000 were canceled and replaced on June 9, 1997 with a new exercise price of $3.06, the fair market value on the date of reissuance. These 280,000 options expired unexercised on August 7, 1999. F-16 In April 1996, a total of 377,000 options were granted. All of these options issued in April 1996 were cancelled and replaced on June 9, 1997. These replacement options are exercisable at an exercise price of $3.06, the fair market value on the date of reissuance, through April 2001. In 1998, 21,000 options were forfeited due to employee terminations. The remaining 356,000 options are exercisable anytime. In October 1999, 50,000 options were granted at an exercise price of $0.65625 per share, the closing market price on the date of grant. Half of the options vested on April 5, 2000 and the remaining 25,000 shares vest on April 5, 2001. These options expire October 28, 2004. In April 2000, 50,000 options were granted at an exercise price of $0.8125 per share, the closing market price on the date of grant. Half of these options vested immediately, and the remainder vest on April 24, 2001. These options expire April 24, 2005. 1998 Plan. In October 1998, the Board of Directors approved, and in December 1998, the Company's shareholders approved, the 1998 stock incentive plan (the "1998 Plan"). The purpose of the Plan is to advance the interests of the Company and its subsidiaries by enhancing their ability to attract and retain employees and other persons or entities who are in a position to make significant contributions to the success of the Company and its subsidiaries, through ownership of shares of stock in the Company and cash incentives. The Plan is intended to accomplish these goals by enabling the Company to grant awards in the form of options, stock appreciation rights, restricted stock or unrestricted stock awards, deferred stock awards, or performance awards (in cash or stock), other stock-based awards, or combinations thereof, all as more fully described below. Pursuant to the 1998 Plan, on February 16, 1999, the Board of Directors of the Company approved an award to the President of the Company, stock appreciation rights ("SARs") as to 125,000 shares independent of any stock option under the Company's 1998 Plan. The base value of the SARs is $6 per share, however no SAR may be exercised unless and until the market price of the Company's Common Stock equals or exceeds $10 per share. Amounts to be paid under this agreement are solely in cash and are not to exceed $500,000. The SARs expire on October 26, 2008. Other options issued. Pursuant to the Preferred Stock agreement described in subpart c of this footnote 9, on July 29, 1996 Three Oceans, Inc. was granted an option to purchase up to 250,000 shares of the Company's common stock at $3.06 per share for a period of 5 years from the date of the agreement. As described in footnote 6 above, in 1998 the landlord of the property underlying the SportPark was granted 75,000 stock options. These options are exercisable at $4.00 per share through the year 2005. These options granted were recorded as an asset named Loan Financing Costs which were amortized over the life of the loan, with an offsetting credit to "Options Issued in Connection with Financing" included in the Equity section of the accompanying consolidated balance sheets. The value ascribed to these options issued of $174,000 was determined using the Black Scholes Option Pricing Model with the following assumptions: Volatility factor of the expected market price of the Company's common stock - 1.20; Risk free rate - 5.15%; Expected life of the options - 7 years; Dividend yield - 0.0%; Vesting 10,000 shares immediately, 10,000 shares annually thereafter until completely vested. F-17 The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under SFAS 123 requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Pro forma information regarding net income (loss) and earnings (loss) per share is required by SFAS 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions for 2000: risk-free interest rate of 4.20; dividend yield of 0.0%; volatility factor of the expected market price of the Company's common stock of 1.66; and a weighted-average expected life of 1.29 years. The assumptions for 1999 were: risk-free interest rate of 4.20; dividend yield of 0.0%; volatility factor of the expected market price of the Company's common stock of 1.15; and a weighted average expected life of 2.08 years. The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows: YEARS ENDED DECEMBER 31, 2000 1999 ------------ ------------ Net loss As reported $(11,184,076) $(3,818,787) Pro forma (11,184,076) (3,818,787) Basic and diluted net loss per share As reported (3.56) (1.27) Pro forma (3.56) (1.27) A summary of changes in the status of the Company's outstanding stock options for the years ended December 31, 2000 and 1999 is presented below: F-18 2000 1999 ---------------------- ---------------------- Weighted Weighted Average Average Exercise Exercise Shares Price Shares Price ---------------------- ---------------------- Outstanding at beginning of year 731,000 $2.99 961,000 $3.21 Granted 50,000 .81 50,000 .65 Exercised - - - - Forfeited - - - - Expired - - (280,000) 3.06 ---------------------- ---------------------- Outstanding at end of year 781,000 $2.85 731,000 $2.99 ====================== ====================== Exercisable at end of year 686,000 $2.93 626,000 $3.09 ====================== ====================== Weighted average fair value of options granted $0.45 $0.52 ====================== ====================== The following table summarizes information about stock options outstanding at December 31, 2000: Options Outstanding Options Exercisable ---------------------------------- ---------------------- Weighted Average Weighted Weighted Remaining Average Average Number Contractual Exercise Number Exercise Outstanding Life (Years) Price Exercisable Price ---------------------------------- --------------------- Range of exercise prices $0.65-$4.00 781,000 1.29 $2.85 686,000 $2.93 ================================== ===================== b. PREFERRED STOCK The Company is authorized to issue 5,000,000 shares of preferred stock. As of December 31, 2000 and 1999, there were 500,000 Series A Convertible Preferred shares and 250,000 Series B Convertible Preferred Shares issued and outstanding. c. SERIES A CONVERTIBLE PREFERRED STOCK On July 11, 1996 the Company's Board of Directors authorized the creation of 500,000 shares of Series A Convertible Preferred Stock with a $.001 par value. On July 29, 1996, the Company entered into an agreement to sell 500,000 shares of the Series A Convertible Preferred Stock at $10.00 per share for a total of $5,000,000. The agreement also resulted in the assignment of certain rights. All proceeds related to the agreement were received in accordance with its terms in 1996. F-19 Each share of the Series A Convertible Preferred Stock is convertible into one share of the Company's common stock. Each share of Series A Convertible Preferred Stock is entitled to vote along with the holders of the Company's common stock. Pursuant to the agreement, the Company also granted the Series A preferred stockholder an option to purchase up to 250,000 shares of the Company's common stock at $3.06 per share for a period of 5 years from the date of the agreement. The agreement also provides for certain demand and piggyback registration rights with respect to the shares of common stock issuable upon the conversion of the Series A Convertible Preferred Stock and the exercise of the options. As discussed in Note 14 below, in March 2001, the Company acquired all 500,000 shares of Series A convertible preferred stock from TOI and retired the shares. d. SERIES B CONVERTIBLE PREFERRED STOCK On September 22, 1998, the Company's Board of Directors authorized the creation of 250,000 shares of Series B Convertible Preferred Stock with a $.001 par value. On October 19, 1998, the Company issued 250,000 shares of Series B Convertible Preferred Stock to its majority shareholder, SPEN for $2,500,000 in cash. Each share of the Series B Convertible Preferred Stock issued to SPEN is convertible at the option of SPEN into one share of the Company's common stock. In the event of liquidation or dissolution of the Company, each share of Series B Convertible Preferred Stock will have a $10.00 liquidation preference over all other shareholders. In addition, holders of the Series B Convertible Preferred Stock shall be entitled to receive dividends at a rate equal to the rate per share payable to common stock holders, assuming conversion of the Preferred shares. The Preferred shares can be redeemed by the Company upon meeting certain conditions. Each share of Series B Convertible Preferred Stock is entitled to vote along with the holders of the Company's common stock. e. COMMON STOCK AND COMMON STOCK PURCHASE WARRANTS In January and February 2000, the Company issued an aggregate of 150,000 restricted shares of its common stock to a consultant and a person affiliated with the consultant in exchange for business consulting services. The issuance of these shares was valued at a ten percent discount from the closing market price of AASP's common stock on or about the date that the shares were issued. In 1994, the Company completed a public offering of 1,000,000 Units, each Unit consisting of one share of Common Stock and one Class A Common Stock Purchase Warrant. As a result, 1,000,000 shares of Common Stock and 1,000,000 Class A Warrants were issued. Net proceeds from the offering were $3,684,000. Two Class A Warrants entitled the holder to purchase one share of AASP common stock for $6.50, $2 above the initial public offering price. The Class A Warrants expired unexercised March 15, 1999. F-20 In connection with the initial public offering, the Company issued to the Representative of the Underwriters, Representative's Warrants to purchase 100,000 shares (10 percent of the units purchased by the underwriters), with an exercise price of $5.40 for a four-year period beginning on December 13, 1995. The Company also issued to the Representative 100,000 Class A Warrants which entitled the Underwriter to purchase 50,000 shares of Common Stock (5 percent of the units purchased by the underwriters), with an exercise price of $7.80 per share exercisable beginning on December 13, 1995. These warrants expired unexercised December 12, 1999. 11. EMPLOYEES 401(k) PROFIT SHARING PLAN The Company offered all its eligible employees participation in the Employees 401(k) LVDG Profit Sharing Plan ("Plan"). The Plan provided for purchases of certain investment vehicles by eligible employees through payroll deductions of up to 15% of base compensation. For 2000 and 1999, the Company matched 50% of employee's contributions up to a maximum of 6% of an employee's base compensation. The Company had expenses related to the Plan charged to continuing operations of $2,114 and $6,770 for 2000 and 1999, respectively. Effective December 6, 2000, the Company terminated this plan due to lack of employee participation. 12. SUPPLEMENTAL NON-QUALIFIED RETIREMENT PLAN In 1995, the Company entered into a Supplemental Retirement Plan for certain key employees of which the President of AASP is included. This plan became effective on January 1, 1996. The Company made contributions to the plan charged to continuing operations of $3,000 and $8,667 for 2000 and 1999, respectively. 13. COMMITMENTS AND CONTINGENCIES The Company has employment agreements with its President, as well as other key employees who require the payment of fixed and incentive based compensation. In December 1997, AASP entered into an agreement with the Pepsi-Cola Company ("Pepsi") concerning an exclusive sponsorship agreement. Under the agreement, Pepsi receives certain exclusive rights to product display and dispensing of only its products at the discontinued SportPark segment and Callaway Golf Center in exchange for a series of payments beginning when the SportPark opened. In addition, Pepsi was granted the naming rights to the multipurpose arena in the SportPark as the AllSport Arena. In addition, Pepsi provides the equipment needed to dispense its products at the SportPark and Callaway Golf Center. Also, the agreement provides that AASP and Pepsi will participate in joint marketing programs such as promotions on Pepsi's products and local radio advertising as well as Pepsi has the right to provide three marketing events per year. These events are used to promote the business of the Company and Pepsi. The sponsorship agreement terminates in October 2003, unless earlier terminated as provided in the agreement. In 1997, the Company entered into a lease and concession agreement with Sportservice Corporation ("Sportservice") which provides SportService with the exclusive right to prepare and sell all food, beverages (alcoholic and non-alcoholic), candy and other refreshments throughout the discontinued SportPark segment and Callaway Golf Center , during the ten year term of the agreement. Sportservice pays rent based on a percentage of gross sales. The agreement also provides Sportservice with a right of first refusal for future parks to be built by AASP in consideration for a fixed payment. F-21 The Company is involved in certain litigation as both plaintiff and defendant related to its business activities. Management, based upon consultation with legal counsel, does not believe that the resolution of these matters will have a materially adverse effect upon the Company. 14. SUBSEQUENT EVENT In March 2001, the Company 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 the Board of Directors resigned. Also, all agreements and contractual obligations between the Company and TOI were terminated. F-22 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Amendment to be signed on its behalf by the undersigned thereunder duly authorized. ALL-AMERICAN SPORTPARK, INC. Dated: September 28, 2001 By:/s/ Kirk Hartle Kirk Hartle, Chief Financial Officer