10QSB 1 aasp.txt AASP 9-30-01 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 September 30, 2001 Commission File Number: 0-24970 ALL-AMERICAN SPORTPARK, INC. ----------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Nevada 88-0203976 ------------------------------- --------------------------------- (State of other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 6730 South Las Vegas Boulevard, Las Vegas, Nevada 89119 -------------------------------------------------------------------- (Address of principal executive offices including zip code) (702) 798-7777 --------------------------- (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ As of November 14, 2001, 3,150,000 shares of common stock were outstanding. Transitional Small Business Disclosure Format (check one): Yes___ No X ALL-AMERICAN SPORTPARK, INC. FORM 10-QSB INDEX Page Number PART I: FINANCIAL INFORMATION Item 1. Consolidated Financial Statements: Consolidated Balance Sheets September 30, 2001 and December 31, 2000 3 Consolidated Statements of Operations Three Months Ended September 30, 2001 and 2000 5 Consolidated Statements of Operations Nine Months Ended September 30, 2001 and 2000 6 Consolidated Statements of Cash Flows Nine Months Ended September 30, 2001 and 2000 7 Notes to Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis Of Financial Condition and Results of Operations 13 PART II: OTHER INFORMATION Item 1. Legal Proceedings 18 Item 2. Changes in Securities 18 Item 3. Defaults Upon Senior Securities 18 Item 4. Submission of Matters to a Vote of Security Holders 18 Item 5. Other Information 18 Item 6. Exhibits and Reports on Form 8-K 18 SIGNATURES 19 2 ALL-AMERICAN SPORTPARK, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS SEPTEMBER 30, DECEMBER 31, 2001 2000 ------------- ------------ (UNAUDITED) Current assets: Cash and cash equivalents $ 109,610 $ 150,556 Accounts receivable 34,131 28,150 Prepaid expenses and other 85,512 65,189 ---------- ---------- Total current assets 229,253 243,895 Leasehold improvements and equipment, net 903,489 945,002 Due from affiliated stores 174,392 138,661 Note receivable - related party 20,000 20,000 Due from other related entities 38,282 48,500 Other assets 9,823 24,714 Net assets of discontinued segment 152,879 412,104 ---------- ---------- Total assets $1,528,118 $1,832,876 ========== ========== The accompanying notes are an integral part of these consolidated financial statements. 3 ALL-AMERICAN SPORTPARK, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) SEPTEMBER 30, DECEMBER 31, 2001 2000 ------------- ------------ (UNAUDITED) Current liabilities: Current portion of long-term debt $ 53,549 $ 49,891 Current portion of obligations under capital leases 16,584 15,931 Accounts payable and accrued expenses 645,775 893,689 ----------- ----------- Total current liabilities 715,908 959,511 Notes and interest payable to shareholder 5,022,553 4,700,561 Due to affiliated stores 416,957 392,511 Due to other related entities 607,067 778,461 Long-term debt, net of current portion 452,795 493,428 Obligations under capital leases, net of current portion 5,456 23,153 Deferred income 203,929 178,919 Deferred income tax liability 94,009 - ----------- ----------- Total liabilities 7,518,674 7,526,544 ----------- ----------- Minority interest 366,963 - ----------- ----------- Shareholders' equity (deficit): Series A Convertible Preferred Stock, $.001 par value, 500,000 shares issued and outstanding at December 31, 2000 - 4,740,000 Series B Convertible Preferred Stock, $.001 par value, 250,000 shares issued and outstanding 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 Options issued in connection with financing 174,000 174,000 Common Stock, $.001 par value, 10,000,000 shares authorized, 3,150,000 shares issued and outstanding 3,150 3,150 Additional paid-in capital 8,708,123 3,695,745 Accumulated deficit (17,742,792) (17,066,563) ----------- ----------- Total shareholders' equity (deficit) (6,357,519) (5,693,668) ----------- ----------- Total liabilities and shareholders' equity $ 1,528,118 $ 1,832,876 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. 4 ALL-AMERICAN SPORTPARK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (UNAUDITED) 2001 2000 ------------- ------------ Revenues: Callaway Golf Center[TM] $ 592,156 $ 596,194 Other 3,242 6,848 ----------- ----------- Total revenues 595,398 603,042 Cost of revenues: Callaway Golf Center[TM] 84,704 92,084 ----------- ----------- Gross profit 510,694 510,958 ----------- ----------- Operating expenses: Selling, general and administrative 553,828 526,791 Depreciation and amortization 22,128 22,376 ----------- ----------- Total operating expenses 575,956 549,167 ----------- ----------- Operating loss (65,262) (38,209) Interest expense, net (128,496) (53,456) ----------- ----------- Loss from continuing operations before minority interest (193,758) (91,665) Minority interest (860) - ----------- ----------- Net loss from continuing operations (194,618) (91,665) DISCONTINUED OPERATIONS: Loss from disposal of discontinued segment (608) - Loss from discontinued operations of SportPark business - (725,616) ----------- ----------- Loss from discontinued operations (608) (725,616) ----------- ----------- Net loss $ (195,226) $ (817,281) =========== =========== NET LOSS PER SHARE: Basic and diluted: Loss from continuing operations $ (0.06) $ (0.03) Loss from discontinued operations (0.00) (0.23) ----------- ----------- Net loss per share $ (0.06) $ (0.26) =========== =========== The accompanying notes are an integral part of these consolidated financial statements. 5 ALL-AMERICAN SPORTPARK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (UNAUDITED) 2001 2000 ------------- ------------ Revenues: Callaway Golf Center[TM] $1,875,596 $1,832,786 Other 3,242 23,466 ----------- ----------- Total revenues 1,878,838 1,856,252 Cost of revenues: Callaway Golf Center[TM] 254,895 289,454 ----------- ----------- Gross profit 1,623,943 1,566,798 ----------- ----------- Operating expenses: Selling, general and administrative 1,580,698 1,581,868 Depreciation and amortization 67,298 76,381 ----------- ----------- Total operating expenses 1,647,996 1,658,249 ----------- ----------- Operating loss (24,053) (91,451) Interest expense, net (384,934) (159,537) ----------- ----------- Loss from continuing operations before minority interest (408,987) (250,988) Minority interest (6,610) - ----------- ----------- Net loss from continuing operations (415,597) (250,988) DISCONTINUED OPERATIONS: Loss from disposal of discontinued segment (260,632) - Loss from discontinued operations of SportPark business - (2,210,723) ----------- ----------- Loss from discontinued operations (260,632) (2,210,723) ----------- ----------- Net loss $ (676,229) $(2,461,711) =========== =========== NET LOSS PER SHARE: Basic and diluted: Loss from continuing operations $ (0.13) $ (0.08) Loss from discontinued operations (0.08) (0.70) ----------- ----------- Net loss per share $ (0.21) $ (0.78) =========== =========== The accompanying notes are an integral part of these consolidated financial statements. 6 ALL-AMERICAN SPORTPARK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (UNAUDITED) 2001 2000 ------------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (676,229) $(2,461,711) Adjustment to reconcile net loss to net cash provided by operating activities of continuing operations: Minority interest 6,610 - Loss from discontinued operations 260,632 2,210,723 Common stock issued for services - 131,322 Depreciation and amortization 67,298 76,381 Gain on sale of equipment - (1,741) Changes in operating assets and liabilities: Increase in accounts receivable (5,981) (14,081) Increase in prepaid expenses and other (5,432) (7,937) Increase in accounts payable and accrued expenses 223,826 480,309 Increase in interest payable to shareholder and affiliated store 341,864 117,887 Increase (decrease) in deferred income 25,010 (16,913) ----------- ----------- Net cash provided by operating activities of continuing operations 237,598 514,239 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of equipment - 32,500 Leasehold improvements expenditures (25,785) (31,256) ----------- ----------- Net cash provided by (used in) investing activities of continuing operations (25,785) 1,244 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in due to affiliated stores and other related entities (192,333) (276,880) Cash paid to redeem preferred stock (5,000) - Principal payments on notes payable and capital leases (54,019) (59,866) ----------- ----------- Net cash used in financing activities of continuing operations (251,352) (336,746) ----------- ----------- NET CASH USED IN DISCONTINUED OPERATIONS (1,407) (118,883) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (40,946) 59,854 ----------- ----------- CASH AND CASH EQUIVALENTS, beginning of period 150,556 118,796 ----------- ----------- CASH AND CASH EQUIVALENTS, end of period $ 109,610 $ 178,650 =========== =========== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest $ 45,724 $ 59,685 =========== =========== 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 =========== =========== Land lease obligation exchanged for common stock of subsidiary $ 471,740 $ - =========== =========== The accompanying notes are an integral part of these consolidated financial statements. 7 ALL-AMERICAN SPORTPARK, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. CONSOLIDATED FINANCIAL STATEMENTS The accompanying unaudited consolidated financial statements include the accounts of All-American Sportpark, Inc. ("AASP"), a Nevada corporation, and its subsidiaries, All-American Golf Center, Inc. ("AAGC"), and Sportpark Las Vegas, Inc. ("SPLV"), (collectively the "Company"). All significant inter-company accounts and transactions have been eliminated. The discontinued operations of the All-American SportPark facility are included in SPLV. The continuing operations of the Callaway Golf Center ("CGC") are included in AAGC. 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 September 30, 2001 and for all periods presented. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that may require revision in future periods. Certain reclassifications have been made to amounts in the 2000 statements of operations and of cash flows to conform to the 2001 presentation. These consolidated financial statements should be read in conjunction with the audited financial statements included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2000, from which the information presented as of December 31, 2000 is derived. The Company's continuing operations consist of the Callaway Golf Center located on 42 acres of land on the south end of the Las Vegas "Strip". The Callaway Golf Center includes the Divine Nine par 3 golf course fully lighted for night golf, a 110-tee two-tiered driving range which has been ranked the Number 2 golf practice facility in the United States since it opened in October 1997, a 20,000 square foot clubhouse which includes three tenants: the Saint Andrews Golf Shop, the Giant Golf teaching academy, and the Bistro 10 restaurant and bar. As of September 30, 2001, Sports Entertainment Enterprise, Inc. ("SPEN"), a publicly traded company, owns approximately 63.5% of the Company's outstanding common stock and 100% of the Company's outstanding preferred stock which, combined, represents approximately 71.4% ownership of the Company. 8 2. DISCONTINUED OPERATIONS The Company developed a concept for family-oriented sports-themed amusement venues named "All-American SportPark" ("SportPark" or "SPLV"). The SportPark opened for business on October 9, 1998 and operated on 23 acres adjacent to the Callaway Golf Center. The SportPark included NASCAR SpeedPark, Major League Baseball Slugger Stadium, the 100,000 square foot Arena Pavilion which housed the Pepsi AllSport Arena, "The Rock" 47-foot rock climbing wall, an 8,000 square foot arcade, Indoor putting challenge, Boston Garden restaurant and bar, Skybox suites and several other interactive experiences and retail shops. As of December 31, 2000, management of the Company formalized a plan to dispose of the SportPark facility because (1) historically, the property had sustained substantial losses, and (2) it was not expected that future results would improve without substantial capital investment; the Company did 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 continued to operate on a limited basis for group parties and special events through May 31, 2001. On June 1, 2001, the Company completed a transaction pursuant to a Restructuring and Settlement Agreement with Urban Land of Nevada, Inc. (the "Landlord") to terminate the lease relating to the SportPark, and to transfer all of the leasehold improvements and personal property located on the premises to the Landlord. As part of the agreement, the Landlord agreed to waive all liabilities of the Company to the Landlord with respect to the SportPark, and with the exception of a limited amount of unsecured trade payables, the Landlord agreed to assume responsibility of all other continuing and contingent liabilities related to the SportPark. The Landlord also agreed to cancel all of the Company's back rent obligations for the Callaway Golf Center for periods through April 30, 2001. The Callaway Golf Center remains an operating business of the Company. In addition, all common stock of SPEN owned by the Company's Chairman, its President and a related entity that had been pledged to and held by the Landlord pursuant to the original SportPark financing (see Note 3) has been returned unencumbered. As part of the transaction, the Company issued the Landlord a 35 percent ownership interest in AAGC. In connection with the issuance of the 35 percent interest in AAGC to the Landlord, the Company, AAGC and the Landlord entered into a Stockholders Agreement that provides certain restrictions and rights on the AAGC shares issued to the Landlord. The Landlord is permitted to designate a non-voting observer of meetings of AAGC's board of directors. In the event of an uncured default of the lease for the CGC, so long as the Landlord holds a 25% interest in AAGC, the Landlord will have the right to select one director of AAGC. As to matters other than the election of Directors, the Landlord has agreed to vote its shares of AAGC as designated by the Company. In regard to the Restructuring and Settlement Agreement, the Company recorded $360,353 as Minority Interest in the accompanying consolidated balance sheet for 2001 representing the Landlord's 35% interest in AAGC as of June 1, 2001. The difference between the amount recorded as Minority Interest 9 and the amount of back rent cancelled by the Landlord of $471,740, has been recorded as Additional Paid-in Capital, net of deferred taxes of $94,009, in the accompanying consolidated balance sheet. Also, because of this transaction, the AAGC no longer qualifies to be included as part of the Company's consolidated reporting entity for income tax purposes. As a result, beginning June 1, 2001, the AAGC will be subject to income taxes on a stand-alone basis. As a result of the formal plan of disposal of the SportPark described above, since December 31, 2000, the Company has accounted for its SportPark business segment as "Discontinued Operations" in the accompanying consolidated financial statements for all periods presented. The Company recorded a loss from disposal of the SportPark of $260,632 in 2001. As of December 31, 2000, the Company had estimated there would be no gain or loss on the disposition of the SportPark property. The difference has arisen mainly because net income of the SportPark business since December 31, 2000 was less than what was estimated as of December 31, 2000. Net assets of the Company's discontinued Sportpark business included in the accompanying consolidated balance sheets consisted of the following: September 30, December 31, 2001 2000 -------------- ------------- Current assets $ 62,528 $ 171,182 Property and equipment, net - 14,879,510 Other assets 117,813 495,396 ---------- ---------- 180,341 15,546,088 ---------- ---------- Notes payable (See Note 3) - 13,080,776 Capital lease obligations - 290,773 Accounts payable and accrued liabilities 27,462 1,455,283 Deferred income - 307,152 ---------- ---------- 27,462 15,133,984 ---------- ---------- Net assets of discontinued segment $ 152,879 $ 412,104 ========== ========== Revenues related to discontinued operations for the nine-month periods ended September 30, 2001 and 2000 totaled $346,033 and $2,811,181, respectively. Revenues related to discontinued operations for the three-month periods ended September 30, 2001 and 2000 totaled $-0- and $867,318, respectively. 3. DISCONTINUED SPORTPARK SEGMENT LOAN AGREEMENT On September 15, 1998 the Company consummated a $13,500,000 secured loan with Nevada State Bank ("Lender"). The original term of the loan was 15 years with interest measured at a fixed rate of 4% above the Lender's five-year LIBOR rate measured September 1, 1998, 2003 and 2008. The initial interest rate through 2003 was 9.38%. The loan was secured by substantially all the assets of the Company that existed at the time the financing was completed and was also secured by corporate guarantees of AASP and SPEN. The Callaway Golf Center was not owned by the Company at the time this financing was completed 10 and therefore was not security for this loan. To facilitate this financing transaction, the owner of the leasehold interest in the land underlying the Sportpark ("Landlord") executed a trust deed granting a security interest in the leased property to the Lender to secure repayment of the loan. As consideration for the Landlord's willingness to provide collateral for the loan, the Company's President and CEO, its Chairman, and a related entity pledged their stock in SPEN to the Landlord. Additionally, the Landlord was issued 75,000 stock options exercisable at $4.00 per share through the year 2005. Also, the Company's 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 had been in default on this loan beginning September 1999 because it did not make the September 1999 loan payment and had not made any of its scheduled loan payments since. The Bank filed a formal notice of default on December 22, 1999. 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 the Equipment Note and Equipment Lease, with exactly the same rights that Nevada State Bank had except that the guarantees of AASP and SPEN no longer existed on any of these three obligations. These three obligations were cancelled in connection with the Restructuring and Settlement Agreement described in Note 2 above. Also, see Note 6. 4. LOSS PER SHARE AND SHAREHOLDER'S EQUITY Basic and diluted loss per share is computed by dividing the reported net loss from continuing operations and discontinued operations by the weighted average number of common shares outstanding during the period. The weighted-average number of common and common equivalent shares used in the calculation of basic and diluted loss per share were 3,150,000 and 3,136,314 for the nine month periods ended September 30, 2001 and 2000, respectively, and 3,150,000 for the three-month periods ended September 30, 2001 and 2000. 11 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. In April 2001, options to purchase 356,000 shares of the Company's common stock at $3.05 per share expired unexercised. Of these options, 325,000 were held by the Company's President. After these options expired, new options to purchase 325,000 shares of the Company's common stock at $0.055 per share were granted to the Company's President. This exercise price is equal to the mid-range value of the Company's common stock closing bid and ask price on the date of grant. These options are fully vested and expire on April 30, 2006. 5. LEASES The land underlying the CGC is leased to the Company at an amount per month of $33,173. Also, the lease has provisions for contingent rent to be paid by the Company upon reaching certain gross revenue levels. The lease commenced October 1, 1997. The term of the lease is 15 years with two five-year renewal options. The lease has a corporate guarantee of AASP. 6. GOING CONCERN MATTERS The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying consolidated financial statements, for the three and nine-month periods ended September 30, 2001, the Company incurred net losses of $195,226 and $676,229, respectively. The Company has experienced cash flow problems since September of 1999 when payments ceased being made on the SportPark loan (see Note 2). For the year ended December 31, 2000, the Company had a net loss of $11,184,076 and a loss from continuing operations of $152,668. As of September 30, 2001, the Company had a working capital deficit of $486,655. As a result of the Restructuring and Settlement Agreement discussed in Note 2 above, the Company is no longer funding cash shortfalls at the SportPark, the Company has been released from all significant continuing and contingent liabilities related to the Sportpark, and all back rent through April 30, 2001 for the CGC has been cancelled. The Company recommenced paying its monthly rent for the CGC beginning May 2001. AASP Management believes that its continuing operations will be sufficient to fund operating cash needs and debt service requirements over at least the next twelve months. However, if required to fund continuing operations, management believes that additional borrowings against the Callaway Golf Center could be arranged. Should additional financing to fund operations be required, the Company will explore all funding options. There can be no assurance that continuing operations will produce adequate cash flows or that such lending sources would be willing, on terms acceptable to the Company, to provide additional financing. The consolidated financial statements do not include any adjustments relating to the recoverability of assets and the classification of liabilities that might be necessary should the Company be unable to continue as a going concern. 12 7. RELATED PARTY TRANSACTIONS 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. Loans, including accrued interest payable, from the Company's chairman and his personally owned retail store were $5,369,218 and $5,027,354 at September 30, 2001 and December 31, 2000, respectively. These notes were due at various dates in 2001. These notes have all been extended with due dates beginning in the third quarter of 2002 and ending in the fourth quarter of 2002. The increase relates to accrued interest payable on the note balances outstanding. Accrued interest payable of $811,076 at September 30, 2001, has been deferred, a practice which is expected to continue until the maturity dates of the notes, if necessary. 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. 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 ("AAGC"). 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 CONTINUING OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2001 AS COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2000 REVENUES. Revenues of the Callaway Golf Center ("CGC") decreased nominally by 0.7% to $592,156 in 2001 compared to $596,194 in 2000. Typically, third quarter revenues for CGC are steady from year to year. This continued to hold true in 2001 despite the tragedy of September 11 because a large majority of the CGC business is local customers. COST OF REVENUES. Cost of revenues decreased 8.0% to $84,704 in 2001 compared to $92,084 in 2000. Cost of revenues as a percentage of revenues was 14.3% in 2001 compared to 15.4% in 2000. This decrease is due mainly to lower direct payroll costs in 2001 because of improved staff scheduling. SELLING, GENERAL AND ADMINISTRATIVE (SG&A). These expenses consist principally of administrative payroll, rent, professional fees and other corporate costs. These expenses increased 5.1% to $553,828 in 2001 compared to $526,791 in 2000. The increase is due mainly to a combination of the following: (1) corporate overhead decreased 19.8%, or about $20,000, due to lower legal and professional fees because the Company was able to resolve many outstanding legal issues in 2000, (2) SG&A for the Callaway Golf Center increased 11.0%, or about $47,000, because of increased payroll and utility costs. 13 INTEREST EXPENSE, NET. Net interest expense increased to $128,496 in 2001 compared to $53,456 in 2000 due primarily to interest costs on new debt to the Company's chairman that was incurred in the fourth quarter of 2000 in the amount of $3,033,473. This new debt was incurred when the Company's chairman paid down the SportPark loan in the amount of $2.75 million and incurred other costs associated therewith totaling $283,473. MINORITY INTEREST. Minority interest represents the Landlord's 35% share of Callaway Golf Center net income for the third quarter of 2001. There was no minority interest in 2000. NET LOSS FROM CONTINUING OPERATIONS. Net loss from continuing operations for 2001 was $194,618 compared to $91,665 for 2000. The increased net loss for 2000 is due mainly to increased interest expense in 2001 as described above. RESULTS OF CONTINUING OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 2001 AS COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2000 REVENUES. Revenues of the Callaway Golf Center ("CGC") increased 2.3% to $1,875,596 in 2001 compared to $1,832,786 in 2000. The increase is due mainly to increased revenue from tenants because of more leased space in 2001 compared to 2000. COST OF REVENUES. Cost of revenues decreased 11.9% to $254,895 in 2001 compared to $289,454 in 2000. Cost of revenues as a percentage of revenues was 13.6% in 2001 compared to 15.8% in 2000. This decrease is due mainly to lower direct payroll costs in 2001 because of improved staff scheduling. SELLING, GENERAL AND ADMINISTRATIVE (SG&A). These expenses consist principally of administrative payroll, rent, professional fees and other corporate costs. These expenses decreased nominally by 0.1% to $1,580,698 in 2001 compared to $1,581,868 in 2000. The decrease is a combination of the following: (1) corporate overhead decreased 29.7%, or about $99,000, due to lower legal and professional fees because the Company was able to resolve many outstanding legal issues in 2000, (2) SG&A for the Callaway Golf Center increased 7.8%, or about $97,000, because of increased payroll, marketing, and utility costs. DEPRECIATION AND AMORTIZATION. These costs decreased 11.9% to $67,298 in 2001 compared to $76,381 in 2000 due to a lower overall depreciable base of fixed assets in 2001 which has remained relatively constant since the second quarter of 2000. INTEREST EXPENSE, NET. Net interest expense increased to $384,934 in 2001 compared to $159,537 in 2000 due primarily to interest costs on new debt to the Company's Chairman that was incurred in the fourth quarter of 2000 in the amount of $3,033,473. This new debt was incurred when the Company's Chairman paid down the SportPark loan in the amount of $2.75 million and incurred other costs associated therewith totaling $283,473. MINORITY INTEREST. Minority interest represents the Landlord's 35% share of Callaway Golf Center net income since June 1, 2001. There was no minority interest in 2000. NET LOSS FROM CONTINUING OPERATIONS. Net loss from continuing operations for 2001 was $415,597 compared to $250,988 for 2000. The increased net loss for 2001 is due mainly to increased interest expense in 2001 as described above. 14 LIQUIDITY AND CAPITAL RESOURCES At September 30, 2001, the Company had a working capital deficit of $486,655. This deficit was created primarily because of the lengthy financial problems of the discontinued SportPark business segment. Approximately $157,000 of this deficit relates to deferred payroll costs attributed to the Company's President deferring half of his salary from September 1999 through May 2001. The Company's President has agreed to defer receiving payment on this deferred payroll until such time as the Company has sufficient resources to pay it. Beginning in June 2001, the Company's President began receiving his full salary again. 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 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. Effective January 2, 2001, the SportPark closed to the general public although it continued to operate on a limited basis for group parties and special events through May 31, 2001. On June 1, 2001, the Company completed a transaction pursuant to a Restructuring and Settlement Agreement with Urban Land of Nevada, Inc. (the "Landlord") to terminate the lease relating to the SportPark, and to transfer all of the leasehold improvements and personal property located on the premises to the Landlord. As part of the agreement, the Landlord agreed to waive all liabilities of the Company to the Landlord with respect to the SportPark, and with the exception of a limited amount of unsecured trade payables, the Landlord agreed to assume responsibility of all other continuing and contingent liabilities related to the SportPark. The Landlord agreed to cancel all of the Company's back rent obligations for the Callaway Golf Center for periods through April 30, 2001. In addition, all common stock of SPEN owned by the Company's Chairman, its President and a related entity that had been pledged to the Landlord pursuant to the original SportPark financing has been returned unencumbered. 15 As part of the transaction, the Company issued the Landlord a 35 percent ownership interest in AAGC. In connection with the issuance of the 35 percent interest in AAGC to the Landlord, the Company, AAGC and the Landlord entered into a Stockholders Agreement that provides certain restrictions and rights on the AAGC shares issued to the Landlord. The Landlord is permitted to designate a non-voting observer of meetings of AAGC's board of directors. In the event of an uncured default of the lease for the CGC, so long as the Landlord holds a 25% interest in AAGC, the Landlord will have the right to select one director of AAGC. As to matters other than the election of Directors, the Landlord has agreed to vote its shares of AAGC as designated by the Company. As a result of this Restructuring and Settlement Agreement, the Company is no longer funding cash shortfalls at the SportPark, the Company has been released from all significant continuing and contingent liability related to the Sportpark, and all back rent through April 30, 2001 for the CGC has been cancelled. The Company recommenced paying its monthly rent for the CGC beginning May 2001. AASP Management believes that its continuing operations will be sufficient to fund operating cash needs and debt service requirements over at least the next twelve months. 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. 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. On December 31, 1998 the Company purchased substantially all the assets and assumed certain liabilities of the Callaway Golf Center for $1,000,000 payable in quarterly installments of $25,000 for a 10 year period with no interest. The Golf Center has generated positive cash flow in 2001 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 at 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. Loans, including accrued interest payable, from the Company's Chairman and his personally owned retail store were $5,369,218 and $5,027,354 at September 30, 2001 and December 31, 2000, respectively. These notes were due at various dates in 2001. These notes have all been extended with due dates beginning in the third quarter of 2002 and ending in the fourth quarter of 2002. The increase relates to 16 accrued interest payable on the balances outstanding. Accrued interest payable of $811,076 at September 30, 2001 has been deferred, a practice which is expected to continue until the maturity of the notes payable, if necessary. There are currently no commitments for material capital expenditures. The Company in the normal course of its business receives sponsorship fees and various advance payments of different kinds, which are recorded as deferred income until earned. Such amounts are typically earned over the term of the contract with the applicable sponsor. Deferred income was $203,929 at September 30, 2001 compared to $178,919 at December 31, 2000. It is anticipated, but cannot be guaranteed, that sponsorship fees and advances will be a source of cash flow in 2002. Operating Activities. Net cash provided by operating activities was $237,598 for the nine months ended September 30, 2001 compared to $514,239 for the nine months ended September 30, 2000. The primary reason for the change relates to (1) a smaller increase in 2001 of about $256,000 in accounts payable and accrued expenses, (2) a larger increase in 2001 in interest payable to shareholder and affiliated store of about $224,000, and (3) a larger net loss from continuing operations in 2001 of about $165,000. Investing Activities. Net cash used in investing activities was $25,785 in 2001 compared to net cash provided by investing activities of $1,244 in 2000. The difference relates to $32,500 in proceeds from sale of equipment in 2000. Financing Activities. Net cash used in financing activities was $251,352 for the nine months ended September 30, 2001 compared to net cash used in financing activities of $336,746 for the nine months ended September 30, 2000. The primary reason for the difference is due to a smaller decrease in 2001 in amounts due to affiliated stores and related entities. The Company's current and expected sources of working capital are its cash balances that were $109,610 at September 30, 2001 and its continuing positive operating cash flow of its CGC property. Working capital needs have been helped by deferring payments on interest and notes payable balances due to the Company's Chairman and Affiliated Store. Deferrals of payments to the Company's Chairman and Affiliated Store are expected to continue until the Company has sufficient cash flow to begin making payments. 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 having completed 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. 17 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. 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. None. 18 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. ALL-AMERICAN SPORTPARK, INC. Date: November 14, 2001 By:/s/ Ronald Boreta Ronald Boreta, President and Chief Executive Officer Date: November 14, 2001 By:/s/ Kirk Hartle Kirk Hartle, Chief Financial Officer 19