ALL AMERICAN SPORTPARK INC - 10-K - MANAGEMENT'S DISCUSSION AND ANYLSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
(Edgar Glimpses Via Acquire Media NewsEdge) The following information should be read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto included in this report.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States ("GAAP") In connection with
the preparation of the financial statements, we are required to make assumptions
and estimates about future events that affect the reported amounts of assets,
liabilities, revenue, expenses and the related disclosures. We base our
assumption and estimate on historical experience and other factors that
management believes are relevant at the time our consolidated financial
statements are prepared. On a periodic basis, management reviews the accounting
policies, assumptions and estimates to ensure that our financial statements are
presented fairly and in accordance with GAAP. However, because future events are
their effects cannot be determined with certainty, actual results could differ
from the estimates and assumptions, and such differences could be material.
Our significant accounting policies are discussed in Note 2, Summary of
Significant Accounting Policies in the Notes to the Consolidated Financial
Statements. The following accounting policies are most critical in fully
understanding and evaluating our reported financial results.
STOCK BASED COMPENSATION.
In accordance with accounting standards concerning Stock-based Compensation, the
Company accounts for all compensation related to stock, options or warrants
using a fair value based method in which compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
period. The Company uses the Black-Scholes pricing model to calculate the fair
market value of options and warrants issued to both employees and non-employees.
Stock issued for compensation is valued on the date of the related agreement and
using the market price of the stock. The Company currently does not have any
options that are not fully vested.
LEASEHOLD IMPROVEMENTS AND EQUIPMENT
Leasehold improvements and equipment are stated at cost and are depreciated or
amortized using the straight-line basis over the lesser of the lease term
(including renewal periods, when the Company has both the intent and ability to
extend the lease) or the useful lives of the assets, generally 3 to 15 years.
The Company primarily earns revenue from golf course green fees, driving range
ball rentals and golf and cart rentals, which are recognized when received as
payments for the services provided. The Company also receives marketing revenue
associated with the Callaway Agreement which is realized on an equal monthly
basis over the life of the agreement. Lease and sponsorship revenues are
recognized as appropriate when earned.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company believes there was no new accounting guidance adopted but not yet
effective that either has not already been disclosed in prior reporting periods
or is relevant to the readers of the Company's financial statements.
Our operations consist of the management and operation of the TaylorMade Golf
Experience ("TMGE"). The TMGE includes a par 3 golf course fully lighted for
night golf, a 110-tee two-tiered driving range, and a 20,000 square foot
clubhouse, which includes two TaylorMade fitting bays; Saint Andrews Golf Shop
carrying the latest golf products featuring TaylorMade and adidas Golf; and the
Upper Deck Grill and Sports Lounge. TMGE has been listed as the number one
driving range in America by Golf Digest Magazine several times, as recently as
The TMGE has an ideal location at the end of the "Las Vegas strip" and near the
international airport; however, much of the land immediately adjacent to the
TMGE has not yet been developed.
The Town Square Mall, which opened in November of 2007, generates significant
traffic in the area. The Town Square is a 1.5 million square foot super regional
lifestyle center with a mix of
retail, dining, and office space across the street from the TMGE. In addition,
traffic from timeshare condominium and new casinos at the far south end of the
strip has increased local and tourist business for the TMGE.
On June 19, 2009, the Company entered into a "Customer Agreement" with Callaway
Golf Company ("Callaway") and Saint Andrews Golf Shop, Ltd. ("Saint Andrews")
through our majority owned subsidiary AAGC pursuant to which Callaway agreed to
make certain cash payments and other consideration to AAGC and Saint Andrews in
exchange for an exclusive marketing arrangement for the Callaway Golf Center
operated by AAGC. Callaway is a major golf equipment manufacturer and supplier.
Saint Andrews subleases space at the Callaway Golf Center and operates a golf
equipment store at the Callaway Golf Center.
The Customer Agreement with Callaway provided that Callaway would provide Saint
Andrews with $250,000 annual advertising contribution in the form of golf
related products. In addition, Saint Andrews was given an opportunity to earn
additional credits upon reaching a sales threshold.
In connection with the signing of the Customer Agreement, AAGC received several
concessions to help in the operation of the business, upgrading certain areas,
and remodel of some portions of the AAGC facility. Callaway also provided staff
uniforms, range golf balls and rental golf equipment for AAGC's use at the
Callaway Golf Center. Both AAGC and Saint Andrews agreed to exclusively sell
only Callaway golf products at the Callaway Golf Center for the term of the
On March 9, 2013, AAGC entered into an amendment to its Customer Agreement with
Callaway (the "Amendment"). The effective date of the Amendment was January 20,
2013. The Amendment provided that AAGC was to use all reasonable efforts to
negotiate and enter into a non-exclusive written contract with an alternate
retail branding partner. In the event that AAGC was successful in executing a
written contract with an alternative retail branding partner, the Customer
Agreement was to terminate on June 30, 2013. In the event that an agreement with
an alternative retailed branding partner was not entered into by June 30, 2013,
the Customer Agreement was to terminate on that date but AAGC would have the
right to continue to feature its products in a second position at the Callaway
Golf Center after termination of Customer Agreement, under certain terms and
conditions, which they have chosen to do.
On March 27, 2013, AAGC entered into a Golf Center Sponsorship Agreement with
Taylor Made Golf Company, Inc., doing business as TaylorMade-Adidas Golf Company
("TMaG")(the "Sponsorship Agreement") pursuant to which the golf center operated
by AAGC will be rebranded using TaylorMade® and other TMaG trademarks.
As part of the Sponsorship Agreement, TMaG has agreed to reimburse AAGC for the
reasonable costs associated with the rebranding efforts, including the costs
associated with the build-out of the golf center and two new performance bays up
to a specified maximum amount. In addition, AAGC received a payment of $200,000
within a few days of signing the Sponsorship Agreement and, so long as AAGC
continues to operate the golf center and comply with the terms and conditions of
the Sponsorship Agreement TMaG will make additional payments to AAGC on each of
March 26, 2014 and March 26, 2015. The Company will recognize these payments as
revenue on a straight-line basis over the term of the agreement.
The Sponsorship Agreement includes provisions concerning the display of TMaG
merchandise, payment terms, retail sales targets and other related matters.
Also, Saint Andrews Golf Shop, a tenant of AAGC which is owned by Ronald Boreta,
the Company's President, and John Boreta, a Director of the Company, will
receive a quarterly rebate based on the wholesale price of the TMaG merchandise
purchased at the golf center. In addition, provided that the Las Vegas Golf and
Tennis stores owned by Ronald Boreta and John Boreta maintain TMaG as its
premier vendor at its locations, TMaG will pay such stores a quarterly rebate
based on the wholesale price of the TMaG Merchandise purchased at those
The initial term of the Sponsorship Agreement is for five years. AAGC and TMaG
may mutually agree in writing to extend the Sponsorship Agreement for an
additional four year period; provided that the option to renew the Sponsorship
Agreement shall be determined by the parties not later than ninety (90) days
prior to the end of the initial term and shall be consistent with the AAGC's
lease on its golf center property.
RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 2013 VERSUS YEAR ENDING DECEMBER
Revenues for 2013 decreased by $35,512 to $2,091,515 compared to $2,127,027 in
2012. Golf course green fees decreased to $518,852 in 2013 compared to $561,670
in 2012. Driving Range revenue decreased slightly for 2013 by $14,573 to
$831,257 in 2012 compared to $845,830 in 2012. Both rounds of golf and driving
range rounds were down in 2013 over 2012 due to the effects of the remodeling
efforts and a general downturn in the popularity of golf nationwide. In an
attempt to reverse this trend, we have advertised several special offers and
have increased our efforts to attract special events. Rentals for golf carts and
golf clubs increased slightly by $1,183 in 2013 to $307,141, as compared to
$305,958 in 2012. Golf lesson revenues decreased by $30,611 for 2013 to $72,800
as compared to $103,411 for 2012. The decrease in golf lessons is due to the
decrease in golf pros working at our facility.
COST OF REVENUES
Costs of revenues increased by $29,150 to $752,257 during 2013 as compared to
$723,107 in 2012 this increase is due to an increase in other costs of goods
sold, mainly comprised of miscellaneous golf supplies, which increased to
$170,464 in 2013 as compared to $139,340 in 2012. This increase is due to
overall increase in course and driving range upkeep like sod and sand purchase,
equipment maintenance and range operating supplies.
GENERAL AND ADMINISTRATIVE ("G&A")
G&A expenses consist principally of administrative payroll, rent, professional
fees, and other corporate costs. These expenses decreased by $66,570 to
$1,499,676 in 2013 from $1,566,246 in 2012. Our general and administrative
expenses were down in 2013 as a result of decreases in: payroll expenses of
$6,701, utilities of $42,211 and repairs and maintenance $5,933. Also, included
in G&A expenses for 2012 was a $90,534 bad debt expense. The decrease in
utilities is a direct result of the work performed last year on the water main,
lake removal and increased use of desert landscaping. We also reduced staff in
2013 to help reduce payroll expenses.
IMPAIRMENT ON PROPERTY AND EQUIPMENT
In 2013, impairment on property and equipment was incurred for $96,026 due to
the writing off of several old assets no longer in-service. In 2012, there was a
loss on disposal of property and equipment of $60,057
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased $2,652 in 2013 to $111,321 from $108,669
in 2012. The increase in depreciation had to do with an increase in the amount
of fixed assets and the depreciation of those assets.
OTHER INCOME AND INTEREST EXPENSE
Interest expense decreased in 2013 by $10,523 to $529,922 from $540,445 in 2012
as a result of the debt payments on intercompany debt made in 2013.
In 2013, the net loss (before non-controlling interest) was $897,687 as compared
to net loss of $874,593 in 2012. This increase in net loss is primarily due to
increased cost of revenues and increased other expense.
LIQUIDITY AND CAPITAL RESOURCES
Working capital needs have been helped by favorable payment terms and conditions
included in our notes payable to related parties. Management believes that
additional notes could be negotiated, if necessary, with similar payment terms
AASP management believes that its continuing operations may not be sufficient to
fund operating cash needs and debt service requirements over at least the next
12 months. As such, management plans on seeking other sources of funding
including the restructuring of current debt as needed, which may include Company
officers or directors and/or other related parties. In addition, management
continues to analyze all operational and administrative costs of the Company and
has made and will continue to make the necessary cost reductions as appropriate.
The inability to build attendance to profitable levels beyond a 12-month period
may require the Company to seek additional debt, restructure existing 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.
Nevertheless, management continues to seek out financing to help fund working
capital needs of the Company. In this regard, management believes that
additional borrowings against the TMGE 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.
Among its alternative courses of action, management of the Company may seek out
and pursue a business combination transaction with an existing private business
enterprise that might have a desire to take advantage of the Company's status as
a public corporation. There is no assurance
that the Company will acquire a favorable business opportunity through a
business combination. In addition, even if the Company becomes involved in such
a business opportunity, there is no assurance that it would generate revenues or
profits, or that the market price of the Company's common stock would be
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.
As of December 2013, the Company had a working capital deficit of $11,918,811 as
compared to a working capital deficit of $11,108,119 in December 2012. The
increase was due primarily to the continued accumulation of interest on the
notes payable to related parties.
FORWARD LOOKING STATEMENTS
This document contains "forward-looking statements." All statements other than
statements of historical fact are "forward-looking statements" for purposes of
federal and state securities laws, including, but not limited to, any
projections of earnings, revenue or other financial items; any statements of the
plans, strategies and objections of management for future operations; any
statements concerning proposed new services or developments; any statements
regarding future economic conditions or performance; any statements or belief;
and any statements of assumptions underlying any of the foregoing.
Forward-looking statements may include the words "may," "could," "estimate,"
"intend," "continue," "believe," "expect" or "anticipate" or other similar
words. These forward-looking statements present our estimates and assumptions
only as of the date of this report. Accordingly, readers are cautioned not to
place undue reliance on forward-looking statements, which speak only as of the
dates on which they are made. We do not undertake to update forward-looking
statements to reflect the impact of circumstances or events that arise after the
dates they are made. You should, however, consult further disclosures we make in
future filings of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q
and Current Reports on Form 8-K.
Although we believe that the expectations reflected in any of our
forward-looking statements are reasonable, actual results could differ
materially from those projected or assumed in any of our forward-looking
statements. Our future financial condition and results of operations, as well as
any forward-looking statements, are subject to change and inherent risks and
uncertainties. The factors impacting these risks and uncertainties include, but
are not limited to:
º increased competitive pressures from existing competitors and new entrants;
º deterioration in general or regional economic conditions;
º adverse state or federal legislation or regulation that increases the costs
of compliance, or adverse findings by a regulator with respect to existing
º loss of customers or sales weakness;
º inability to achieve future sales levels or other operating results;
º the inability of management to effectively implement our strategies and
business plans; and
º the other risks and uncertainties detailed in this report.
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