<PAGE>
EXHIBIT 99.3
OBI Management's Discussion and Analysis of Financial Conditions and Results of
Operations
Organization
OBI is a California Subchapter S Corporation incorporated on March 10,
1989. OBI is owned 50% each by two individual shareholders. Michael R. Forman
and James J. Cotter. OBI invests in live stage show performance theatre
properties in the City of New York.
OBI owns the Orpheum Theatre. During 1998, the owners of OBI transferred
the leasehold interest in the Union Square Theatre and during 1999 transferred
the fee interest in the Minetta Lane Theatre. As part of the transfer of the
Minetta Lane Theatre, a note payable relating to this theatre was contributed to
the capital of OBI. These transfers were made from an entity with common
ownership and, accordingly, have been recorded at historical costs. OBI's
financial statements reflect the transfers as if they occurred prior to the
beginning of 1998.
The financial information discussed herein may not necessarily reflect the
combined results of operations, financial position and cash flows of OBI in the
future or what they would have been had it been a separate, stand-alone entity
for the period presented.
Results of Operations
During November 1999, OBI started managing the theatre operations and began
transferring the accounting responsibilities to an affiliated company; a third
party management company formerly was responsible for these duties.
Specifically, OBI began booking the theatres and entering into contracts and the
affiliated company began paying the production companies' licensing fees and
paying direct operating expenses. Until November 1999, OBI had engaged a
management company, which was responsible for booking the theaters, entering
into contracts with and paying the production companies' licensing fees,
collecting cash from ticket sales and paying direct operating expenses. Due to
the management change in November 1999, beginning with the quarter ended March
30, 2000, OBI no longer records net revenue received from its management company
for the theatre operations but presents gross revenues and expenses in its
Statement of Operations. For reporting periods prior to March 30, 2000, OBI
recorded the net revenue received from the third party management company.
Quarter Ended June 29, 2000 versus July 1, 1999
For the quarters ended June 29, 2000 and July 1, 1999, the theatre
properties gross theatre box office revenues were $2,271,000 and $2,498,000,
respectively. After paying the theatres' production companies share of the gross
theatre box office revenue, theatre-operating revenues were $784,000 and
$885,000 for the quarters ended June 29, 2000 and July 1, 1999,
For the quarter ended June 30, 2000, the theatre operating revenues of
$784,000 were reported. For the quarter ended July 1, 1999, the net revenues
from Management Company of $558,000 were reported. The net theatre revenues
$558,000 are comprised of the $885,000 in theatre operating revenues less
$327,000 in direct operating expenses that were paid by the third party
management company.
For the quarters ended June 29, 2000 and July 1, 1999, the theatre
operating costs, including onsite management fees, increased from $63,000 to
$437,000. $327,000 of this
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increase was due to operating expenses paid by the management company for the
quarter ended July 1, 1999 being netted against theatre operating revenues.
For the quarters ended June 29, 2000 and July 1, 1999, OBI's net income
(loss) amounted to ($92,000) and $88,000, respectively. The decrease in net
income for the 2000 quarter was principally attributable to a $91,000 decrease
in theatre revenue, and a $47,000 increase in operating costs and expenses, a
22,000 increase in general and administrative expenses provided by an affiliated
company, and a $30,00 increase in legal fees related to a litigation that ended
in February 1999. The decrease in theatre revenue in the 2000 period was
principally due to the mix of live stage shows playing in each of the three
theatres in the quarter ended June 29, 2000 versus the quarter ended July 1,
1999. The increase in operating costs and expenses was due to an increase in
theatre operating wage expenses. Rent expense was higher due to a June 1999
rent increase.
Six Months Ended June 29, 2000 versus July 1, 1999
For the six months ended June 29, 2000 and July 1, 1999, the theatre
properties gross theatre box office revenues were $5,121,000 and $7,333,000,
respectively. After paying the theatres' production companies share of the gross
theatre box office revenue, theatre-operating revenues were $1,706,000 and
$1,825,000 for the six months ended June 29, 2000 and July 1, 1999,
respectively.
For the six months ended June 29, 2000, the theatre operating revenues of
$1,706,000 were reported. For the six months ended July 1, 1999, the net
revenues from Management Company of $1,186,000 were reported. The net theatre
revenues are comprised of the $1,825,000 in theatre operating revenues less
$639,000 in direct operating expenses that were paid by the third party
management company.
For the six months ended June 29, 2000 and July 1, 1999, the theatre
operating costs, including onsite management fees, increased from $121,000 to
$934,000. $639,000 of this increase was due to operating expenses paid by the
management company for the six months ended July 1, 1999 being netted against
theatre operating revenues.
For the six months ended June 29, 2000 and July 1, 1999, OBI's net income
(loss) amounted to ($12,000) and $58,000, respectively. The decrease in net
income for the 2000 quarter was principally attributable to a $119,000 decrease
in theatre revenue, and a $165,000 increase in operating costs and expenses,
offset by a $50,000 decrease in general and administrative expenses provided by
an affiliated company and a $196,00 decrease in legal fees related to a
litigation that ended in February 1999 and a $32,000 increase in litigation
related to the current six month period. The decrease in theatre revenue in the
2000 period was principally due to the mix of live stage shows playing in each
of the three theatres in the six months ended June 29, 2000 versus the six
months ended July 1, 1999. The increase in operating costs and expenses was due
to an increase in bonus fee due OBI management and an increase in theatre
operating wage expenses. Rent expense was higher due to a June 1999 rent
increase. In the six months ended July 1, 1999, general and administrative
expenses included $196,000 for legal fees in connection a litigation that ended
in February 1999, in which OBI was the plaintiff.
Year Ended December 30, 1999 versus Year Ended December 31, 1998
The theatre properties' gross theatre box office revenues were $14,283,000
and $10,993,000 for the years ended December 30, 1999 and December 31, 1998,
respectively. After paying the theatres' production companies share of the gross
theatre box office revenue, theatre-operating revenues were $3,844,000 and
$3,206,000 for the years ended December 30, 1999 and
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December 31, 1998, respectively. As OBI had engaged a management company until
November 1999, OBI did not record the revenues and expenses of the management
company, but recorded the net revenue received of $2,582,000 and $1,916,000,
respectively. The increase in net revenues from year to year resulted from a mix
change in live shows in 1999 compared to 1998.
Operating costs, including onsite management fees, increased from $308,000
for the year ended December 31, 1998 to $379,000 for the year ended December 31,
1999. As a percentage of net revenues from the management company, operating
costs were comparable for 1998 and 1999.
Rent expense increased from $209,000 in 1998 to $224,000 in 1999. Rent
expense was higher due to the lease for one theatre being extended and assigned
to OBI in June 1998 from an affiliated company.
General and administrative expenses deceased from $322,000 in 1998 to
$305,000 in 1999. In 1999, general and administrative expenses included
$225,000 for legal fees in connection with the merger of OBI. In 1998, general
and administrative expenses included $257,000 in legal fees in connection with a
litigation in which OBI was a plaintiff. The litigation matter was resolved in
1999.
General and administrative expenses for services provided by an affiliated
company increased from $460,000 in 1998 to $1,200,000 in 1999. In 1999,
$400,000 in general and administrative fees due to an affiliate was charged to
each of the three theatres. In 1998, general and administrative fees due to an
affiliate were charged $400,000 to the Orpheum theatre, $60,000 to Minetta Lane
theatre and $0 to the Union Square theatre. These general and administrative
fees are based on theatre performance.
Depreciation and amortization increased from $88,000 in 1998 to $104,000 in
1999. The increase resulted from increased depreciation and amortization of
assets placed in service in 1999.
Tax expense was $74,000 in 1998 and 1999. In 1999 tax expense was comprised
of state taxes, as OBI was a Subchapter S corporation. In 1998, one of the
company's subsidiaries was a C corporation for part of the year. Accordingly,
1998 tax expense is comprised of state taxes and federal taxes for the portion
of the year OBI's subsidiary was a C corporation.
Business Plan, Capital Resources and Liquidity of OBI
Six Months Ended June 29, 2000
Cash totaled $677,000 at June 29,2000 and 228,000 at July 1, 1999. As part
of the transferring of the management duties mentioned above, OBI had control of
the cash collected from the ticket sales of the upcoming shows. For the six
months ended 1999, the managing agent had control of this cash, which therefore
was not reflected in OBI's financial statements.
OBI expects that its source of funds in the near term will come primarily
from its operations of the live show theatres in New York City. Management
believes that the Company's source of funds will be sufficient to meet its
operational cash flow requirements for the foreseeable future.
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Fiscal 1999
Cash totaled $1,071,000 at December 30, 1999 as compared to $86,000 at
December 31, 1998. As part of the transferring of the management duties
mentioned above, OBI at December 30, 1999 had control of the cash that was
collected in advance for the live shows. In 1998, the managing agent had control
of this cash, which therefore was not reflected on OBI financial statements.
Cash flows from operating activities were $362,000 in 1998 compared to
$1,180,000 in 1999. The increase relates primarily to reduction in trade and
other receivables, increase in accounts payable and receipt of cash collected in
advance as discussed above.
Cash flows used in investing activities relate to purchases of property,
equipment and improvements and amounted to $53,000 in 1998 compared to $195,000
in 1999.
Cash flows used in financing activities are comprised solely of a
distribution to shareholders of $305,000 in 1998.
OBI expects that its source of funds in the near term will come primarily
from its operations of the live show theatres in New York City.
Management of OBI believe that existing cash balances and funds generated
from operations will be sufficient to satisfy the Company' cash requirements for
its existing operations for at least the next twelve months.
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CITADEL HOLDING CORPORATION
PRO FORMA COMBINED STATEMENT OF INCOME (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
Proforma
Citadel OBI Adjustments Consolidated
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 1,207 1,706 2,913
Operating expenses 942 141 2,801
1,718 (A)
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Operating income $ 265 $ (12) $(141) $ 112
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Non-operating income (expense) (641) - (641)
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Earnings before minority interest and taxes $ (376) $ (12) $(141) $ (529)
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Minority interest (3) - - (3)
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Earnings before taxes $ (379) $ (12) $(141) $ (532)
---------------------------------------------------------------------
Taxes (76) - - (B) (76)
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Net earnings $ (455) $ (12) $(141) $ (608)
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Basic earnings per share ($0.05) ($0.06)
=====================================================================
Diluted earnings per share ($0.05) ($0.06)
=====================================================================
</TABLE>
(A) Adjustment represents the amortization of the goodwill and capitalized
transaction costs for the six months ended June 30, 2000.
(B) Adjustment represents what the income tax expense would have been if OBI had
been a C-corporation instead of being a more tax favorable S-corporation
during the six months ended June 30, 2000 and had taxable income.
(C) Earnings per share has been calculated based on 7,958,379 shares of Class A
and 1,989,585 shares of Class B common stock, which includes the $10,000,000
stock issuance.
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CITADEL HOLDING CORPORATION
PRO FORMA COMBINED BALANCE SHEET (UNAUDITED)
JUNE 30, 2000
<TABLE>
<CAPTION>
Pro Forma
--------------------------------------------------
Acquisition Offering
Citadel OBI Adjustments Adjustments Combined
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
------
Cash and cash equivalents $ 21,440 $ 677 $ (709) (E) $ 21,408
Investment in marketable securities 2,269 - 2,269
Prepaid expenses and other current assets 1,375 315 1,690
----------------------------------------------------------------------
Total current assets $ 25,084 $ 992 $ - $ 25,367
----------------------------------------------------------------------
Rental properties, less accumulated depreciation 7,624 - 7,624
Property, equipment and improvements - 2,448 3,654 (A) 6,102
Investment in shareholder affiliate 7,000 - 7,000
Equity investment in and advances to Agriculture 2,206 - 2,206
Partnerships
Goodwill - - 3,709 (B) 3,709
Capitalized transaction costs - - 150 (C) 150
Other assets 4,236 4 4,240
----------------------------------------------------------------------
Total assets $ 46,150 $3,444 $ 7,513 $ - $ 56,398
======================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities
Accounts payable and accrued liabilities 2,017 709 150 (709) (E) 2,167
Current portion of mortgage note payable 145 145
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Total current liabilities $ 2,162 $ 709 $ 150 $ (709) $ 2,312
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Minority interest in consolidated affiliate 53 53
Other long-term liabilities 407 98 505
Long-term portion of mortgage note payable 10,798 10,798
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Total liabilities $ 13,420 $ 807 $ 150 $ (709) $ 13,668
----------------------------------------------------------------------
Stockholders' Equity
Class A Nonvoting Common Stock, par value $.01, 54 26 (D) 80
100,000,000 shares authorized, 5,335,913 issued &
outstanding
Class B Voting Common Stock, par value $.01, 13 20 7 (D) 20
20,000,000 shares authorized, 1,333,969 issued &
outstanding
(20) (D)
Additional paid-in capital 59,603 349 9,967 (D) 69,570
(349) (D)
Accumulated deficit (24,899) 2,268 (2,268) (D) (24,899)
Accumulated other comprehensive loss (43) - (43)
Note receivable from shareholder (1,998) - (1,998)
----------------------------------------------------------------------
Total stockholders' equity $ 32,730 $2,637 $ 7,363 $ - $ 42,730
----------------------------------------------------------------------
Total liabilities and stockholders' $ 46,150 $3,444 $ 7,513 $ (709) $ 56,398
equity
======================================================================
</TABLE>
The pro forma balance sheet has been prepared to reflect the acquisition and
merger of Off Broadway Theatres, Inc. by Citadel Off Broadway Theatres, Inc., a
wholly-owned subsidiary of Citadel Holding Corporation, for $10,000,000 of
Citadel Class A and Class B
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common stock shares. Pro forma adjustments are made to reflect the following:
(A) Increase the carrying value of the real estate assets of Off Broadway
Theatres, Inc. to the appraised fair market value at the merger/acquisition
date.
(B) To record the difference between the purchase price of $10,000,000 and the
fair value of net assets acquired (goodwill).
(C) The estimated capitalized transaction costs to be paid by Citadel.
(D) 2,622,466 shares of Class A and 655,616 shares of Class B common stock
shares issued for this transaction and elimination of historical OBI
capital.
(E) Pursuant to the terms of the OBI Merger Agreement, the current accounts
payable and accrued liabilities of OBI will be settled by OBI prior to
closing of the OBI Merger, thereby reducing the current assets and current
liabilities by the same amount.
<PAGE>
CITADEL HOLDING CORPORATION
PRO FORMA COMBINED STATEMENT OF INCOME (UNAUDITED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Profroma
Citadel OBI Adjustments Consolidated
----------------------------------------------------
<S> <C> <C> <C> <C>
Revenues 3,952 2,582 6,534
Operating expenses 2,851 2,212 386 (A) 5,449
----------------------------------------------------
Operating income $ 1,101 $ 370 $ (386) $ 1,085
----------------------------------------------------
Non-operating income (expense) 13,702 - - (B) 13,702
----------------------------------------------------
Earnings before minority interest $ 14,803 $ 370 $ (386) $ 14,787
and taxes
----------------------------------------------------
Minority interest (7) - - (7)
----------------------------------------------------
Earnings before taxes $ 14,796 $ 370 $ (386) $ 14,780
----------------------------------------------------
Taxes (5,309) (74) (164) (C) (5,547)
----------------------------------------------------
Net earnings $ 9,487 $ 296 $ (550) $ 9,233
====================================================
Basic earnings per share (D) $ 0.95 $ 0.93
====================================================
Diluted earnings per share (D) $ 0.95 $ 0.93
====================================================
</TABLE>
(A) Adjustment represents an increase in the amortization of goodwill and
capitalized transaction costs, which are being amortized over 10 years.
(B) Included in the OBI's operating expense are the following: (I) $1,200,000
of general and administrative expenses paid to an affiliate; and (ii)
$305,000 of legal expenses. The arrangement with the affiliate to provide
for general and administrative expenses will terminate upon closing of the
acquisition of OBI by Citadel. Thus, such expenses are not expected to
continue.
(C) Adjustment represents what income tax expense would have been if OBI had
been a C-corporation throughout calendar year 1999, instead of being a more
tax favorable S-corporation.
(D) Basic and diluted earning per share were calculated as if the 2,622,466 and
655,616 shares of Class A and Class B common stock shares were issued as of
January 1, 1999. The average weighted shares used to calculate the earnings
per share was 9,947,641.
