<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
Mountasia Entertainment International, Inc.
5895 Windward Parkway, Suite 220
Alpharetta, GA 30202-4128
(770) 442-6640
--------------------------------------------------
(Name, address and telephone number of Registrant)
Georgia Commission File No. 0-22458 58-1949379
------------------------ ----------------------------- -------------
(State of Incorporation) (IRS Employer
I.D. No.)
The Registrant (1) had filed all reports required to be filed by Section 12, 13
or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months
and (2) has been subject to such filing requirements for at least the past 90
days.
The number of shares outstanding of the Registrant's Common Stock as of
November 6, 1996 was 28,175,628. The Company has obligations to issue a
substantial number of shares of Common Stock under outstanding convertible
securities and other obligations. See Item 2 of Part I of this report.
<PAGE> 2
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements
MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1996 1995 1995
(UNAUDITED) (UNAUDITED)
--------------- -------------- ---------------
<S> <C> <C> <C>
ASSETS
Current
Cash and cash equivalents $ 2,324,870 $ 1,549,338 $ 7,196,026
Restricted cash 1,059,862 2,116,546 2,107,165
Restricted certificates of deposit 3,169,429 3,127,208
Accounts receivable, net of allowance for doubtful accounts 557,592 79,708 161,137
Inventories 1,578,530 1,551,180 1,855,545
Current portion of notes receivable 597,345 391,491 393,069
Other current assets 8,739,962 2,763,912 1,111,060
--------------- -------------- ---------------
Total current assets 14,858,161 11,621,604 15,951,210
--------------- -------------- ---------------
Property and equipment, less accumulated depreciation 80,966,564 71,482,152 70,884,585
--------------- -------------- ---------------
Other noncurrent
Investments in and advances to limited partnerships 5,985,005 5,111,847 5,129,758
Notes receivable 279,001 1,042,528 1,062,387
Earnest money deposits 1,048,881 418,821
Other assets 370,285 697,634 630,431
Debt issuance costs, less accumulated amortization 2,343,290 1,532,135 2,037,463
Intangible assets, less accumulated amortization 10,532,504 4,414,112 4,498,776
--------------- -------------- ---------------
Total other noncurrent assets 20,558,966 13,217,077 13,358,815
--------------- -------------- ---------------
Total Assets $ 116,383,691 $ 96,320,833 $ 100,194,610
=============== ============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of notes payable $ 1,452,060 $ 17,663,706 $ 10,406,788
Convertible subordinated debentures 5,650,000 5,650,000
Current portion of liability for guaranteed stock values 1,419,730 1,151,238
Accounts payable 1,797,631 1,227,808 1,239,903
Accrued expenses 6,330,317 6,234,270 5,746,412
Reserve for discontinued operations 795,000
Income taxes payable 9,888 9,888 9,888
--------------- -------------- ---------------
Total current liabilities 9,589,896 33,000,402 24,204,229
Notes payable 8,277,830 6,834,514 15,545,067
Convertible subordinated debentures 21,666,369 6,518,334 8,500,000
Other accrued expenses 546,127 448,858 460,418
Deferred revenue 1,856,248 2,444,140
Deferred income taxes 674,021 674,021 674,021
--------------- -------------- ---------------
Total liabilities 40,754,243 49,332,377 51,827,875
--------------- -------------- ---------------
Liability for guaranteed stock values 775,998 1,694,381 1,377,626
--------------- -------------- ---------------
Shareholders' equity
Preferred stock, 6,000,000 shares authorized with no par value
Class A, 2,000 shares authorized, 0, 30 and 1,150 shares issued
and outstanding 470,686 11,575,616
Class B, 2,000 shares authorized, 0, 430 and 0 shares issued
and outstanding 4,300,000
Class C, 1,000 shares authorized, 0, 50 and 0 shares issued
and outstanding 500,000
Common stock, 100,000,000 shares authorized with no
par value; 27,960,927, 10,079,834 and 7,850,868 shares
issued and outstanding 96,316,803 43,868,329 35,558,175
Outstanding warrants 2,440,100 3,064,933 2,683,333
Unearned compensation (497,222) (250,000)
Notes receivable from employees (5,884,125)
Accumulated deficit (18,019,328) (6,412,651) (2,578,015)
--------------- -------------- ---------------
Total shareholders' equity 74,853,450 45,294,075 46,989,109
Commitments and contingencies
--------------- -------------- ---------------
Total liabilities and shareholders' equity $ 116,383,691 $ 96,320,833 $ 100,194,610
=============== ============== ===============
</TABLE>
2
<PAGE> 3
MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
<S> <C>
OPERATING REVENUES
Entertainment revenue $ 11,955,996 $ 11,234,228 $ 29,192,106 $ 28,199,235
Development and construction revenue from related parties 2,251,214 8,091,473
Formation and development revenue 542,500 1,600,000
Other 444,165 1,028,862 1,362,281 1,935,921
------------ ------------ ------------- ------------
Total operating revenues 12,400,161 15,056,804 30,554,387 39,826,629
------------ ------------ ------------- ------------
OPERATING EXPENSES
Family Entertainment Center expenses 9,710,146 8,405,620 25,218,929 21,998,943
General and administrative expenses 2,070,897 3,730,661 7,094,258 7,000,019
Development and construction expense 2,339,949 7,440,901
------------ ------------ ------------- ------------
Total operating expenses 11,781,043 14,476,230 32,313,187 36,439,863
------------ ------------ ------------- ------------
Depreciation and amortization 1,906,460 1,660,890 5,541,795 3,994,254
Loss due to impairment of assets 2,871,000
Realized loss on sale of securities 293,430
------------ ------------ ------------- ------------
Operating loss (1,287,342) (1,080,316) (10,171,595) (900,918)
OTHER (EXPENSE) INCOME
Interest expense (1,604,816) (858,683) (3,423,456) (2,708,334)
Interest income 88,205 124,752 163,124 337,829
Loss on settlement of strategic alliance agreements (1,005,751)
Gain associated with development and construction division 795,000
Gain associated with cancellation of warrants 86,500 422,333
Other (86,189) (163,411) 1,107,183 1,129,931
------------ ------------ ------------- ------------
Loss before benefit for income taxes and
extraordinary item (2,803,642) (1,977,658) (12,113,162) (2,141,492)
Extraordinary item (less applicable income tax benefit
of $300,000) (537,580) (537,580)
Benefit for income taxes 1,354,442 446,845 4,540,616 546,215
Equity in net (losses) earnings of limited partnerships, net of tax 73,607 (45,976) 95,554
------------ ------------ ------------- ------------
Net loss $ (1,986,780) $ (1,457,206) $ (8,156,102) $ (1,499,723)
============ ============ ============= ============
NET LOSS APPLICABLE TO COMMON STOCK
Net loss before extraordinary item $ (1,449,200) $ (1,457,206) $ (7,618,522) $ (1,499,723)
Less: Preferred stock dividends (379,680)
------------ ------------ ------------- ------------
Net loss applicable to common stock before
extraordinary item (1,449,200) (1,457,206) (7,998,202) (1,499,723)
Extraordinary item (537,580) (537,580)
------------ ------------ ------------- ------------
Net loss applicable to common stock $ (1,986,780) $ (1,457,206) $ (8,535,782) $ (1,499,723)
============ ============ ============= ============
Net loss per share of common stock before
extraordinary item $ (0.07) $ (0.18) $ (0.58) $ (0.19)
Extraordinary item (0.03) (0.04)
------------ ------------ ------------- ------------
Net loss per share of common stock $ (0.10) $ (0.18) $ (0.62) $ (0.19)
============ ============ ============= ============
Weighted average number of shares of
common stock and common stock equivalents
used in calculating net loss per share 18,151,057 8,047,433 13,867,288 7,901,366
============ ============ ============= ============
</TABLE>
3
<PAGE> 4
MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
PREFERRED COMMON OUTSTANDING UNEARNED
STOCK STOCK WARRANTS COMPENSATION
----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Balance, September 30, 1994 $ - $30,398,487 $ 300,000 $ -
Issuance of preferred stock 11,500,000
Issuance of common stock 13,051,923
Stock issuance costs (2,547,164)
Purchase and cancellation of stock (5,658,027)
Warrants issued in connection
with purchase of MGPC 900,000
Warrants issued in connection with
financial advisory agreement 333,333
Unearned compensation in connection
with the financial advisory agreement $ (250,000)
Warrants issued in connection with the
Company's initial public offering 650,000
Warrants issued in connection with
November 1994 equity offering 100,000
Warrants issued in connection
with NEF 25,000
Warrants issued in connection
with September 1995 equity offering 375,000
Adjustment to common stock as a result of
guaranteed stock prices 312,956
Change in unrealized loss on securities
available for sale, net of tax
Accretion of preferred stock dividends 75,616
Net loss ----------- ----------- ---------- -----------
Balance, September 30, 1995 11,575,616 35,558,175 2,683,333 (250,000)
Issuance of preferred stock 500,000
Issuance of common stock 101,364
Stock issuance costs (221,529)
Purchase and cancellation of stock (51,257)
Warrants issued in connection with
financial advisory agreement 350,000
Unearned compensation in connection
with financial advisory agreements (247,222)
Warrants issued 31,600
Adjustment to common stock as a result
of guaranteed stock prices (585,247)
Accretion of preferred stock dividends 230,001
Preferred stock converted (7,034,931) 7,034,931
Subordinated debt converted 2,031,892
Net loss ----------- ----------- ---------- -----------
Balance, December 31, 1995 5,270,686 43,868,329 3,064,933 (497,222)
Issuance of preferred stock 6,662,000
Issuance of common stock 51,006,000
Stock issuance costs (3,468,618)
Issuance of common stock to employees
Purchase and cancellation of stock (722,744)
Unearned compensation in connection
with the financial advisory agreements 234,722
Warrants issued 60,000
Adjustment to common stock as a result
of guaranteed stock prices (680,338)
Accretion of preferred stock dividends 275,000
Accretion of preferred stock discount 548,500
Preferred stock converted (3,497,126) 3,725,077
Preferred stock redeemed (5,878,000)
Subordinated debt converted 2,589,097
Preferred stock converted to
subordinated debt (3,160,500)
Payment of dividends (138,455)
Cancellation of warrants (684,833) 262,500
Adjust previous accretion of dividends
to actual (82,105)
Net loss ----------- ----------- ---------- -----------
Balance, September 30, 1996 $ - $96,316,803 $2,440,100 $ -
=========== =========== ========== ===========
-
<CAPTION>
UNREALIZED
NOTES LOSS ON
RECEIVABLE SECURITIES RETAINED
FROM AVAILABLE EARNINGS
EMPLOYEES FOR SALE (DEFICIT) TOTAL
----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Balance, September 30, 1994 $ - $(227,714) $ 1,355,995 $ 31,826,768
Issuance of preferred stock 23,000,000
Issuance of common stock 13,051,923
Stock issuance costs (862,500) (3,409,664)
Purchase and cancellation of stock (5,658,027)
Warrants issued in connection
with purchase of MGPC 900,000
Warrants issued in connection with
financial advisory agreement 333,333
Unearned compensation in connection
with the financial advisory agreement (250,000)
Warrants issued in connection with the
Company's initial public offering 650,000
Warrants issued in connection with
November 1994 equity offering 100,000
Warrants issued in connection
with NEF 25,000
Warrants issued in connection
with September 1995 equity offering 375,000
Adjustment to common stock as a result of
guaranteed stock prices 312,956
Change in unrealized loss on securities
available for sale, net of tax 227,714 227,714
Accretion of preferred stock dividends (75,616) 75,616
Net loss (2,995,894) (2,995,894)
----------- --------- ------------- ------------
Balance, September 30, 1995 - - (2,578,015) 58,564,725
Issuance of preferred stock 1,000,000
Issuance of common stock 101,364
Stock issuance costs (36,617) (258,146)
Purchase and cancellation of stock (51,257)
Warrants issued in connection with
financial advisory agreement 350,000
Unearned compensation in connection
with financial advisory agreements (247,222)
Warrants issued 31,600
Adjustment to common stock as a result
of guaranteed stock prices (585,247)
Accretion of preferred stock dividends (230,001) 230,001
Preferred stock converted (7,034,931)
Subordinated debt converted 2,031,892
Net loss (3,568,018) (3,568,018)
----------- ----------- ------------- ------------
Balance, December 31, 1995 - - (6,412,651) 50,564,761
Issuance of preferred stock 13,324,000
Issuance of common stock 51,006,000
Stock issuance costs (531,657) (4,000,275)
Issuance of common stock to employees (5,884,125) (5,884,125)
Purchase and cancellation of stock (722,744)
Unearned compensation in connection
with the financial advisory agreements 234,722
Warrants issued 60,000
Adjustment to common stock as a result
of guaranteed stock prices (680,338)
Accretion of preferred stock dividends (379,680) 170,320
Accretion of preferred stock discount (2,621,343) (1,524,343)
Preferred stock converted (3,269,175)
Preferred stock redeemed (11,756,000)
Subordinated debt converted 2,589,097
Preferred stock converted to
subordinated debt (6,321,000)
Payment of dividends (276,910)
Cancellation of warrants (422,333)
Adjust previous accretion of dividends
to actual 82,105 (82,105)
Net loss (8,156,102) (8,156,102)
----------- --------- ------------- ------------
Balance, September 30, 1996 $(5,884,125) $ - $ (18,019,328) $ 74,853,450
=========== ========= ============= ============
</TABLE>
4
<PAGE> 5
MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
<S> <C> <C>
Operating activities:
Net loss $ (8,156,102) $ (1,499,723)
Extraordinary item, net of income taxes 537,580
Adjustments to reconcile net loss to
net cash used by operating activities
Syndication revenue (1,050,000)
Equity in net losses (earnings) of limited partnerships,
net of tax (95,554)
Allowance for doubtful accounts 470,000 793,617
Depreciation and amortization 5,541,795 3,994,254
Deferred income taxes (1,417,000)
Loss on impairment of assets 2,871,000
Amortization of warrants 234,722 408,333
Issuance of warrants 60,000
Gain associated with cancellation of warrants (422,333)
Gain associated with development and construction
division (795,000)
Realized loss on securities available for sale 293,430
(Gain) loss on sales or write off of property and
equipment (1,107,183) 146,202
-------------- --------------
(765,521) 1,573,559
Changes in assets and liabilities, net of acquisition
Increase in accounts receivable (867,884) (504,351)
Decrease (increase) in inventory 56,650 (238,979)
Increase in other assets (5,336,425) (429,120)
Increase (decrease) in accounts payable 569,823 (909,205)
Increase in accrued expenses (103,217) 123,581
Increase in income taxes payable 9,888
(Decrease) increase in deferred revenue (1,856,248) 2,444,140
-------------- --------------
Cash (used) provided by operating activities (8,302,822) 2,069,513
-------------- --------------
Investing activities:
Purchases of property and equipment (4,826,904) (633,873)
Proceeds from sale of property and equipment 3,460,683 1,600,331
Proceeds from sale of securities available for sale 2,665,921
Increase in notes receivable (435,745) (300,329)
Principal receipts under notes receivable 27,315 66,116
Increase in investments in and advances to
limited partnerships (2,913,720) (1,251,236)
(Increase) decrease in restricted cash 1,056,684 (448,633)
(Increase) decrease in restricted certificates of deposit 1,925,686 (761,833)
Increase in earnest money deposits (630,060)
Purchase of facilities (609,097) (4,036,399)
-------------- --------------
Cash used by investing activities (2,945,158) (3,099,935)
-------------- --------------
Financing activities:
Proceeds from borrowings 40,391,379 1,312,455
Proceeds from issuance of subordinated debentures 8,500,000
Payments of borrowings (59,116,981) (13,560,304)
Increase in debt issuance costs (1,752,548) (1,679,178)
Issuance of preferred stock 6,662,000 11,500,000
Redemption of preferred stock (7,398,690)
Redemption of subordinated debentures (4,003,598)
Issuance of common stock 45,121,875 5,167,716
Stock issuance costs (4,000,275) (1,033,087)
Payment of guaranteed stock values (3,018,451)
Purchase of stock (722,744) (5,089,798)
Payment of dividends on preferred stock (138,455)
-------------- --------------
Cash provided by financing activities 12,023,512 5,117,804
Increase in cash and cash equivalents 775,532 4,087,382
Cash and cash equivalents, beginning of period 1,549,338 3,108,644
-------------- --------------
Cash and cash equivalents, end of period $ 2,324,870 $ 7,196,026
============== ==============
</TABLE>
5
<PAGE> 6
MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
(UNAUDITED)
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the accompanying
consolidated financial statements include all adjustments (consisting only of
normal recurring accruals) considered necessary to present fairly, in all
material respects, the consolidated financial position and results of
operations of the Company and its subsidiaries. Operating results for the nine
month period ended September 30, 1996 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1996.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's report on Form 10-K/A for the year
ended September 30, 1995.
NET LOSS PER SHARE OF COMMON STOCK
Net loss per share of Common Stock is computed by dividing net loss applicable
to Common Stock by the weighted average number of shares of Common Stock
outstanding during the periods.
CERTAIN ACCOUNTING EFFECTS
In January 1996, the Company changed its fiscal year end from the twelve months
ended September 30th to the twelve months ended December 31st. Additionally,
in 1996, the Company effected a recapitalization (the "Recapitalization")
pursuant to which, among other things, the Company refinanced certain
indebtedness, including indebtedness which was then in default and therefore,
classified as a current liability , incurred losses as a result of the
impairment of certain assets and recognized substantial costs and expenses
related to various transactions. As a result, the Company's financial position
and results of operations as of or for a period ended on a particular date are
not fully comparable to prior periods.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Introduction--Recapitalization
In the third quarter of 1996, the Company closed on a loan agreement ("Senior
Credit Facility") to provide up to $25 million in senior secured borrowings.
The Company also closed on an equity investment agreement with an investment
group (the "Equity Investment Group") providing for an initial equity
commitment of $62.7 million with an additional $30 million to backstop certain
rights offerings made available to all shareholders.
The Senior Credit Facility is comprised of a $12.5 million senior secured term
loan and a $7.5 million senior secured revolving credit facility, with a "best
efforts" commitment for an additional $5 million term loan. Each credit
facility matures in August 2001 with no interim principal amortization. The
credit facilities are secured by substantially all of the Company's assets and
bear interest at a floating rate.
6
<PAGE> 7
Under the Senior Credit Facility, the Company is required to maintain
affirmative covenants regarding among other things, the maintenance of certain
financial ratios and net worth. At September 30, 1996, the Company was in
compliance with those covenants.
In connection with the closing of the Investment Agreement with the Equity
Investment Group, the Company initially received $40 million in exchange for
11,727,970 shares of Common Stock. In addition, the Company has the right to
require the Equity Investment Group, in certain circumstances, and the Equity
Investment Group, has the option, to invest up to an additional $22.7 million
in Common Stock (or, if shareholder approval of such investment is not
obtained, non-voting preferred stock at a per share price equal to 85% of the
per share price for voting stock). The Equity Investment Group has also agreed
to provide up to $30 million to backstop certain future rights offerings to the
Company's shareholders. In addition, as contemplated by the Investment
Agreement, the Company sold 2,210,000 shares to employees, the purchase of
which, was financed with the Company by recourse loans made to the employee
purchasers.
The Equity Investment Group has the right to be issued additional shares of
Common Stock in the circumstances described under "Certain Additional Terms of
the Recapitalization" below.
Results of Operations
The Company's operations for the three months ended September 30, 1996,
resulted in a net loss of $2.0 million ($0.10 per share) as compared to a net
loss of $1.5 million ($0.18 per share) for the comparable period in the prior
year. For the nine months ended September 30, 1996, the Company's operations
resulted in a net loss of $8.2 million ($0.62 per share) as compared to a net
loss of $1.5 million ($.19 per share) in the comparable period last prior year.
The Company presently expects to continue to report losses from operations
until the Company's growth strategy is implemented and the effects thereof are
realized. The Company presently expects to renovate and upgrade eight to ten
of its family entertainment centers ("FECs") commencing this winter and to
develop a prototype facility over the course of 1997 for expected roll-out in
1998. In addition, the Company is pursuing possible acquisition opportunities
in accordance with its growth strategy, but there can be no assurance that the
Company will be able to effect any such acquisition or, if so, as to the timing
or terms thereof.
Operating revenues
Total operating revenues for the three months ended September 30, 1996 declined
by $2.7 million (18%) to $12.4 million and by $9.3 million (23%) to $30.6
million, as compared to the comparable periods in the prior year.
Entertainment revenue increased $.7 million (6%) to $12.0 million and $1.0
million (4%) to $29.2 million for the three and nine months, respectively, as
compared to the prior year. The increase in entertainment revenue was
primarily due to the recognition of entertainment revenue for two FECs leased
since January 1996 and three FECs acquired in August 1996. These increases in
revenue were partially offset by declines in entertainment revenue of $.6
million and $1.4 million for the three and nine month periods in 1996,
respectively, when compared to the comparable periods in the prior year, for
FECs owned in both years. The decline in year-to-year revenue for these FECs
is principally due to the deferral of maintenance expenditures and park
enhancements necessary to maintain similar levels of operating performance.
The impact of the increase in entertainment revenue was offset by a reduction
in development and construction revenue of $2.8 million and $9.7 million for
the three and nine month periods in 1996, when compared to comparable periods
in the prior year due to the discontinuation, in December 1995, of development
and construction activities for limited partnerships. Other revenues also
declined to $.4 million and $1.4 million for the three and nine months ended
September 30, 1996, respectively, a three and nine month decline of $.6 million
due to a reduction in management fees and rental income related to
7
<PAGE> 8
revenue recognized in 1995 and a portion of 1996 from the FECs now leased and
acquired as previously discussed.
Operating expenses
Total operating expenses declined by $2.7 million (19%) to $11.8 million
and by $4.1 million (11%) to $32.3 million for the three and nine months ended
September 30, 1996, respectively, as compared to the comparable periods of the
prior year. The decline in operating expenses is primarily due to the
discontinuation of development and construction services previously provided to
limited partnerships which totaled $2.3 million and $7.4 million for the three
and nine months ended September 30, 1995, respectively.
FEC operating expenses increased by $1.3 million (16%) to $9.7 million and
by $3.2 million (15%) to $25.2 million for the three and nine months ended
September 30, 1996, respectively, as compared to the comparable periods of the
previous year. These increases are primarily due to the recognition of
operating expenses related to the two newly leased FECs and the three acquired
FECs.
General and administrative expenses decreased by $1.7 million (44%) from
$3.7 million for the three months ended September 30, 1995, to $2.0 million for
the three months ended September 30, 1996 due primarily to the timing of
incurring insurance claims, legal costs and bad debt reserves.
Other operating expenses
The increase in depreciation and amortization expense of $.2 million (15%)
for the three months ended September 30, 1996 as compared to the comparable
period of the prior year is primarily due to the FECs acquired in August 1996.
The increase of $1.5 million (39%) for the nine months ended September 30, 1996
as compared to the nine months ended September 30, 1995, is primarily due to
depreciation expense recorded on assets not placed into service until the
latter part of 1995, the write off of unamortized loan costs on refinanced debt
and the three acquired FECs.
The Company determined, as a result of certain due diligence for the
Recapitalization, that the carrying value of certain assets should be adjusted
in accordance with Statement of Financial Accounting Standards No. 121, thus
the Company recorded a loss of $2.9 million during the nine month period ended
September 30 ,1996.
Other (expenses)income
The increase in interest expense of $.7 million for both the three and
nine months ended September 30, 1996 as compared to the comparable periods in
the prior year is primarily attributable to interest incurred on convertible
debentures issued pursuant to the acquisition of three FECs and higher debt
levels preceding the Recapitalization.
The Company recorded a loss of $1.0 million during the nine months ended
September 30, 1996, relating to the termination of two strategic alliance
agreements in which the Company had previously granted rights to third parties
to build, own and construct FECs domestically and internationally. In
addition, the Company recognized a gain of $.8 million associated with the
reversal of an accrual for the costs of the disposal of its development and
construction division.
The Company also recognized a gain associated with the cancellation of
previously issued warrants resulting in a gain of $1.5 million and $.4 million
for the three and nine months ended September 30, 1996, respectively.
Liquidity and Capital Resources
Cash used in operations was $8.3 million for the nine months ended
September 30, 1996, compared to cash provided by operations of $2.0 million for
the nine months ended September 30, 1995, primarily as a result of an increase
in the Company's operating loss before income taxes. The Company believes that
cash on hand,
8
<PAGE> 9
cash from operations, borrowings under the Senior Credit Facility and the
commitments from the Equity Investment Group to provide additional equity
capital in certain circumstances will be sufficient to enable the Company to
obtain the capital to fund operations and expected growth initiatives.
In connection with the Recapitalization, in July 1996, the Company redeemed 30%
of the outstanding balance of its 10% Convertible Subordinated Debentures and
its Class B Preferred Stock and the Company exchanged the remaining 70%
outstanding balance under the Class B Preferred Stock and the 10% Convertible
Subordinated Debentures into newly structured 10% Convertible Subordinated
Debentures due January 31, 1998 (the "New 10% Debentures"). The New 10%
Debentures are convertible into Common Stock at the lesser of $3.50 or the
average closing bid price for the Common Stock as determined under the terms of
the New 10% Debentures upon (i) election by the Holders' beginning November 7,
1996, or (ii) automatically on January 31, 1998. The redemption of the 10%
Debentures, along with the issuance of the New 10% Debentures resulted in the
Company recognizing a "loss on the extinguishment of debt" for the redemption
premium of 20%, along with the write off of unamortized debt issue costs of
approximately $838,000.
During the third quarter of 1996, the Debentureholders of the Company's $5.65
million aggregate principal amount of 9% Convertible Subordinated Debentures
(the "9% Debentures") waived certain past defaults under financial covenants
with respect to its 9% Debentures. Additionally, the Company amended certain
terms such that the 9% Debentures are payable only in shares of the Company's
Common Stock at the lesser of $4.50 per share or 95% of the average closing bid
price for the Common Stock as determined under the terms of the Debentures.
The 9% Debentureholders are able to convert 25% of the principal balance
currently and can convert the remaining 75% after February 1, 1997, with a
mandatory conversion on August 1, 1997.
On November 7, 1996, the Company announced that it was redeeming the New 10%
Debentures in order to comply with the requirements of the American Stock
Exchange, on which the Company's Common Stock is presently listed. Funds for
the redemption will be provided by the Equity Investment Group in exchange for
nonvoting preferred stock ("Series G Preferred"), which shares will be
convertible into Common Stock if shareholder approval is obtained.
In connection with the redemption of the New 10% Debentures, the Company also
announced that the Equity Investment Group would commence a tender offer for
shares of Common Stock at $3.50 per share and the Company's $17 million
aggregate principal amount of 9.0% and 9.1% Debentures at par plus accrued and
unpaid interest. Shares of Common Stock purchased in the tender offer will be
voted in the same proportion as shares held by shareholders, other than the
Equity Investment Group, until shareholder approval is obtained. The 9.0% and
9.1% Debentures purchased in the tender offer will be converted into equity
securities at a conversion price of $3.50 per share.
In August 1996, the Company acquired the general and limited partnership
interests which it did not own in National Entertainment Funding, L.P. ("NEF"),
the owner of three FECs in Miami, Florida; Henderson, Nevada; and McAllen,
Texas, for approximately $19,000,000, comprised of the issuance of $11,422,422
of 9.1% Subordinated Convertible Debentures due January 1, 2002, assumption of
a note payable of $4,400,000, cash of $600,000 and the assumption of NEF's net
liabilities.
Certain Additional Terms of the Recapitalization
In order to maintain the Equity Investment Group's relative equity interest in
the Company, the Equity Investment Group received a warrant (the "Investor
Warrant") under which it is entitled to receive, without any further
consideration, 0.8333 shares of Common Stock (adjustable upward proportionally
to the event the additional $22.7 million investment is made) for each share of
Common Stock issued pursuant to the conversion of the Company's 9.0%, 9.1%
and 10.0% Debentures (collectively the "Converts"), as well as, certain equity
purchase rights.
At September 30, 1996 the aggregate principal balance of converts was $21.7
million. Each of the Converts is convertible at market prices determined with
reference to the date of notice of conversion and subject to maximum conversion
prices ranging from $3.50 to $5.00 per share. The actual number of shares
issuable
9
<PAGE> 10
under the Investor warrant will vary depending upon the market price of the
Common Stock at the time of conversion.
In addition, if certain events occur which vary adversely from specified
assumptions as of the closing of the Equity Investment Group's initial
investment funding as to (i) litigation and other contingent liabilities, (ii)
the Company's ownership of certain assets and rights and (iii) the Company's
Representations and Warranties in the Investment Agreement, the Company will be
required to issue to the Equity Investment Group (without the payment of
additional consideration) the number shares of Common Stock necessary to
protect the Purchaser from the economically dilutive effects thereof.
In addition, the Company has the right in certain circumstances to cause the
Equity Investment Group to purchase, and the Equity Investment Group has the
option to purchase up to $22.7 million of additional equity securities (which
will be nonvoting until shareholder approval is obtained) at a price equal to
the Equity Investor Group's net per share price for its initial $40.0 million
investment (after issuance under the Investor Warrant and post-closing value
adjustments as described above). If any such investment is in non-voting
preferred stock rather than Common Stock, because shareholder approval for the
issuance of Common Stock has not been obtained, such preferred stock will be
issued at a 15% discount to the price at which Common Stock would have been
issued.
As part of the Recapitalization, the Company adopted an Employee Stock Purchase
Program pursuant to which up to 4,150,000 shares of Common Stock is available
for purchase by senior management pursuant to recourse financing made available
by the Company. The purchase of such allocated shares would not cause
antidilution adjustments under the Investor Warrant or the Converts. At
September 30, 1996, the Company had issued 2,210,000 shares of Common Stock for
an aggregate purchase price of $5.8 million to senior management. The Company
financed the purchase of the stock with notes which bear interest at 7.0% to
8.5% and mature five years from the date of inception.
The specific number of shares of Common Stock issuable upon exercise of the
Converts and other rights described above or pursuant to the Investment Warrant
and the post-closing adjustment provisions of the Investment Agreement cannot
be ascertained at this time because it depends upon future events, including
market prices for the Company's Common Stock, the number of shares to be issued
pursuant to the post-closing adjustment provisions of the Investment Agreement,
whether the Company or the Equity Investment Group exercises the right to
invest up to an additional $22.7 million in the Company and other factors.
However, such number is expected to be material and the issuance of such shares
could result in material dilution of the value of an equity investment in the
Company held by some shareholders.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On or about June 26, 1996, the Company was furnished a copy of a Complaint
filed in the United States District Court for the Southern District of New York
by Durham Capital Corporation ("Durham") against the Company and other
defendants, including the Equity Investment Group and an executive officer of
the Company, seeking actual damages of $1,850,000, punitive damages of
$3,700,000 and other relief based upon, among other things, a financial
advisory agreement alleged to exist between the Company and Durham and alleged
interference therewith by the Equity Investment Group. On August 21, 1996,
Durham settled the litigation upon payment by the Company of $579,500.
On or about June 26, 1995, the Company was served with a Complaint for damages
filed by WXZ Development, Inc. in the Court of Common Pleas, Franklin, Ohio.
This lawsuit arises out of the Company's purchase of some real property from
codefendant PDI Columbus II Limited Partnership. The complaint set forth
claims for relief against the Company for alleged tortiuous interference and
international interference with prospective economic opportunity. The
Complaint seeks damages on the tortiuous
10
<PAGE> 11
g
interference count in excess of $900,000 and on the intentional interference
with prospective economic opportunity in excess of $450,000. The Company
settled the lawsuit in October 1996 upon payment of $25,000.
Item 2. Exhibits and Reports on Form 8-K
Exhibits Description
- -------- -----------
Exhibit 27 Financial Data Schedule (for SEC use only)
Date Form 8-K was Filed Description
- ----------------------- -----------
September 12, 1996 Acquisition of NEF.
September 12, 1996 Amendment to Form 8-K filed June 19, 1996.
11
<PAGE> 12
SIGNATURES
In accordance with the requirements of the Exchange Act, the Company
caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC.
By: /s/ Richard M. FitzPatrick
----------------------------
Richard M. FitzPatrick
Chief Financial Officer
By: /s/ Ann C. Travis
----------------------------
Ann C. Travis
Vice President, Finance
November 12, 1996
12
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,384,732
<SECURITIES> 0
<RECEIVABLES> 1,433,938<F1>
<ALLOWANCES> 0
<INVENTORY> 1,578,530
<CURRENT-ASSETS> 14,858,161
<PP&E> 80,966,564<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 116,383,691
<CURRENT-LIABILITIES> 9,589,896
<BONDS> 31,396,259
0
0
<COMMON> 96,316,803
<OTHER-SE> (21,463,353)
<TOTAL-LIABILITY-AND-EQUITY> 116,383,691
<SALES> 29,192,106
<TOTAL-REVENUES> 30,554,387
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<TOTAL-COSTS> 40,725,982
<OTHER-EXPENSES> (1,481,889)
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<INTEREST-EXPENSE> 3,423,456
<INCOME-PRETAX> (12,113,162)
<INCOME-TAX> (4,540,616)
<INCOME-CONTINUING> (7,618,522)
<DISCONTINUED> 0
<EXTRAORDINARY> (537,580)
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<NET-INCOME> (8,156,102)
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