<PAGE> 1
================================================================================
UNITED STATES
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 March 31, 1999
------------------
MALIBU ENTERTAINMENT WORLDWIDE, INC.
717 North Harwood, Suite 1650
Dallas, Texas 75201
(214) 210-8701
------------------
Incorporated in Georgia SEC File No.: 0-22458 IRS Employer Id.
No.: 58-1949379
------------------
The Company (1) has filed all reports required to be filed by Section
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 the past 90
days.
At May 13, 1999, 46,508,625 shares of the Company's Common Stock were
outstanding.
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<PAGE> 2
MALIBU ENTERTAINMENT WORLDWIDE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
1999 DECEMBER 31,
(UNAUDITED) 1998
--------------- ---------------
<S> <C> <C>
ASSETS
Current
Cash and cash equivalents $ 41,354 $ 237,336
Restricted cash 1,463,164 1,388,396
Inventories 1,221,957 1,153,923
Current portion of notes receivable 17,000 17,000
Assets held for sale 1,073,000 1,615,217
Prepaid expenses 1,134,143 1,007,459
--------------- ---------------
Total current assets 4,950,618 5,419,331
--------------- ---------------
Property and equipment, less accumulated depreciation 107,460,427 108,843,304
--------------- ---------------
Other noncurrent
Investments in and advances to limited partnerships 360,229 335,836
Notes receivable 21,699 26,405
Other assets 131,565 154,965
Debt issuance costs, less accumulated amortization 1,074,349 1,655,784
Intangible assets, less accumulated amortization 984,636 995,365
--------------- ---------------
Total other noncurrent assets 2,572,478 3,168,355
--------------- ---------------
$ 114,983,523 $ 117,430,990
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of notes payable $ 22,184,334 $ 22,182,802
Current portion of notes payable to shareholder 8,000,000 8,000,000
Accounts payable 2,793,147 4,249,065
Accrued expenses 9,256,945 9,406,008
Accrued expenses related to assets held for sale 787,554 812,152
--------------- ---------------
Total current liabilities 43,021,980 44,650,027
Line of credit 7,500,000 7,500,000
Term loan revolver 10,000,000 10,000,000
Notes payable to shareholder 60,914,967 57,809,603
Notes payable 2,794,006 3,012,691
Accrued interest due to shareholder 6,861,342 5,394,524
Other accrued expenses 1,935,810 1,785,811
--------------- ---------------
Total liabilities 133,028,105 130,152,656
--------------- ---------------
Commitments and contingencies
Shareholders' equity
Preferred stock, 6,000,000 shares authorized with no par value Series F,
2,700,000 authroized; none outstanding Series G, 213,551 authorized;
none outstanding
Common stock, 100,000,000 shares authorized with no par
value; 46,508,625 shares issued and outstanding 136,386,360 136,386,360
Outstanding warrants 1,974,600 1,974,600
Accumulated deficit (156,405,542) (151,082,626)
--------------- ---------------
Total shareholders' equity (18,044,582) (12,721,666)
--------------- ---------------
$ 114,983,523 $ 117,430,990
=============== ===============
</TABLE>
2
<PAGE> 3
MALIBU ENTERTAINMENT WORLDWIDE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED
MARCH 31,
1999 1998
------------ ------------
<S> <C> <C>
OPERATING REVENUES
Entertainment revenue $ 8,419,220 $ 9,130,367
------------ ------------
OPERATING EXPENSES
Entertainment expenses 7,843,716 9,615,307
General and administrative expenses 1,210,383 1,759,330
Other expenses 92,838 131,828
Depreciation and amortization 2,047,287 2,453,845
------------ ------------
Total operating expenses 11,194,224 13,960,310
------------ ------------
Operating loss (2,775,004) (4,829,943)
OTHER (EXPENSE) INCOME
Interest expense (2,697,291) (2,986,754)
Interest income 9,696 134,220
Other, net 139,683 46,051
------------ ------------
Net loss $ (5,322,916) $ (7,636,426)
============ ============
Basic and diluted loss per share of common stock $ (0.11) $ (0.16)
============ ============
Weighted average number of shares of
common stock used in calculating
net loss per share 46,508,625 48,376,773
============ ============
</TABLE>
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MALIBU ENTERTAINMENT WORLDWIDE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
---------
1999 1998
------------ ------------
<S> <C> <C>
Operating activities:
Net loss $ (5,322,916) $ (7,636,426)
Adjustments to reconcile net loss to
net cash used by operating activities
Depreciation and amortization 2,047,287 2,453,845
Interest expense associated with amortization of
loan costs 581,435 582,483
Gain on sale of property and equipment (143,410) (36,868)
Changes in assets and liabilities
(Increase) decrease in inventories (68,034) 132,282
Increase in prepaid expenses and other assets (103,284) (10,703)
Increase in debt issuance costs
and intangible assets -- (5,585)
Decrease in accounts payable (1,455,918) (434,562)
Increase in accrued expenses 936 138,950
Increase in accrued interest due shareholder 1,466,818 980,025
Decrease in accrued expenses related to assets
held for sale (24,598) (335,708)
------------ ------------
Cash used by operating activities (3,021,684) (4,172,267)
------------ ------------
Investing activities:
Purchases of property and equipment (653,681) (1,851,173)
Proceeds from sale of property and equipment 685,627 105,570
Principal receipts under notes receivable 4,706 4,384
Increase in investments in and advances to
limited partnerships (24,393) (20,371)
Increase in restricted cash (74,768) (4,733)
------------ ------------
Cash used in investing activities (62,509) (1,766,323)
------------ ------------
Financing activities:
Proceeds from borrowings 3,105,364 2,503,682
Payments of borrowings (217,153) (238,778)
Increase in interest receivable on notes receivable
from employees -- (103,630)
------------ ------------
Cash provided by financing activities 2,888,211 2,161,274
------------ ------------
Decrease in cash and cash equivalents (195,982) (3,777,316)
Cash and cash equivalents, beginning of period 237,336 5,270,843
------------ ------------
Cash and cash equivalents, end of period $ 41,354 $ 1,493,527
============ ============
Cash Paid for Interest $ 471,717 $ 414,089
============ ============
</TABLE>
4
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MALIBU ENTERTAINMENT WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND MARCH 31, 1998
(UNAUDITED)
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 necessary to present
fairly, in all material respects, the consolidated financial position and
results of operations of the Company and its subsidiaries as of the dates and
for the periods presented. The Company's business is seasonal in nature.
Operating results for the three-month period ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's report on Form 10-K for the year
ended December 31, 1998.
NOTES PAYABLE TO SHAREHOLDER
During the three months ended March 31, 1999, the Company increased its
outstanding borrowings under two promissory notes with MEI Holdings, the
Company's largest shareholder, by approximately $3.1 million (plus accrued
interest of $1.5 million).
ASSETS HELD FOR SALE
In January 1999, the Company sold one property held for sale for $0.7
million and recorded a gain of $0.1 million. As of March 31, 1999, the Company
is holding one property for sale having an aggregate book value of $1.1 million.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Seasonality
The business of the Company is highly seasonal. Approximately
two-thirds of the Company's revenues have historically been generated during the
six-month period of April through September. As a result, the Company's
operating income can be expected to be substantially lower in the first and last
quarters of the year than the second and third quarters. Furthermore, since many
of the attractions at the parks involve outdoor activities, prolonged periods of
inclement weather result in a substantial reduction of revenues during such
periods. Accordingly, the Company believes that the results of operations for
the three months ended
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<PAGE> 6
March 31, 1999 are not necessarily indicative of the Company's future results of
operations.
Results of Operations
For the three months ended March 31, 1999, the Company had a net loss
of $5.3 million ($0.11 per share), compared to a net loss of $7.6 million ($0.16
per share) for the comparable period last year.
Operating revenue decreased by $0.7 million (or 8%) for the three
months ended March 31, 1999 from $9.1 million for the three months ended March
31, 1998 to $8.4 million for the three months ended March 31, 1999. The decrease
in revenue is primarily due to the decrease in entertainment revenue from the
FECs that were closed in 1998 ($0.5 million).
Entertainment expenses decreased by $1.8 million (or 19%) for the
quarter ended March 31, 1999 from $9.6 million to $7.8 million for the
comparable quarter in the prior year from better aligning payroll with revenue
by shifting focus to a variable, rather than fixed, workforce ($1.1 million) and
reductions in other operating costs.
General and administrative expenses decreased $0.5 million (or 31%) for
the quarter ended March 31, 1999, primarily a result of a reduction in
professional expenses.
Depreciation and amortization for the quarter ended March 31, 1999
decreased by $0.4 million from the comparable 1998 period (from $2.5 million to
$ 2.1 million) due principally to reductions in the carrying value of fixed
assets in 1998.
Interest expense decreased by $0.3 million for the quarter ended March
31, 1999 as compared to the comparable period in the prior year due to interest
rate reductions from 1998 to 1999.
Liquidity and Capital Resources
At March 31, 1999, the Company had $5.0 million of current assets
(including $1.5 million of restricted cash) and $43.0 million of current
liabilities (including $30.2 million of current debt); or negative working
capital of $38.0 million (compared to negative working capital of $39.2 million
at December 31, 1998, which amount included $1.4 million of restricted cash).
The Company's internally generated cash has been insufficient to fund
its working capital, debt service and capital expenditure requirements for the
past several years and the Company has, therefore, funded its operations and
capital expenditures principally through external financing. The Company's
largest shareholder has informed the Company that, except in the limited
circumstances and subject to the conditions described below, it is not willing
to invest additional capital in the Company unless the recapitalization
described below is completed on terms acceptable to it.
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<PAGE> 7
The Company's principal uses of cash during the first quarter 1999 were
to fund operations ($3.0 million) and capital investment ($0.7 million). During
the three months ended March 31, 1999, the Company financed its operations
primarily through a combination of debt financing provided by the Company's
largest shareholder and an entity related to the Company's largest shareholder
($3.1 million) and the sale in January 1999, of a property previously being held
for sale for $0.7 million.
Of the Company's $118.3 million of total debt at March 31, 1999
(including accrued interest), $30.2 million matures in 1999 (the "Current
Debt"). The Current Debt primarily includes $21.4 million of secured debt from a
third-party lender and an $8.0 million loan from that lender through the
Company's largest shareholder. The $8.0 million of Current Debt and an
additional $13.0 million of indebtedness (together, the "Pass-Through Debt") was
advanced to the Company's largest shareholder and reloaned to the Company as an
accommodation to the Company and the third-party lender so that the largest
shareholder's equity interests in the Company effectively supported that portion
of the third-party financing.
The Company has proposed a recapitalization plan which involves the
repayment of $11.4 million of secured debt and the conversion of $85.8 million
of other debt into preferred stock with a pay-in-kind feature. If the
recapitalization is completed, the Company would be substantially deleveraged.
The Company has entered into agreements in principle with its primary lenders
providing for the recapitalization, but such agreements are subject to the
negotiation and execution of definitive documentation and the repayment of $11.4
million of secured debt as described above. The Company has entered into
definitive sale and leaseback agreements relating to the land under its
Willowbrook, Texas and Puente Hills, California family entertainment centers.
The net proceeds of which, if completed, together with other capital resources
expected to be available to the Company, would be sufficient to fund the $11.4
million debt repayment. However, the sale and leaseback agreements are subject
to various closing conditions.
Management of the Company believes that it will be able to implement
the proposed recapitalization by the June 30, 1999 deadline presently provided
in the agreement in principle relating to it, but there can be no assurance in
this regard. If the Company is unable to refinance or restructure its
indebtedness in the proposed recapitalization or otherwise, it would be forced
to seek to obtain additional capital resources from other sources or take other
actions because the Company's present capital resources are not sufficient to
fund its projected working capital, debt service and capital expenditure
requirements. The Company's shareholders and related parties have no legal
obligation to fund the Company's operating and capital requirements in the
future. Accordingly, there can be no assurance that the Company would be able to
obtain such additional capital resources.
7
<PAGE> 8
Impact of Year 2000 Issues
The Company will be required to modify or replace portions of its computer
software and certain hardware so that those systems will properly utilize dates
beyond December 31, 1999. The Company believes that with modifications or
replacements of existing software and certain hardware, the year 2000 issue can
be mitigated. However, if such modifications and replacements are not made, or
are not completed timely, the year 2000 issue could have a material adverse
impact in the operations of the Company.
The Company relies on a significant number of computer programs and computer
technologies (collectively, "IT") and non-IT systems for its key operations,
including product design, point of sales systems, race car timing and safety
systems, finance and various administrative functions. The Company engaged a
year 2000 consultant to evaluate the current systems and prepare a plan for
addressing compliance, which was completed by year-end.
The consultant requested confirmation from all vendors of their products'
status relative to year 2000 compliance. The consultant reviewed the Company's
systems and provided a report to the Company identifying information, compliance
requirements and criticality of each system. Based on the report, the total cost
of the year 2000 project is estimated at approximately $300,000. First quarter
expenditures were nominal as the Company was reviewing and detailing the year
2000 project scope, goals and contingency plans. Estimated expenditures for the
first quarter were approximately $5,000. A majority of the costs that remain are
anticipated to occur in the second and third quarters of this year as the actual
work is completed. All major software and hardware upgrades to revenue
generating systems should be completed before the end of the third quarter.
In the event that the Company does not complete any phases of its year 2000
plan, it is possible that the Company would have to manually track sales until
the problem is resolved. In addition, disruptions in the economy generally
resulting from year 2000 issues could also materially adversely affect the
Company. The amount of lost revenue cannot be reasonably estimated at this
time. The ability of third parties with which the Company transacts business to
adequately address their year 2000 issues is outside the Company's control.
There can be no assurance that the failure of the Company or such third parties
to adequately address their respective year 2000 issues will not have a
material adverse effect on the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
A substantial portion of the Company's long-term debt bears interest at
variable rates and the Company is exposed to market risk from changes in
interest rates primarily through its borrowing activities, which are described
in the "Notes Payable" section to the Financial Statements, which are
incorporated herein by reference. At March 31, 1999, the Company did
8
<PAGE> 9
not hold any derivatives related to interest rate exposure for any of its debt
facilities and it does not use financial instruments for trading or other
speculative purposes. Based on the terms and outstanding amounts of the
Company's borrowings at March 31, 1999, the Company has determined that there is
no material interest rate risk exposures to the Company's financial position,
results of operations or cash flows as of such date.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Due to the nature of the attractions at the Company's parks, the
Company has been, and will likely continue to be, subject to a significant
number of personal injury lawsuits, certain of which may involve claims for
substantial damages. The Company also is from time to time a party to other
claims and legal proceedings, and is subject to environmental, zoning and other
legal requirements. As of the date of this Report, the Company does not believe
that any such matter is reasonably likely to have a material adverse effect on
the Company's financial position or results of operations. However, there
necessarily can be no assurance in this regard or that the Company will not be
subject to material claims or legal proceedings or requirements in the future.
ITEM 5. OTHER INFORMATION
Forward-Looking Statements
This Report (including the documents incorporated by reference herein)
contains certain forward-looking statements (as such term is defined in the
Private Securities Litigation Reform Act of 1995) and information relating to
the Company that is based on the beliefs of the Company's management, as well as
assumptions made by and information currently available to the management of the
Company. When used herein, words such as "anticipate," "believe," "estimate,"
"expect," "intend" and similar expressions, as they relate to the Company or the
Company's management, identify forward-looking statements. Such statements
reflect the current views of the Company with respect to future events and are
subject to certain risks, uncertainties and assumptions relating to the
operations and results of operations of the Company and the success of the
Company's business and proposed recapitalization plan, including as a result of
the availability, terms and cost of capital resources, the willingness of the
Company's lenders to agree to the recapitalization of the Company's debt, and
the terms thereof; competitive factors and pricing pressures; general economic
conditions; the failure of market demand for the types of entertainment
opportunities the Company provides or plans to provide in the future and for
family entertainment in general to be commensurate with management's
expectations or past experience; impact of present and future laws; ongoing need
for capital improvements; changes in operating expenses; adverse changes in
governmental rules or policies; changes in demographics and other factors.
Should one or more of these assumptions prove incorrect, actual results or
outcomes may vary materially from those described herein as anticipated,
believed, estimated, expected or
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<PAGE> 10
intended. Accordingly, shareholders are cautioned not to place undue reliance on
such forward-looking statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.26 Letter Agreement, dated April 26, 1999, between Nomura
Asset Capital Corporation and Malibu Entertainment
Worldwide, Inc. regarding extension of the recapitalization
deadline
10.27 First Amended and Restated Recapitalization Agreement
between Nomura Asset Capital Corporation, the Company,
Malibu Centers, Inc., MEI Holdings, L.P. and SZ Capital,
L.P. (Incorporated by reference to Amendment No. 20 to
the Schedule 13D-1 filed by MEI Holdings on May 14,
1999)
27 Financial Data Schedule (for SEC purposes only)
</TABLE>
(b) No reports of Form 8-K were filed during the period covered by this report.
10
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Company
caused this report to be signed on behalf by the undersigned, thereunto duly
authorized.
MALIBU ENTERTAINMENT WORLDWIDE, INC.
By: /s/ R. SCOTT WHEELER
----------------------------
R. Scott Wheeler
Chief Financial Officer
May 14, 1999
11
<PAGE> 12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.26 Letter Agreement, dated April 26, 1999, between Nomura
Asset Capital Corporation and Malibu Entertainment
Worldwide, Inc. regarding extension of the recapitalization
deadline
10.27 First Amended and Restated Recapitalization Agreement
between Nomura Asset Capital Corporation, the Company,
Malibu Centers, Inc., MEI Holdings, L.P. and SZ Capital,
L.P. (Incorporated by reference to Amendment No. 20 to
the Schedule 13D-1 filed by MEI Holdings on May 14,
1999)
27 Financial Data Schedule (for SEC purposes only)
</TABLE>
<PAGE> 1
EXHIBIT 10.26
[Nomura Letterhead]
April 26, 1999
Mr. Robert A. Whitman
Chariman
Malibu Entertainment Worldwide, Inc.
c/o The Hampstead Group
2200 Ross Avenue
Suite 4200 West
Dallas, Texas 75201
Dear Bob:
This letter is written in response to your request to extend the Closing Date
under the Recapitalization Agreement attached hereto (entered into as of March
2, 1999). According to the Recapitalization Agreement, the Closing Date will be
May 1, 1999, but may be extended to May 28, 1999 if a binding commitment has
been received by Malibu prior to May 1, 1999 to take-out the MCI Loan as
referenced in paragraph 2 of the Recapitalization Agreement.
Nomura Asset Capital Corporation hereby agrees to extend the Closing Date to May
10, 1999 if, and only if, Malibu agrees that it will either 1) provide a bona
fide binding commitment relative to the MCI Loan take-out by May 10, 1999 at the
absolute latest or 2) accept the Foothill commitment for take-out financing for
the MCI Loan referenced in paragraph 2 of the Recapitalization Agreement and pay
the required fees thereunder on May 10, 1999, and to accept the take-out
financing from Foothill prior to May 28, 1999.
Malibu's acceptance and acknowledgment of this extension condition is evidenced
by an authorized signature below. If Malibu does not accept and acknowledge this
extension condition, then the Recapitalization Agreement shall remain unextended
and unmodified.
Thank you.
AGREED AND ACCEPTED:
Nomura Asset Capital Corporation Malibu
/s/ L. W. Haberin /s/ Robert A. Whitman
- ----------------------------- ------------------------------
By: Lance W. Haberin By: Robert A. Whitman
Title: Vice President Title: Chairman of Malibu
Entertainment Worldwide, Inc.
4/30/99 4/30/99
- ------------ -----------
Date Date
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 41,354
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,221,957
<CURRENT-ASSETS> 4,950,618
<PP&E> 107,460,427<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 114,983,523
<CURRENT-LIABILITIES> 43,021,980
<BONDS> 88,070,315
0
0
<COMMON> 136,386,360
<OTHER-SE> (154,430,942)
<TOTAL-LIABILITY-AND-EQUITY> 114,983,523
<SALES> 8,419,220
<TOTAL-REVENUES> 8,419,220
<CGS> 0
<TOTAL-COSTS> 11,194,224
<OTHER-EXPENSES> (149,379)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,697,291)
<INCOME-PRETAX> (5,322,916)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,322,916)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,322,916)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
<FN>
<F1>PP&E IS NET OF ACCUMULATED DEPRECIATION.
</FN>
</TABLE>
