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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 2000
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MALIBU ENTERTAINMENT WORLDWIDE, INC.
717 North Harwood, Suite 1650
Dallas, Texas 75201
(214) 210-8701
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Incorporated in Georgia SEC File No.: 0-22458 IRS Employer Id. No.: 58-1949379
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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 November 9, 2000, 57,142,547 shares of the Company's Common Stock were
outstanding.
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MALIBU ENTERTAINMENT WORLDWIDE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
2000 DECEMBER 31,
(UNAUDITED) 1999
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<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 5,364,649 $ 1,873,074
Restricted cash 1,493,788 1,527,493
Inventories 1,095,289 1,066,042
Current portion of notes receivable 11,958 25,436
Assets held for sale 12,824,621 14,771,621
Prepaid expenses 561,226 553,545
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Total current assets 21,351,531 19,817,211
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Property and equipment, less accumulated depreciation 35,772,595 38,915,251
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Other noncurrent assets
Investments in and advances to limited partnerships 121,987 188,986
Other assets 126,840 152,341
Debt issuance costs, less accumulated amortization 132,990 1,145,009
Intangible assets, less accumulated amortization 748,384 782,076
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Total other noncurrent assets 1,130,201 2,268,412
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$ 58,254,327 $ 61,000,874
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of notes payable $ 20,904,302 $ 9,726,776
Accounts payable 1,043,923 2,353,195
Accrued expenses 6,422,930 6,363,829
Accrued expenses related to assets held for sale 540,761 610,902
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Total current liabilities 28,911,916 19,054,702
Line of credit -- 7,500,000
Term loan revolver -- 2,500,000
Notes payable 2,199,867 2,616,666
Dividends on preferred stock 2,049,292 3,383,475
Other accrued expenses 1,878,642 1,901,784
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Total liabilities 35,039,717 36,956,627
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Commitments and contingencies
Shareholders' equity
Preferred stock, 6,000,000 shares authorized with no par value; $100,000 liquidation value
Series AA, 5000 shares authorized; 153.94 and 143.71 outstanding 15,393,818 14,370,897
Series BB, 5000 shares authorized; 354.94 and 327.12 outstanding 29,493,772 26,711,089
Series CC, 5000 shares authorized; 533.70 and 500.58 outstanding 53,370,261 50,058,192
Series F, 2,700,000 authorized; none outstanding
Series G, 213,551 authorized; none outstanding
Common stock, 100,000,000 shares authorized with no par
value; 57,142,547 shares issued and outstanding 146,311,498 145,745,010
Outstanding warrants 60,100 435,100
Accumulated deficit (221,414,839) (213,276,041)
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Total shareholders' equity 23,214,610 24,044,247
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$ 58,254,327 $ 61,000,874
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MALIBU ENTERTAINMENT WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
OPERATING REVENUES
Entertainment revenue $ 13,052,752 $ 12,865,221 $ 34,945,379 $ 33,630,939
------------ ------------ ------------ ------------
OPERATING EXPENSES
Entertainment expenses 9,119,677 10,220,315 25,836,260 27,426,984
General and administrative expenses 1,319,510 1,245,163 4,062,029 3,888,554
Other expenses 235,698 142,769 693,571 329,030
Depreciation and amortization 1,296,401 2,190,535 3,702,191 6,305,030
------------ ------------ ------------ ------------
Total operating expenses 11,971,286 13,798,782 34,294,051 37,949,598
------------ ------------ ------------ ------------
Operating income (loss) 1,081,466 (933,561) 651,328 (4,318,659)
OTHER (EXPENSE) INCOME
Interest expense (1,084,819) (1,012,334) (3,572,975) (6,624,744)
Interest income 86,015 11,626 166,348 28,950
Other, net 17,520 (194,609) (84,678) (126,975)
------------ ------------ ------------ ------------
Net income (loss) before extraordinary item 100,182 (2,128,878) (2,839,977) (11,041,428)
EXTRAORDINARY ITEM
Debt forgiveness -- -- 484,669 --
------------ ------------ ------------ ------------
Net income (loss) $ 100,182 $ (2,128,878) $ (2,355,308) $(11,041,428)
============ ============ ============ ============
NET LOSS APPLICABLE TO COMMON STOCK
Net income (loss) $ 100,182 $ (2,128,878) $ (2,355,308) $(11,041,428)
Less: Preferred stock dividends (non-cash) 2,049,290 1,485,428 5,783,492 1,485,428
------------ ------------ ------------ ------------
Net loss applicable to common stock $ (1,949,108) $ (3,614,306) $ (8,138,800) $(12,526,856)
============ ============ ============ ============
Basic and diluted loss per share of common stock $ (0.03) $ (0.07) $ (0.14) $ (0.26)
============ ============ ============ ============
Weighted average number of shares of
common stock used in calculating
net loss per share 57,142,547 51,204,277 57,142,547 48,091,043
============ ============ ============ ============
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MALIBU ENTERTAINMENT WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
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Operating activities:
Net loss $ (2,355,308) $(11,041,428)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities
Depreciation and amortization 3,702,191 6,305,030
Interest expense associated with amortization of loan costs 1,393,656 800,995
Extraordinary item (484,669) --
Non-cash compensation expense 191,488 255,320
Loss (gain) on sale of property and equipment 16,981 (76,087)
Changes in assets and liabilities
Increase in inventories (43,939) (176,775)
Increase in prepaid expenses and other assets 48,954 291,608
Increase in debt issuance costs
and intangible assets (400,000) --
Decrease in accounts payable (1,309,272) (1,744,480)
Increase in accrued expenses 66,934 1,272,957
Increase in accrued interest due shareholder -- 3,409,899
Decrease in assets held for sale 741,711 143,410
Decrease in accrued expenses related to assets
held for sale (70,141) (269,551)
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Cash provided by (used in) operating activities 1,498,586 (829,102)
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Investing activities:
Purchases of property and equipment (676,966) (3,805,639)
Proceeds from disposal of property and equipment 1,310,377 757,038
Proceeds from sale-leaseback of property -- 8,872,942
Principal receipts under notes receivable 13,478 14,652
Decrease in investments in and advances to
limited partnerships 66,999 146,234
Decrease (increase) in restricted cash 33,705 (336,498)
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Cash provided by investing activities 747,593 5,648,729
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Financing activities:
Proceeds from borrowings 2,781,755 8,398,793
Payments of borrowings (1,536,359) (12,810,751)
Issuance of preferred stock -- 450,000
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Cash provided by (used in) financing activities 1,245,396 (3,961,958)
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Increase in cash and cash equivalents 3,491,575 857,669
Cash and cash equivalents, beginning of period 1,873,074 237,336
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Cash and cash equivalents, end of period $ 5,364,649 $ 1,095,005
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Cash paid for interest $ 2,104,341 $ 1,397,522
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Non-cash dividends on preferred stock $ 5,783,492 $ --
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MALIBU ENTERTAINMENT WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
1. 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,
therefore, operating results for the nine month period ended September 30, 2000
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2000.
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, 1999. Among other things, the auditor's opinion accompanying
the Company's financial statements for the year ended December 31, 1999 includes
a going-concern qualification.
2. ASSET SALES
In February 2000, the Company sold its McAllen, Texas facility for a
profit participation based on future income earned at the location for the next
5 years. In calendar year 1999, this facility generated $0.8 million of net
revenues and $0.2 million of operating losses. Substantially all of the assets
were transferred to the new owner.
In the third quarter, two raw land properties were sold for total net
proceeds of $686,000. In addition, the Company sold an operating park for total
net proceeds of $486,000. Proceeds from all three sales were used to pay down
the Company's primary lender. In November 2000, the Company closed the sale of
another property for approximately $4.5 million. The net proceeds of the sale
were used to pay down the Company's primary lender in accordance with the
amended loan agreement and to fund working capital requirements.
3. DEBT OBLIGATIONS
In September 2000, the Company and its primary lender amended the
Company's credit agreement to (i) restructure the repayment schedule of $20.4
million of secured debt; (ii) eliminate all covenants that require the Company
to maintain financial ratios and similar financial requirements; (iii) remove
certain restrictions on the Company in connection with asset divestitures; (iv)
in all but one case, require 80% of the proceeds of divestitures to repay this
debt instead of specific dollars amounts; and (v) establish a specific asset
marketing and disposition plan. In addition, the restructured agreement requires
the debt to be reduced as follows: to $17 million by November 30, 2000, to $9
million by April 30, 2001 and to $5 million by June 30, 2001. The Company closed
on the sale of a property in November which provided the funds sufficient to
satisfy the November 30, 2000 repayment requirement.
The Company also restructured its debt obligations with another lender,
which resulted in debt forgiveness of approximately $485,000 during the second
quarter.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources; Recent Developments
The Company's internally generated cash has been insufficient to fund its
working capital, debt service and capital expenditure
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requirements for the past several years. The Company historically funded its
operations and capital expenditures principally through external financing,
sales of non-core assets, and cash flow from operations.
In September 2000, the Company and its primary lender amended the
Company's credit agreement to (i) restructure the repayment schedule of $20.4
million of secured debt; (ii) eliminate all covenants that require the Company
to maintain financial ratios and similar financial requirements; (iii) remove
certain restrictions on the Company in connection with asset divestitures; (iv)
in all but one case, require 80% of the proceeds of divestitures to repay this
debt instead of specific dollars amounts; and (v) establish a specific asset
marketing plan. In addition, the restructured agreement requires the debt to be
reduced as follows: to $17 million by November 30, 2000, to $9 million by April
30, 2001 and to $5 million by June 30, 2001. The Company closed on a property
sale in November 2000 which provided the funds sufficient to satisfy the
November 30, 2000 repayment requirement. The amended credit agreement requires
the Company to generate cash to fund its working capital, debt service, capital
expenditure requirements and to repay indebtedness. If the Company is
unsuccessful in selling assets, in obtaining other financing, in modifying the
terms of its existing indebtedness or if the proceeds of such sales are
significantly less than their recorded value, the Company will be required to
take extraordinary steps to preserve cash and satisfy its obligations or to
restructure its obligations, including seeking to curtail normal operations at
various facilities, liquidating assets or significantly altering its operations.
There can be no assurance that the Company will be able to take such actions or,
if so, as to the timing, terms or effects thereof. If the Company is unable to
take such actions or they are not sufficient to permit the Company to continue
to operate, the Company may seek or be forced to seek to restructure or
reorganize its liabilities, including through proceedings under the federal
bankruptcy laws.
At September 30, 2000, the Company had $21.4 million of current assets
(including $1.5 million of restricted cash) and $ 28.9 million of current
liabilities (including $20.9 million of current debt), or negative working
capital of $7.5 million (compared to working capital of $0.8 million at December
31, 1999, which included $1.5 million of restricted cash).
The Company's principal uses of cash during the nine months ended
September 30, 2000 were to pay debt ($1.5 million) and capital expenditures
($0.7 million). During the nine months ended September 30, 2000, the Company
financed its operations primarily through borrowings from its primary lender
($2.8 million) and disposition of property ($1.3 million).
Seasonality
The business of the Company is 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 nine months ended September 30, 2000 are not necessarily indicative of the
Company's future results of operations.
Results of Operations
For the three months ended September 30, 2000, the Company had a net
loss to common shareholders of $1.9 million ($0.03 per common share), compared
to a net loss of $3.6 million ($0.07 per common share) for the comparable period
last year. For the nine months ended September 30, 2000, the Company had net
loss to common shareholders of $8.1 million ($0.14 per common share), compared
to a net loss of $12.5 million ($0.26 per common share) for the comparable
period last year.
Entertainment revenue increased by $0.2 million (1%) and $1.3 million
(4%) respectively, for the three and nine months ended September 30, 2000 from
$12.9 million and $33.6 million for the three and nine months ended September
30, 1999 to $13.1 million and $34.9 million for the three and nine months ended
September 30, 2000. The increase in revenue is primarily due to a fully staffed
group sales force in 2000, price increases implemented in the first quarter of
2000 and increased revenues from the parks on which significant renovations were
performed in the latter part of 1999. The increase was partially offset by the
loss in revenues on the facilities that were sold in 2000.
Entertainment expenses decreased by $1.1 million (11%) and $1.6 million
(6%) respectively, for the three and nine months ended September 30, 2000 from
$10.2 million and $27.4 million for the three and nine months ended September
30, 1999 to $9.1 million and $25.8 million for the comparable periods in 2000.
The decrease is primarily due to reductions in payroll and operating costs.
General and administrative expenses for the three and nine months ended
September 30, 2000 were essentially unchanged from the comparable period in
1999.
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Depreciation and amortization for the three and nine months ended
September 30, 2000 decreased by $0.9 million and $2.6 million respectively, due
principally to the writedown of assets during the fourth quarter of 1999 in
compliance with Statement of Financial Accounting Standards No. 121.
Interest expense decreased by $3.1 million for the nine months ended
September 30, 2000, as compared to the comparable period in the prior year due
to the recapitalization completed in 1999 described in the Company's 1999 Form
10-K.
Stock Listing
In June 2000, the Company withdrew its appeal of the American Stock
Exchange's ("AMEX") decision to de-list the Company's stock. As previously
reported, the Company did not meet the published guidelines for continued
listing on the AMEX. The Company ceased trading on the AMEX on June 25, 2000.
Currently, the Company's common shares are quoted on the National Association of
Securities Dealers' ("NASDAQ) Electronic Bulletin Board (the "OCTBB"). The new
trading symbol for the Company is "MBEW".
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A portion of the Company's long-term debt as of September 30, 2000 bore
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 included in
the Company's 1999 Form 10-K. At September 30, 2000, the Company did 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 Company's borrowings at September 30, 2000, if the prime
rate were to increase by 1%, the Company's cash flow and interest expense would
increase by approximately $0.2 million. However, management has determined that
this does not materially effect the Company's financial position or results of
operations. In addition, because the Company does not use financial instruments,
it does not expect the implementation of Statement of Financial Accounting
Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging
Activities" to have a significant impact on its financial position or results of
operations.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Due to the nature of the attractions at the Company's entertainment
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 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 any 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's management with respect to future
events and are subject to certain risks, uncertainties and assumptions relating
to the Company's ability to obtain additional capital resources and/or working
capital, the Company's operations and results of operations of the Company and
the success of the Company's business and plan, 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;
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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, economics 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 intended. Accordingly, shareholders are cautioned not to place undue
reliance on such forward-looking statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit No. Description
27 Financial Data Schedule (for SEC purposes only)
10.29 Amendment Number Twelve to Consolidated, Amended and Restated
Loan and Security Agreement.
10.30 Subsidiary Joinder to Amendment Number Twelve
(b) No reports of Form 8-K were filed during the period covered by this
report.
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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
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R. Scott Wheeler
Chief Financial Officer
November 13, 2000
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INDEX TO EXHIBITS
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EXHIBIT
NUMBER DESCRIPTION
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27 Financial Data Schedule (for SEC purposes only)
10.29 Amendment Number Twelve to Consolidated, Amended and Restated
Loan and Security Agreement.
10.30 Subsidiary Joinder to Amendment Number Twelve
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