<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to ______________
Commission File Number 0-2380
SPORTS ARENAS, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-1944249
-------- ----------
(State of Incorporation) (I.R.S. Employer I.D. No.)
5230 Carroll Canyon Road, Suite 310, San Diego, California 92121
- - --------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (619) 587-1060
Indicate by check mark whether the registrant: (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 (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days.
Yes No X
--- ---
The number of shares outstanding of the issuer's only class of common stock
($.01 par value) as of March 31, 1995 was 27,250,000 shares.
<PAGE>
SPORTS ARENAS, INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 1995
INDEX
Part I - Financial Information:
Item 1.- Consolidated Condensed Financial Statements:
Balance Sheets as of March 31, 1995 and June 30, 1994 1-2
Statements of Operations for the Three Months Ended
March 31, 1995 and 1994 3
Statements of Operations for the Nine Months Ended
March 31, 1995 and 1994 4
Statements of Cash Flows for the Nine Months Ended
March 31, 1995 and 1994 5-6
Notes to Financial Statements 7-12
Item 2.- Management's Discussion and Analysis of Financial Condition and
Results of Operations 13-17
Part II - Other Information 18
Signatures 19
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, June 30,
1995 1994
----------- -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and equivalents $ 489,281 $ 904,744
Current portion of notes receivable 25,000 25,000
Current portion of notes receivable-affiliate 50,000 50,000
Construction contract receivables 136,043 324,418
Other receivables 28,680 55,006
Costs in excess of billings on uncompleted contracts 93,033 12,017
Prepaid expenses 256,808 183,471
----------- -----------
Total current assets 1,078,845 1,554,656
----------- -----------
Receivables due after one year:
Note receivable 748,655 767,728
Less deferred gain (742,958) (757,000)
Affiliate 577,677 512,257
Other 115,100 115,100
----------- -----------
698,474 638,085
Less current portion (75,000) (75,000)
----------- -----------
623,474 563,085
----------- -----------
Property and equipment, at cost (Note 4a):
Land 1,529,000 2,225,000
Buildings 4,477,544 5,595,974
Equipment and leasehold and tenant improvements 5,700,961 5,616,502
----------- -----------
11,707,505 13,437,476
Less accumulated depreciation and amortization (4,939,286) (5,139,080)
----------- -----------
Net property and equipment 6,768,219 8,298,396
----------- -----------
Other assets:
Undeveloped land, at cost (Note 3c) 4,804,496 321,629
Capitalized carrying costs on leased land, net 87,939 89,361
Goodwill, net 874,485 1,076,289
Deferred loan costs, net 128,929 121,813
Covenants not to compete, net - 12,500
Investments (Note 3) 1,286,912 1,481,312
Other 135,168 154,830
----------- -----------
7,317,929 3,257,734
----------- -----------
$15,788,467 $13,673,871
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
1
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
March 31, June 30,
1995 1994
------------ ------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Long-term debt - extinguished (Note 4a) $ - $ 2,461,942
Assessment district obligation- in default (Note 3c) 1,823,346
Long-term debt due within one year 788,000 838,000
Current portion of capitalized lease obligation 15,000 15,000
Accounts payable 636,559 730,642
Accrued payroll and related expenses 132,575 191,825
Accrued property taxes (Note 3c) 284,986 52,200
Accrued interest (Note 3c) 107,342 63,994
Accrued frequent bowler program expense 224,435 151,084
League bowler prize funds 392,385 -
Other accrued liabilities 143,160 171,054
------------ ------------
Total current liabilities 4,547,788 4,675,741
------------ ------------
Long-term debt, excluding current portion (Note 4b) 6,797,043 7,288,325
------------ ------------
Long-term obligation under capital lease,
excluding current portion 102,442 113,480
------------ ------------
Distributions received in excess of basis
in investment (Note 3b) 9,439,692 9,467,693
------------ ------------
Tenant security deposits 25,402 39,427
------------ ------------
Minority interest in consolidated subsidiary (Note 3c) 2,212,677 -
------------ ------------
Commitments and contingencies (Note 3)
Shareholders' equity (deficiency):
Common stock, $.01 par value, 50,000,000 shares
authorized, 27,250,000 shares issued and outstanding 272,500 272,500
Additional paid-in capital 1,730,049 1,730,049
Accumulated deficit (7,801,590) (8,469,678)
------------ ------------
(5,799,041) (6,467,129)
Less note receivable from shareholder (1,537,536) (1,443,666)
------------ ------------
Total shareholders' equity (deficiency) (7,336,577) (7,910,795)
------------ ------------
$ 15,788,467 $ 13,673,871
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Revenues:
Bowling $ 2,214,821 $ 2,325,071
Rental 115,751 161,956
Construction 452,844 508,507
Brokerage 6,318 32,620
Other 63,601 48,595
Other-related party 26,556 26,448
----------- -----------
2,879,891 3,103,197
----------- -----------
Costs and expenses:
Bowling 1,257,000 1,312,117
Rental 58,012 75,403
Construction 380,579 430,769
Brokerage 3,629 16,282
Development 27,140 -
Selling, general and administrative 659,558 683,305
Depreciation and amortization 247,864 310,521
----------- -----------
2,633,782 2,828,397
----------- -----------
Income from operations 246,109 274,800
----------- -----------
Other income (charges):
Investment income:
Related party 38,616 39,159
Other 17,785 18,296
Interest expense related to development activities (52,549) -
Interest expense and amortization of finance costs (193,852) (268,210)
Equity in income (loss) of investees (8,652) 86,563
Recognition of deferred gain 5,375 -
Lawsuit settlement - (10,725)
----------- -----------
(193,277) (134,917)
----------- -----------
Net income $ 52,832 $ 139,883
----------- -----------
----------- -----------
Per common share (based on weighted average
shares outstanding):
Net income $ .00 $ .01
----- -----
----- -----
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1995 AND 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Revenues:
Bowling $ 6,059,659 $ 6,147,571
Rental 380,823 474,814
Construction 1,154,667 1,171,027
Brokerage 19,582 46,434
Other 150,803 82,815
Other-related party 79,842 79,044
----------- -----------
7,845,376 8,001,705
----------- -----------
Costs and expenses:
Bowling 3,756,205 3,940,255
Rental 199,814 239,131
Construction 959,172 1,000,689
Brokerage 10,578 27,857
Development 78,641 -
Selling, general and administrative 2,115,983 2,065,147
Depreciation and amortization 800,726 887,168
----------- -----------
7,921,119 8,160,247
----------- -----------
Loss from operations (75,743) (158,542)
----------- -----------
Other income (charges):
Investment income:
Related party 120,292 112,924
Other 53,747 55,399
Interest expense related to development activities (93,042) -
Interest expense and amortization of finance costs (619,505) (762,159)
Equity in income of investees 6,471 240,048
Recognize deferred gain 14,042 -
Lawsuit settlement - (32,175)
----------- -----------
(517,995) (385,963)
----------- -----------
Loss before extraordinary gain (593,738) (544,505)
Extraordinary gain from extinguishment of debt (Note 4a) 1,261,826 -
----------- -----------
Net income (loss) $ 668,088 $ (544,505)
----------- -----------
----------- -----------
Per common share (based on weighted average shares outstanding):
Loss before extraordinary gain $ (.02) $ (.02)
------ ------
------ ------
Net income (loss) $ .02 $ (.02)
------ ------
------ ------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1995 AND 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 668,088 $ (544,505)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Amortization of deferred financing
costs and discount 30,402 83,888
Depreciation and amortization 800,726 887,168
Undistributed income of investees (6,471) (240,048)
Extraordinary gain (1,261,826) -
Interest income accrued on note receivable
from shareholder (93,870) (88,710)
Lawsuit settlement accrual - 32,175
------------ -----------
137,049 129,968
Changes in assets and liabilities:
(Increase) decrease in receivables 214,701 (48,534)
(Increase) decrease in cost-in-excess-of-billings (81,016) 8,347
Increase in prepaid expenses (73,252) (57,943)
Increase in accounts payable and accrued
expenses 265,311 763,146
Interest accrued and added to assessment district 63,221 -
obligations
Other (27,529) (69,292)
------------ -----------
Net cash provided by operating activities 498,485 725,692
------------ -----------
Cash flows from investing activities:
Increase in notes receivable (46,347) 5,220
Purchase of bowling centers - (201,351)
Capital expenditures - other (154,986) (105,919)
Distributions from investees 142,500 432,243
Contributions to Investees (79,960) -
Acquisition of Old Vail Partners (49,845) -
------------ -----------
Net cash provided (used) by investing activities (188,638) 130,193
------------ -----------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued)
NINE MONTHS ENDED MARCH 31, 1995 AND 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from financing activities:
Scheduled principal payments (653,139) (649,600)
Costs associated with refinancing long-term debt (39,417) -
Extinguishment of long-term debt, in default (21,658) -
Proceeds from line of credit 209,360 -
Payments on line of credit (209,360) (258,600)
Other (11,096) -
------------ ------------
Net cash used by financing activities (725,310) (908,200)
------------ ------------
Net decrease in cash and equivalents (415,463) (52,315)
Cash and equivalents, beginning of period 904,744 319,398
------------ ------------
Cash and equivalents, end of period $ 489,281 $ 267,083
------------ ------------
------------ ------------
</TABLE>
SUPPLEMENTAL SCHEDULE OF INVESTING AND FINANCING ACTIVITIES:
In addition to the initial cash payment of $50,000 to acquire the two-
thirds partner's interest in Old Vail Partners, the acquisition resulted in
the following items being included in the Company's consolidated balance
sheet on the date of acquisition: Cash- $155; Prepaid expense- $85;
Undeveloped land- $4,482,867; Investment in Vail Ranch Limited Partners-
$1,122,062; Accounts payable- $4,095; Accrued interest- $50,000; Accrued
property tax- $182,618; Other liabilities- $62,369; Notes payable- $93,819;
Assessment District obligations, in default- $1,760,125; and Minority
interest- $2,262,677. As a result of the consolidation of Old Vail
Partners in the Company's financial statements, the Company's investment of
$1,189,466 in Old Vail Partners was eliminated.
In October 1994 the Company extinguished long term debt of $1,193,600 with
the proceeds of a $1,200,000 note payable. the Company also incurred
$45,617 of loan costs related to the refinancing, of which $$39,417 was a
cash expenditure.
In October 1994 the Company extinguished debt of $2,461,942 by the transfer
of title to an office building to the lender in complete satisfaction of
the liability. The office building cost and accumulated depreciation were
$1,856,187 and $721,739, respectively. The Company also wrote off the
balance of unamortized loan costs ($19,995), deferred lease commissions
($27,765), and accrued property tax ($3,750) as part of the transactions.
The Company incurred transaction costs of $21,658 to consummate the
transfer.
See accompanying notes to consolidated condensed financial statements.
6
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1995 AND 1994
(Unaudited)
1. The information furnished reflects all adjustments which management believes
are necessary for a fair statement of the Company's financial position, results
of operations and cash flows for the interim periods.
2. Due to the seasonal fluctuations of the bowling operations, the financial
results for the interim periods ended March 31, 1995 and 1994, are not
necessarily indicative of operations for the entire year.
3. Investments:
(a) Investments consist of the following:
<TABLE>
<CAPTION>
March 31, June 30,
1995 1994
----------- -----------
<S> <C> <C>
Accounted for on the equity method:
Investment in UCV, L.P. $(9,439,692) $(9,467,693)
Vail Ranch Limited Partnership 1,089,200 -
Old Vail Partners - 1,279,722
Redbird Properties, Ltd. 135,573 136,590
----------- -----------
(8,214,919) (8,051,381)
Less Investment in UCV, L.P. classified as
liability-Distributions received in excess
of basis in investment 9,439,692 9,467,693
----------- -----------
1,224,773 1,416,312
----------- -----------
Accounted for on the cost basis:
All Seasons Inns, La Paz 62,139 65,000
----------- -----------
$ 1,286,912 $ 1,481,312
----------- -----------
----------- -----------
</TABLE>
The following is a summary of the equity in income (loss) of the
investments accounted for on the equity method:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
UCV, L.P. $ 170,566 $ 347,307
Vail Ranch Limited Partnership (112,222) -
Old Vail Partners (50,256) (104,000)
Redbird Properties, Ltd. (1,617) (3,259)
--------- ----------
$ 6,471 $ 240,048
--------- ----------
--------- ----------
</TABLE>
During the nine months ended March 31, 1995, the Company received
distributions of $102,500 from UCV, L.P. ($432,243 in 1994) and $40,000
from Old Vail Partners (prior to acquiring a controlling interest in
September 1994).
7
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995 AND 1994
(Unaudited)
3. Investments (continued):
(b) Investment in UCV, L.P.
The operating results of this investment are included in the accompanying
consolidated statements of operations based upon the partnership's fiscal
year (March 31). Summarized information from UCV, L.P.'s unaudited
statements of income for the nine-month periods ended December 31, 1994
and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
---------- -----------
<S> <C> <C>
Revenues $2,971,000 $ 2,879,000
Operating and general and administrative
costs 1,083,000 1,070,000
Depreciation 190,000 181,000
Interest expense 1,357,000 933,000
Net income 341,000 695,000
</TABLE>
(c) Investment in Old Vail Partners:
The Company had been a one-third co-managing general partner in Old Vail
Partners, a general partnership, which owned approximately 72 acres of
commercially zoned undeveloped land of which a 32 acre parcel was
transferred to Vail Ranch Limited Partnership (see Note 3d, below).
Effective September 23, 1994, the Company acquired the other partner's
interest in Old Vail Partners for a cash payment of $50,000 and 50 percent
of future distributions up to an additional $2,450,000. Under certain
circumstances the Company may have to make minimum distributions of
$50,000 or $100,000 for five years. In conjunction with the purchase of
the partnership interest, Old Vail Partners was converted from a general
partnership into a limited partnership. The Company owns a combined 50
percent interest as a limited partner and the general partner. The other
partner became a limited partner with a liquidating partnership interest
entitled only to the distributions noted above. This partner's capital
account is presented as "Minority interest" in the consolidated condensed
balance sheet.
Old Vail Partners is a participant with other surrounding property owners
in a special assessment district which was created to fund and develop
roadways, sewers, and other required infrastructure improvements which are
necessary for the owners to develop their properties. As a participant in
the assessment district, Old Vail Partners is responsible for an allocated
portion of the bonds that were issued by the assessment district to fund
the improvements. Each parcel of land owned by Old Vail Partners is
collateral for that portion of bonds allocated to the parcel. As of March
31, 1995 Old Vail Partners was delinquent on the payments for the
assessment district bonds for two parcels of land constituting the
remaining 40 acres.
8
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995 AND 1994
(Unaudited)
3. Investments (continued):
(c) Investment in Old Vail Partners (continued):
The total delinquencies for the assessment district billings for the two
parcels were $383,000 as of March 31, 1995, including principal, interest,
and penalties. The County of Riverside has obtained a judgment for the
default in assessment district payments related to one of the two parcels
(the 33 acre parcel). The amount due to cure the judgment as of March 31,
1995 was $364,000 (included in the $383,000 of delinquencies noted
previously) plus legal costs. The County has not yet commenced
foreclosure proceedings on this judgment. The annual payments (due in
semi-annual payments in December and April) are approximately $346,000 for
both parcels combined, including principal and interest, through April
2010 and then $89,358 until April 2014.
The 32 acre parcel transferred to Vail Ranch Limited Partnership (see Note
3d below) also has $572,000 of delinquent payments owed to the assessment
district. The Company expects that this amount will be paid when the Vail
Ranch Limited Partnership obtains its construction financing.
The following is summarized financial information of Old Vail Partners
since October 1, 1994 which is included in the consolidated condensed
statements of operations for the three-month and nine-month periods ended
March 31, 1995:
<TABLE>
<CAPTION>
Three Nine
Months Months
-------- --------
<S> <C> <C>
Revenues $ 10,000 $ 21,000
Expenses:
Selling, general and administrative expense 27,000 79,000
Interest expense 52,000 93,000
Equity in loss of investee (Vail Ranch Limited
Partnership) 33,000 112,000
Net loss (102,000) (263,000)
</TABLE>
9
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995 AND 1994
(Unaudited)
3. Investments (continued):
(c) Investment in Old Vail Partners (continued):
The following is summarized balance sheet information of Old Vail
Partners included in the consolidated balance sheet at March 31, 1995:
<TABLE>
<CAPTION>
<S> <C>
Assets:
Undeveloped land $ 4,482,867
Investment in Vail Ranch Limited Partnership 1,089,200
-----------
Total assets 5,572,067
-----------
Liabilities:
Assessment district obligations- in default 1,823,346
Note payable, collateralized by land 93,820
Accounts payable 3,053
Accrued property taxes 239,005
Accrued interest 54,737
Other liabilities 62,369
Minority interest 2,212,677
-----------
$ 4,489,007
-----------
</TABLE>
Operating results of the Company for the nine months ended March 31, 1995
and 1994 on a pro-forma basis as though the controlling interest in Old
Vail Partners was acquired July 1, 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Revenues $7,855,000 $8,032,000
Income (loss) before extraordinary item (711,000) (850,000)
Net income (loss) 551,000 (850,000)
Earning per share $ .02 ($ .03)
</TABLE>
(d) Investment in Vail Ranch Limited Partnership:
On September 23, 1994, Old Vail Partners entered into a limited
partnership agreement with a third party (Developer) to develop 32 (32
Acre Parcel) of the 72 acres of land owned by Old Vail Partners. In
exchange for contributing the 32 acres to Vail Ranch Limited Partnership
at a value of $4,700,000, Old Vail Partners is a 50 percent limited
partner with certain priority rights to distributions for the contributed
value of the portions of the land developed before
10
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995 AND 1994
(Unaudited)
3. Investments (continued):
(d) Investment in Vail Ranch Limited Partnership (continued):
splitting the profits and distributions with the Developer. This amount
will be reduced by any amounts expended by Vail Ranch Limited Partnership
to extinguish approximately $963,000 of obligations of Old Vail Partners
that are liens on the 32 Acre Parcel, including delinquent assessments and
property taxes. The Developer has reached agreement with an anchor tenant
and the development of 11 acres is in process. The timing and amount of
distributions that Old Vail Partners is to receive from Vail Ranch Limited
Partnership are uncertain. Old Vail Partners may be responsible for
advancing funds to Vail Ranch Limited Partnership for property taxes and
assessment district payments related to the portion of the 32 acres that
is not being developed (approximately $240,000 annually based on one-third
of the acreage currently under development). The following is a summary
of the assets and liabilities transferred to the Vail Ranch Limited
Partnership:
Land, at cost, and capitalized development and
assessment costs $ 5,962,798
-----------
Liabilities:
Note payable 327,090
Assessment district obligation-in default 3,268,461
Accrued interest-assessment district obligation 254,676
Other accrued interest 234,000
Other liabilities 819,509
Less credit for prior interest and taxes (63,000)
-----------
$ 4,840,736
-----------
11
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995 AND 1994
(Unaudited)
4. Notes Payable:
(a) On October 5, 1994, the Company transferred title in an office building
to the lender in complete satisfaction of a related note payable with a
balance of $2,461,942. The carrying value of the land, office
building, and improvements was $1,134,447 (net of a $1,578,000
valuation adjustment recorded in the year ended June 30, 1994). After
deducting the $44,010 carrying value of other related assets,
transaction costs of $21,658, and the carrying value of the property,
the Company recorded a $1,261,826 extraordinary gain from the
extinguishment of debt in October 1994. This transaction was part of
an agreement with the lender whereby the Company's monthly payments
were modified, effective July 1994, to equal the net cash flow of the
property until title to the property was transferred to the lender.
For the prior two years, the Company unsuccessfully attempted to
negotiate a modification of the loan terms with the original lender and
then its successor. The estimated current fair value of the office
building ($1,200,000) was considerably less than the balance of the
loan due to significant declines in the market rents since 1989. The
following is a summary of the results of operations of the office
building for the nine and three month periods ended March 31:
<TABLE>
<CAPTION>
Nine Months Three Months
---------------------- ------------------------
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Rents $ 50,000 $ 150,000 - $ 50,000
Rental costs 21,000 67,000 - 18,000
Allocated selling, general and
administrative costs 3,000 7,000 - 3,000
Depreciation 27,000 74,000 - 24,000
Interest 12,000 124,000 - 40,000
Net Loss (13,000) (122,000) - (35,000)
</TABLE>
(b) On October 5, 1994, the Company used the proceeds of a $1,200,000 loan
to extinguish a $1,193,800 note payable. The loan is collateralized by
land, office building and improvements with a carrying value of
$1,068,000. The loan is due in monthly installments of $11,675,
including principal and interest at a fixed rate of 10-9/10 percent per
annum. The loan is due November 1, 2004.
5. Contingencies:
The Company is involved in various routine litigation and disputes incident to
its business. In the Company's opinion, none of these matters will have a
material adverse affect on the Company's financial position or results of
operations.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital deficit of $3,468,943 as of March 31, 1995
is a $347,858 increase from the $3,121,085 working capital deficit as of June
30, 1994. The significant changes in working capital during the nine months
were:
The extinguishment of $2,461,942 of long-term debt in default, which was
included in current liabilities at June 30, 1994, in exchange for
transfer of title to an office building;
The acquisition of a controlling interest in Old Vail Partners, which had
previously been an unconsolidated subsidiary, which resulted in a
$2,179,000 increase in current liabilities at March 31, 1995 of which
$1,823,346 related to assessment district obligations in default, and
the expenditure of $50,000 as the initial payment to acquire the
controlling interest;
The advance of $79,360 to Vail Ranch Limited Partnership as the Company's
share of pre-development costs; and
The $671,076 of negative cash flow from operations after debt service and
capital replacement for the nine months ended March 31, 1995 ($625,551
for the nine months ended March 31, 1994). The negative cash flow from
operations primarily related to the customary seasonality of the
bowling industry.
On October 5, 1994 the Company transferred title in its 24,000 square foot
office building to the lender in complete satisfaction of the Company's
obligations for a related $2,461,942 note payable. The Company had incurred
negative cash flow from operations after debt service and capital replacement of
$124,000 in 1994 and $34,000 in 1995.
The Company's partner in Old Vail Partners was unable to provide his two-
thirds share of amounts necessary to pay the significant annual property taxes
and assessments for the undeveloped land. As a result, he sold his two-thirds
interest to the Company for $50,000 and 50 percent of future distributions, up
to $2,450,000. Although the future payments to the partner are contingent on
future profits of Old Vail Partners, it is now the Company's responsibility to
fund the significant delinquent property taxes and assessments before the County
of Riverside takes the property to public sale (see Note 3c of Notes to
Consolidated Condensed Financial Statements). Although the County of Riverside
has a judgment on 32 of the 40 acres remaining in Old Vail Partners, they have
not yet commenced foreclosure proceedings. The Company expects that it will be
able to either find a buyer for the 40 acres and/or admit additional partners to
Old Vail Partners to provide the funds to cure the delinquencies before the
County of Riverside takes the property to public sale. As a result of a
governmental agency's attempts to change the zoning of the 40 acres, the Company
has initiated a lawsuit against that agency and the County of Riverside which
may forestall foreclosure proceedings and/or reduce the amounts owed. The
outcome of this litigation is uncertain.
13
<PAGE>
On September 23, 1994, Old Vail Partners entered into a limited partnership
agreement with a third party (Developer) to develop 32 (32 Acre Parcel) of the
72 acres of the land that had been owned by Old Vail Partners. In exchange for
contributing the 32 acres to Vail Ranch Limited Partnership at an agreed upon
value of $4,800,000, Old Vail Partners is a 50 percent limited partner with
certain priority rights to distributions for the contributed value of the
portions of the land developed before splitting the profits and distributions
with the Developer. This amount will be reduced by any amounts expended by Vail
Ranch Limited Partnership to extinguish approximately $963,000 of obligations of
Old Vail Partners that are liens on the 32 Acres Parcel, including delinquent
assessments and property taxes. The Developer has reached agreement with an
anchor tenant and the development of 11 acres is in process. The timing and
amount of distributions that Old Vail Partners is to receive from Vail Ranch
Limited Partnership are uncertain. Old Vail Partners may be responsible for
advancing funds to Vail Ranch Limited Partnership for property taxes and
assessment district payments related to the portion of the 32 acres that is not
being developed (approximately $240,000 annually based on one-third of the
acreage currently under development).
Excluding any obligations to fund property taxes and assessments for Old Vail
Partners, management estimates the Company will have $650,000 of negative cash
flow from operations after debt service and capital replacements for the
remaining quarter of the year ending June 30, 1995. Approximately $360,000 of
this amount relates to the payment of league prize funds that were collected
from bowlers since September 1994. The Company expects that the negative cash
flow will be partially offset by $140,000 in distributions from the operations
of University City Village.
RESULTS OF OPERATIONS
The following is a recap of the significant circumstances related the
differences between the loss before extraordinary gain for the nine and three
month periods ended March 31, 1995 and the same periods in 1994:
<TABLE>
<CAPTION>
Nine Months Three Months
----------- ------------
<S> <C> <C>
Sale of office building in October 1994 $ 109,000 $ 35,000
Other increase in rental segment 57,000 18,000
Acquisition of controlling interest in Old Vail Partners
effective September 23, 1994 ( 150,000) (69,000)
Decrease in share of net income of investees ( 234,000) ( 95,000)
Increase in bowling segment 135,000 8,000
Acquisition of video game business in February 1994 ( 49,000) ( 4,000)
Decrease in lawsuit settlement expense 32,000 11,000
Other 51,000 9,000
--------- ---------
Net increase in net loss before extraordinary item ( 49,000) ( 87,000)
--------- ---------
--------- ---------
</TABLE>
14
<PAGE>
BOWLING OPERATIONS:
The following is a recap of the increases (decreases) to the components
related to the loss from operations (before interest expense) of the bowling
segment during the nine and three month periods ended March 31, 1995 compared
to the same periods in 1994:
<TABLE>
<CAPTION>
Nine Months Three Months
----------- ------------
<S> <C> <C>
Revenues $ (88,000) $ (110,000)
Bowling costs (184,000) (55,000)
Selling general and administrative 37,000 1,000
Depreciation (91,000) (46,000)
Loss from operations (150,000) 10,000
Interest expense 15,000 (18,000)
Net loss (135,000) (8,000)
</TABLE>
Bowling revenues declined by $87,912 (1.5%) and $110,250 (4.7%) in the
nine and three month periods ended March 31, 1995, respectively, due to third
quarter declines of 7 percent in open games bowled and 3-1/2 percent in league
games bowled. The declines for the nine month period were five percent in open
games bowled and one percent in league games bowled. The revenues for the food
and beverage and other related revenues also decreased in the third quarter and
year-to-date primarily due to the decline in open games bowled.
Bowling costs decreased by $184,050 and $55,117 in the nine and three
month periods in 1995, respectively. These decreases are primarily due to
decreases in maintenance and repair expenditures. Some of the decrease relates
to expenditures made in the prior year to deal with deferred maintenance at the
two bowling centers acquired in August 1993. Part of the decrease is also
attributable to the timing of lane maintenance (every other year) and pin
purchases. Selling, general and administrative costs related to bowling
operations increased by $37,420 and $1,044 in the nine and three month periods,
respectively, primarily due to increases associated with promotional bowling
expense and the frequent bowler program. Depreciation expense related to the
bowling division decreased primarily due to some of the bowling equipment
reaching the end of its useful life for depreciation purposes. This reduction
was offset by increases of $28,000 and $7,000 in the nine and three month
periods, respectively, due to the acquisition of the Valley Bowl real estate in
November 1993. Interest expense related to the bowling division also increased
by $53,000 in the nine month period due to the acquisition of the Valley Bowl
real estate in November 1993. This increase in interest expense was offset by
decreases of $38,000 and $18,000 in the nine and three month periods,
respectively, due to decreases in the average principal balances outstanding.
15
<PAGE>
RENTAL OPERATIONS:
The following is a recap of the increases (decreases) to the components
related to the loss from operations of the rental segment during the nine and
three month periods ended March 31, 1995 compared to the same periods in 1994,
segregated by changes related to disposed property and changes related to same
properties:
<TABLE>
<CAPTION>
Disposed Property Same Properties
-------------------- ------------------
Nine Three Nine Three
Months Months Months Months
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues $(100,000) $ (50,000) $ 7,000 $ 4,000
Rental costs (45,000) (18,000) 6,000 1,000
Depreciation (57,000) (29,000) (1,000) -
Loss from operations (2,000) 3,000 (2,000) (3,000)
Interest expense (107,000) (38,000) (59,000) (15,000)
Net loss (109,000) (35,000) (57,000) (18,000)
</TABLE>
As described in Note 4a of Notes to Consolidated Condensed Financial
Statements, the Company transferred title in an office building to the lender in
complete satisfaction of a related note payable. The amount by which the
related note payable exceeded the fair market value of the office building was
recorded as an extraordinary gain. Interest expense related to same property
rental operations also decreased due to the refinance of the other office
building in October 1994.
CONSTRUCTION OPERATIONS:
Construction costs as a percentage of construction revenues varied only
one or two percentage points in the nine and three month periods compared to the
prior year. Since selling, general and administrative expense related to the
construction operations primarily consists of incentive compensation, there was
no significant change in the income from construction operations in the nine and
three month periods.
DEVELOPMENT OPERATIONS:
As described in Note 3d of Notes to Consolidated Condensed Financial
Statements, the Company acquired a controlling interest in Old Vail Partners
effective September 23, 1994. Prior to the execution of that transaction in
November 1994, Old Vail Partners had been an unconsolidated subsidiary of the
Company accounted for using the equity method. The effect of now consolidating
an entity that previously was an unconsolidated subsidiary was an increase in
the following items for the nine and three month periods in 1995:
<TABLE>
<CAPTION>
Nine Months Three Months
----------- ------------
<S> <C> <C>
Other income $ 21,000 $ 10,000
Development costs 78,000 27,000
Interest expense related to development activity 93,000 52,000
Equity in loss of investee 58,000 10,000
Net loss 208,000 79,000
</TABLE>
16
<PAGE>
The development costs and interest expense in 1994 primarily represent taxes and
interest on assessment district obligations that have been accrued but unpaid.
The equity in loss of investee in 1995 relates to Old Vail Partners investment
in Vail Ranch Limited Partners and that partnership's allocation of
predevelopment carrying costs (primarily assessment district interest expense)
to Old Vail Partners. These amounts are net of the equity in loss of Old Vail
Partners recorded in prior periods ($50,256 in 1995 and $104,000 in 1994) when
Old Vail Partners was an unconsolidated subsidiary.
OTHER:
Other than the increases associated with the bowling operations,
selling, general and administrative expense increased by $14,000 and decreased
by $25,000 in the nine and three month periods in 1995, respectively. Costs
associated with the video game operation acquired in February 1994 which were
included in the selling, general and administrative expenses increased by
$40,000 and $27,000 in the nine and three month periods respectively. These
increase were offset by decreases in general corporate overhead categories of
payroll and professional fees.
Other than the changes associated with the bowling operations and
rental operations, depreciation expense increased by $55,000 and $11,000 in the
nine and three month periods in 1995 respectively. These increases were
primarily due to the depreciation of the video game operation acquired in
February 1994.
Other than the changes associated with bowling operations, rental
operations, and development operations, interest expense was essentially the
same as last year for the nine and three month periods in 1995, respectively.
Other than the changes associated with the acquisition of Old Vail
Partners, the equity in income of investees decreased by $175,000 and $85,000 in
the nine and three month periods in 1995, respectively, primarily due to the
refinance of the long-term debt of University City Village (50 percent owned by
the Company) in June 1994, which resulted in increases in the interest expense
of the unconsolidated subsidiary of $424,000 and $164,000 in the three and nine
month periods, respectively.
17
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of March 31, 1995, there were no changes in legal proceedings from
those set forth in Item 3 of the Form 10-K filed for the year ended
June 30, 1994.
ITEM 2. CHANGES IN SECURITIES
NONE
ITEM 3. Defaults upon Senior Securities
N/A
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER
On December 23, 1994 the Company held its annual shareholder meeting in
which the following items were voted upon:
<TABLE>
<CAPTION>
Tabulation of Votes
------------------------------
For Against Abstain
------- ------- -------
<S> <C> <C> <C>
Election of Directors:
Harold S. Elkan 21,904,457 - 47,174
Steven R. Whitman 21,905,357 - 46,274
Patrick D. Reiley 21,904,882 - 46,749
James E. Crowley 21,905,382 - 46,249
Robert A. MacNamara 21,905,382 - 46,249
Selection of KPMG Peat Marwick LLP as
certified public accountants for the year
ending June 30, 1995 21,916,420 10,057 25,154
</TABLE>
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS & REPORTS ON FORM 8-K
(a) Exhibits: Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K: On August 26, 1993 a Form 8-K was filed to
report the purchase of two bowling centers. The report did not
include any financial reports of the acquired bowling centers due
to the inability to obtain audited financial statements. Until
such time as the Company is able to include two years of audited
results of operations in the Company's financial statements (i.e.
the year ended June 30, 1995), the Company's' ability to file
registration statements with the Securities Exchange Commission
will be limited.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPORTS ARENAS, INC.
By: Harold S. Elkan
-----------------------------------------
Harold S. Elkan, President and Director
Date: May 16, 1995
------------
By: Steven R. Whitman
------------------------------
Steven R. Whitman, Treasurer,
Principal Accounting Officer and Director
Date: May 16, 1995
------------
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-1-1994
<PERIOD-END> MAR-31-1995
<CASH> 489,281
<SECURITIES> 0
<RECEIVABLES> 164,723
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,078,845
<PP&E> 11,707,505
<DEPRECIATION> 4,939,286
<TOTAL-ASSETS> 15,788,467
<CURRENT-LIABILITIES> 4,547,788
<BONDS> 0
<COMMON> 272,500
0
0
<OTHER-SE> (6,071,541)
<TOTAL-LIABILITY-AND-EQUITY> 15,788,467
<SALES> 0
<TOTAL-REVENUES> 7,845,376
<CGS> 0
<TOTAL-COSTS> 5,004,410
<OTHER-EXPENSES> 2,916,709
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (712,547)
<INCOME-PRETAX> (593,738)
<INCOME-TAX> 0
<INCOME-CONTINUING> (593,738)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,261,826
<CHANGES> 0
<NET-INCOME> 668,088
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
