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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JUNE 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______________ to ___________
Commission File Number 0-2380
SPORTS ARENAS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-1944249
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(State of Incorporation) (I.R.S. Employer I.D. No.)
5230 CARROLL CANYON ROAD, SUITE 310, SAN DIEGO, CALIFORNIA 92121
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (619) 587-1060
Securities registered pursuant to Section 12(b) of the Act: NONE
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Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK, $.01 PAR VALUE
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(Title of class)
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 X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates (5,441,733
shares) of the Registrant as of August 25, 1995 was $680,000 (based on average
of bid and asked prices). The number of shares of common stock outstanding as
of August 25, 1995 was 27,250,000.
Documents Incorporated by Reference - NONE.
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PART I
ITEM I. Business
GENERAL DEVELOPMENT AND NARRATIVE DESCRIPTION OF BUSINESS
Sports Arenas, Inc. (the "Company") was incorporated as a Delaware
corporation in 1957. The Company, primarily through its subsidiaries, owns and
operates six bowling centers, an apartment project (50% owned), one office
building, a construction company, and undeveloped land. The Company also
performs a minor amount of services in property management and real estate
brokerage related to commercial leasing. The Company has its principal
executive office at 5230 Carroll Canyon Road, San Diego, California.
(1) BOWLING CENTERS - The Company's wholly-owned subsidiaries,
Marietta Lanes, Inc. and Cabrillo Lanes, Inc. and 60 percent owned Redbird
Lanes, Ltd. (the "Bowls"), operate six bowling centers containing 252 lanes in
California, Georgia and Missouri. Four bowling centers have been owned for more
than five years, and the other two centers were acquired in August 1993. Two of
the bowling centers lease facilities under a long-term lease with a third party.
One bowling center is leased from an entity (Redbird Properties, Ltd.) which is
partially owned by a subsidiary of the Company. Two bowling centers lease
facilities from wholly-owned subsidiaries of the Company.
The bowling centers' operations include food and beverage facilities and coin
operated video and other games. The revenues from these activities average 30
percent of total bowling related revenues. The bowling centers operate the food
and beverage operations, which includes sale of beer, wine and mixed drinks, at
all of its bowling centers. The Company receives a negotiated percentage of the
gross revenues from the coin operated video games. The video game operations at
the two California operations are operated by Sports Arenas, Inc. All of the
bowling centers include pro shops which are leased to independent operators for
nominal amounts. All of the centers also have day care facilities which are
provided free of charge to the bowlers. All of the bowling centers have
automatic score-keeping and five of the centers have computerized cash control
systems.
On average, 47 percent of the games bowled are by bowling leagues that enter
into league reservation agreements to use a specified number of lanes at a
specified time and day for a specified period of weeks. On average, the league
reservation agreements are for 35 weeks for the winter season (September through
April) and 15 weeks for the summer season (May through August). League revenues
for September through April average 85 percent of league revenues annually.
Approximately 75 percent of all bowling related revenues are generated in the
months of September through April.
The bowling industry faces substantial competition for the sports and recreation
dollar. The Bowls compete with other bowling centers in their respective market
areas, as well as other sports and recreational activities. Two of the bowling
centers are in the same market area and compete directly with two major bowling
center chains. Further competition is likely at any of the bowling centers any
time a new center is constructed in the same market area. The Company
continuously markets its league and open play through a combination of
advertising (billboard and some television), phone solicitation, direct mail,
and a personal sales program.
At June 30, 1995, all of the bowling centers were licensed to sell alcoholic
beverages. Licenses are generally renewable annually provided there are no
violations of government regulations. The bowling centers employ approximately
150 people.
(2) COMMERCIAL DEVELOPMENT - The Company, through its subsidiaries
(see ITEM 2. PROPERTIES (B) REAL ESTATE DEVELOPMENT for ownership), has
ownership interests in a 40 acre parcel and a 32 acre parcel of undeveloped land
in Temecula, California. Each parcel is commercially zoned, however, the City
of Temecula has adopted a general development plan as a means of down-zoning the
property to a lower use and, if successful, may significantly impair the value
of the property. The Company is contesting this action (see ITEM 3. LEGAL
PROCEEDINGS (A) for description). In September 1994, a partnership was formed
with an unrelated developer (Developer) to develop the 32 acre parcel of which
27 acres is developable. The Developer has reached agreements with an anchor
tenant and other tenants which are sufficient to support the development of 11
of the 27 developable acres. The Developer is in the process of obtaining
construction financing. Both parcels of land are located in a area of the City
of Temecula that is planned for over 11,000 homes of which approximately 3,000
homes have been built to date. There is a significant amount of other
undeveloped commercially zoned property near both parcels. Therefore, in
addition to the normal risks associated with development of unimproved land
(government approvals, availability of financing, etc.), there is significant
competition from the other property owners with commercially zoned land for
prospective users of the property.
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The Company is evaluating alternatives regarding the 40 acres of land it
directly owns to either sell the land or obtaining a joint venture partner to
supervise and provide funding for the development of the property.
Downtown Properties, Inc. (Downtown), a wholly-owned subsidiary of the Company,
owns several undeveloped parcels of land in New Mexico and Missouri. The
investment in these assets is not significant. Downtown has no immediate plans
affecting these assets except for the undeveloped land in New Mexico, which is
subject to a sales agreement that has been in default since 1989. The Company
currently has no plans to cancel the contract due to the default.
(3) COMMERCIAL REAL ESTATE RENTAL - Real estate operations consist of
one office building in the Sorrento Mesa area of San Diego, California, a
sublessor interest in land leased to condominium owners in Palm Springs,
California, and a 542 unit apartment project in San Diego, California.
Downtown Properties Development Corporation (DPDC), a wholly-owned subsidiary of
the Company, owns a 36,000 square foot office building. The building was
originally acquired in 1984 by 5230, Ltd., which was 75 percent owned as a
limited and general partner by Sports Arenas Properties, Inc. (SAPI) , a wholly-
owned subsidiary of the Company. DPDC acquired the building at a foreclosure
sale in September 1992, after 5230, Ltd.'s unsuccessful attempts to re-negotiate
the loan terms with the lender. The Company occupies approximately 14 percent
of the office building, which was 95 percent leased as of June 30, 1995.
SAPI owned an approximate 75 percent interest in 5755 Limited, which owned a
24,000 square foot office building (acquired in 1986). In July 1994, 5755
Limited discontinued making payments on the $2,461,942 note payable
collateralized by the office building. The estimated current fair value of the
office building was $1,200,000 as of July 1994, which was considerably less than
the balance of the loan due to a significant decline in the market rents in the
area. For the prior two years, management unsuccessfully attempted to negotiate
a modification of the loan terms with the original lender and then its
successor. On October 5, 1994, pursuant to an agreement with the lender, 5755
Limited transferred title in the office building to the lender in complete
satisfaction of the note payable.
UCVGP, Inc., a wholly-owned subsidiary of the Company, is a one percent managing
general partner and SAPI is a 49 percent limited partner in UCV, L.P. (UCV),
which owns an apartment project (University City Village) located in San Diego.
University City Village contains 542 rental units and was acquired in August
1974. UCV employs approximately 30 persons. The vacancy rate for the year
ended March 31, 1995 was 6 percent (the vacancy rate was 4 percent in August
1995), which is consistent with vacancy rates in the area.
As of June 30, 1995, SAPI owned a 40 percent limited partnership interest in
Redbird Properties, Ltd., which owns the real estate leased to one of the
Company's bowling centers (Red Bird Lanes). SAPI acquired this partnership
interest when the building was acquired in 1987. Effective July 1, 1995, SAPI
acquired an additional 29 percent interest in this partnership from an affiliate
of the Company.
In December 1986, SAPI acquired the land and building in which the Company's
Marietta Lanes Bowling Center is located. Marietta Lanes had previously leased
the facility from a third party and now leases the facility from SAPI.
In November 1993, Bowling Properties, Inc., a wholly-owned subsidiary of the
Company, acquired the land and building in which the Company's Valley Bowl
(acquired in August 1993) is located.
(4) CONSTRUCTION - The Company's wholly-owned subsidiary, Ocean West
Builders, Inc., is a general contractor that primarily constructs tenant
improvements for commercial real estate in the San Diego, California area. Most
jobs performed by Ocean West Builders last 30-60 days and are the result of a
bidding process with other general contractors. This business is primarily
dependent on the skill and reputation of Michael Assof, the President of Ocean
West Builders, Inc., which employs a total of 5 employees. As a general
contractor, Ocean West Builders primarily uses subcontractors to perform most of
the work on jobs. There is intense competition from other general contractors
in the tenant improvement business. Most jobs are awarded as a result of some
bidding process. A general contractor's success in obtaining jobs is the result
of having a pool of reliable and competitive subcontractors to provide bids that
are the basis for Ocean West Builders bid on the overall job. Most jobs start
within weeks of being awarded, therefore there is usually no significant order
backlog. There is no annual seasonality to the business.
(b) INDUSTRY SEGMENT INFORMATION: See Note 11 of Notes to Consolidated
Financial Statements for required industry segment financial information.
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ITEM 2. PROPERTIES
(a) BOWLING CENTERS:
Five bowling centers lease facilities under long-term leases as follows:
<TABLE>
<CAPTION>
NAME LOCATION SIZE EXPIRATION DATE OF LEASE
---- -------- ---- ------------------------
<S> <C> <C> <C>
Red Bird Lanes St. Louis, Missouri 32 lanes June 1997, option to 2002
Village Lanes Marietta, Georgia 40 lanes September 2003, option to 2028
Marietta Lanes Marietta, Georgia 38 lanes December 1996
Grove Bowl San Diego, California 60 lanes June 2003- options to 2018
Valley Bowl San Diego, California 50 lanes October 2003- options to 2013
</TABLE>
Marietta Lanes leases its facility from SAPI, a wholly-owned subsidiary of the
Company. As of June 30, 1995, the real estate is collateral for a $652,992 note
payable. Red Bird Lanes leases its facility from Redbird Properties, Ltd.,
which is 40 percent owned by SAPI at June 30, 1995 (effective July 1, 1995, SAPI
acquired another 29 percent interest in the partnership). As of June 30, 1995,
the real estate is collateral for a $713,538 note payable. Valley Bowl leases
its facility from Bowling Properties, Inc. (BPI), a wholly owned subsidiary of
the Company. BPI acquired the real estate in November 1993. As of
June 30, 1995, the real estate is collateral for a $2,058,019 note payable.
On September 1, 1988, Marietta Lanes, Inc. acquired the real estate and other
business assets of the American Bowling Center (32 lanes) in Conyers, Georgia.
The real estate is collateral for notes payable totaling $1,156,446 at June 30,
1995.
(b) REAL ESTATE DEVELOPMENT:
Downtown owns 507 acres of undeveloped land in Lake of the Ozarks, Missouri.
The land is collateral for a $94,909 bank loan (first deed of trust) and a
$4,368,000 loan (second deed of trust) from Sports Arenas, Inc. (the parent
company). Downtown also owns 55 acres of undeveloped land in Sierra County, New
Mexico which is subject to a contract for sale to a third party (see Note 4b of
Notes to Consolidated Financial Statements), which is in default. The Company
currently has no plans to cancel the contract.
RCSA Holdings, Inc. (RCSA) and OVGP, Inc. (OVGP), wholly-owned subsidiaries of
the Company, own a combined 50 percent general and limited partnership interest
in Old Vail Partners, L.P. , a California limited partnership (OVP). OVP owns
40 acres of unimproved land in Temecula, California and a 50 percent limited
partnership interest in Vail Ranch Limited Partnership (VRLP). Since September
1988, OVP had been a general partnership with RCSA as 33 percent co-managing
general partner and a third-party as a 67 percent co-managing general partner.
Effective in September 1994: the general partnership was converted to a limited
partnership; RCSA was converted to a 49 percent limited partner; OVGP was
admitted as a one percent general partner; and the third-party's interest was
converted to a liquidating partnership interest. This transaction effectively
resulted in the acquisition of the third-party's partnership interest in OVP for
a cash payment of $50,000 and the rights to 50 percent of future distributions
up to $2,450,000. Legal title to the 40 acres of undeveloped land is still in
the process of being changed from the former general partnership's name into the
limited partnership name (OVP).
VRLP is developing 32 acres of unimproved land in Temecula, California that was
contributed to VRLP by OVP. VRLP was formed in September 1994 by OVP and an
unrelated developer (Developer) to develop 32 acres of commercially zoned
unimproved land in Temecula, California that OVP contributed to VRLP in exchange
for a 50 percent limited partnership interest with a priority right to
distributions for specified amounts based on the acreage being developed.
The 40 acres of land owned by OVP and the 32 acres of land owned by VRLP are
located within a special assessment district of the County of Riverside,
California (the County) which was created to fund and develop roadways, sewers,
and other required infrastructure improvements in the area necessary for the
owners to develop their properties. Property within the assessment district is
collateral for an allocated portion of the bonded debt that was issued by the
assessment district to fund the improvements. The annual payments (made in
semiannual installments) due related to the bonded debt are approximately
$156,000 for the 40 acres and $340,000 for the 32 acres. The payments continue
through the year 2014 and include interest at approximately 7-3/4 percent. OVP
and VRLP are delinquent in the payment of property taxes and
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assessments for the last two to four years. As of June 30, 1995, the County had
obtained judgments for the defaults under the assessment district obligations on
both properties. The Company has not yet received notification that the County
has commenced proceedings to enforce these judgments by judicial sale. The
amount due to cure the judgments at June 30, 1995 was approximately $710,000 for
the 32 acres owned by VRLP (not consolidated with the Company's financial
statements) and $450,000 for the 40 acres owned by OVP. The principal
balances of the allocated portion of the bonds are $1,513,730 for OVP related
to the 40 acres and $3,268,460 for VRLP related to the 32 acres. The
judgment related to VRLP's 32 acres will be cured once construction financing
is obtained by VRLP.
The 40 acre parcel is subject to an action that essentially down-zones the
property to a lower use and, if successful, may significantly impair the value
of the property. The Company is contesting this action (see ITEM 3. LEGAL
PROCEEDINGS (A) for description).
(C) REAL ESTATE OPERATIONS:
UCVGP, Inc. and SAPI, wholly owned subsidiaries of the Company, own a one
percent managing general partnership interest and a 49 percent limited
partnership interest, respectively, in UCV, L.P. (UCV). The entity was formerly
named University City Village, a joint venture. On June 1, 1994 the joint
venture converted the form of entity to a limited partnership and changed the
name to UCV, L.P. UCV owns a 542 unit apartment project (University City
Village) in the University City area of San Diego, California. The property is
collateral for a $20,000,000 note payable by the partnership.
DPDC owns an approximate 36,000 square foot office building located in San
Diego, California, which was constructed in 1983. As of June 30, 1995, the
property is collateral for a $1,193,602 note payable.
DPDC is the lessee of 15 acres of land in the Palm Springs, California area
under a lease expiring in September 2043. The land is subleased to the owners
of the condominium units constructed on the property. The subleases also expire
in September 2043.
As of June 30, 1995, SAPI owned a 40 percent limited partnership interest in
Redbird Properties, Ltd., which owns the land and building in which the Red Bird
Lanes Bowling Center is located [see Item 2(a)]. The property is collateral for
a $713,538 note payable of the limited partnership (not consolidated with the
Company's financial statements) at June 30, 1995. Effective July 1, 1995, SAPI
acquired an additional 29 percent interest in the partnership.
ITEM 3. LEGAL PROCEEDINGS
At June 30, 1995, except as noted below, the Company or its subsidiaries were
not parties to any material legal proceedings other than routine litigation
incidental to the business.
(a) On August 3, 1994, Old Vail Partners, a general partnership (the
predecessor to Old Vail Partners, L.P., a California limited
partnership) filed suit against the County of Riverside, California
and the City of Temecula, California in Superior Court for the County
of Riverside. The County of Riverside was dismissed from this suit
but OVP plans to appeal. In November 1993, the City of Temecula
adopted a general development plan that designates 40 acres of
property owned by OVP as suitable for "professional office" use, which
is contrary to its zoning as "commercial" use. As part of the
adoption of its general development plan, the City of Temecula adopted
a provision that, until the zoning is changed on properties affected
by the general plan, the general plan shall prevail when a use
designated by the general plan conflicts with the existing zoning on
the property. The result is that the City of Temecula has effectively
down-zoned the 40 acre parcel from a "commercial" to "professional
office" use. As described in Item 2. Properties, the parcel is
subject to Assessment District liens which were allocated in 1989
based on a higher "commercial" use. Since the Assessment District
liens are not subject to reapportionment as a result of re-zoning, a
"professional office" use is not economically feasible due to the
disproportionately high allocation of Assessment District costs. In
its suit, OVP claims that the City's adoption of a general plan as a
means of re-zoning the property is invalid. Additionally, OVP is
claiming that, if the effective re-zoning is valid, the action would
be a taking and damaging of OVP's property without payment of just
compensation. OVP is seeking to have the effective re-zoning
invalidated and an unspecified amount of damages. The outcome of this
litigation is uncertain.
(b) On August 2, 1995, Old Vail Partners filed suit against the County of
Riverside, California, Albert Webb and Associates, and others in
Superior Court for the County of Riverside claiming breach of
contract,
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negligence, and other acts related to the services performed by Albert Webb and
Associates as the civil engineer in calculating and allocating the assessment
district costs for Special Assessment District 159. Old Vail Partners is
seeking in excess of $10,400,000 as damages, which represents the value lost on
40 acre parcel of land as a result of an inappropriate calculation and
allocation of assessments to the 40 acre parcel because of work performed by
unlicensed engineers without proper supervision. On October 5, 1995, the
Riverside County Superior Court dismissed OVP's suit. OVP plans to appeal.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS NONE
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
(a) There is no recognized market for the Company's common stock except for
limited or sporadic quotations which may occur from time to time.
(b) The number of holders of record of the common stock of the Company as of
September 30, 1995 is 4,345. The Company believes there are a
significant number of beneficial owners of its common stock whose shares
are held in "street name".
(c) The Company has neither declared nor paid dividends on its common stock
during the past ten years, nor does it have any intention of paying
dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA (NOT COVERED BY INDEPENDENT AUDITORS' REPORT)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
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1995 1994 1993 1992 1991
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<S> <C> <C> <C> <C> <C>
REVENUES $10,341,601 $10,553,976 $7,432,706 $ 5,908,306 $ 6,479,055
Income (loss) from
operations (321,718) (2,197,897) (2,094,811) (166,473) 293,276
Loss before
extraordinary gain (809,421) (2,083,286) (2,488,291) (933,516) (513,465)
Loss per common share,
before extraordinary gain (.03) (.08) (.09) (.03) (.02)
Total assets 15,308,441 13,673,871 11,479,502 14,252,502 15,086,952
Long-term obligations 6,803,635 7,401,805 7,002,996 9,357,593 10,676,093
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a working capital deficit of $3,601,144 at June 30,
1995, which is a $480,059 increase from the deficit at June 30, 1994. The
primary cause of the increase in the deficit was the working capital used by
operating activities after debt service and capital replacements. Working
capital used by operating activities after debt service and capital
replacements should not be considered as an alternative to cash flows from
operating, investing, and financing activities. The working capital deficit
at June 30, 1995 includes $1,928,403 which represents the principal balance
and delinquent payments on an assessment district obligation in default that
relates to undeveloped land.
The Company has been unable to generate sufficient cash flow from operating
activities to meet scheduled principal payments on long-term debt and capital
replacement needs during the last three years. It has used its previously
positive working capital and its share of distributions from UCV to fund these
deficits. The cash provided (used) before changes in assets and liabilities
segregated by business segments was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
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<S> <C> <C> <C>
Bowling $ 275,000 $ 207,000 $ 349,000
Rental 155,000 21,000 ( 70,000)
Construction 29,000 23,000 25,000
Development ( 113,000) - -
Brokerage 25,000 23,000 11,000
General corporate expense and other ( 261,000) ( 336,000) ( 346,000)
----------- ----------- ------------
Cash provided (used) by operations 110,000 ( 62,000) ( 31,000)
Capital expenditures, net of financing ( 142,000) ( 163,000) ( 160,000)
Acquisition of bowling centers and real estate - ( 196,000) ( 255,000)
Principal payments on long-term debt ( 865,000) ( 1,267,000) ( 672,000)
----------- ----------- ------------
Cash used (897,000) ( 1,688,000) ( 1,118,000)
----------- ----------- ------------
----------- ----------- ------------
Distributions received from UCV 263,000 1,755,000 746,000
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
The Company received $1,250,000 from UCV as a distribution from the
proceeds of a refinancing in June 1994. Otherwise, the cash distributions
the Company received from UCV during the last three years were the Company's
proportionate share of distributions from UCV's results of operations. The
Company's share of distributions from UCV declined in 1995 due to UCV's
additional debt service related to the June 1994 refinancing.
The investment in UCV is classified as a liability because the
cumulative distributions received from UCV exceed the sum of the Company's
initial investment and the cumulative equity in income of UCV by $9,559,390
at June 30, 1995. The Company estimates that the current market value of the
assets of UCV (primarily apartments) exceeds its liabilities by
$10,000,000-$14,000,000.
As discussed in Results of Operations and in Footnote 7b of Notes to the
Consolidated Financial Statements, in October 1994 the Company transferred
title in an office building to the lender in exchange for the lender
extinguishing the Company's obligations for a $2,461,942 note payable which
was collateralized by the office building. This portion of the rental
operations provided (used) cash flow after debt service and capital
replacements of $15,000 in 1995, ($169,000) in 1994, and ($242,000) in 1993.
At June 30, 1995, the Company owns a 50 percent limited partnership
interest in Vail Ranch Limited Partnership (VRLP), which is developing 32
acres of land (of which 27 is developable) into a commercial shopping center.
VRLP is in the process of obtaining financing to develop the first phase (11
acres) of the shopping center. The Company estimates that the value of the
Company's 50 percent interest, based on development of the 11 acre phase of
the shopping center and sale of the remaining acreage, is approximately
$2,000,000 to $4,000,000. The amount and timing of distributions that the
Company may receive from VRLP are uncertain. The most likely source of funds
for distributions from VRLP is either the sale of the 11 acre phase, which is
about to commence construction, and/or sale of the remaining undeveloped land.
At June 30, 1995, the County of Riverside, California had judgments
totaling approximately $450,000 for delinquent assessment district payments
related to 40 acres of undeveloped land. The annual obligation for the
assessment district is approximately $156,000. The Company estimates the
value of this land is approximately $3,000,000 to $5,000,000 if the property
was zoned "commercial". However, the City of Temecula has adopted
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a general development plan as a means of down-zoning the property to a lower
use and, if successful, may significantly impair the value of the property.
The Company is contesting this action (see ITEM 3. LEGAL PROCEEDINGS (a) for
description). As a result of the judgment and the down-zoning of the
property, the recoverability of the carrying value of this property is
uncertain. If the County of Riverside commences foreclosure proceedings and
the Company does not satisfy the judgments prior to foreclosure sale, the
Company would lose title to the property and the property would not be
subject to redemption.
The Company is expecting a $360,000 cash flow deficit in 1996 from
operating activities after adding estimated distributions from UCV ($337,000)
and deducting capital expenditures and scheduled principal payments on
long-term debt. The Company believes its cash at June 30, 1995 and the
Company's line of credit will be sufficient to fund the expected cash flow
deficit. This analysis does not include consideration of the following due
to their uncertainty: any distributions the Company may receive from its
investment in Vail Ranch Limited Partners or a payment that may be received
for the discounted payoff of a note receivable (see Note 3a of Notes to
Consolidated Financial Statements). This analysis also does not include any
payments due for delinquent or current property taxes on undeveloped land
because these amounts may not be paid unless the Company is able to obtain an
alternative source of funds.
RESULTS OF OPERATIONS
The discussion of Results of Operations is primarily by the Company's
business segments. The analysis is partially based on a comparison of and
should be read in conjunction with the business segment operating information
in Note 11 to the Consolidated Financial Statements.
BOWLING OPERATIONS:
1995 VS. 1994
The operating loss from bowling operations decreased by $207,000 in 1995
as a result of decreases in bowl costs and depreciation that exceeded the
decrease in bowling revenues. Bowling revenues decreased by 2.3 percent
($183,000) in 1995 primarily due to a 1.4 percent decline in games bowled, of
which most of the decrease was in open games bowled. Bowling revenues also
declined due to a decrease in the amount of alcoholic beverage sales per game
bowled, reflecting a nationwide trend towards less alcohol consumption.
Bowling costs decreased by 4.9 percent ($253,000) primarily due to reductions
in payroll and related costs ($73,000 or 3 percent of payroll and related
costs) and maintenance expense ($171,000 or 27 percent of maintenance
expense). Payroll reductions were made to reflect the decline in business.
Approximately $80,000 of the decrease in maintenance expense related to
higher expenses in the prior year for deferred maintenance on the two bowls
acquired in August 1993. Maintenance expense also decreased related to a
decrease in resurfacing expense ($60,000). Depreciation and amortization
expense related to the bowling segment ($776,000) decreased by $139,000
primarily due to the expiration of the amortization periods for leasehold
improvements, goodwill and covenant-not-to-compete related to a bowling
center that was acquired in September 1988.
1994 VS. 1993
The Company acquired two bowling centers in August 1993. However, the
results from operations of these two centers have been included in the financial
statements since June 20, 1993, when the Company commenced operations under an
interim management agreement. The following increases in revenues and expenses
in 1994 related to these two bowling centers:
<TABLE>
<CAPTION>
<S> <C>
Revenues $ 2,827,000
Bowling costs 2,073,000
Selling, general and administrative expense-direct 496,000
Depreciation and amortization 456,000
Operating loss (198,000)
Interest expense 235,000
Loss (433,000)
</TABLE>
Same center bowling revenues increased approximately one percent
($55,000) in 1994. Increases in the average price per game (14% in open play
and 4% in league play) were offset by decreases in games bowled (9% in open play
and 6% in league play). These changes primarily took place at the same two
bowling centers that faced significant price discounting from competitors last
year. Management elected to not compete with the discounting of prices in 1994.
Same center bowling costs increased by $251,000 (8%) in 1994 primarily
8
<PAGE>
due to increases in payroll ($71,000 or 6%), repairs and maintenance ($66,000 or
3%) and payroll related expenses ($97,000 or 36%). The increase in payroll
related expenses primarily related to increases in the Company's health
insurance premiums. The Company has modified its health insurance plan to
provide for larger employee contributions and, as a result, expects this expense
to decrease in 1995. Selling, general and administrative expense directly
related to the bowling segment decreased by $29,000 (3%) primarily due to a
$58,000 decrease in management salaries and bonuses. Most of the decrease
related to restructuring some activities formerly handled by managers.
CONSTRUCTION OPERATIONS
Construction costs were 84%, 85%, and 84% of construction revenues in 1995,
1994 and 1993, respectively. Selling, general and administrative expenses
directly related to the construction segment were $218,000, $195,000, and
$202,000 in 1995, 1994 and 1993, respectively. There have been no significant
changes to the operations of the construction segment for the last three years.
RENTAL OPERATIONS
The Company's rental operations at June 30, 1995 principally consisted of
ownership and leasing one office building (36,000 square feet of leasable
space), a sub-lessor's interest in a land leases to condominium owners, and a
small fruit-market on undeveloped land (starting in October 1994). In October
1994, the Company disposed of a 24,000 square foot office building that it had
owned since December 1986. The disposal of the office building resulted in the
following decreases from the prior year: Rental revenues- $151,000; Rental
costs- $73,000; Depreciation- $80,000; and Interest expense- $144,000. The
market area for the remaining office building has been stable in terms of both
rent rates and occupancy for the past two years. However, rates are at
approximately 50 percent of rent rates that existed in 1990.
Other than the change to rental revenue from the disposal of the office
building, revenues only changed slightly due to the addition of the rent from
the fruit-market in October 1994 ($32,000) and the indexed increases in the rent
rates of the ground subleases ($14,000) in 1994. Rental costs did not change
significantly in 1995 other than from the disposal of the office building.
Rental costs decreased by 17 percent ($67,000) in 1994 due to some non-recurring
repairs in 1993.
The operating losses reported by the real estate rental segment of $1,408,316 in
1994 and $1,785,833 in 1993 included a provision for impairment loss of
$1,578,000 in 1994 and a loss on disposal of rental property of $1,869,346 in
1993. The provision for impairment loss in 1994 related to the 24,000 square
foot office building that the Company transferred to the lender in 1995 in
exchange for the lender extinguishing the Company's obligations for a $2,461,942
note payable (See Note 7b of Notes to Consolidated Financial Statements). The
provision for the impairment loss represents the amount by which the carrying
value of the property exceeded its estimated fair value of $1,200,000. The
Company recorded a $1,261,826 extraordinary gain on extinguishment of debt in
1995 from this transaction. The loss on disposal of rental property in 1993
related to the Company's 36,000 square foot office building (See Note 7c of
Notes to Consolidated Financial Statements) for which the Company also recorded
a $2,395,688 extraordinary gain from extinguishment of debt in 1993. As part of
a restructuring of the debt on this property, the Company re-purchased the
property at a public foreclosure sale by the former lender for $1,027,000. This
property currently has an estimated fair value of $2,100,000.
REAL ESTATE DEVELOPMENT:
The real estate development segment consists primarily of operations
related to undeveloped land in Temecula, California, which is owned by Old Vail
Partners. As a result of a restructuring of the ownership, the activities of
this entity were consolidated effective September 23,1994. The development
costs consist primarily of legal expenses ($85,000) related to the litigation
regarding the effective down-zoning of the 40 acre parcel.
9
<PAGE>
OTHER
The Company took over operation of a video-game operation in January 1994.
The revenues and costs of this operation are included in other revenues and
selling, general and administrative expense, respectively. The following items
increased (decreased) as a result of this new activity:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Other revenues $ 34,000 $ 65,000
Selling, general, and administrative expense 28,000 55,000
Depreciation 41,000 32,000
Provision for impairment loss (133,000) 133,000
Operating loss (127,000) 155,000
Interest expense 1,000 15,000
</TABLE>
In addition to the changes in selling, general and administrative expense
related to the bowling construction, and rental segments noted previously, the
corporate segment, before allocation to the other segments, decreased by $61,000
in 1995 and $30,000 in 1994. The decrease in 1995 was primarily due to
decreases in payroll and professional fees. The decrease in 1994 was primarily
due to a $48,000 decrease in professional fees, which was partially offset by a
$34,000 increase in payroll and related expenses.
Other than the changes to interest expense previously noted in the bowling
and rental segments, interest expense decreased by $62,000 in 1995 and $73,000
in 1994. Interest expense decreased in 1995 primarily due to a refinancing of
the Company's remaining office building in October 1994, which resulted in a
$74,000 decrease in interest paid and amortization of finance costs. Interest
expense decreased in 1994 primarily due to a decrease in the amortization of
loan fees related to the loan used to acquire the same office building at public
sale in September 1992.
The equity in income of investees decreased in 1995 due to a $236,000
decline in the Company's share of income of UCV which was partially offset by a
decline in the equity in net loss of OVP. Net income from UCV declined because
of higher interest expense related to the refinancing of its debt in June 1994.
The equity in net loss of Old Vail declined because the Company commenced
consolidating its results of operations in September 1994. The equity in income
of investees increased by $72,000 in 1994 primarily due to the increase in the
Company's equity in the net income of UCV. The increase in the net income of
UCV in 1994 was primarily attributable to the decline in roof repair expense.
The Company accrued interest (classified as lawsuit settlement) on a
$211,000 lawsuit judgment against the Company charged to operations in 1985.
The judgment expired in April 1994 without being renewed. In the year ended
June 30, 1994, the Company recorded $548,190 of income related to the reversal
of the previously recorded judgment and accrued interest.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
---------------------------------------
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," was issued in March 1995 and establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used and for long-lived assets and certain identifiable intangibles to be
disposed of. SFAS No. 121 requires the Company to adopt this statement during
fiscal year 1997, however, earlier adoption is encouraged. The Company believes
its current method of accounting for impairment of assets is in accordance with
the requirements of SFAS No. 121, and therefore, does not anticipate that the
adoption of SFAS No. 121 will have any impact on its financial position or
results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) The Financial Statements and Supplementary Data of Sports Arenas, Inc.
and Subsidiaries are listed and included under Item 14 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
10
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) - (c) The following were directors and executive officers of the
Company during the year ended June 30, 1995. All present directors will hold
office until the election of their respective successors. All executive
officers are to be elected annually by the Board of Directors.
Directors and Officers Age Position and Tenure with Company
- ---------------------- --- --------------------------------
Harold S. Elkan 52 Director since November 7, 1983;
President since November 11, 1983
Steven R. Whitman 42 Chief Financial Officer and Treasurer
since May 1987; Director and
Assistant Secretary since August 1,
1989 Secretary since January 1995
Patrick D. Reiley 54 Director since August 21, 1986
James E. Crowley 48 Director since January 10, 1989
Robert A. MacNamara 47 Director since January 9, 1989
Brock L. Ladewig, the Company's Secretary and in-house legal counsel since
August 1989, resigned in January 1995
There are no understandings between any director or executive officer and any
other person pursuant to which any director or executive officer was selected as
a director or executive officer.
(d) FAMILY RELATIONSHIPS - None
(e) BUSINESS EXPERIENCE
1. Harold S. Elkan has been employed as the President and Chief Executive
Officer of the Company since 1983. For the preceding ten years he was a
principal of Elkan Realty and Investment Co., a commercial real estate brokerage
firm, and was also President of Brandy Properties, Inc., an owner and operator
of commercial real estate.
2. Steven R. Whitman has been employed as the Chief Financial Officer and
Treasurer since May 1987. For the preceding five years he was employed by
Laventhol & Horwath, CPAs, the last four of which were as a manager in the audit
department.
3. Patrick D. Reiley was the Chairman of the Board and Chief Executive
Officer of Reico Insurance Brokers, Inc. (Reico) from 1980 until June 1995, when
Reico ceased doing business. Reico was an insurance brokerage firm in San
Diego, California.
4. James E. Crowley has been an owner and operator of various automobile
dealerships for the last seventeen years. Mr. Crowley is vice president of
Jamar Holdings, Ltd., doing business as San Diego Mitsubishi (he was the
President and controlling shareholder from 1988 to 1994), President of Coast
Nissan since 1992; President of Escondido Jeep Eagle/GMC Truck since March 1994,
and President of Pacific Beach Ford from 1988 to 1991.
5. Robert A. MacNamara has been employed by Daley Corporation, a
California corporation, since 1978, the last ten years of which he has served as
Vice President of the Property Division. Daley Corporation is a residential and
commercial real estate developer and a general contractor.
(f) INVOLVEMENT IN LEGAL PROCEEDINGS - None
11
<PAGE>
SECTION 16(a) COMPLIANCE -Section 16(a) of the Securities Exchange Act of
1934 requires the Company's directors and executive officers, and persons who
own more than ten percent of a registered class of the Company's equity
securities, to file with the Securities and Exchange Commission initial reports
of ownership and reports of changes in ownership of Common Stock and other
equity securities of the Company. Officers, directors and greater than ten-
percent shareholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on written representations that no
other reports were required, during the three fiscal years ended June 30, 1993
through 1995 all Section 16(a) filing requirements applicable to officers,
directors and greater than ten-percent beneficial owners were complied with.
ITEM 11. EXECUTIVE COMPENSATION
(b) The following Summary Compensation Table shows the compensation paid
for each of the last three fiscal years to the Chief Executive Officer of the
Company and to the most highly compensated executive officers of the Company
whose total annual compensation for the fiscal year ended June 30, 1995 exceed
$100,000.
<TABLE>
<CAPTION>
Name and Principal Long-term All Other
- ------------------ --------- ---------
Position Year Salary Bonus Other Compen- Compen-
-------- ---- ------ ----- ----- ------- -------
sation sation
------ ------
<S> <C> <C> <C> <C> <C> <C>
Harold S. Elkan, 1995 $250,000 $ - $ - $ - $ -
President 1994 250,000 - - - -
1993 225,000 - - - -
Steven R. Whitman, 1995 100,000 - - - -
Chief Financial 1994 100,000 - - - -
Officer 1993 100,000 - 3,000 - -
</TABLE>
The Company has no Long-Term Compensation Plans. Although the Company
provides some miscellaneous perquisites and other personal benefits to its
executives, the amount of this compensation did not exceed the lesser of $50,000
or 10 percent of an executive's annual compensation.
(c)-(f) and (i) The Company hasn't issued any stock options or stock
appreciation rights, nor does the Company maintain any long-term incentive plans
or pension plans.
(g) Compensation of Directors - The Company pays a $500 fee to each
outside director for each director's meeting attended. The Company does not pay
any other fees or compensation to its directors as compensation for their
services as directors.
(h) Employment Contracts, Termination of Employment and Change-in-Control
Arrangements: Pursuant to an employment agreement, which expires January 1998,
Harold S. Elkan, the Company's President, is to receive a sum equal to twice his
annual salary ($250,000 as of June 30, 1995) plus $50,000 if he is discharged by
the Company without good cause, or the employment agreement is terminated as a
result of a change in the Company's management or voting control. The agreement
also provides for miscellaneous perquisites which do not exceed either $50,000
or 10 percent of his annual salary. The Board of Directors has authorized that
up to $625,000 of loans can be made to Harold S. Elkan at interest rates not to
exceed 10 percent.
(j) Compensation Committee Interlocks and Insider Participation: Harold S.
Elkan, the Company's President, was appointed by the Company's Board of
Directors as a compensation committee of one to review and set compensation for
all Company employees other than Harold S. Elkan. The Company's outside
Directors set compensation for Harold S. Elkan. None of the executive officers
of the Company had an "interlock" relationship to report for the fiscal year
ended June 30, 1995.
12
<PAGE>
(k) Board Compensation Committee Report on Executive Compensation
The Company's Board of Directors appointed Harold S. Elkan as a
compensation committee of one to review and set compensation for all Company
employees other than Harold S. Elkan. The Board of Directors, excluding Harold
S. Elkan and Steven R. Whitman, set and approve compensation for Harold S.
Elkan.
The objectives of the Company's executive compensation program are to:
attract, retain and motivate highly qualified personnel; and recognize and
reward superior individual performance. These objectives are satisfied through
the use of the combination of base salary and discretionary bonuses. The
following items are considered in determining base salaries: experience,
personal performance, responsibilities, and, when relevant, comparable salary
information from outside the Company. Currently, the performance of the Company
is not a factor in setting compensation levels. Annual cash bonus payments are
discretionary and would typically relate to subjective performance criteria. No
bonuses were awarded in the fiscal year ended June 30, 1995 due to the Company's
financial circumstances.
The compensation for Harold S. Elkan through December 31, 1992 had
been based on an employment agreement effective July 1, 1987. This agreement
provided for a base salary not to exceed $20,000 per month and annual bonuses
not to exceed $54,000. This compensation was set after reviewing a special
compensation study performed in 1987 for the Board of Directors by an
independent outside consultant. In the fiscal year ended June 30, 1993 the
outside members of the Board of Directors approved a new employment agreement
for Harold S. Elkan effective from January 1, 1993 until December 31, 1997.
This agreement provides for annual base salary of $250,000 plus discretionary
bonuses as the Board of Directors may determine and approve. In setting the
compensation levels in this agreement, the Board of Directors again referred to
the study performed in 1987.
Outside members of Board of Directors approving the Compensation
for Harold S. Elkan:
Patrick D. Reiley
James E. Crowley
Robert A. MacNamara
Directors' Compensation Committee for Other Employees:
Harold S. Elkan
(l) Performance Graph: The following graph compares the performance
of $100 if invested in the Company's common stock (SAI) with the performance of
$100 if invested in each of the Standard & Poors 500 Index (S&P 500), the
Standard & Poors Leisure Time Index (S&P LT), and American Recreation Centers,
Inc. (ARC), a company primarily operating in the bowling industry.
The performance graph provides information required by regulations of the
Securities and Exchange Commission. However, the Company believes that this
performance graph could be misleading if it is not understood that there is
limited trading of the Company's stock.
The performance is calculated by assuming $100 is invested at the beginning of
the period (July 1989) in the Company's common stock at a price equal to its
market value (the bid price). At the end of each fiscal year, the total value
of the investment is computed by taking the number of shares owned multiplied by
the market price of the shares at the end of each fiscal year.
13
<PAGE>
COMPARISON OF FIVE YEAR CUMULATIVE
TOTAL RETURN FOR SPORTS ARENAS, INC.
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
S&P500 116.73 126.35 141.68 139.71 172.04
S&P LT 60.67 63.78 63.87 85.29 76.52
SAI 100.00 100.00 100.00 100.00 100.00
ARC 100.96 98.51 99.18 114.38 132.00
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) - (c):
Shares Nature of Percent
beneficially beneficial of
Name and address owned ownership class
---------------- ----- --------- -----
Harold S. Elkan 21,808,267* Sole investment 80.0%
5230 Carroll Canyon Road and voting power
San Diego, California
All directors and officer 21,808,267 Sole investment 80.0%
as a group and voting power
* These shares of stock are owned by Andrew Bradley, Inc. which is wholly-
owned by Harold S. Elkan. Andrew Bradley, Inc. has pledged 10,900,000 of its
shares of Sports Arenas, Inc. stock as collateral for its loan from Sports
Arenas, Inc. See Note 3c of Notes to Consolidated Financial Statements.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) - (c):
1. The Company has $595,224 of unsecured loans outstanding to Harold S.
Elkan, (President, Chief Executive Officer, Director and, through his wholly-
owned corporation, Andrew Bradley, Inc., the majority shareholder of the
Company) as of June 30, 1995. The balance at June 30, 1995 bears interest at 8
percent per annum and is due in monthly installments of interest only plus
annual principal payments of $100,000 due on January 1, 1996-1999. The balance
is due January 1, 2001.
14
<PAGE>
2. The Company is a partner in several partnerships with Harold S. Elkan
(including his children) and S. Robert Elkan (the brother of Harold S. Elkan) or
a company controlled by him. In each of these partnerships, the Company's
limited partnership interest is entitled to a priority return over the other
limited partners.
REDBIRD LANES, LTD., which owns a bowling center acquired December 31,
1986, is owned by the Company as a 60-percent combined general and
limited partner, S. Robert Elkan as a 20-percent limited partner, and
Harold S. Elkan as a 20-percent limited partner.
REDBIRD PROPERTIES, LTD., is 30-percent owned as general and limited
partners in combination by S. Robert Elkan and an entity wholly-owned
by him. As of June 30, 1995, Harold S. Elkan owned a 30-percent
limited partnership interest and the remaining 40-percent interest was
owned by the SAPI as a limited partner. Redbird Properties, Ltd. owns
the land and building in which the Red Bird Lanes bowling center is
located. During the year ended June 30, 1995, Red Bird Lanes paid
approximately $111,000 of rent to Redbird Properties, Ltd. S. Robert
Elkan and his wife, Harold S. Elkan, and the Company are guarantors of
the $750,000 loan used to purchase the property. Effective July 1,
1995, the Company purchased a 29 percent partnership interest (in
addition to the 40 percent interest it has owned since 1987) in
Redbird Properties, Ltd. from Harold S. Elkan for $446,000. The
purchase price is payable in monthly installments of interest at 8
percent per annum plus annual principal payments of $100,000 on
January 1, 1996-1999 and $46,000 on January 1, 2000. The agreement
provides for an adjustment to the purchase price if the partnership
subsequently sells the real estate prior to June 30, 1996.
5755 LIMITED was a partnership owned by the SAPI as a 75-percent
combined general and limited partner, Harold S. Elkan and members of
his family as 18-percent limited partners, and S. Robert Elkan as a 7-
percent limited partner. In October 1994, 5755 Limited transferred
ownership of its only asset, a 24,500 square foot office building
acquired in December 1986, to the lender in complete satisfaction of a
related note payable. The partnership was then liquidated and
dissolved.
3. During the year ended June 30, 1995, the Company paid approximately
$268,000 in premiums for various insurance packages in which Reico Insurance
Company served as the agent. Reico Insurance Company was owned by Patrick D.
Reiley, a Director of the Company since 1986. He had served as the Company's
insurance agent for the past 17 years. Reico Insurance Company ceased doing
business in June 1995 and the Company has since engaged an unrelated third-party
as its insurance agent.
4. In December 1990, the Company loaned $1,061,009 to the Company's
majority shareholder, Andrew Bradley, Inc. (ABI), which is wholly-owned by
Harold S. Elkan, the Company's President. The loan provided funds to ABI to pay
its obligation related to its purchase of the Company's stock in November 1983.
The loan to ABI provides for interest to accrue at an annual rate of prime plus
1-1/2 percentage points (11-1/2 percent at June 30, 1995) and to be added to the
principal balance annually. At June 30, 1995, $540,269 of interest had been
accrued. The loan is due in November 2003. The loan is collateralized by
10,900,000 shares of the Company's stock.
15
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
<S> <C>
A. The following documents are filed as a part of this report:
1. Financial Statements of Registrant
Independent Auditors' Report 17
Sports Arenas, Inc. and Subsidiaries consolidated financial statements:
Balance sheets as of June 30, 1995 and 1994 18-19
Statements of operations for each of the years in the three year period
ended June 30, 1995 20
Statements of shareholders' equity (deficiency) for each of
the years in the three year period ended June 30, 1995 21
Statements of cash flows for each of the years in the three year
period ended June 30, 1995 22-23
Notes to financial statements 24-38
2. Financial Statements of Unconsolidated Subsidiaries
UCV, L.P. (a California limited partnership)- 50 percent owned investee:
Independent Auditors' Report 39
Balance Sheets as of March 31, 1995 and 1994 40
Statements of income and partners' equity (deficiency)
for each of the years in the three year period ended March 31, 1995 41
Statements of cash flows for each of years in the three year
period ended March 31, 1995 42
Notes to financial statements 43
3. Financial Statement Schedules
Schedule I 44-47
Schedules other than those listed above have been omitted
because they are either not applicable or the required
information is shown in the financial statement or notes thereto.
4. Exhibits
22.1 Subsidiaries of the Registrant 49
B. Reports on Form 8-K:
No reports on Form 8-K have been filed during the last quarter of the period
covered by this report.
</TABLE>
16
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Sports Arenas, Inc.:
We have audited the accompanying consolidated balance sheets of Sports
Arenas, Inc. and subsidiaries as of June 30, 1995 and 1994, and the related
consolidated statements of operations, shareholders' equity (deficiency) and
cash flows for each of the years in the three-year period ended June 30,
1995. In connection with our audits of the consolidated financial
statements, we have also audited the related financial statement schedule.
These consolidated financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sports Arenas, Inc.
and subsidiaries as of June 30, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 1995, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly, in all material respects, the information set forth
therein.
KPMG PEAT MARWICK LLP
San Diego, California
October 6, 1995
17
<PAGE>
AUDITORS REPORT TO BE INSERTED
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - JUNE 30, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Current assets:
Cash and equivalents $ 120,027 $ 904,744
Current portion of notes receivable 25,000 25,000
Current portion of notes receivable-affiliate (Note 3b) 100,000 50,000
Construction contract receivables 273,912 324,418
Other receivables 41,346 55,006
Costs in excess of billings on uncompleted contracts 14,471 12,017
Prepaid expenses 148,225 183,471
----------- -----------
Total current assets 722,981 1,554,656
----------- -----------
Receivables due after one year:
Note receivable (Note 3a) 743,144 767,728
Less deferred gain (Note 3a) (737,447) (757,000)
Affiliate (Note 3b) 595,224 512,257
Other 115,100 115,100
----------- -----------
716,021 638,085
Less current portion (125,000) (75,000)
----------- -----------
591,021 563,085
----------- -----------
Property and equipment, at cost (Notes 7 and 10):
Land 1,529,000 2,225,000
Buildings 4,477,544 5,595,974
Equipment and leasehold and tenant improvements 5,702,034 5,616,502
----------- -----------
11,708,578 13,437,476
Less accumulated depreciation and amortization (5,088,774) (5,139,080)
----------- -----------
Net property and equipment 6,619,804 8,298,396
----------- -----------
Other assets:
Undeveloped land, at cost (Notes 4 and 6c) 4,804,496 321,629
Capitalized carrying costs on leased land (Note 5) 87,465 89,361
Goodwill, net of accumulated amortization of $538,146
and $369,073 807,216 1,076,289
Deferred loan costs, net of accumulated
amortization of $71,838 and $228,817 127,002 121,813
Covenants not to compete, net of accumulated
amortization of $437,500 in 1994
- 12,500
Investments (Note 6) 1,416,147 1,481,312
Other 132,309 154,830
----------- -----------
7,374,635 3,257,734
----------- -----------
$15,308,441 $13,673,871
----------- -----------
----------- -----------
</TABLE>
18
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - JUNE 30, 1995 AND 1994 (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
1995 1994
----------- ------------
<S> <C> <C>
Current liabilities:
Long-term debt extinguished (Note 7b) $ - $ 2,461,942
Assessment district obligation- in default (Note 6c) 1,928,403 -
Long-term debt due within one year (Note 7a) 705,000 853,000
Note payable, line of credit (Note 7d) 88,742 -
Accounts payable 663,814 730,642
Accrued payroll and related expenses 130,890 191,825
Accrued property taxes (Note 6c) 249,14 652,200
Accrued interest 93,350 63,994
Accrued frequent bowler program expense 200,292 151,084
Other accrued liabilities 264,488 171,054
----------- ------------
Total current liabilities 4,324,125 4,675,741
----------- ------------
Long-term debt, excluding current portion (Notes 7 and 8a) 6,803,635 7,401,805
----------- ------------
Distributions received in excess of
basis in investment (Notes 6a and 6b) 9,559,390 9,467,693
----------- ------------
Tenant security deposits 24,616 39,427
----------- ------------
Minority interest in consolidated subsidiary (Note 6c) 2,212,677 _
----------- ------------
Commitments and contingencies
(Notes 3a, 4a, 4c, 5, 6c, 6e, 8, and 10)
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 (8,017,273) (8,469,678)
----------- ------------
(6,014,724 (6,467,129)
Less note receivable from shareholder (Note 3c) (1,601,278) (1,443,666)
----------- ------------
Total shareholders' equity (deficiency) (7,616,002) (7,910,795)
----------- ------------
$ 15,308,441 $ 13,673,871
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ -----------
<S> <C> <C> <C>
Revenues:
Bowling $ 7,700,410 $ 7,883,605 $ 5,001,83
Rental 523,952 632,862 623,122
Construction 1,785,523 1,752,056 1,560,566
Brokerage 64,490 61,732 69,937
Other 160,610 117,897 72,652
Other-related party (Note 6b) 106,616 105,824 104,590
------------ ------------ -----------
10,341,601 10,553,976 7,432,706
------------ ------------ -----------
Costs and expenses:
Bowling 4,890,606 5,143,890 2,820,320
Rental 250,147 327,429 394,662
Construction 1,501,900 1,495,901 1,305,875
Brokerage 32,253 30,780 53,688
Development 141,391 - -
Selling, general and administrative 2,808,372 2,835,792 2,338,712
Depreciation and amortization 1,038,650 1,207,081 744,914
Provisions for impairment losses (Note 7b ) - 1,711,000 -
Loss on disposal of rental property (Note 7c) - - 1,869,346
------------ ------------ -----------
10,663,319 12,751,873 9,527,517
------------ ------------ -----------
Loss from operations (321,718) (2,197,897) (2,094,811)
------------ ------------ -----------
Other income (charges):
Investment income:
Related party (Notes 3b and 3c) 201,413 149,763 146,850
Other 75,610 75,301 82,321
Interest expense and amortization of finance costs (816,567) (1,022,208) (860,344)
Interest expense related to development activities (139,463) - -
Equity in income of investees (Note 6) 171,751 338,565 266,983
Lawsuit settlement (Note 8c) - 548,190 (47,290)
Recognition of deferred gain (Note 3a) 19,553 25,000 18,000
------------ ------------ -----------
(487,703) 114,611 (393,480)
------------ ------------ -----------
Loss before extraordinary gain (809,421) (2,083,286) (2,488,291)
Extraordinary gain from troubled debt
restructuring (Notes 7b and 7c) 1,261,826 - 2,395,688
------------ ------------ -----------
Net income (loss) $ 452,405 $ (2,083,286) $ (92,603)
------------ ------------ -----------
------------ ------------ -----------
Per common share (based on weighted average
shares outstanding):
Loss before extraordinary gain $ (.03) $(.08) $(.09)
------------ ------------ -----------
------------ ------------ -----------
Net income (loss) $ .02 $(.08) $ .00
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED JUNE 30, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
Common Stock
------------------------------ Additional
Number of paid-in Accumulated
Shares Amount capital deficit Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1992 27,250,000 $ 272,500 $ 1,730,049 $(6,293,789) $(4,291,240)
Net loss - - - (92,603) (92,603)
------------ ------------ ------------ ------------ ------------
Balance at June 30, 1993 27,250,000 272,500 1,730,049 (6,386,392) (4,383,843)
Net loss - - - (2,083,286) (2,083,286)
------------ ------------ ------------ ------------ ------------
Balance at June 30, 1994 27,250,000 272,500 1,730,049 $(8,469,678) $(6,467,129)
Net income - - - 452,405 452,405
------------ ------------ ------------ ------------ ------------
Balance at June 30, 1995 27,250,000 $ 272,500 $1,730,049 $(8,017,273) $(6,014,724)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ 452,405 $ (2,083,286) $ (92,603)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Amortization of deferred financing costs and discount 41,989 100,389 172,620
Depreciation and amortization 1,038,650 1,207,081 744,914
Undistributed income of investees (171,751) (338,565) (266,983)
Loss on disposal of rental property - - 1,869,346
Extraordinary gain (1,261,826) - (2,395,688)
Interest income accrued on note receivable from shareholder (157,612) (110,128) (110,083)
Provisions for impairment losses - 1,711,000 -
Interest accrued on assessment district obligation 168,278 - -
Lawsuit settlement accrual - (548,190) 47,290
--------------- --------------- ---------------
110,133 (61,699) (31,187)
Changes in assets and liabilities:
(Increase) decrease in other receivables, prepaid expenses, and
costs in excess of billings 97,043 (86,134) (194,908)
Increase (decrease) in accounts payable and accrued expenses (54,151) 566,076 273,953
Other (34,186) (35,521) (41,766)
--------------- --------------- ---------------
Net cash provided by operating activities 118,839 382,722 6,092
--------------- --------------- ---------------
Cash flows from investing activities:
Increase in notes receivable (58,383) (6,921) (105,751)
Capital expenditures - other (142,426) (163,435) (159,502)
Purchase of office building - - (49,897)
Contributions to investees (97,571) - (10,700)
Proceeds from sale of investment - 93,000 -
Distributions from investees 302,499 1,754,743 746,000
Acquire additional interest in Old Vail Partners (49,845) - -
Distribution from Ocean West Builders - - 108,933
Purchase of bowling centers - (196,242) (205,356)
--------------- --------------- ---------------
Net cash provided (used) by investing activities (45,726) 1,481,145 323,727
--------------- --------------- ---------------
Cash flows from financing activities:
Scheduled principal payments (864,740) (1,007,921) (543,241)
Proceeds from line of credit 303,102 300,000 -
Payments on line of credit (214,360) (558,600) -
Principal payments and loan costs related to
extension of loan due date - - (128,367)
Costs related to troubled debt restructuring (21,659)
Loan costs to refinance long term debt (39,417) - -
Other (20,756) (12,000) -
--------------- --------------- ---------------
Net cash used by financing activities (857,830) (1,278,521) (671,608)
--------------- --------------- ---------------
Net increase (decrease) in cash and equivalents (784,717) (585,346) (341,789)
Cash and equivalents, beginning of year 904,744 319,398 661,187
--------------- --------------- ---------------
Cash and equivalents, end of year $ 120,027 $ 904,744 $ 319,398
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
22
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1994, AND 1993
SUPPLEMENTAL CASH FLOW INFORMATION:
1995 1994 1993
------------- ------------- --------------
INTEREST PAID $ 789,000 $ 900,000 $ 682,000
------------- ------------- --------------
------------- ------------- --------------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
In addition to the cash expenditures of $196,242 in 1994 and $205,356 in 1993,
in 1994 the Company assumed long-term debt of $3,594,939 and borrowed
$258,600 from its line of credit to acquire two bowling centers. The
purchase price was allocated as follows: Equipment-$585,700; Land-$420,000;
Building-$1,687,934; Deferred loan costs-$78,141; Goodwill-$1,345,362; Other
assets-$40,000; and Other notes receivable-$98,000.
Long-term debt of $17,751 in 1995, $167,063 in 1994, and long-term debt and
capital lease obligations of $240,798 in 1993 were incurred to finance other
capital expenditures of $28,750 in 1995, $190,545 in 1994 and $321,600 in
1993.
In January 1994, the Company foreclosed on $233,270 of video games, equipment
and other collateral related to the Company's guarantee of a bank's loan to
a games room operator. The Company also assumed the $233,270 note payable
to bank.
In addition to the initial cash payment of $50,000 to acquire an additional
interest in Old Vail Partners in September 1994, 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 refinanced long term debt of $1,193,800 with
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 $21,659 to consummate the
transfer.
The proceeds of a $1,162,800 loan plus cash payments of $49,897 by the Company
funded the $1,031,393 purchase of an office building and $181,304 of
associated loan fees in 1993.
The distribution received by the Company from Ocean West Builders, Ltd. in
1993 consisted of the following non-cash items: Receivables- $111,091; Costs
in excess of billings-$31,213; Prepaid expenses-$3,016; Equipment-$39,822
and related accumulated depreciation-$25,689; Accounts payable-$38,122; and
Note payable-$11,434.
During the year ended June 30, 1995, the Company wrote-off $100,000 of fully
amortized goodwill and $450,000 of fully amortized covenant-not-to-compete.
See accompanying notes to consolidated financial statements.
23
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
1. Summary of significant accounting policies:
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts of Sports Arenas, Inc. and all subsidiaries
and partnerships more than 50 percent owned or in which there is a
controlling financial interest (the Company). All material intercompany
balances and transactions have been eliminated. The minority interests'
share of the net loss of partially owned consolidated subsidiaries has been
recorded to the extent of the minority interests' contributed capital. The
Company uses the equity method of accounting for its investments in entities
in which it has an ownership interest that gives the Company the ability to
exercise significant influence over operating and financial policies of the
investee. The Company uses the cost method of accounting for investments in
which it has virtually no influence over operating and financial policies.
CASH AND EQUIVALENTS - Cash and equivalents only include highly liquid
investments with original maturities of less than 3 months.
PROPERTY AND EQUIPMENT - Depreciation and amortization are provided on the
straight-line method based on the estimated useful lives of the related
assets, which are 20 and 30 years for the buildings and from 3 to 15 years
for the other assets.
INVESTMENT - The Company's purchase price in March 1975 of the one-half
interest in UCV, L.P. exceeded the equity in the book value of net assets of
the project at that time by approximately $1,300,000. The excess was
allocated to land and buildings based on their relative fair values. The
amount allocated to buildings is being amortized over the remaining useful
lives of the buildings and the amortization is included in the Company's
depreciation and amortization expense.
INCOME TAXES - The Company accounts for income taxes using the asset and
liability method in accordance with Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes." The Company adopted
Statement 109 effective July 1, 1992.
AMORTIZATION OF INTANGIBLE ASSETS - Deferred loan costs are being amortized
over the terms of the loans on the straight-line method. The covenant not to
compete was being amortized over the terms of the agreement on the straight-
line method. Goodwill related to the acquisition of a bowling center is
being amortized over 5 years on the straight-line method.
VALUATION IMPAIRMENT - The Company records a provision for value impairment of
long-lived assets, including goodwill, whenever the sum of the estimated
undiscounted future cash flows from operations plus the asset's estimated
undiscounted disposition value is less than the current book value. The
provision for value impairment, if any, is equal to the excess by which the
current book value exceeds the fair value of the asset.
RECLASSIFICATIONS - The Company has reclassified certain prior period amounts
in 1994 and 1993 to conform to their classification in 1995.
CONCENTRATIONS OF CREDIT RISK - Financial instruments which potentially
subject the Company to concentrations of credit risk are the notes receivable
described in Note 3.
2. Related party transactions:
During the year ended June 30, 1995, the Company paid $268,000 ($246,000 in
1994 and $196,000 in 1993) of insurance premiums to its insurance agent, which
is owned by an individual who became a director of the Company in August 1986.
The director has served as the Company's insurance agent for the past 17
years.
See notes 3b, 3c, 4a, 6b, 6e, 6f and 8a for other related party transactions.
24
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
3. Notes receivable:
(a) Sale of bowling centers - The Company sold two bowling centers in April
1989. Part of the consideration was an $800,000 note receivable from
the buyer due in monthly installments of $7,720 beginning October 1,
1989, including principal and interest at 10 percent per annum. The
balance is due in September 1997. Under the terms of the note, interest
accruing from April 1989 through October 1989 was deferred and is due in
September 1997, including interest accruing thereon. The following is
the detail of the balance of the note receivable and accrued interest at
June 30:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Balance of note receivable due in monthly installments $708,145 $732,906
Deferred interest due September 1997 34,999 34,822
-------- --------
$743,144 $767,728
-------- --------
-------- --------
</TABLE>
The Company is deferring recognition of $800,000 of the gain from the
sale of the bowling centers in the year ended June 30, 1989 until such
time as the operations of the two bowling centers become sufficient to
support the payment of their obligations or as the principal balance of
the note plus accrued and unpaid interest is reduced below $800,000.
The Company recognized $19,553, $25,000 and $18,000 of the deferred gain
in the years ended June 30, 1995, 1994 and 1993, respectively. The
deferred gain is presented as a reduction of the note receivable in the
consolidated balance sheets.
In July 1995, the Company agreed to accept a discounted payoff of the
note receivable equal to 85 percent of the balance of the note, subject
to the buyer consummating its financial restructuring. This agreement
expires October 31, 1995.
(b) Affiliate - The Company made unsecured loans to Harold S. Elkan, the
Company's President and, indirectly, the Company's majority shareholder,
and recorded interest income of $43,801, $39,635, and $36,767 in 1995,
1994, and 1993, respectively. The balance of $595,224 at June 30, 1995
bears interest at 8 percent per annum and is due in monthly installments
of interest only plus annual principal payments of $100,000 due in
January 1, 1996-1999. The balance is due on January 1, 2001.
(c) Shareholder - In December 1990, the Company loaned $1,061,009 to the
Company's majority shareholder, Andrew Bradley, Inc. (ABI), which is
wholly-owned by Harold S. Elkan, the Company's President. The loan
provided funds to ABI to pay its obligation related to its purchase of
the Company's stock in November 1983. The loan to ABI provides for
interest to accrue at an annual rate of prime plus 1-1/2 percentage
points (11-1/2 percent at June 30, 1995) and to be added to the
principal balance annually. The loan is due in November 2003. The loan
is collateralized by 10,900,000 shares of the Company's stock. The
original loan amount plus accrued interest of $540,269 is presented as a
reduction of shareholders' equity because ABI's only asset is the stock
of the Company. The Company recorded interest income from this note of
$157,612 in 1995, $110,128 in 1994, and $110,083 in 1993.
4. Undeveloped land:
(a) In August 1984, the Company acquired approximately 500 acres of
undeveloped land in Lake of Ozarks, Missouri from an entity controlled
by Harold S. Elkan (Elkan). The purchase price approximated the
affiliate's original purchase price. Elkan has agreed to indemnify the
Company for any realized decline in value of the land. The carrying
value of the land was $281,629 at June 30, 1995 and 1994.
25
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
4. Undeveloped land (continued):
(b) The Company owns approximately 55 acres of undeveloped land in Sierra
County, New Mexico which is subject to a contract for sale to a third
party at an imputed value of $150,000, which was executed in 1988. Due to
the nature of the terms of the contract, the Company was going to record
portions of the sale as payments were received. The purchaser is in
default of the contract, but the Company has not yet canceled the
contract. The $40,000 carrying value of the land at June 30, 1995 and
1994 is net of $118,500 of valuation adjustments recorded in prior years.
(c) Through its ownership of Old Vail Partners, L.P. and its predecessor Old
Vail Partners, a general partnership (collectively referred to as OVP, see
Note 6c), the Company owns 40 acres of undeveloped land in Temecula,
California. The $4,482,867 carrying value of the property consists of:
acquisition cost- $2,615,788, capitalized assessment district costs-
$1,577,025 (see Note 6c), and other development planning costs $290,054.
The property is currently subject to default judgments to the County of
Riverside, California totaling $450,000 regarding assessment district
obligations. The County has not yet commenced foreclosure proceedings.
In November 1993, the City of Temecula adopted a general development plan
that designates 40 acres of property owned by OVP as suitable for
"professional office" use, which is contrary to its zoning as "commercial"
use. As part of the adoption of its general development plan, the City of
Temecula adopted a provision that, until the zoning is changed on
properties affected by the general plan, the general plan shall prevail
when a use designated by the general plan conflicts with the existing
zoning on the property. The result is that the City of Temecula has
effectively down-zoned the 40 acre parcel from a "commercial" to
"professional office" use. The parcel is subject to Assessment District
liens which were allocated in 1989 based on a higher "commercial" use.
Since the Assessment District liens are not subject to reapportionment as
a result of re-zoning, a "professional office" use is not economically
feasible due to the disproportionately high allocation of Assessment
District costs. OVP has filed suit against the City of Temecula claiming
that the City's adoption of a general plan as a means of effectively re-
zoning the property is invalid. Additionally, OVP is claiming that, if
the effective re-zoning is valid, the action is a taking and damaging of
OVP's property without payment of just compensation. OVP is seeking to
have the effective re-zoning invalidated and an unspecified amount of
damages. The outcome of this litigation is uncertain. If the City of
Temecula is successful in its attempt to down-zone the property, the value
of the property may be significantly impaired.
5. Capitalized carrying costs on leased land:
The Company is a sublessor on a parcel of land which is subleased to
individual owners of a condominium project. The Company capitalized $111,674
of carrying costs prior to subleasing the land in 1980. The Company is
amortizing the capitalized carrying costs over the period of the subleases on
the straight-line method. The capitalized costs are presented net of
accumulated amortization of $24,209 in 1995 and $22,313 in 1994. The future
minimum rental payments payable by the Company to the lessor on the lease are
approximately $124,000 per year for the remaining term of 48 years (aggregate
of $5,952,000) based on 85 percent of the minimum rent due from the
sublessees. The future minimum rents due to the Company from the sublessees
are approximately $146,000 per year for the remaining term of 48 years
(aggregate of $7,008,000). The subleases provide for increases every five
years based on increases in the Consumer Price Index.
26
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
6. Investments:
(a) Investments consist of the following:
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Accounted for on the equity method:
Investment in UCV, L.P. $( 9,559,390) $( 9,467,693)
Old Vail Partners - 1,279,722
Vail Ranch Limited Partners 1,219,033 -
Redbird Properties, Ltd. 134,975 136,590
------------- -------------
( 8,205,382) ( 8,051,381)
Less Investment in UCV, L.P. classified as liability-
Distributions received in excess of basis in
investment 9,559,390 9,467,693
------------- -------------
1,354,008 1,416,312
Accounted for on the cost basis:
All Seasons Inns, La Paz 62,139 65,000
------------- -------------
Total investments $1,416,147 $1,481,312
------------- -------------
------------- -------------
</TABLE>
The following is a summary of the equity in income (loss) of the
investments accounted for by the equity method:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
UCV, L.P. $ 224,222 $ 459,776 $ 417,456
Old Vail Partners ( 50,256) ( 117,000) ( 146,700)
Vail Ranch Limited Partners - - -
Ocean West Builders, Ltd. - - 1,742
Redbird Properties, Ltd. ( 2,215) ( 4,211) ( 5,515)
---------- ---------- ----------
$ 171,751 $ 338,565 $ 266,983
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The following is a reconciliation of the investments, other than UCV, L.P.,
accounted for on the equity method:
<TABLE>
<CAPTION>
Vail Ranch
Old Vail Limited Redbird
Parthers Partners Properties
---------- ---------- ----------
<S> <C> <C> <C>
Balance, July 1, 1994 $1,279,722 $ - $ 136,590
Net carrying value of assets
transferred upon consolidation (1,189,466)
Contributions (distributions) ( 40,000) 1,219,033 600
Equity in loss ( 50,256) - ( 2,215)
---------- ---------- ----------
Balance, June 30, 1995 $ - $1,219,033 $ 134,975
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
(b) Investment in UCV, L.P.:
The Company is a one percent managing general partner and 49 percent limited
partner in UCV, L.P. (UCV) which owns University City Village, a 542 unit
apartment project in San Diego, California. The other one percent general
partner and 49 percent limited partner are owned by an individual related to
the former majority shareholder of the Company. The entity was formerly
named University City Village, a joint venture. On June 1, 1994 the joint
venture converted the form of entity to a limited partnership and changed
the name to UCV, L.P.
27
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
6. Investments (continued):
(b) Investment in UCV, L.P. (continued):
The following is summarized financial information of UCV as of and for
the years ended March 31 (UCV's fiscal year end):
<TABLE>
<CAPTION>
1995 1994 1993
----------- ------------ ------------
<S> <C> <C> <C>
Total assets $ 2,867,000 $ 2,409,000 $ 2,687,000
Total liabilities 20,179,000 17,291,000 17,357,000
Revenues 3,990,000 3,840,000 3,858,000
Operating and general and
administrative costs 1,431,000 1,433,000 1,534,000
Depreciation 182,000 187,000 190,000
Interest expense 1,929,000 1,300,000 1,299,000
Net income 448,000 920,000 835,000
</TABLE>
The apartment project is managed by the Company, which recognized
management fee income of $106,616, $105,824, and $104,590 in the
twelve month periods ended June 30, 1995, 1994, and 1993,
respectively.
A reconciliation of distributions received in excess of basis in UCV
as of June 30 is as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Balance, beginning $ 9,467,693 $ 8,119,306
Equity in income (224,222) (459,776)
Cash distributions 262,499 1,754,743
Amortization of purchase price in
excess of equity in net assets 53,420 53,420
----------- -----------
Balance, ending $ 9,559,390 $ 9,467,693
----------- -----------
----------- -----------
</TABLE>
(c) Investment in Old Vail Partners and Vail Ranch Limited Partnership:
RCSA Holdings, Inc. (RCSA) and OVGP, Inc. (OVGP), wholly-owned
subsidiaries of the Company, own a combined 50 percent general and
limited partnership interest in Old Vail Partners, L.P. , a California
limited partnership (OVP). OVP owns approximately 40 acres of
undeveloped land and a 50 percent limited partnership interest in Vail
Ranch Limited Partnership (VRLP). Since September 1988, OVP had been
a general partnership with RCSA as 33 percent co-managing general
partner and a third-party as a 67 percent co-managing general partner.
Effective in September 1994: the general partnership was converted to
a limited partnership; RCSA was converted to a 49 percent limited
partner; OVGP was admitted as a one percent general partner; and the
third-party's interest was converted to a liquidating partnership
interest. This transaction effectively resulted in the acquisition of
the third-party's partnership interest in OVP for a cash payment of
$50,000 and the rights to 50 percent of future distributions up to
$2,450,000. Under certain circumstances, which have not yet occurred,
the Company may have to make minimum annual distributions of $50,000
or $100,000 for five years. Legal title to the 40 acres of
undeveloped land is still in the process of being changed from the
former general partnership's name to the limited partnership. Prior
to September 23, 1994, the Company accounted for its investment in OVP
as an unconsolidated subsidiary on the equity method of accounting.
Effective September 23, 1994, OVP was consolidated with the Company
and the capital account of the other partner is presented as "Minority
interest" in the consolidated balance sheet.
28
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
6. Investments (continued):
(c) Investment in Old Vail Partners and Vail Ranch Limited Partnership
(continued):
The following is summarized balance sheet information of OVP included in
the Company's consolidated balance sheet as of June 30, 1995:
<TABLE>
<CAPTION>
<S> <C>
Undeveloped land $ 4,482,867
Investment in Vail Ranch Limited Partnership 1,219,033
Assessment district obligation-in default 1,928,403
Accounts payable 11,384
Accrued interest 44,154
Accrued property taxes 198,723
Note payable 93,820
Minority interest in subsidiary 2,212,677
</TABLE>
Operating results of the Company on a pro-forma basis as though the
controlling interest in OVP was acquired July 1, 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Revenues $ 10,352,000 $ 10,597,000
Loss before extraordinary item ( 960,000) ( 2,436,000)
Net income (loss) 452,000 ( 2,436,000)
Earnings (loss) per share $ .02 $ (.09)
</TABLE>
VRLP is a partnership formed in September 1994 between OVP and a third
party (Developer) to develop 32 acres of the land that was contributed by
OVP to VRLP. OVP is a 50 percent limited partner with a priority right to
distributions for specified amounts based on the acreage being developed.
These amounts will be reduced by any amounts expended by VRLP to extinguish
approximately $750,000 of obligations incurred by OVP prior to the transfer
that are liens on the 32 acres of land, primarily relating to delinquent
assessments and property taxes. The Developer has reached agreements with
an anchor tenant and others and is in the process of obtaining construction
financing for development of an 11 acre phase. The timing and amount of
distributions that OVP will receive from the VRLP are uncertain. The
following is summarized financial information of VRLP as of June 30, 1995
and for the period ended September 23, 1994 (inception) to June 30, 1995:
<TABLE>
<CAPTION>
<S> <C>
Total assets $7,145,000
Total liabilities 6,024,000
Revenues -
Net loss -
</TABLE>
The 40 acres of land owned by OVP and the 32 acres of land owned by VRLP
are located within a special assessment district of the County of
Riverside, California (the County) which was created to fund and develop
roadways, sewers, and other required infrastructure improvements in the
area necessary for the owners to develop their properties. Property within
the assessment district is collateral for an allocated portion of the
bonded debt that were issued by the assessment district to fund the
improvements. The annual payments (made in semiannual installments) due
related to the bonded debt are approximately $156,000 for the 40 acres and
$340,000 for the 32 acres. The payments continue through the year 2014 and
include interest at approximately 7-3/4 percent. OVP and VRLP are
delinquent in the payment of property taxes and assessments for the last
two to four years. As of June 30, 1995, the County had obtained judgments
for the defaults under the assessment district obligations on both
properties. However, the County has not yet commenced foreclosure
proceedings on these judgments.
29
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
6. Investments (continued):
(c) Investment in Old Vail Partners and Vail Ranch Limited Partnership
(continued):
The amount due to cure the judgments at June 30, 1995 was
approximately $710,000 for the 32 acres owned by VRLP and $450,000 for
the 40 acres owned by OVP. The principal balance of the allocated
portion of the bonds ($1,513,730), and delinquent interest and
penalties ($414,673) are classified as "Assessment district
obligation- in default" in the consolidated balance sheet. In
addition, accrued property taxes in the balance sheet includes
$198,723 of delinquent property taxes and late fees related to the 40
acre parcel. The judgment related to VRLP's 32 acres will be cured
once construction financing is obtained by VRLP.
(d) Investment in Ocean West Builders, Ltd.:
Until July 1, 1992, the Company owned a 50 percent general partnership
interest in Ocean West Builders, Ltd., a limited partnership, which
was a general contractor that primarily constructed tenant
improvements. The Company reported its share of the partnership's
income based on the partnership's December 31 year-end. On July 1,
1992, the operations of Ocean West Builders, Ltd. were merged with the
Company and the net assets of the partnership were distributed to the
partners.
(e) Investment in Redbird Properties, Ltd.:
As of June 30, 1995, the Company owned a 40 percent limited
partnership interest in Redbird Properties, Ltd. which owns the land
and building in which one of the Company's bowling centers (Red Bird
Lanes) is located. The Company advanced $238,000 to the partnership
to acquire the property in December 1986, which has been classified as
part of the Company's investment in the partnership. The other 60
percent interest is owned by Harold S. Elkan as a 30 percent limited
partner, and by his brother, directly and indirectly, as a one percent
general partner and 29 percent limited partner. The Company's
partnership interest is entitled to a priority return over the other
limited partners. The Company and the other partners are co-
guarantors of a loan to the partnership which is collateralized by the
partnership's land and building. The balance of the loan at June 30,
1995 was $713,538. The following is summarized financial information
of Redbird Properties, Ltd. as of and for the years ended June 30,
1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Assets $ 701,000 $ 742,000
Liabilities 722,000 759,000
Rent from Red Bird Lanes (see Note 8a) 111,000 111,000
Net loss ( 5,000) ( 11,000)
</TABLE>
Effective July 1, 1995, the Company purchased an additional 29 percent
partnership interest in Redbird Properties, Ltd. from Harold S. Elkan
for $446,000. The purchase price is payable in monthly installments
of interest at 8 percent per annum plus annual principal payments of
$100,000 on January 1, 1996-1999 and $46,000 on January 1, 2000. The
agreement provides for an adjustment to the purchase price if the
partnership subsequently sells the real estate prior to June 30, 1996.
30
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
6. Investments (continued):
(f) Other investments:
The Company owns a 6 percent limited partnership interest in two
partnerships (the Hotel) that own and operate a 109-room hotel in La
Paz, Mexico (All Seasons Inns, La Paz). The $62,139 carrying value of
the Hotel at June 30, 1995 ($65,000 at June 30, 1994) is net of a
$125,000 valuation adjustment recorded in the year ended June 30,
1991. On August 13, 1994, the partners owning the Hotel agreed to
sell their partnership interests to one of the general partners. The
total consideration to the Company ($123,926) was $2,861 cash at
closing (December 31, 1994) plus a $121,065 note receivable bearing
interest at 10 percent with installments of $60,532 plus interest due
on January 1, 1996 and 1997. Due to the minimal cash consideration
received at closing, the Company has not recorded the sale of its
investment. The Company will record the $58,926 gain from the sale
when the first principal installment is received, which is due in
January 1996. The cash payment of $2,861 received in December 1994
was applied to reduce the carrying value of the investment.
In April 1994, the Company sold its investment in Jamar Holdings, Ltd.
to James Crowley, a Director of the Company, for $93,000 and recorded
a loss of $12,178. The Company purchased the investment in February
1989 from James Crowley for $100,000 plus other costs.
7. Long-term debt:
(a) Long-term debt consists of the following:
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
7-1/2% note payable collateralized by $704,000 of real estate and
$1,651,000 of equipment at Marietta Lanes bowling center, due
in monthly installments of $5,452 including principal and a
variable rate of interest (base plus 2-1/2%) adjusted monthly,
payment amount is adjusted annually to correspond to the
remaining amortization term and the current interest rate,
balance due December 1, 1997 $ 652,992 $ 670,266
10-1/4% notes payable, due in monthly installments of $9,654
including interest, paid in October 1994, - 28,466
9-1/2% note payable, collateralized by $998,000 of equipment at
Marietta Lanes bowling center, due in average monthly
installments of $2,189, including principal and interest, balance
due September 2003 146,015 157,585
8-3/4% note payable collateralized by $2,161,000 of real property
and $845,000 of equipment of American Bowling Center,
principal due in monthly installments of $4,605 plus interest at a
variable rate (prime plus 1-1/2 points) adjusted monthly,
balance due January 2001 308,489 363,743
9-7/10% note payable collateralized by $2,161,000 of real property
and $845,000 of equipment of American Bowling Center,
guaranteed by Small Business Administration, due in monthly
installments of $4,386 including interest, balance due January
2011 423,407 434,914
31
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
7. Long-term debt (continued):
(a) (continued)
1995 1994
-------------- --------------
<S> <C> <C>
14-4/10% note payable collateralized by $2,161,000 of real property
and $845,000 of equipment of American Bowling Center, due in
average monthly installments of $14,220, including interest,
balance due October 1995 19,876 172,838
9% note payable collateralized by $2,161,000 of real property and
$845,000 of equipment of American Bowling Center, due in
monthly installments of $5,846 including interest, balance due
August 2003 404,674 436,816
Non-interest bearing amount due to seller of American Bowling
Center related to covenant-not-to-compete, final annual
installment of $50,000 was paid in September 1994. The
payments on this note were originally discounted to their present
value at 10% (unamortized discount of $800 at June 30, 1994) - 49,200
13-3/4% note payable collateralized by first trust deed on
$1,076,000 of land and office building, due in monthly
installments of $13,673 of interest only, balance due and paid in
October 1994 - 1,193,800
10-9/10% note payable collateralized by first trust deed on
$1,076,000 of land and office building, due in monthly
installments of $11,675 including interest, balance due in
October 2004. 1,193,602 -
11-1/2% note payable collateralized by partnership interest in Old
Vail Partners, principal is due in monthly payments of $5,223
plus interest at a variable rate (prime plus 1-1/2 points) adjusted
monthly. Additional principal payments are due to the extent
distributions are received from Old Vail Partners. The balance is
due November 1996. The loan is guaranteed by Harold S. Elkan. 931,711 1,047,500
8-1/2% note payable to bank, collateralized by deed of trust on
$282,000 of undeveloped land, principal of $4,745 plus interest
is payable annually, balance due February 1999. 94,909 99,655
8% note payable collateralized by $2,108,000 of real estate and
$264,000 of equipment at Valley Bowling Center, due in monthly
installments of $18,882 including principal and interest, balance
due August 2000 2,058,019 2,117,251
10% note payable collateralized by $668,000 of equipment at Valley
and Grove Bowling Centers, due in monthly installments of
$5,197, including principal and interest, balance due June 30,
1997 160,900 204,762
32
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
7. Long-term debt (continued):
(a) (continued)
1995 1994
-------------- --------------
<S> <C> <C>
9% note payable collateralized by $66,000 of equipment at Valley
and Grove Bowling Centers, due in monthly installments of
$2,170, including principal and interest, balance due August 1996 26,920 49,425
9% note payable collateralized by $668,000 of equipment at Valley
and Grove Bowling Centers, due in monthly installments of
$1,443, including principal and interest, balance due June 1998 45,264 57,975
8%-10% notes payable collateralized by $264,000 of equipment at
Valley Bowling Center, due in monthly installments of $11,780
including principal and interest, balance due June 1998 383,271 479,458
9% note payable, unsecured, due in monthly installments of $2,500
through November 1, 1994 and monthly installments of $2,000
thereafter, including principal and interest, balance due February
1996 90,043 107,153
8-1/2% note payable, unsecured, due in monthly installments of
$3,060 of principal and interest, balance due October 1996 102,337 129,033
9-1/2% notes payable collateralized by $141,000 of video game
equipment, due in monthly installments of $4,895 including
principal and interest, balance due July 1, 1998 146,356 186,356
10-1/2% note payable collateralized by first trust deed on
$4,482,867 of undeveloped land, principal and accrued interest
(a variable rate of base plus 1-1/2 points) due June 22, 1997 93,820 -
5-9/10% note payable collateralized by first trust deed on
$1,855,000 of land and building (See Note 7b). - 2,461,942
Capitalized lease obligation (Note 8a) 113,439 128,480
Other 112,591 140,129
---------- ----------
7,508,635 10,716,747
Less loan in default, classified as current liability - (2,461,942)
---------- ----------
7,508,635 8,254,805
Less current maturities ( 705,000) ( 853,000)
---------- ----------
$6,803,635 $7,401,805
---------- ----------
---------- ----------
</TABLE>
The values of property and equipment as collateral for the notes
are listed at historical cost less valuation adjustments.
The principal payments due on notes payable during the next five
fiscal years are as follows: $705,000 in 1996, $1,576,000 in 1997,
$1,126,000 in 1998, $385,000 in 1999, and $271,000 in 2000.
33
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
7. Long-term debt (continued):
(a) (continued)
A bank loan agreement of a subsidiary (Marietta Lanes, Inc.) provides
restrictions on the amount of dividends, loans and management fees the
subsidiary may remit to its parent. The restricted net assets of this
subsidiary as of June 30, 1995 totaled $867,000.
(b) 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 $21,659, 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 $1,200,000 estimated current fair value
of the office building was considerably less than the balance of the
loan due to significant declines in the market rents since 1989.
There was no effect for federal income tax purposes due to the
utilization of the Company's net operating loss carry-forwards.
(c) In October 1991, the Company (on behalf of a subsidiary) commenced
negotiations with the Resolution Trust Corporation (RTC) to modify the
existing $3,800,000 non-recourse note payable collateralized by
$4,727,000 (at cost) of land, building and improvements. At that time
the RTC, as receiver for the original lender, held a 20 percent
controlling interest in the loan. The current fair value of the
property was considerably less than the loan amount due to a temporary
decline in value; the loan matured in October 1993; and the property
was operating at significant cash flow deficits. Due to the lack of a
timely response from the RTC, the Company determined it should
discontinue making the loan payments effective November 1, 1991, until
a settlement was reached. Subsequent thereto, the RTC transferred its
interest to the holder of the other 80 percent interest in the note.
The holder of the note foreclosed on the property and sold the
property at a scheduled public sale of the property on September 22,
1992. A separate subsidiary of the Company used $1,027,126 of the
proceeds of a loan from a third party to fund the subsidiary's
successful bid at the public sale of the property. Because the
property was foreclosed upon and sold through a public sale
(extinguishing all obligations of the subsidiary to the lender) where
the Company could have been out-bid by a third party, the transaction
was treated as though the property was lost through foreclosure and
then purchased for $1,027,126. The Company's obligations under the
$3,800,000 note payable are fully extinguished.
In the year ended June 30, 1993, the Company recorded an extraordinary
gain from a troubled debt restructuring of $2,395,688 ($.09 per
share), which represented the difference between the $4,095,688 owed
on the foreclosed note less the estimated $1,700,000 fair value of the
property. The Company also recorded an operating loss of $1,869,346,
which represents the difference between the carrying value of the
property (including other unamortized costs) and the $1,700,000
estimated fair value of the property. There was no effect for federal
income tax purposes due to utilization of the Company's net operating
loss carry-forwards.
(d) The Company has a $300,000 revolving line of credit which matures
September 2, 1996. Amounts drawn on the line of credit bear interest
on amounts drawn at the bank's base rate plus three percentage
points (12% at June 30, 1995). Payments of interest and $5,000
principal are due monthly. The Company's borrowings from this line of
credit averaged $40,000 during the year ended June 30, 1995 ($140,000
in 1994).
34
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
8. Commitments and contingencies:
(a) The Company leases three of its bowling centers (Grove, Redbird, and
Village) under operating leases. Redbird Lanes' lease is with an
entity (Redbird Properties, Ltd.) in which the Company owns a
partial interest and is cancelable at the option of the Company on
six months notice.
In April 1993 the Company entered into a capital lease agreement to
finance the installation of automatic scorekeeping equipment at
Redbird. The cost ($173,278) and accumulated amortization ($48,735
at June 30, 1995 and $27,075 at June 30, 1994) are included in
property and equipment.
The lease agreements call for approximate annual minimum rentals in
addition to taxes, insurance, and maintenance as follows:
<TABLE>
<CAPTION>
Operating Leases
--------------------------------------
Year Ending Capital Related
June 30, Lease Other Party Total
----------- ------- ----- ------- -----
<S> <C> <C> <C> <C>
1996 35,880 442,500 110,760 553,260
1997 35,880 442,500 110,760 553,260
1998 35,880 442,500 - 442,500
1999 35,880 442,500 - 442,500
2000 20,930 442,500 - 442,500
After 1999 - 1,348,100 - 1,348,100
-------- ---------- -------- ----------
Total 164,450 $3,560,600 $221,520 $3,782,120
---------- -------- ----------
---------- -------- ----------
Less interest ( 51,011)
--------
Capital lease obligation $113,439
--------
--------
</TABLE>
The renewal option periods for the operating leases are: Village- 25
years at same lease rate, Redbird- 5 years at same lease rate, and
Grove- three 5 year options at rates increased by 10 -15 percent
over last rate. The lease for Grove provides for additional rent
based on a percentage of gross revenues, however, Grove has not yet
exceeded the minimum amount of gross revenue.
Total rental expense was $523,000 in 1995, $493,000 in 1994, and
$193,000 in 1993.
The Company has continued as guarantor of a lease for one of the
bowling centers sold in April 1989. The guaranteed portion of the
annual minimum rentals on the lease is: $50,600 in 1996 and $25,300
in 1997 ($75,900 in total).
(b) The Company has an employment agreement with Harold S. Elkan expiring
July 1, 1998, which provides that if he is discharged without good
cause, or discharged following a change in management or control of
the Company, he will be entitled to liquidation damages equal to
twice his salary at time of termination plus $50,000. As of June
30, 1995, his annual salary was $250,000.
(c) The Company had a judgment against it of $211,000 for breach of lease.
The litigation was originally initiated by the Company to contest
the lessor's cancellation of a lease for failure to meet development
criteria on the leased parcel. The Company failed in its litigation
after a lengthy appeals process and the lessor was awarded an amount
equal to one year's rent. The Company accrued the provision for the
judgment in the year ended June 30, 1985 and subsequently accrued
annual estimates of interest totaling $309,190 through June 30, 1993
($47,290 accrued in 1993). The statute of limitations to enforce
the judgment expired in April 1994 and the liability was
extinguished. Therefore the Company recorded $548,190 of income in
the amount of the previously recorded judgment and accrued interest
plus another related item for $28,000 in the year ended June 30,
1994.
35
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
8. Commitments and contingencies (continued):
(d) The Company is involved in other various routine litigation and
disputes incident to its business. In the management's opinion,
based in part on the advice of legal counsel, none of these matters
will have a material adverse affect on the
Company's financial position.
9. Income taxes:
During the years ended June 30, 1995, 1994 and 1993, the Company has not
recorded any income tax expense or benefit due to its utilization of prior
loss carry-forwards.
At June 30, 1995, the Company had net operating loss carry-forwards of
$7,673,000 for income tax purposes. The carry-forwards expire from years
2000 to 2008. Deferred tax assets are primarily related to these net
operating loss carry-forwards and certain other temporary differences. Due
to the uncertainty of future realizability of deferred tax assets, a
valuation allowance has been recorded for deferred tax assets to the extent
they will not be offset by the reversal of future taxable differences.
Accordingly, there are no net deferred taxes at June 30, 1995.
The following is a reconciliation of the normal and expected federal income
tax rate to the loss before extraordinary gain reported in the financial
statements:
<TABLE>
<CAPTION>
-------- ---------- ---------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Expected federal
income tax $(283,000) $(729,000) $(846,000)
Increased in valuation
allowance 94,000 - -
Losses for which no tax
benefits were
recognized 189,000 729,000 846,000
---------- ---------- ----------
Provision for income
tax expense $ - $ - $ -
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The following is a schedule of the significant components of the Company's
deferred tax assets and deferred tax liabilities as of June 30, 1995 and
1994:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 2,609,000 $ 2,623,000
Accumulated depreciation and amortization 360,000 92,000
Deferred gain 295,000 303,000
Capitalized interest and taxes 200,000 18,000
Valuation for impairment loss 83,000 714,000
Other 360,000 63,000
----------- -----------
Total gross deferred tax assets 3,907,000 3,813,000
Less valuation allowance (3,907,000) (3,813,000)
Net deferred tax assets $ - $ -
----------- -----------
----------- -----------
</TABLE>
36
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
10. Leasing activities:
The Company, as lessor, leases office space in an office building (two
office buildings in 1994 and 1993, see below) under operating leases which
are primarily over periods ranging from one to five years with options to
renew. The Company is also a sublessor of land to condominium owners under
operating leases with an approximate term of 65 years which commenced in
1981 and 1982 (see Note 5).
The approximate future minimum rentals for existing noncancellable leases on
the remaining office building are as follows: $248,000 in 1996, $141,000 in
1997, $29,000 in 1998, none thereafter, and $418,000 in the aggregate.
The following is a schedule of the Company's investment in rental property
as of June 30, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Land $ 258,000 $ 954,000
Building 773,393 1,891,823
Tenant improvements 45,043 77,284
----------- -----------
1,076,436 2,923,107
Accumulated depreciation (135,880) (781,298)
----------- -----------
$ 940,556 $ 2,141,809
----------- -----------
----------- -----------
</TABLE>
As described in Note 7b, 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 cost (after reduction for
the $1,578,000 provision for impairment loss described in Note 7b) and
accumulated depreciation for this building was $1,854,693 and $697,406,
respectively, at June 30, 1994. The following is a summary of the results
of operations of this office building for the years ended June 30:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- ------------
<S> <C> <C> <C>
Rents $ 50,000 $ 201,000 $ 185,000
Rental costs 19,000 92,000 116,000
Depreciation 27,000 108,000 102,000
Interest 12,000 155,000 178,000
Provision for impairment loss - 1,578,000 -
Net Loss (8,000) (1,732,000) (211,000)
</TABLE>
11. Business segment information:
The Company operates principally in five business segments: bowling
centers, commercial construction (primarily tenant improvements), commercial
real estate rental, real estate development, and commercial brokerage. As
described in Note 6c, the real estate development segment commenced in
September 1994 when the Company acquired a controlling interest in Old Vail
Partners . Other revenues, which are not part of an identified segment,
consist of property management fees (earned from both a property 50 percent
owned by the Company and a property in which the Company has no ownership)
and a video game operation acquired in February 1994.
37
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
11. Business segment information (continued):
The following is summarized information about the Company's operations by
business segment.
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
BOWLING:
Net sales $7,700,410 $ 7,883,605 $ 5,001,839
Operating income (loss) (21,771) (228,928) 115,627
Depreciation 775,801 915,079 487,442
Identifiable assets 6,849,000 6,501,000 4,064,000
Capital expenditures 104,000 2,941,000 221,000
COMMERCIAL CONSTRUCTION:
Net sales $1,785,623 $ 1,752,056 $ 1,560,566
Operating income 25,107 19,349 19,901
Depreciation 5,582 5,748 6,997
Identifiable assets 341,000 508,000 423,000
Capital expenditures 30,000 - 29,000
REAL ESTATE RENTAL:
Net sales $ 577,136 $ 686,046 $ 662,122
Operating income- before valuation
adjustment and loss on disposal 214,493 169,684 83,513
Operating income (loss) 214,493 (1,408,316) (1,785,833)
Depreciation 93,496 169,933 167,947
Identifiable assets 1,285,000 2,459,000 4,200,000
Capital expenditures 10,000 27,000 1,067,000
<CAPTION>
Net sales includes $53,184 in 1995 and 1994 and $39,000 in 1993 of
intercompany rental income which was eliminated in consolidation.
<S> <C> <C> <C>
REAL ESTATE DEVELOPMENT:
Net sales $ - $ - $ -
Operating income (loss) (141,391) - -
Identifiable assets 6,026,000 1,601,000 1,718,000
Capital expenditures - - -
COMMERCIAL BROKERAGE:
Net sales $ 64,490 $ 61,732 $ 69,937
Operating income (loss) 24,921 22,739 10,574
Identifiable assets - - -
Capital expenditures - - -
UNALLOCATED CORPORATE OVERHEAD AND OTHER ACTIVITIES:
Net sales $ 267,226 $ 223,721 $ 177,242
Operating loss (369,657) (536,116) (401,660)
Depreciation 110,351 62,901 29,108
Identifiable assets 808,000 2,604,000 1,074,000
Capital expenditures 17,000 295,000 115,000
</TABLE>
38
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
UCV, L.P., a California limited partnership:
We have audited the accompanying balance sheets of UCV, L.P., a California
limited partnership, as of March 31, 1995 and 1994, and the related statements
of income, partners' equity (deficiency) and cash flows for each of the years in
the three-year period ended March 31, 1995. These financial statements are the
responsibility of the UCV, L.P.'s management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of UCV, L.P., a California limited
partnership, as of March 31, 1995 and 1994, and the results of its operations
and its cash flows for each of the years in the three-year period ended March
31, 1995, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
San Diego, California
August 11, 1995
39
<PAGE>
UCV, L.P.
(a California Limited Partnership)
BALANCE SHEETS - MARCH 31, 1995 and 1994
<TABLE>
<CAPTION>
ASSETS
1995 1994
------------ ------------
<S> <C> <C>
Property and equipment (Note 3):
Land $ 1,289,565 $ 1,289,565
Buildings 5,189,188 5,189,188
Equipment 431,859 370,853
------------- -------------
6,910,612 6,849,606
Less accumulated depreciation (5,074,126) (4,891,609)
------------- -------------
1,836,486 1,957,997
Cash 243,085 167,163
Restricted cash (Note 3) 136,262 60,503
Accounts receivable 27,330 28,764
Prepaid insurance 75,665 79,475
Capitalized redevelopment planning costs 132,575 -
Deferred loan costs, less accumulated amortization of
$83,052 in 1995 and $449,749 in 1994 415,264 115,000
------------- -------------
$ 2,866,667 $ 2,408,902
------------- -------------
------------- -------------
<CAPTION>
LIABILITIES AND PARTNERS' EQUITY (DEFICIENCY)
Long-term debt (Note 3) $ 19,833,500 $ 16,842,131
Accounts payable 151,907 163,448
Accrued interest - 108,897
Other accrued expenses 39,458 36,752
Tenants' security deposits 153,826 139,642
------------- -------------
20,178,691 17,290,870
Partners' equity (deficiency) (17,312,024) (14,881,968)
------------- -------------
$ 2,866,667 $ 2,408,902
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements.
40
<PAGE>
UCV, L.P.
(a California Limited Partnership)
STATEMENTS OF INCOME AND PARTNERS' EQUITY (DEFICIENCY)
YEARS ENDED MARCH 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Apartment rentals $ 3,896,724 $ 3,709,595 $ 3,689,233
Other rental related 92,893 130,544 168,570
------------- ------------- -------------
3,989,617 3,840,139 3,857,803
------------- ------------- -------------
Costs and expenses:
Operating 1,156,527 1,156,108 1,277,067
General and administrative 166,433 171,715 152,474
Management fees, related party (Note 2) 106,622 105,373 104,241
Depreciation 182,517 187,171 189,784
Interest and amortization of loan costs 1,929,074 1,300,223 1,299,323
------------- ------------- -------------
3,541,173 2,920,590 3,022,889
------------- ------------- -------------
Net income 448,444 919,549 834,914
Partners' equity (deficiency), beginning of year (14,881,968) (14,669,275) (14,061,941)
Cash distributed to partners (2,878,500) (1,132,242) (1,442,248)
------------- ------------- -------------
Partners' equity (deficiency), end of year $(17,312,024) $(14,881,968) $(14,669,275)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes to financial statements.
41
<PAGE>
UCV, L.P.
(a California Limited Partnership)
STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 448,444 $ 919,549 $ 834,914
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 182,517 187,171 189,784
Amortization of deferred loan costs 83,052 39,893 89,400
------------ ------------ ------------
714,013 1,146,613 1,114,098
Changes in assets and liabilities:
(Increase) decrease in restricted cash ( 75,759) ( 1,217) 2,658
(Increase) decrease in accounts receivable 1,434 ( 7,523) ( 11,807)
(Increase) decrease in prepaid insurance 3,810 ( 9,475) 1,863
Increase (decrease) in accounts payable and
accrued expenses ( 117,732) 57,675 ( 53,282)
Other 14,184 9,468 ( 3,286)
------------ ------------ ------------
Net cash provided by operating activities 539,950 1,195,541 1,054,244
------------ ------------ ------------
Net cash from investing activities:
Additions to redevelopment planning costs ( 132,575) - -
Additions to property and equipment ( 61,006) ( 10,097) ( 12,021)
------------ ------------ ------------
Net cash used by investing activities ( 193,581) ( 10,097) ( 12,021)
------------ ------------ ------------
Cash flows from financing activities:
Principal payments on long-term debt ( 39,013) ( 132,654) -
Proceeds from refinance of long-term debt 2,647,066 - -
Costs related to refinancing - ( 115,000) -
Cash distributed to partners ( 2,878,500) ( 1,132,242) ( 1,442,248)
------------ ------------ ------------
Net cash used by financing activities ( 270,447) ( 1,379,896) ( 1,442,248)
------------ ------------ ------------
Net increase (decrease) in cash 75,922 ( 194,452) ( 404,025)
Cash, beginning of year 167,163 361,615 765,640
------------ ------------ ------------
Cash, end of year $ 243,085 $ 167,163 $ 361,615
------------ ------------ ------------
------------ ------------ ------------
Supplemental cash flow information:
Interest paid $ 1,846,022 $ 1,260,330 $ 1,216,995
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Supplemental schedule of non-cash investing and financing activities:
In June 1994 the Partnership extinguished its existing long-term debt of
$16,803,118 with the proceeds of a $19,833,500 note payable. In addition to
deferred loan costs of $115,000 incurred in the year ended March 31, 1994,
the Partnership incurred an additional $383,316 of deferred loan costs in
the year ended March 31, 1995 that were paid from loan proceeds.
Fully amortized loan costs of $449,749 were written-off in the year ended
March 31, 1995
See accompanying notes to financial statements.
42
<PAGE>
UCV, L.P.
(a California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1995, 1994 AND 1993
1. Organization and Summary of Significant Accounting Policies:
(a) Organization- Effective June 1, 1994 the form of organization was
changed from a joint venture to a limited partnership and the name of
the entity was changed from University City Village to UCV, L.P., a
California limited partnership (the Partnership). The Partnership
conducts business as University City Village.
(b) Leasing arrangements- The Partnership leases apartments under operating
leases that are substantially all on a month-to-month basis.
(c) Property and equipment and depreciation- Property and equipment are
stated at cost. Depreciation is being provided on the straight-line
method based on the estimated useful lives of the property and
equipment (24 years for real property and 3-10 years for equipment).
The depreciable basis of the property and equipment for tax purposes
is essentially the same as the financial statement basis.
(d) Income taxes- For income tax purposes, any profit or loss from
operations is includable in the income tax returns of the partners
and, therefore, a provision for income taxes is not required in the
accompanying financial statements.
(e) Capitalized redevelopment planning cost- The Partnership has capitalized
engineering, architectural and other costs incurred related to the
planning of the possible redevelopment of the apartment project.
(f) Deferred financing fees- Loan costs incurred in obtaining financing are
being amortized on a straight-line basis over the term of the related
loan.
2. Related party transactions:
An affiliate of a partner provides management services for an unspecified
term to the Partnership and is paid a fee equal to 2-1/2 percent of gross
revenues. The fees were $106,622 in 1995, $105,373 in 1994, and $104,241 in
1993. A general contractor which is an affiliate of a partner was paid
$41,722 in 1995, $17,873 in 1994, and $111,000 in 1993 for roof repairs and
other maintenance. The insurance agent for the Partnership is an affiliate
of a partner. The Partnership paid the following insurance premiums on
policies brokered by this insurance agent: $117,364 in 1995, $128,133 in
1994, and $127,173 in 1993.
3. Long-term debt:
On June 13, 1994, the Partnership obtained a $19,833,500 "all-inclusive-
secured-promissory-note" whereby the new lender advanced $3,030,382 to the
Partnership representing the difference between $19,833,500, the principal
balance of the note, and the existing note payable (First Deed of Trust).
The Partnership makes monthly payments of interest only at 10 percent per
annum on $19,833,500 to the new lender. The new lender is obligated to use
the proceeds of the Partnership's monthly payment to fund the monthly
payment ($128,215 including principal and interest at 7-3/4 percent) on the
First Deed of Trust, which has not been extinguished (balance of $16,621,212
at March 31, 1995) and matures on September 1, 1998. The all-inclusive-
secured-promissory-note is due September 1, 1998 and is collateralized by a
second deed of trust on the land, buildings and leases. In addition to
$9,000 monthly payment for a property tax reserve, the Partnership is also
required to make monthly payments of $8,334 for a "capital replacement"
reserve. The Partnership can make quarterly requests for reimbursement from
this reserve for qualifying expenditures, regardless of whether they are
capitalized or expensed. The balance of these two cash reserve accounts is
classified as restricted cash.
43
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEET - JUNE 30, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Cash $ 694 $ 43,017
Receivables
Subsidiaries 6,942,242 6,800,805
Other 14,303 23,071
Affiliate 595,224 512,257
Other investments in unconsolidated subsidiaries, at cost net
of provisions for impairment losses 62,139 65,000
Property and equipment, net 132,480 225,938
Deferred loan costs 7,256 -
Other assets 57,838 53,511
------------ ------------
$ 7,812,176 $ 7,723,599
------------ ------------
------------ ------------
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
<S> <C>
Liabilities:
Accounts payable 81,039 92,780
Note payable, line of credit 88,742 -
Notes payable 1,112,172 1,281,550
Advances payable to subsidiaries 7,933,511 7,249,226
------------ ------------
9,215,464 8,623,556
------------ ------------
Losses in excess of basis in consolidated subsidiaries, equity
method 6,212,714 7,010,838
------------ ------------
Commitments and contingencies (Notes 1 and 2)
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 ( 8,017,273) ( 8,469,678)
------------ ------------
( 6,014,724) ( 6,467,129)
Less note receivable from shareholder ( 1,601,278) ( 1,443,666)
------------ ------------
Total shareholders' equity (deficiency) ( 7,616,002) ( 7,910,795)
------------ ------------
$ 7,812,176 $ 7,723,599
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to condensed financial statements.
See accompanying independent auditors' report.
44
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ -------------
<S> <C> <C> <C>
Revenues:
Management fees:
Unconsolidated subsidiaries $ 158,511 $ 168,130 $ 167,813
Consolidated subsidiaries 501,634 520,679 548,884
Other 99,912 55,591 8,219
---------- ---------- ----------
760,057 744,400 724,916
---------- ---------- ----------
Expenses:
Payroll and related expenses 645,772 690,775 511,636
Other 307,916 314,239 349,079
Rent (paid to consolidated subsidiary) 53,184 53,184 39,414
Depreciation 110,351 62,901 29,108
--------- ---------- ---------
1,117,223 1,121,099 929,237
--------- --------- ---------
Loss from operations (357,166) (376,699) (204,321)
--------- --------- ---------
Other income (charges):
Investment income:
Affiliate and shareholder 201,413 149,763 146,850
Other 4,214 196 3,966
Interest expense (136,320) (121,364) (108,215)
Provision for impairment loss - (133,000) -
Equity in income (loss) of subsidiaries 740,264 (1,602,182) 69,117
-------- ---------- --------
809,571 (1,706,587) 111,718
-------- ---------- --------
Net income (loss) $ 452,405 $(2,083,286) $ (92,603)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to condensed financial statements.
See accompanying independent auditors' report.
45
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 452,405 $(2,083,286) $ (92,603)
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation 110,351 62,901 29,108
Amortization of deferred loan costs 3,842 10,184 8,383
Undistributed (income) loss of subsidiaries (740,264) 1,602,182 (69,117)
Accrued interest on note receivable from
shareholder (157,612) (110,128) (110,083)
Provision for impairment loss - 133,000 -
Changes in assets and liabilities:
Decrease in other receivables 8,768 33,028 13,183
(Increase) decrease in other assets (4,327) 349 325
Increase (decrease) in accounts payable (11,741) 17,253 18,244
Other 2,861 12,896 3,337
----------- ----------- -----------
Net cash used by operating activities (335,717) (321,621) (199,223)
----------- ----------- -----------
Cash flows from investing activities:
Additions to property and equipment (16,893) (61,270) (45,535)
Increase in affiliate receivable (82,967) (21,278) (127,711)
Proceeds from sale of investment - 93,000 -
Increase in deferred acquisition costs - - (202,516)
Increase in investment in consolidated subsidiaries (7,860) - -
----------- ----------- ----------
Net cash provided (used) by investing activities (107,720) 10,452 (375,762)
----------- ----------- -----------
Cash flows from financing activities:
Reduction of notes payable (169,378) (59,215) (109,535)
Proceeds from line of credit 303,102 - -
Payments on line of credit (214,360) - -
Increase in deferred loan costs (11,098) - (18,567)
Net advances (to) from consolidated subsidiaries 492,848 404,781 258,817
----------- ----------- -----------
Net cash provided by financing activities 401,114 345,566 130,715
----------- ----------- -----------
Net increase (decrease) in cash (42,323) 34,397 (444,270)
Cash, beginning of year 43,017 8,620 452,890
----------- ----------- -----------
Cash, end of year $ 694 $ 43,017 $ 8,620
----------- ----------- -----------
----------- ----------- -----------
Supplemental cash flow information:
Interest paid $ 132,478 $ 110,099 $ 99,832
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Supplemental schedule of non-cash activities:
Long-term debt of $69,530 was incurred in 1993 to finance capital
expenditures.
In January 1994, the Registrant foreclosed on $233,270 of video games,
equipment and other collateral related to the Registrant's guarantee of a
loan to a games room operator. The Company also assumed the $233,270 note
payable to the bank.
See accompanying notes to condensed financial statements.
See accompanying independent auditors' report.
46
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1995, 1994, AND 1993
1. Commitments:
The Registrant is a guarantor of the following obligations of its
subsidiaries as of June 30, 1995:
<TABLE>
<CAPTION>
<S> <C>
Notes payable:
7-1/2% note payable related to land and building of Marietta Lanes bowling center $ 652,992
9-1/2% note payable related to Marietta Lanes bowling center 146,015
8-3/4% note payable related to American Bowling Center 308,489
9-7/10% note payable related to American Bowling Center 423,407
14-4/10% note payable related to American Bowling Center 19,876
9% note payable related to American Bowling Center 404,674
8% note payable related to Valley Bowling center real estate and equipment 2,058,019
10% note payable related to Valley and Grove bowling centers 160,900
9% note payable related to Valley and Grove bowling centers 26,920
9% note payable related to Valley and Grove bowling centers 45,264
8-10% notes payable related to Valley bowling center 383,271
9% note payable, unsecured 90,043
8-1/2% note payable, unsecured 102,337
Capitalized lease obligation 113,439
-----------
$ 4,935,646
-----------
-----------
</TABLE>
2. Lease agreements:
The Registrant has continued as guarantor of a lease for one of the bowling
centers sold in April 1989. The guaranteed portion of the annual minimum
rentals on the lease is: $50,600 in 1996 and $25,300 in 1997 ($75,900 in
total).
The Registrant is also a guarantor of a long-term lease for the Grove
Bowling Center. The annual minimum rentals are: $360,000 in each of the
years 1996 through 2003 ($2,880,000 in the aggregate).
47
<PAGE>
SIGNATURES
----------
Pursuant to the Requirements of Section 13 or 15(d) 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.
(Registrant) SPORTS ARENAS, INC.
By (Signature and Title) /s/ Harold S. Elkan
-------------------------------------
Harold S. Elkan, President & Director
DATE: October 10, 1995
----------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------- ------------------------- -------------------
<S> <C> <C>
/s/ Steven R. Whitman Chief Financial Officer, Director, October 10,1995
Steven R. Whitman and Principal Accounting Officer
/s/ Robert A. MacNamara Director October 10, 1995
Robert A. MacNamara
/s/ Patrick D. Reiley Director October 10, 1995
Patrick D. Reiley
</TABLE>
48
<PAGE>
EXHIBIT 22
----------
SPORTS ARENAS, INC. AND SUBSIDIARIES
SUBSIDIARIES OF REGISTRANT
State of
INCORPORATION Subsidiary
- ------------- ------------------------------------------------------
New York Bradley Lanes, Inc.
New Jersey Americana Lounge, Inc. (100% by Bradley Lanes, Inc.)
New York Cabrillo Lanes, Inc.
New York Marietta Lanes, Inc.
Delaware Downtown Properties, Inc.
California Downtown Properties Development Corp.
California UCVGP, Inc.
California UCV, L.P. (1% general partner)
California Sports Arenas Properties, Inc.
California UCV, L.P. (49% limited partner) (formerly known as
University City Village, a joint venture)
California Redbird Properties, Ltd. (40% limited partner, 69%
limited partner as of July 1, 1995)
Missouri Redbird Acquisition Corporation
California Redbird Lanes, Ltd. (60% general and limited partnership
interest)
California Ocean West, Inc.
California RCSA Holdings, Inc.
California Old Vail Partners, L.P. (49% limited partner)
California Vail Ranch Limited Partnership (50% limited partner)
California OVGP, Inc.
California Old Vail Partners, L.P. (1% general partner)
California Ocean West Builders, Inc.
California Ocean Disbursements, Inc.
California Bowling Properties, Inc.
All subsidiaries are 100% owned, unless otherwise indicated, and are included in
the Registrant's consolidated financial statements, except for Old Vail
Partners, Redbird Properties, Ltd., and UCV, L.P.
49
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 120,027
<SECURITIES> 0
<RECEIVABLES> 273,912
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 722,981
<PP&E> 11,708,578
<DEPRECIATION> 5,088,774
<TOTAL-ASSETS> 15,308,441
<CURRENT-LIABILITIES> 4,324,125
<BONDS> 6,803,635
<COMMON> 272,500
0
0
<OTHER-SE> 1,730,049
<TOTAL-LIABILITY-AND-EQUITY> 15,308,441
<SALES> 1,785,523
<TOTAL-REVENUES> 10,341,601
<CGS> 1,501,900
<TOTAL-COSTS> 10,663,319
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 956,030
<INCOME-PRETAX> (809,421)
<INCOME-TAX> 0
<INCOME-CONTINUING> (809,421)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,261,826
<CHANGES> 0
<NET-INCOME> 452,405
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
