SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2)) [X] Definitive Proxy Statement [ ] Definitive Additional
Materials [ ] Soliciting Material Pursuant to ss.240.14a-11(c) or
ss.240.14a-12
Sports Arenas, Inc.
--------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
--------------------------
2) Aggregate number of securities to which transaction applies: __________
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):__________
4) Proposed maximum aggregate value of transaction:_________
5) Total fee paid: __________
[ ] Fee paid previously with preliminary materials. _____________
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: _________
2) Form, Schedule or Registration Statement No.: ______________________
3) Filing Party: ________________________________
4) Date Filed: ________________
<PAGE>
SPORTS ARENAS, INC.
[A DELAWARE CORPORATION]
5230 CARROLL CANYON ROAD, SUITE 310
SAN DIEGO, CALIFORNIA 92121
NOTICE OF
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON
DECEMBER 23, 1997
TO THE SHAREHOLDERS OF SPORTS ARENAS, INC.:
The Annual Shareholders' Meeting (the "Meeting") will be held at 10:00 A.M.
on Tuesday, December 23, 1997, at 5230 Carroll Canyon Road, Suite 310, San
Diego, California 92121, for the purpose of considering and voting upon the
following matters, each of which is described in the annexed Proxy Statement:
1. The election of five directors, to hold office until the next Annual
Meeting of Shareholders, or until their successors are elected and
qualified.
2. Such other matters as may properly come before the Meeting or any
adjournments of it.
November 19, 1997 is the record date for the determination of shareholders
entitled to notice of, and to vote at, the Meeting. A list of shareholders
entitled to vote at the Meeting will be available for inspection at the offices
of the Company for 10 days before the Meeting.
We hope you can attend the Meeting in person; HOWEVER, REGARDLESS OF WHETHER
YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE FILL IN, SIGN AND RETURN THE
ENCLOSED PROXY PROMPTLY IN THE ENCLOSED BUSINESS REPLY ENVELOPE. ANY SHAREHOLDER
WHO SIGNS AND SENDS IN A PROXY MAY REVOKE IT BY EXECUTING A NEW PROXY WITH A
LATER DATE; BY WRITTEN NOTICE OF REVOCATION TO THE SECRETARY OF THE COMPANY AT
ANY TIME BEFORE IT IS VOTED; OR BY ATTENDANCE AT THE MEETING AND VOTING IN
PERSON.
BY ORDER OF THE BOARD OF DIRECTORS
Harold S. Elkan
President
San Diego, California
November 26, 1997
<PAGE>
SPORTS ARENAS, INC.
5230 CARROLL CANYON ROAD, SUITE 310
SAN DIEGO, CALIFORNIA 92121
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON
DECEMBER 23, 1997
Proxies in the form enclosed with this Proxy Statement are solicited by the
Management of Sports Arenas, Inc. (the "Company"), in connection with the Annual
Meeting of Shareholders of the Company to be held December 23, 1997, at the
place set forth in the preceding Notice of Annual Meeting of Shareholders.
This Proxy Statement and the form of proxy are being first mailed to the
Company's shareholders on or about November 26, 1997. In addition to mailing
copies of this material to all shareholders, the Company has requested banks and
brokers to forward copies of such material to persons for whom they hold stock
of the Company, and to request authority for execution of the proxies. The
Company will reimburse such banks and brokers for their reasonable out-of-pocket
expenses incurred in connection therewith. Officers and regular employees of the
Company may, without being additionally compensated therefor, solicit proxies by
mail, telephone, telegram or personal contact. All expenses of this solicitation
of proxies will be paid by the Company. The Company does not expect to employ
any other person or entity to assist in the solicitation of proxies.
Any shareholder giving a proxy pursuant to this solicitation may revoke it at
any time before it is exercised at the meeting by: (a) filing with the secretary
of the Company a written notice revoking it; (b) executing a proxy bearing a
later date; or (c) attending the meeting and voting in person.
All shares represented by valid proxies will be voted in accordance with the
directions specified thereon, and otherwise in accordance with the judgment of
the proxy holders. Any duly executed proxy on which no direction is specified
will be voted for the election of the nominees named herein to the Board of
Directors and in favor of Proposal 2 described in the Notice of Meeting of
Shareholders and this Proxy Statement.
VOTING
- ------
Only shareholders of record of the Company's common stock at the close of
business on November 19, 1997 (the "Record Date"), are entitled to notice of,
and to vote at the annual shareholders' meeting. On the Record Date there were
27,250,000 shares of common stock outstanding.
Each shareholder of record is entitled to one vote on each of the matters to be
presented to the shareholders at the meeting, except that shareholders may have
cumulative voting rights with respect to the election of Directors. All proxies
which are returned will be counted by the Inspector of Elections in determining
the presence of a quorum and each issue to be voted on. An abstention from
voting or a broker non-vote is not counted in the voting process under
California law.
In accordance with the California General Corporation Law, as applicable to
the Company, each shareholder entitled to vote for the election of directors may
cumulate such shareholder's votes and give one candidate a number of votes equal
to the number of directors to be elected multiplied by the number of shares
owned, or distribute the shareholder's votes on the same principal among as many
candidates as the shareholder thinks fit.
The proxy process does not permit shareholders to cumulate votes. No
shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of shares owned) unless the candidate or
candidates' names for which such votes are to be cast have been placed in
nomination prior to the voting and the shareholder has given notice at the
meeting prior to the voting of the shareholder's intention to cumulate the
shareholder's votes. If any one shareholder has given such notice, all
shareholders may cumulate their votes for candidates in nomination.
1
<PAGE>
At this time, Management does not intend to give notice of cumulative voting
or to cumulate votes it may hold pursuant to the proxies solicited herein,
unless the required notice by a shareholder is given in proper format at the
meeting, in which instance Management intends to cumulatively vote all of the
proxies held by it in favor of the nominees as set forth herein.
The shares represented by all properly executed proxies will be voted in
accordance with the shareholder's directions. If the proxy card is properly
executed and returned without direction as to how the shares are to be voted,
the shares will be voted as recommended by the Board of Directors.
PROPOSAL 1: ELECTION OF DIRECTORS
---------------------------------
The Company's bylaws provide for a board of five directors. Consequently,
five directors are proposed to be elected at the Meeting, each to hold office
until the next annual shareholders' meeting or until his successor is elected
and qualified. Unless authority is withheld, or any nominee is unable or
unwilling to serve, the persons named in the enclosed form of proxy will vote
such proxy for the election of the nominees listed below. In the event any
nominee is unable or declines to serve as a director at the time of the Meeting,
the proxy will be voted for a substitute selected by the Board of Directors. The
Board of Directors has no reason to believe that any nominee will be
unavailable.
The Board of Directors held one meeting during the fiscal year ended June 30,
1997. The meeting was attended by all of the incumbent directors.
In September 1988, the Board of Directors appointed Patrick D. Reiley as an
audit committee of one. The audit committee is to oversee the Company's
accounting and financial reporting policies including recommendations to the
Board of Directors regarding appointment of independent auditors, review with
the independent auditors of the accounting principles and practices followed and
the adequacy thereof, review annual audit and financial results, approve any
material change in accounting principles, policies and procedures and to make
recommendations to the Board of Directors with regard to any of the foregoing.
The audit committee did not meet in the year ended June 30, 1997.
The Compensation Committee, which is comprised of Mr. Elkan as its sole
member, reviews and sets executive compensation and bonuses (except that Mr.
Elkan's compensation is set by the outside members of the Board of Directors).
The Compensation Committee did not meet in the fiscal year ended June 30, 1997.
The Company does not maintain a Nominating Committee.
The following table sets forth certain information about the Directors, each
of whom are nominees, and executive officers of the Company:
Age on
Record Present Position Director
Name Date with Company since
---- ---- ------------ -----
Harold S. Elkan 54 Chairman of the Board 1983
President
Steven R. Whitman 44 Director 1989
Chief Financial Officer
Secretary
Patrick D. Reiley 56 Director 1986
James E. Crowley 50 Director 1989
Robert A. MacNamara 49 Director 1989
2
<PAGE>
Harold S. Elkan has served as Chairman of the Board of Directors and
President of the Company since November 1983. At that time, Andrew Bradley,
Inc., of which Mr. Elkan is the sole shareholder, acquired 21,808,267 shares of
the Company's common stock. For 10 years prior to his involvement with the
Company, Mr. Elkan was the controlling principal of Elkan Realty & Investment
Co., a commercial real estate brokerage firm located in St. Louis, Missouri, and
the president of Brandy Properties, Inc., an owner and operator of commercial
real estate.
Steven R. Whitman has been a director and Assistant Secretary of the Company
since 1989 and the Secretary since January 1995. He is a certified public
accountant and has been the Chief Financial Officer of the Company since May
1987. Before joining the Company, Mr. Whitman practiced public accounting with
the firm of Laventhol & Horwath, Certified Public Accountants, for five years,
four of which were as a manager in the audit department.
Patrick D. Reiley has been a director of the Company since 1986. From 1978
until May 1995, Mr. Reiley was the chairman of the board and chief executive
officer of Reico Insurance Brokers, Inc., an insurance brokerage firm located in
San Diego, California. Reico Insurance Brokers, Inc. ceased doing business in
May 1995. Mr. Reiley is currently an independent business consultant.
James E. Crowley has been a director of the Company since 1989. Since 1976,
Mr. Crowley has owned and operated various automobile dealerships. Since 1993,
Mr. Crowley has been president and sole shareholder of the Automotive Group,
Inc. , which owns a Jeep Eagle/GMC Truck dealership and a Ford dealership. Mr.
Crowley was president of Coast Nissan from 1992 until August 1996.
Robert A. MacNamara had been employed by Daley Corporation, a California
corporation, from 1978 through 1997, the last eleven years of which he served as
Vice President of the Property Division. Daley Corporation is a residential and
commercial real estate developer and a general contractor. Mr. MacNamara is
currently an independent consultant to the real estate development industry.
There are no understandings between any director or executive officer
pursuant to which any director or executive officer was selected as a director
or executive officer. There are no family relationships existing among any of
the directors or executive officers of the Company.
Compensation
- ------------
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 four most highly compensated executive officers of the Company whose
total annual compensation for the fiscal year ended June 30, 1997, exceeded
$100,000:
SUMMARY COMPENSATION TABLE
Long-term All Other
Name and Compen- Compen-
Principal Position Year Salary Bonus Other sation sation
- ------------------ ---- ------ ----- ----- ------ ------
Harold S. Elkan, 1997 $250,000 $ - $ - $ - $ -
President 1996 250,000 100,000 - - -
1995 250,000 - - - -
Steven R. Whitman, 1997 100,000 - - - -
Chief Financial 1996 100,000 40,000 - - -
Officer 1995 100,000 - - - -
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.
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.
3
<PAGE>
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.
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, 1997) 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 agreement provides that up to $650,000
of loans can be made from the Company to Harold S. Elkan at interest rates not
to exceed 10 percent.
Compensation Committee Report
- -----------------------------
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 base salary compensation levels. Annual cash bonus
payments are discretionary and would typically relate to subjective criteria
concerning the performance of the executive and the Company. No cash bonuses
were awarded in fiscal 1997.
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
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) and the Standard & Poors Leisure Time
Index (S&P LT). The Company had included American Recreation Centers, Inc.
(ARC), a company primarily operating in the bowling industry, in its performance
graph in prior years. ARC was merged with AMF Bowling Centers, Inc. in April
1997 and ceased to be publicly traded.
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 1992) 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.
SCHEDULE OF COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
Sports S&P Leisure
Year Ended Arenas, Inc. S&P 500 Time
---------- ------------ ------- ----
6/93 100 100 100
6/94 100 99 134
6/95 100 121 120
6/96 100 149 154
6/97 100 198 214
4
<PAGE>
Security Ownership of Certain Beneficial Owners and Management
- --------------------------------------------------------------
The following table sets forth, as of November 19, 1997, certain information
with respect to the beneficial ownership of Common Stock by (i) each person
known by the Company to be the beneficial owner of more than 5 percent of its
outstanding Common Stock, (ii) each of the Company's directors, and (iii) all
directors and officers as a group. Except as noted below, to the best of the
Company's knowledge, each of such persons has sole voting and investment power
with respect to the shares beneficially owned.
Shares
Beneficially Percent
Name and Address Owned of Class
---------------- ----- --------
Harold S. Elkan 21,808,267 (a) 80.0%
5230 Carroll Canyon Road
San Diego, California
All directors and officer as 21,808,267 80.0%
a group
(a) 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.
Certain Relationships and Related Transactions
- ----------------------------------------------
The Company has $539,306 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, 1997 ($552,657 as of June 30, 1996). The balance at June 30, 1997
bears interest at 8 percent per annum and is due in monthly installments of
interest only plus annual principal payments of $50,000 due on January 1,
1997-1999. The balance is due January 1, 2001. The largest amount outstanding
during the year was $621,758 in November 1996.
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 percent at June 30, 1997) and to be added to the
principal balance annually. At June 30, 1997, $909,396 of interest had been
accrued ($717,013 as of June 30, 1996). The loan is due in November 2003. The
loan is collateralized by 10,900,000 shares of the Company's stock.
As of June 30, 1996 the Company was indebted to Harold S. Elkan in the amount of
$319,744 related to the July 1995 purchase of his 29 percent partnership
interest in Redbird Properties, Ltd. The note was due in monthly installments of
interest only and annual principal payments of $100,000. This note was paid in
full in December 1996 of which $271,875 was used to pay a portion of Mr. Elkan's
note payable to the Company.
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE FOR THE NOMINEES FOR
DIRECTORS AS SET FORTH IN PROPOSAL 1 ON YOUR PROXY.
5
<PAGE>
OTHER BUSINESS
- --------------
Management knows of no other business to be presented at the meeting.
However, if any other matters properly come before the meeting, it is the
intention of the persons named in the accompanying proxy to vote pursuant to the
proxies in accordance with their judgment in such matters.
SHAREHOLDER PROPOSALS
To be eligible for inclusion in the Company's Proxy Statement for the annual
meeting of the Company's shareholders expected to be held in December 1998,
shareholder proposals must be received by the Company at its principal office at
5230 Carroll Canyon Road, Suite 310, San Diego, California 92121, prior to July
29, 1998, and must comply with all legal requirements for the inclusion of
such proposals.
INDEPENDENT AUDITORS
The firm of KPMG Peat Marwick LLP served as the Company's independent
auditors for fiscal 1997. A representative of KPMG Pear Marwick LLP is expected
to be at the Meeting.
ANNUAL REPORT
The Company's Annual Report for the fiscal year ended June 30, 1997, which
includes the Company's financial statements, is attached hereto as Appendix A.
The Annual Report is not to be regarded as proxy soliciting material or as a
communication by means of which any solicitation is made.
The Company's annual report on Form 10-K for the fiscal year ended June 30,
1997, as filed with the Securities and Exchange Commission, will be provided
without charge to any shareholder who requests it from the Company's secretary
at the address given at the beginning of this Proxy Statement. The exhibits to
that report will also be provided upon payment of costs of reproduction.
By order of the Board of Directors
Harold S. Elkan
President
San Diego, California
November 26, 1997
6
<PAGE>
APPENDIX A
SPORTS ARENAS, INC.
[A DELAWARE CORPORATION]
ANNUAL REPORT
FISCAL YEAR ENDED JUNE 30, 1997
A- 1
<PAGE>
SPORTS ARENAS, INC.
[A DELAWARE CORPORATION]
ANNUAL REPORT
FISCAL YEAR ENDED JUNE 30, 1997
DESCRIPTION OF BUSINESS
- -----------------------
GENERAL
-------
Sports Arenas, Inc. (the "Company") was incorporated as a Delaware
corporation in 1957. The Company, primarily through its subsidiaries, owns and
operates two bowling centers (three bowling centers were sold on August 7,
1996), an apartment project (50% owned), one office building, a construction
company, a graphite golf shaft manufacturer, 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. The following is a
summary of the revenues of each segment stated as a percentage of total revenues
for each of the last three years:
1997 1996 1995
---- ---- ----
Bowling 44 73 76
Real estate rental 7 5 5
Construction 44 20 17
Real estate development - - -
Golf 1 - -
Other 4 2 2
BOWLING CENTERS
---------------
The Company's wholly owned subsidiary, Cabrillo Lanes, Inc. (the "Bowls"),
operates two bowling centers containing 110 lanes in San Diego, California.
These two centers were purchased in August 1993. On August 7, 1996, the
Company's wholly owned subsidiary, Marietta Lanes, Inc. sold its three bowling
centers (110 lanes) in Georgia for cash of $3,950,000 to AMF Bowling Centers,
Inc. On May 7, 1996, Redbird Lanes, Ltd. (32 lanes), a 60 percent owned
subsidiary of the Company, discontinued its operations and sold its equipment
for a nominal amount in conjunction with Redbird Properties, Ltd.'s, a 69
percent owned subsidiary of the Company, sale of the land and building on May
31, 1996. Redbird Properties, Ltd. sold the real estate for cash of $2,800,000
to Walgreens Company. AMF Bowling Centers, Inc. and Walgreens Company are not
affiliated with the Company and there are no continuing obligations of the
Company related to either sale. Each of the bowling centers sold had been owned
over five years. The Company has no plans to sell the remaining two bowling
centers.
The bowling centers' operations include food and beverage facilities and coin
operated video and other games. The revenues from these activities average 32
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 were operated by Sports Arenas, Inc. until
December 15, 1996, when the video game operation was sold to an unaffiliated
third party for $55,000. The Company now receives a percentage of the gross
revenues from the video game operations as part of the concession contract. Both
of the bowling centers include pro shops, which are leased to independent
operators for nominal amounts. Both of the centers also have day care
facilities, which are provided free of charge to the bowlers. Both of the
bowling centers have automatic score-keeping and one of the remaining centers
has a computerized cash control system.
A- 2
<PAGE>
On average, 42 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 75 percent of league revenues annually.
Approximately 68 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. 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, phone solicitation, direct mail, and a
personal sales program.
At June 30, 1997, both bowling centers were licensed to sell alcoholic
beverages. Licenses are generally renewable annually provided there are no
violations of government regulations. The two bowling centers employ
approximately 60 people.
REAL ESTATE DEVELOPMENT
-----------------------
The Company, through its subsidiaries has ownership interests in a 33 acre
parcel and a 32 acre parcel of undeveloped land in Temecula, California
(Riverside County). These properties were acquired in 1989 by Old Vail Partners,
LP (OVP) as part of a purchase of 276 acres of land for $12,135,000 and
simultaneous sale of 204 acres of that land for $13,670,000. The Company's
original plan was to also sell the remaining 72 acres to other developers;
however, the Company was not able to complete any sales due to the subsequent
downturn in the Southern California economy.
In September 1994, Vail Ranch Limited Partners (VRLP) was formed as a
partnership between OVP and Landgrant Development (Landgrant) to develop the 32
acre parcel of which 27 acres is developable. Landgrant is not affiliated with
the Company. The VRLP partnership agreement provides for allocating 75 percent
of cash distributions from sale proceeds to OVP until OVP receives approximately
$971,000 and then approximately 50 percent of distributions thereafter. VRLP
completed construction of a shopping center on 10 acres of land in May 1997 and
sold approximately 3.6 acres of partially improved land to unaffiliated
purchasers for cash of $2,365,345. The cash proceeds from these sales were
applied to reduce the construction loan balance. The shopping center includes an
Albertsons grocery store and a Payless drug store. The remaining 13.4 acres are
undeveloped. The plan for the remaining acreage is to sell some parcels to
restaurants and other small users and develop the remaining acreage as tenants
sign leases. VRLP is currently reviewing several offers to sell the shopping
center and remaining undeveloped land.
The Company, through OVP, owns a 33 acre parcel which had an adjacent 7 acre
parcel as the remainder of the 72 acres of land. These parcels were designated
as commercially-zoned, however, the City of Temecula 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.
The Company has not paid property taxes or annual payments for a county
assessment district obligation for over five years related to the two parcels
owned by OVP. On March 18, 1997, the County of Riverside sold the 7-acre parcel
at public-sale for delinquent property taxes totaling $22,770 and the buyer
assumed the delinquent Assessment District obligation of $171,672. The Company
has no continuing obligation from this sale. The County attempted to sell the 33
acre parcel at public sale on March 18, 1997 for the defaulted property taxes
and again on April 22, 1997 for the default under the assessment district
obligation (both obligations total $1,288,898 as of June 30, 1997), however, the
County was not able to obtain any bids to satisfy the obligations and the sale
was not completed.
The remaining 33 acres of land is located in an area of the City of Temecula
that is planned for over 13,000 homes. There is a significant amount of other
undeveloped commercially zoned property near the property. 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. The Company is evaluating alternatives
regarding the 33 acres of land OVP owns. The alternatives include selling the
land or obtaining a joint venture partner to supervise and provide funding for
the development of the property. However, the Company does not believe either
scenario is likely as long as the zoning of the property is disputed.
A- 3
<PAGE>
Downtown Properties, Inc. (Downtown), a wholly-owned subsidiary of the Company,
owns undeveloped land in Missouri. The investment in this asset is not
significant and Downtown has no immediate plans affecting this asset.
COMMERCIAL REAL ESTATE RENTAL
-----------------------------
Real estate rental 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 in the Sorrento Mesa area
of San Diego, California. 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 100
percent leased as of June 30, 1997.
DPDC is also the lessee of 15 acres of land in the Palm Springs, California area
under a ground lease expiring in September 2043. The land is subleased to owners
of condominium units which were constructed on the property in 1982. The
development was originally planned by DPDC and then sold to another developer,
but DPDC retained the rights to the sublease. The subleases also expire in
September 2043. The master lease provides for the payment of 85 percent of the
rents collected on the subleases as rent for the master lease.
UCVGP, Inc. and Sports Arenas Properties, Inc., wholly-owned subsidiaries of the
Company, are a one percent managing general partner and a 49 percent limited
partner, respectively, in UCV, L.P. (UCV), which owns an apartment project
(University City Village) located in San Diego, California. 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, 1997 was
2 percent, which is consistent with vacancy rates in the area.
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. As a
general contractor, Ocean West Builders primarily uses subcontractors to perform
most of the work on jobs. Ocean West Builders employs approximately 7 people.
There is intense competition from other general contractors in the tenant
improvement business. 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 seasonality to the business.
GOLF SHAFT MANUFACTURER
-----------------------
On January 22, 1997, the Company purchased the assets of the Power Sports Group
doing business as Penley Power Shaft (PPS) and formed Penley Sports, LLC
(Penley) with the Company as a 90 percent manager and Carter Penley as a 10
percent member. PPS was a manufacturer of graphite golf shafts that primarily
sold its shafts to custom golf shops. PPS's sales had averaged approximately
$375,000 over the previous two calendar years. PPS marketed its shafts in
limited quantities through phone contact and trade magazine advertisements
directed at golf shops. Although PPS's manufacturing process was not automated,
it had developed a good reputation in the golf industry as a manufacturer of
high performance golf shafts, in addition to maintaining relationships with the
custom golf shops. The Company's plans are to market Penley's products to golf
club manufacturers and golf club component distributors. To compliment the
program of marketing to higher volume purchasers, the Company purchased
approximately $498,000 of equipment in the year ended June 30, 1997 to automate
the production process. Currently, Penley's sales continue to be to custom golf
shops where the orders are for 2 to 10 shafts per order at prices averaging $18
per shaft. The Company has implemented an extensive program to market directly
to the golf club manufacturers through the distribution of direct mail materials
and videos and participation in several large golf shows during the year. The
Company is also promoting its shafts to professional golfers as a means of
achieving acceptance with the club manufacturers as the golfers endorse the
shafts. The Company's marketing expense for the year ended June 30, 1997 was
$206,000. The Company estimates it may take from another six to twelve months
before it is successful in entering into a significant sales contract with a
golf club manufacturer of distributor.
Penley currently has approximately 10 full and part-time employees.
A- 4
<PAGE>
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. The
following table sets forth the high and low bid prices per share of the
Company's common stock in the over-the-counter market, as reported on
the OTC Bulletin Board, which is a market quotation service for market
makers. The over-the-counter quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not necessarily
reflect actual transactions in shares of the Company's common stock.
1997 1996
---------- -----------
High Low High Low
---- ---- ----- ----
First Quarter ....................... $.01 $.01 (a) (a)
Second Quarter ...................... $.01 $.01 $.01 $.01
Third Quarter ....................... $.25 $.02 $.01 $.01
Fourth Quarter ...................... (a) (a) (a) (a)
(a) No trades reported.
(b) The number of holders of record of the common stock of the Company as
of September 30, 1997 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.
SELECTED FINANCIAL DATA (NOT COVERED BY INDEPENDENT AUDITORS' REPORT)
- ---------------------------------------------------------------------
<TABLE>
Year Ended June 30,
----------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues ............. $ 7,115,141 $ 10,154,282 $ 10,341,601 $ 10,553,976 $ 7,432,706
Loss from operations (3,875,820) (764,197) (321,718) (2,197,897) (2,094,811)
Income (loss) before
extraordinary items (2,897,141) 568,864 (809,421) (2,083,286) (2,488,291)
Income (loss) per
common share, before
extraordinary items (.11) .02 (.03) (.08) (.09)
Total assets ......... 9,933,755 16,445,081 15,308,441 13,673,871 11,479,502
Long-term obligations 4,061,987 4,387,259 6,803,635 7,401,805 7,002,996
</TABLE>
See Notes 4c, 6c, 6d and 12 of Notes to Consolidated Financial Statements
regarding disposition of business operations and material uncertainties.
A- 5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Excluding the balance of the assessment-district-obligation-in-default and
property taxes in default related to the same property which are included in
current liabilities, the Company has a working capital deficit of $136,635 at
June 30, 1997, which is a $225,954 decrease from the similarly calculated
working capital of $89,319 at June 30, 1996. The $2,085,727 proceeds from sale
of assets during the year were offset by $172,071 expended to acquire a golf
shaft manufacturer and the $2,162,000 of cash utilized by operations after debt
service and distributions received from investees.
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 share of
distributions from UCV and proceeds from real estate and bowling center sales to
fund these deficits. In the near future, the Company will continue to rely on
dispositions of assets and refinancings of existing debt (UCV) to fund
operations.
The cash provided (used) before changes in assets and liabilities segregated by
business segments was as follows:
1997 1996 1995
----------- ----------- ---------
Bowling .............................. $ (74,000) $ (51,000) $ 276,000
Rental ............................... 185,000 170,000 155,000
Construction ......................... (12,000) 58,000 29,000
Golf ................................. (574,000) -- --
Development .......................... (206,000) (292,000) (113,000)
General corporate expense and other .. (184,000) (454,000) (257,000)
----------- ----------- ---------
Cash provided (used) by operations ... (865,000) (569,000) 90,000
Capital expenditures, net of financing (314,000) (49,000) (142,000)
Acquisition of golf shaft manufacturer (172,000) -- --
Principal payments on long-term debt . (1,392,000) (755,000) (865,000)
----------- ----------- ---------
Cash used ............................ (2,743,000) (1,373,000) (917,000)
=========== =========== =========
Distributions received from investees 581,000 320,000 263,000
=========== =========== =========
Proceeds from sale of assets ......... 2,086,000 1,836,000 --
=========== =========== =========
As described in Note 12 of Notes to the Consolidated Financial Statements, on
August 7, 1996, the Company sold its three bowling centers and related real
estate located in Georgia for $3,950,000. The proceeds from sale after expenses
and extinguishing long-term debt of $1,801,172 was $2,052,185. The cash flow
provided by the operations of the three bowling centers was $50,510, $140,189,
and $313,094 in 1997, 1996, and 1995, respectively. The principal payments on
long-term debt for these bowls were $7,111, $147,171, and $359,175 in 1997,
1996, and 1995, respectively.
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 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 $10,083,802 at
June 30, 1997. Although this amount is presented in the liability section of the
balance sheet, the Company has no liability to repay the distributions in excess
of basis in UCV. The Company estimates that the current market value of the
assets of UCV (primarily apartments) exceeds its liabilities by
$15,000,000-$18,000,000. The $19,833,500 note payable of UCV is due in September
1998. UCV is currently evaluating the feasibility of redeveloping the apartment
project from 542 units to approximately 1,100 units. UCV has commenced seeking
new short-term financing for the property in an amount up to $25,000,000, which
if obtained would provide sufficient funds for funding redevelopment planning
costs over the next 18 months and for funding distributions to the partners of
approximately $2,000,000 each. UCV estimates the annual debt service on the new
financing will not exceed its current level of debt service as a result of a
reduction in the annual interest rate from 10 percent to current rates of
approximately 7-3/4 percent.
A- 6
<PAGE>
At June 30, 1997, the Company owned 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 obtained
construction financing in July 1996 and completed development of the first phase
(14 acres) of the shopping center in May 1997. The Company estimates that the
value of the Company's 50 percent interest, based on development of the 14 acre
phase of the shopping center and sale of the remaining acreage, is approximately
$2,000,000 to $3,000,000. 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 14 acre phase and/or sale of
the remaining undeveloped land.
As described in Note 4c of the Notes to Consolidated Financial Statements, Old
Vail Partners is delinquent in the payment of special assessment district
obligations and property taxes on 33 acres of undeveloped land. The annual
obligation for the assessment district is approximately $144,000. The County of
Riverside obtained judgments for the default in the delinquent assessment
district payments. On March 18, 1997, the County sold a 7 acre parcel at
public-sale for delinquent property taxes totaling $22,770 and the buyer assumed
the Assessment District obligation of $171,672. The County attempted to sell the
33 acre parcel at public sale on March 18, 1997 for the defaulted property taxes
and again on April 22, 1997 for the default under the assessment district
obligation, however, the County was not able to obtain any bids to satisfy the
obligations and the sale was not completed. The amounts due to cure the judgment
for the default under the Assessment District obligation on the 33 acre parcel
at June 30, 1997 was approximately $890,000 ($688,000 for both parcels at June
30, 1996). The principal balance of the allocated portion of the bonds
($1,208,224 and $1,373,420 as of June 30, 1997 and 1996, respectively), and
delinquent interest and penalties ($889,758 for the 33 acre parcel as of June
30, 1997 and $687,670 for both parcels as of June 30, 1996, respectively) are
classified as "Assessment district obligation- in default" in the consolidated
balance sheet. In addition, accrued property taxes in the balance sheet include
$399,140 of delinquent property taxes and late fees related to the 33 acre
parcel as of June 30, 1997 ($337,016 for both parcels at June 30, 1996). If the
County of Riverside again attempts a public sale of the 33 acre parcel and the
judgments are not satisfied prior to the sale, Old Vail Partners could lose
title to the property and the property may not be subject to redemption. 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 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 judgements for defaulted taxes and
assessments and the County's sale of the 7 acre parcel at public sale in March
1997, the Company recorded a $2,409,000 provision for impairment loss at June
30, 1997 on the 33-acre parcel related to the City of Temecula's effective
down-zoning of the property (see Note 4c of Notes to Consolidated Financial
Statements). As a result of the judgment and the down-zoning of the property,
the recoverability of the remaining $1,384,014 carrying value of this property
is uncertain.
On January 22, 1997, the Company, purchased the assets of Power Sports Group,
Inc. (PSG) for $172,071 cash. PSG manufactured premium graphite golf shafts and
ski poles and had averaged approximately $375,000 in sales in each of the past
two calendar years. On April 28, 1997, the Company obtained a $320,000 loan to
finance the acquisition of approximately $458,000 of manufacturing equipment as
part of its plan to automate the production process.
The Company is expecting a $1,100,000 cash flow deficit in 1998 from operating
activities after adding estimated distributions from UCV operations ($527,000)
and deducting capital expenditures and scheduled principal payments on long-term
debt. The Company's $821,513 of cash as of June 30, 1997 will not be sufficient
to fund this cash flow deficit. However, the Company estimates that a refinance
of the long-term debt of UCV in an amount exceeding $22,000,000 will enable UCV
to make a distribution to the Company to fund the cash deficiency. 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 any payments due for delinquent or current property taxes and
assessments on undeveloped land because these amounts may not be paid unless the
Company is able to obtain an alternative source of funds or sell the property.
A- 7
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
-----------------------------
In March 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share (SFAS 128). SFAS
128 supercedes Accounting Principles Board Opinion No. 15, Earnings Per Share
(APB 15) and specifies the computation, presentation, and disclosure
requirements of earnings per share (EPS). SFAS 128 is effective for years ending
after December 15, 1997. The Company does not expect that the adoption of this
statement will have an impact on the Company's results of operations.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income (SFAS 30), and No. 131, Disclosures about
Segments of an Enterprise and Related Information (SFAS 131). These statements
are effective for years beginning after December 15, 1997. The Company does not
expect that the adoption of these statements will have a material impact on the
Company's financial position or results of operations.
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. The following is a summary of the changes to
the components of the segments in the years ended June 30, 1997 and 1996:
<TABLE>
Real Estate Real Estate Unallocated
Bowling Operation Development Construction Golf and Other Totals
------- --------- ----------- ------------ ---- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended June 30, 1997
- ------------------------
Revenues ......................... (4,338,818) 5,288 -- 1,155,782 67,260 72,377 (3,038,111)
Costs ............................ (2,618,182) (10,062) (13,552) 1,051,210 171,493 -- (1,419,093)
SG&A-direct ...................... (1,169,393) -- -- 144,720 344,772 (152,308) (832,209)
SG&A-allocated ................... (200,032) 2,000 -- 30,000 118,000 50,032 --
Depreciation and amortization .... (317,814) (2,874) -- 166 1,017 1,071 (318,434)
Impairment losses ................ 234,248 -- 2,409,000 -- -- -- 2,643,248
Interest expense ................. (334,324) (1,139) (4,989) (360) 6,494 (34,149) (368,467)
Equity in investees .............. -- 197,028 (130,510) -- -- -- 66,518
Reversal of accrued liability .... -- -- (769,621) -- -- -- (769,621)
Gain (loss) on disposition ....... 52,288 -- (120,401) -- -- (21,422) (89,535)
Segment profit (loss) ............ 118,967 214,391 (3,410,991) (69,954) (574,516) 186,309 (3,535,794)
Investment income ................ -- -- -- -- -- -- 69,789
Net loss before extraordinary item -- -- -- -- -- -- (3,466,005)
Year Ended June 30, 1996
- ------------------------
Revenues ......................... (347,157) (14,948) -- 222,550 -- (47,764) (187,319)
Costs ............................ (131,293) (793) 44,300 232,361 -- -- 144,575
SG&A-direct ...................... 86,458 -- -- (49,858) -- 127,234 163,834
SG&A-allocated ................... (21,431) (6,000) -- 11,000 -- 16,431 --
Depreciation and amortization .... (24,402) (27,554) -- 703 -- (1,996) (53,249)
Interest expense ................. 47,521 (29,881) 99,751 353 -- 12,258 130,002
Equity in investees .............. 2,215 (119,772) 50,256 -- -- -- (67,301)
Reversal of accrued liability .... -- -- 769,621 -- -- -- 769,621
Gain (loss) on disposition ....... 1,102,226 -- 120,401 -- -- 1,869 1,224,496
Segment profit (loss) ............ 800,431 (70,492) 796,227 27,991 -- (199,822) 1,354,335
Investment income ................ -- -- -- -- -- -- 23,950
Net loss before extraordinary item -- -- -- -- -- -- 1,378,285
</TABLE>
A- 8
<PAGE>
BOWLING OPERATIONS:
- -------------------
1997 vs. 1996
-------------
On August 7, 1996, the Company sold its three bowling centers located in Georgia
for $3,950,000, which resulted in a $1,099,514 gain. In May 1996 the Company
also sold the Redbird Lanes real estate and ceased operations of the bowling
center. The Company has two bowling centers remaining that are located in San
Diego, California. On December 15, 1996, the Company sold the video game
operations that were located in the two San Diego bowling centers, which
resulted in a $55,000 gain. The Company has no plans to sell the two remaining
bowling centers.
The following is a summary of the changes to the components of the loss from
operations of the bowling segment during the year ended June 30, 1997 compared
to 1996:
<TABLE>
Georgia Redbird Video San Diego Combined
Bowls Lanes Games Bowls Incr. (Decr.)
----- ----- ----- ----- ----------
<S> <C> <C> <C> <C> <C>
Revenues ......................... (3,120,000) (1,155,000) (48,000) (16,000) (4,339,000)
Bowl costs ....................... (1,904,000) (699,000) (49,000) 34,000 (2,618,000)
Selling, general & administrative:
Direct ......................... (777,000) (304,000) -- (88,000) (1,169,000)
Allocated ...................... (186,000) (58,000) -- 44,000 (200,000)
Depreciation ..................... (204,000) (80,000) (38,000) 4,000 (318,000)
Impairment loss .................. -- -- 35,000 199,000 234,000
Interest expense ................. (168,000) (123,000) (4,000) (39,000) (334,000)
Segment profit before gain on sale 119,000 109,000 8,000 (170,000) 66,000
</TABLE>
Although the revenues of the San Diego bowls only decreased by 1 percent in
1997, revenues from league bowling declined 10 percent ($111,000) due to a 10
percent decrease in the league games bowled. This decrease was partially offset
by an increase in revenues from open play ($40,000 or 7 percent), shoe rentals
($36,000 or 27 percent), and other activities ($19,000). The increase in open
play relates to a 6 percent increase in the games bowled and a 1 percent
increase in the average price per game. The $34,000 increase in bowl costs
represents a 2 percent increase. The $88,000 decrease in selling, general and
administrative (SG&A) costs primarily relates to decreases of $63,000 in
marketing and promotion expenses and $23,000 in administrative payroll. The
decrease in marketing and promotion expenses primarily relates to the
discontinuance of the Company's Premiere Pin Club frequent bowler program in
1996. Allocated SG&A costs increased by $44,000 due to the disposition of the
other bowling centers in May and August of 1996. Interest expense related to the
San Diego bowls decreased by $39,000 due to the declining principal balances of
long-term debt. The Company does not anticipate any further declines in bowl
revenues.
The Company recorded an impairment loss regarding one of the two San Diego
bowling centers in 1997 related to the continued operating losses of the bowling
center. The Company believes the problems with this center are primarily
associated with the decline of the surrounding shopping center, which is
essentially 80 percent vacant. The performance of this bowling center is not
likely to improve until the shopping center is redeveloped. Although the owners
of the shopping center are having discussions with several companies interested
in purchasing and redeveloping the shopping center, there are currently no plans
for redevelopment.
1996 vs. 1995
-------------
The bowling segment profit before gain on sale decreased by $302,000 in 1996
primarily as a result of a $253,000 decrease in same-center bowling revenues.
The acquisition of a controlling interest in Redbird Properties, which owned the
real estate occupied by Redbird Lanes and the subsequent closing of the
operations of Redbird Lanes on May 7, 1996 and the sale of the related real
estate also affected the bowling segment.
A- 9
<PAGE>
The following is a summary of the changes to the components of the loss from
operations of the bowling segment during the year ended June 30, 1996 compared
to 1995:
<TABLE>
Redbird Closure Georgia Other Combined
Properties and Sale Bowls Changes Incr.(Decr.)
---------- -------- ----- ------- --------
<S> <C> <C> <C> <C> <C>
Revenues ....................................... -- (94,000) (148,000) (105,000) (347,000)
Bowl costs ..................................... (92,000) (54,000) 64,000 (49,000) (131,000)
Selling, general & administrative:
Direct ....................................... 23,000 (3,000) (3,000) 69,000 86,000
Allocated .................................... -- (5,000) (12,000) (4,000) (21,000)
Depreciation ................................... 53,000 (8,000) (38,000) (31,000) (24,000)
Interest expense ............................... 93,000 9,000 (24,000) (31,000) 47,000
Equity in income of investees .................. 2,000 -- -- -- 2,000
Segment profit before gain on sale ............. (75,000) (33,000) (135,000) (59,000) (302,000)
</TABLE>
Same-center bowling revenues (Georgia bowls and other) decreased by 3.5% percent
($253,000) in 1996 primarily due to a 2.8 percent decline in games bowled, of
which most of the decrease was in league games bowled (4%). Bowling revenues
also declined due to a decrease in the amount of alcoholic beverage sales per
game bowled (6%), reflecting a nationwide trend towards lower alcohol
consumption. Same center bowling costs increased by $15,000, primarily related
to some lane maintenance expense deferred from the prior year. Same-center
selling, general and administrative expense increased by $66,000 primarily due
to increases in marketing and promotion expense ($51,000) and an increase in
legal expenses ($30,000) related to litigation that was settled for an
immaterial amount in April 1996. Same-center depreciation and amortization
expense related to the bowling segment decreased by $69,000 primarily due to the
expiration of the amortization periods for leasehold improvements related to a
bowling center that was acquired in September 1988 and the video game equipment
acquired in January 1994. Same center interest expense declined by $55,000
primarily due to the continued decline of the outstanding principal balances of
long-term debt related to the bowling segment.
CONSTRUCTION OPERATIONS
- -----------------------
Construction revenues were $3,163,855, $2,008,073, and $1,785,523 in the
1997,1996, and 1995, respectively. Construction revenues increased 58 percent
and 12 percent in 1997 and 1996, respectively because of the Company's success
in bidding for large tenant improvement contracts of $75,000 and higher. In 1997
the Company completed contracts for 8 jobs over $75,000 each that totaled
$1,710,000 compared to 6 jobs totaling $899,000 in 1996 and 4 jobs totaling
$653,000 in 1995. Construction costs were 88%, 86%, and 84% of construction
revenues in 1997, 1996 and 1995, respectively. The increase in the percentages
relates to accepting a smaller gross profit margin on larger jobs. Selling,
general and administrative (SG&A) expenses directly related to the construction
segment were $313,000, $168,000, and $218,000 in 1997, 1996 and 1995,
respectively. The $145,000 increase in 1997 construction SG&A expense was
primarily attributable to a $39,000 increase in incentive compensation, a
$43,000 decrease in the amount of overhead applied to work in process at June
30, 1997 due to a decrease in the amount of jobs in progress, and a $48,000
increase in legal fees and other expenses related to the resolution of two
collection problems during the year. The $50,000 decrease in the construction
segment SG&A expense in 1996 was primarily due to a $27,000 increase in general
overhead being charged to construction in progress due to the larger volume of
jobs uncompleted at June 30, 1996. Incentive compensation also decreased in 1996
related to reduced profitability of jobs. There have been no significant changes
to the operations of the construction segment for the last three years.
A- 10
<PAGE>
RENTAL OPERATIONS
- -----------------
There were no significant changes to the rental segment in 1997 other than the
$197,028 increase in the equity in income of UCV, LP. In October 1994, the
Company disposed of a 24,000 square foot office building that it had owned since
December 1986. The following is a summary of the changes in 1996 from the prior
year:
Disposition Office Other Total
----------- ------ ----- -----
Rental revenues ................... ( 50,000) 22,000 13,000 ( 15,000)
Rental costs ...................... (18,000) 10,000 7,000 (1,000)
Allocated SG&A .................... -- (6,000) -- (6,000)
Depreciation ...................... (27,000) (1,000) -- (28,000)
Interest .......................... (12,000) (18,000) -- (30,000)
Equity in investees ............... -- -- (120,000) (120,000)
Segment profit .................... 7,000 37,000 (114,000) (70,000)
The vacancy rate for the remaining office building was 7%, 8% and 2% for 1995,
1996 and 1997, respectively. The average monthly rent per square foot was $.86,
$.88, and $.87 for 1995, 1996 and 1997, respectively. The Company is currently
leasing space to new tenants and renewing existing leases at monthly rates
ranging from $.90-$.95 per square foot.
The following is a summary of the changes in the operations of UCV, LP in 1997
and 1996 compared to the previous years:
1997 1996
--------- ---------
Revenues ................... $ 184,000 $ 180,000
Costs ...................... (36,000) 36,000
Redevelopment planning costs (162,000) 186,000
Depreciation ............... -- 12,000
Interest ................... (12,000) 186,000
Net income ................. 394,000 (240,000)
Vacancy rates at UCV have averaged 6.3%, 3.1% and 1.2% in 1995, 1996 and 1997,
respectively. This was the primary reason for the increase in revenues as the
rent rates remained flat in 1996 and increased 2% in 1997. In 1996 UCV wrote-off
$186,000 of redevelopment planning costs incurred in 1996 and 1995 related to a
plan for redevelopment that was abandoned. Interest expense increased in 1996 as
a result of a refinancing which increased long-term debt by approximately
$2,800,000 and increased the interest rate by 2-1/2 percent.
REAL ESTATE DEVELOPMENT:
- ------------------------
The real estate development segment consists primarily of operations related to
undeveloped land in Temecula, California, and an investment in Vail Ranch
Limited Partners (developing a shopping center in Temecula) which are owned by
Old Vail Partners. Development costs consist primarily of legal expenses
($80,000 in 1997, $120,000 in 1996 and $85,000 in 1995) related to the
litigation regarding the effective down-zoning of the 40 acres of land and
property taxes ($85,000 in 1997, $62,000 in 1996 and $52,000 in 1995).
Development interest primarily represents the interest portion of the assessment
district payments due each year and the interest accrued on the delinquent
payments.
During the year ended June 30, 1997, Vail Ranch Limited Partners (VRLP)
completed construction of a shopping center on 10 acres of land in May 1997 and
sold approximately 3.6 acres of land. The remaining 13.4 acres are undeveloped.
VRLP's $261,000 loss for the year ended June 30, 1997 consisted of: a $160,000
loss from the first month of operation of the shopping center, which is
currently 100 percent leased; a $181,000 gain from the sale of the 3.6 acres;
and $281,000 of interest expense and property tax expense related to the
undeveloped 13.4 acres. Although the shopping center should operate at a profit
for the year ending June 30, 1998, the remaining 13.4 acres will continue to
generate losses related to $138,000 of annual taxes and assessment district
costs until additional acreage is sold or developed.
The Company recorded a $2,409,000 provision for impairment loss at June 30, 1997
on the 33-acre parcel related to the City of Temecula's effective down-zoning of
the property.
A- 11
<PAGE>
A subsidiary of the Company accrued amounts in prior years related to a loss
contingency which were reversed in 1996 as the loss contingency was no longer
considered probable.
GOLF SHAFT MANUFACTURING:
- -------------------------
Sales during the year ended June 30, 1997 were insignificant because the Company
has not yet developed sales with golf club manufacturers or distributors. The
sales were principally to custom golf shops. Golf costs during the year ended
June 30, 1997 consisted of costs of sales and manufacturing overhead of $97,000
and research and development costs of $75,000. SG&A related to the golf segment
consisted of marketing and promotion expenses of $206,000 and other
administrative costs of $139,000. Corporate SG&A allocated to the Golf segment
totaled $118,000. The Company expects that it will be another six to twelve
months before the Company is able to develops sales with these types of
customers. In the meantime, the Company will continue to incur marketing
expenses similar to the first six months of operations as it continues to
develop the foundation for sales to golf club manufacturers and distributors.
UNALLOCATED AND OTHER:
- ----------------------
Revenues increased by $72,000 in 1997 and decreased by $48,000 in 1996 primarily
due to a $47,000 increase and a $31,000 decrease, respectively, in brokerage
commissions earned in each of those years.
Unallocated SG&A and Other SG&A decreased by $102,000 in 1997 and increased by
$144,000 in 1996. The primary reason for these changes related to the
discretionary bonuses of $140,000 awarded in 1996 that were not awarded in 1997.
This decrease in 1997 was partially offset by a $50,000 reduction in the
allocation of corporate expenses to segments due to the sale of the bowling
centers in May and August of 1996.
Interest expense declined by $47,000 in 1997 due to the reduction of the
outstanding principal balances of long-term debt and that there were no draws on
the Company's line of credit during the year. Interest expense increased by
$12,000 during 1996 primarily due to the average outstanding balance of the line
of credit during the year.
Investment income increased by $70,000 in 1997 and $24,000 in 1996 primarily due
to the investment of cash balances in excess of working capital needs that were
generated by the proceeds from the sale of assets in May and August of 1996.
A- 12
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The following were directors and executive officers of the Company during the
year ended June 30, 1996. 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 54 Director since November 7, 1983;
President since November 11, 1983
Steven R. Whitman 44 Chief Financial Officer and Treasurer
since May 1987;
Director and Assistant Secretary since
August 1, 1989
Secretary since January 1995
Patrick D. Reiley 56 Director since August 21, 1986
James E. Crowley 50 Director since January 10, 1989
Robert A. MacNamara 49 Director since January 9, 1989
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.
Business Experience
-------------------
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.
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.
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. Mr. Reiley is currently an independent business consultant.
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; and President of Escondido Jeep Eagle/GMC Truck since
March 1994.
Robert A. MacNamara had been employed by Daley Corporation, a California
corporation, from 1978 through 1997, the last eleven years of which he
served as Vice President of the Property Division. Daley Corporation is a
residential and commercial real estate developer and a general contractor.
Mr. MacNamara is currently an independent consultant to the real estate
development industry.
A- 13
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS-JUNE 30, 1997 AND 1996
ASSETS
<TABLE>
1997 1996
---------- ----------
Current assets:
<S> <C> <C>
Cash and equivalents ....................................... $ 821,513 $1,093,465
Current portion of notes receivable ........................ 25,000 25,000
Current portion of notes receivable-affiliate (Note 3b) .... 50,000 100,000
Construction contract receivables .......................... 384,732 623,877
Other receivables .......................................... 82,972 134,843
Costs in excess of billings on uncompleted contracts ....... 17,462 -
Inventories ................................................ 89,118 -
Prepaid expenses ........................................... 138,583 182,823
Property and equipment sold on August 7, 1996, net (Note 12) - 2,745,978
---------- ----------
Total current assets .................................... 1,609,380 4,905,986
---------- ----------
Receivables due after one year:
Note receivable (Note 3a) .................................. 728,838 731,993
Less deferred gain (Note 3a) ............................... (716,025) (716,025)
Affiliate (Note 3b) ........................................ 539,306 552,567
Note receivable-Other ...................................... 35,477 81,696
---------- ----------
587,596 650,231
Less current portion ....................................... (75,000) (125,000)
---------- ----------
512,596 525,231
---------- ----------
Property and equipment, at cost (Notes 7 and 10):
Land ....................................................... 678,000 678,000
Buildings .................................................. 2,461,327 2,461,327
Equipment and leasehold and tenant improvements ............ 1,752,244 1,234,170
---------- ----------
4,891,571 4,373,497
Less accumulated depreciation and amortization .......... (1,291,861) (1,175,332)
---------- ----------
Net property and equipment ............................. 3,599,710 3,198,165
---------- ----------
Other assets:
Undeveloped land, at cost (Notes 4 and 6c) ................. 1,665,643 4,737,353
Intangible assets, net (Note 5) ............................ 447,608 720,874
Investments (Note 6) ....................................... 2,012,119 2,232,119
Other ...................................................... 86,699 125,353
---------- ----------
4,212,069 7,815,699
---------- ----------
$9,933,755 $16,445,081
========== ==========
</TABLE>
A- 14
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - JUNE 30, 1997 AND 1996 (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
1997 1996
---------- ----------
Current liabilities:
<S> <C> <C>
Assessment district obligation-in default (Note 6c) ............. $2,097,982 $2,061,090
Current portion of long-term debt (Note 7a) ..................... 481,000 1,061,000
Current portion of long-term debt - related party (Note 6d) ..... - 100,000
Notes payable, short-term (Note 7d) ............................. 250,000 -
Long-term debt subject to extinguishment (Note 12) .............. - 1,808,282
Accounts payable ................................................ 738,185 908,530
Accrued payroll and related expenses ............................ 116,249 308,619
Accrued property taxes (Note 4c) ................................ 408,784 385,591
Accrued interest ................................................ 29,353 33,794
Accrued frequent bowler program expense ......................... 60,239 250,506
Other liabilities ............................................... 147,324 297,361
---------- ----------
Total current liabilities ....................................... 4,329,116 7,214,773
---------- ----------
Long-term debt, excluding current portion (Note 7) .............. 4,061,987 4,167,515
---------- ----------
Long-term debt, excluding current portion-
related party (Note 6d) ....................................... - 219,744
---------- ----------
Distributions received in excess of basis
in investment (Notes 6a and 6b) ............................... 10,083,802 9,828,360
---------- ----------
Tenant security deposits ........................................ 27,847 25,894
---------- ----------
Minority interest in consolidated subsidiary (Note 6c) .......... 2,212,677 2,212,677
---------- ----------
Commitments and contingencies (Notes 4a, 4c, 5a, 6c, 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 ............................................. (10,813,818) (7,448,409)
---------- ----------
(8,811,269) (5,445,860)
Less note receivable from shareholder (Note 3c)................ (1,970,405) (1,778,022)
---------- ----------
Total shareholders' equity (deficiency) ......................... (10,781,674) (7,223,882)
---------- ----------
$9,933,755 $16,445,081
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
A- 15
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
1997 1996 1995
------------ ------------ ------------
Revenues:
<S> <C> <C> <C>
Bowling ....................................................... $ 3,114,016 $ 7,452,834 $ 7,799,991
Rental ........................................................ 513,262 509,004 523,952
Construction .................................................. 3,163,855 2,008,073 1,785,523
Golf .......................................................... 67,260 - -
Other ......................................................... 144,920 76,138 125,519
Other-related party (Note 6b) ................................. 111,828 108,233 106,616
------------ ------------ ------------
7,115,141 10,154,282 10,341,601
------------ ------------ ------------
Costs and expenses:
Bowling ....................................................... 2,223,704 4,841,886 4,973,179
Rental ........................................................ 239,292 249,354 250,147
Construction .................................................. 2,785,471 1,734,261 1,501,900
Golf .......................................................... 171,493 - -
Development ................................................... 172,139 185,691 141,391
Selling, general, and administrative .......................... 2,088,647 2,921,886 2,758,052
Depreciation and amortization ................................. 666,967 985,401 1,038,650
Provisions for impairment losses (Notes 3d, 4c and 5) ......... 2,643,248 - -
------------ ------------ ------------
10,990,961 10,918,479 10,663,319
------------ ------------ ------------
Loss from operations ............................................. (3,875,820) (764,197) (321,718)
------------ ------------ ------------
Other income (charges):
Investment income:
Related party (Notes 3b and 3c) ............................. 234,650 222,556 201,413
Other ....................................................... 136,112 78,417 75,610
Interest expense related to development activities ............ (234,790) (239,190) (139,463)
Interest expense and amortization of finance costs ............ (482,775) (846,842) (816,567)
Equity in income of investees (Note 6) ........................ 170,968 104,450 171,751
Recognize deferred gain (Note 3a) ............................. - 21,422 19,553
Gain on sale of undeveloped land (Note 4b) .................... - 120,401 -
Gain on sale of bowling centers and
other assets (Notes 6d and 12) ............................... 1,154,514 1,658,463 -
Minority interest in gain (Note 6d) ........................... - (556,237) -
Reversal of accrued liability (Note 8c) ....................... - 769,621 -
------------ ------------ ------------
978,679 1,333,061 (487,703)
------------ ------------ ------------
Income (loss) before extraordinary gain .......................... (2,897,141) 568,864 (809,421)
Extraordinary gain (loss) ........................................ (468,268) - 1,261,826
------------ ------------ ------------
Net income (loss) ................................................ ($ 3,365,409) $ 568,864 $ 452,405
============ ============ ============
Per common share (based on weighted average
shares outstanding of 27,250,000):
Income (loss) before extraordinary gain ...................... ($0.11) $0.02 ($0.03)
====== ===== ======
Net income (loss) ............................................ ($0.12) $0.02 $0.02
====== ===== ======
</TABLE>
See accompanying notes to consolidated financial statements.
A- 16
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED JUNE 30, 1997, 1996, AND 1995
<TABLE>
Common Stock Additional
Number of paid-in Accumulated
Shares Amount capital Deficit Total
------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C>
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)
Net income .................... - - - 568,864 568,864
----------- ----------- ---------- ------------ -----------
Balance at June 30, 1996 ...... 27,250,000 272,500 1,730,049 (7,448,409) (5,445,860)
Net income .................... - - - (3,365,409) (3,365,409)
----------- ----------- ---------- ------------ -----------
Balance at June 30, 1997 ...... 27,250,000 $ 272,500 $1,730,049 ($10,813,818) ($8,811,269)
=========== =========== ========== ============ ===========
</TABLE>
See notes to accompanying consolidated financial statements.
A- 17
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1997, 1996, AND 1995
<TABLE>
1997 1996 1995
------------ ------------ ------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss) .............................................. ($ 3,365,409) $ 568,864 $ 452,405
Adjustments to reconcile net income (loss) to the
net cash provided (used) by operating activities:
Amortization of deferred financing costs and discount ...... 31,555 38,976 41,989
Depreciation and amortization .............................. 666,967 985,401 1,038,650
Undistributed income of investees .......................... (170,968) (104,450) (171,751)
Extraordinary (gain) loss................................... 468,268 - (1,261,826)
Interest income accrued on note receivable from shareholder (192,383) (176,744) (157,612)
Interest accrued on assessment district obligations ........ 208,564 132,687 168,278
Provision for impairment losses ............................ 2,643,248 - -
Gain on sale ............................................... (1,154,514) (1,778,864) -
Reversal of accrued liability .............................. - (769,621) -
Minority interest in income of consolidated subsidiary .... - 556,237 -
Changes in assets and liabilities:
(Increase) decrease in receivables .......................... 299,610 (443,462) 64,166
(Increase) decrease in costs in excess of billings .......... (31,479) 28,488 (2,454)
Decrease in inventories .................................... 30,484 - -
(Increase) decrease in prepaid expenses ..................... 24,240 (34,598) 35,331
Increase (decrease) in accounts payable .................... (170,345) 244,716 (70,923)
Increase (decrease) in accrued expenses .................... (477,135) 473,390 16,772
Other ...................................................... 50,836 (23,406) (34,186)
------------ ------------ ------------
Net cash provided (used) by operating activities ......... (1,138,461) (302,386) 118,839
------------ ------------ ------------
Cash flows from investing activities:
(Increase) decrease in notes receivable ....................... 72,500 87,212 (58,383)
Other capital expenditures .................................... (314,134) (48,611) (142,426)
Disposition of undeveloped land- Temecula ..................... - - -
Proceeds from sale of other assets ............................ 33,542 160,401 -
Proceeds from sale of bowling centers (Notes 6d, 12a and 12b) . 2,052,185 1,675,142 -
Contributions to investees .................................... - (69,643) (97,571)
Distributions from investees .................................. 580,884 320,000 302,499
Acquisition of golf shaft manufacturer ........................ (172,071) 0 -
Acquire additional interest in investees (Notes 6c and 6d) .... - (5,289) (49,845)
------------ ------------ ------------
Net cash provided (used by) investing activities ......... 2,252,906 2,119,212 (45,726)
------------ ------------ ------------
Cash flows from financing activities:
Scheduled principal payments .................................. (1,392,382) (754,646) (864,740)
Proceeds from short-term borrowings ........................... 17,005 - -
Costs associated with troubled debt restructuring (Note 7b) ... - - (21,659)
Loan costs to refinance long-term debt ........................ - - (39,417)
Proceeds from line of credit .................................. - 510,000 303,102
Payments on line of credit .................................... - (598,742) (214,360)
Other ......................................................... (11,020) - (20,756)
------------ ------------ ------------
Net cash used by financing activities .................... (1,386,397) (843,388) (857,830)
------------ ------------ ------------
Net increase (decrease) in cash and equivalents .................. (271,952) 973,438 (784,717)
Cash and equivalents, beginning of year .......................... 1,093,465 120,027 904,744
------------ ------------ ------------
Cash and equivalents, end of year ................................ 821,513 1,093,465 120,027
============ ============ ============
</TABLE>
A- 18
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1996, AND 1995
SUPPLEMENTAL CASH FLOW INFORMATION:
1997 1996 1995
------- ------- -------
Interest paid .......... $ 469,000 $ 793,000 $ 789,000
========= ========= =========
Supplemental schedule of non-cash investing and financing activities:
Long-term debt of $380,000 in 1997 and $17,751 in 1995 was incurred to finance
capital expenditures of $535,963 and $28,750 in 1995.
On March 18, 1997 the County of Riverside foreclosed at public sale on 7 of the
40 acres of the undeveloped land in Temecula, California, which had a
carrying value of $662,710. The sale resulted in the extinguishment of
$22,770 of accrued property taxes and $171,672 of assessment district
obligations.
The sale of the video game business on December 15, 1996 for $10,000 cash and a
$45,000 note receivable resulted in a decrease of both property and
equipment, and accumulated depreciation by $140,832. Additionally, the sale
of another asset for $23,542 cash resulted in a $79,103 decrease of equipment
and a $55,561 decrease in accumulated depreciation.
The sale of undeveloped land in January 1996 for cash of $160,401 resulted in a
decrease in undeveloped land of $40,000.
Thesale of three bowling centers on August 7, 1996 resulted in decreases to the
following assets and liabilities: property and equipment- ($6,741,237);
accumulated depreciation- ($4,013,747); deferred loan costs-($6,353);
prepaid expenses ($20,000); and notes payable- ($1,801,172). See Note 6d
regarding supplemental information regarding the proceeds from the sale of
bowling center in the year ended June 30, 1996.
On January 22, 1997 the Company purchased the receivables ($8,594), inventories
($119,602) and equipment ($43,875) of the Power Sports Group (Penley Golf)
for $172,071.
On March 28, 1997, the proceeds of a $250,000 loan were used to pay $232,995 to
the lessor of Grove bowling center for a deferred lease inception fee.
In October 1994, the Company used the proceeds of a $1,200,000 long-term note
payable to extinguish a $1,193,800 note payable and partially fund $45,617 of
loan costs, 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.
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.
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.
See accompanying notes to consolidated financial statements.
A- 19
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
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 inter-company
balances and transactions have been eliminated. The minority interests'
share of the net loss of partially owned consolidated subsidiaries have 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 CASH EQUIVALENTS - Cash and cash equivalents only include highly
liquid investments with original maturities of less than 3 months. Cash
equivalents totaled $595,412 and $963,169 at June 30, 1997 and 1996,
respectively.
INVENTORIES - Inventories are stated at the lower of cost (first-in,
first-out) or market. At June 30, 1997, inventories consisted of raw
materials- $34,398; work in process- $25,106; and finished goods- $29,614.
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 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."
AMORTIZATION OF INTANGIBLE ASSETS - Deferred loan costs are being amortized
over the terms of the loans 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 adopted the provisions of SFAS No.
121,"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" on July 1, 1996. This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amounts of the assets exceed
the fair values of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell.
A- 20
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1996, AND 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 and contract receivables.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The following methods and assumptions
were used to estimate the fair value of each class of financial instruments
for which it is practical to estimate that value:
Cash and cash equivalents - the carrying amount reported in the balance
sheet approximates the fair value due to their short-term maturities.
Notes receivable - the fair value was determined by discounting future cash
flows using interest rates for similar types of borrowing arrangements.
The carrying value of notes receivable reported in the balance sheet
approximates the fair value.
Long-term debt - the fair value was determined by discounting future cash
flows using the Company's current incremental borrowing rate for similar
types of borrowing arrangements. The carrying value of long-term debt
reported in the balance sheet approximates the fair value.
USE OF ESTIMATES - Management of the Company has made a number of estimates
and assumptions relating to the reporting of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and reported amounts of revenue and
expenses during the reporting period to prepare these consolidated
financial statements in conformity with general accepted accounting
principles. Actual results could differ from these estimates.
EARNINGS PER COMMON SHARE - Earnings per common share is computed based on
the weighted average number of shares outstanding, which was 27,250,000
for each of the years in the three year period ended June 30, 1997.
RECLASSIFICATIONS - Certain reclassifications have been made to the prior
years financial statements to conform to the classifications used in
1997.
2. RELATED PARTY TRANSACTIONS:
A director of the Company owned an insurance company that served as the
Company's insurance agent for 17 years until it ceased operations in June
1995. The Company paid $268,000 of insurance premiums to this insurance agent
in the year ended June 30, 1995.
See notes 3b, 3c, 4a, 6d, and 8a for other related party transactions.
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
purchaser of the bowling centers (Purchaser) due in monthly installments
of $7,720 beginning October 1, 1989, including principal and interest at
10 percent per annum. The balance was due September 1, 1997 but
Purchaser was not able to make the payment and the note receivable is
currently in default. Under the terms of the note, interest accruing
from April 1989 through October 1989 was deferred and was due September
1, 1997, including interest accruing thereon. Purchaser is currently
negotiating a sale of all of its bowling centers, which if consummated,
would provide sufficient funds to pay its obligation to the Company. The
Company has therefore not commenced any negotiations with the buyer to
extend the due date of the note receivable. The following is the detail
of the balance of the note receivable and accrued interest at June 30:
1997 1996
-------- --------
Balance of note receivable due
in monthly installments ........... $688,393 $693,517
Deferred interest due September 1997 40,445 38,476
-------- --------
$728,838 $731,993
======== ========
A- 21
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1996, AND 1995
The Company deferred 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 $21,422, and $19,553 of the deferred gain in the
years ended June 30, 1996 and 1995, respectively and none in 1997. The
deferred gain is presented as a reduction of the note receivable in the
consolidated balance sheets.
(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 $42,267, $45,812, and $43,801 in 1997,
1996, and 1995, respectively. The balance of $539,306 at June 30, 1997
bears interest at 8 percent per annum and is due in annual installments
of interest plus principal payments of $50,000 due on December 31 of
each year in 1997-2000.
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 percent at June 30, 1997) 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 $909,396 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
$192,383 in 1997, $176,744 in 1996, and $157,612 in 1995.
(d) Other- In the year ended June 30 ,1997 the Company recorded a $35,135
provision for impairment loss related to the balance of a note
receivable that is likely to be uncollectible.
4. UNDEVELOPED LAND:
Undeveloped land consisted of the following at June 30, 1997 and 1996:
1997 1996
---------- ----------
Lake of Ozarks, MO ................. 281,629 281,629
Temecula, CA ....................... 3,793,014 4,455,724
Less provision for impairment loss (2,409,000) --
---------- ----------
1,665,643 4,737,353
========= =========
(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, 1997 and 1996.
(b) The Company owned approximately 55 acres of undeveloped land in Sierra
County, New Mexico that was 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
defaulted on the contract, but the Company did not cancel the contract.
As a result of the defaulted contract and lack of market for sale of the
land, the Company had recorded $118,500 of valuation adjustments in
prior years to reduce the carrying value to $40,000. In January 1996 the
Company received $160,401 as payment in full on the contract and
recorded a $120,401 gain from the sale of the land.
A- 22
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1996, AND 1995
(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 33 acres (40 acres as of June 30, 1996) of
undeveloped land in Temecula, California. The carrying value of the
property consists of:
1997 1996
---- ----
Acres ............................... 33 40
AcquisItion cost .................... $2,142,789 $2,615,789
Capitalized assessment district costs 1,434,315 1,577,025
Other development planning costs .... 215,910 262,910
Provision for impairment loss ....... (2,409,000) -
---------- ----------
$1,384,014 $4,455,724
========== ==========
The 33 acres of land (40 acres as of June 30, 1996) owned by OVP 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 $144,000 for the 33 acres. The payments
continue through the year 2014 and include interest at approximately 7-3/4
percent. OVP is delinquent in the payment of property taxes and assessments
for the last five years. The property is currently subject to default
judgments to the County of Riverside, California totaling approximately
$1,288,898 regarding delinquent assessment district payments ($889,758) and
property taxes ($399,140). On March 18, 1997, the County sold a 7-acre
parcel at public-sale for delinquent property taxes totaling $22,770 and
the buyer assumed the Assessment District obligation of $171,672. OVP
recorded a loss from the disposition of the undeveloped land of $468,268
representing the carrying value of the 7 acre parcel ($662,710) less the
property tax and assessment district obligations extinguished. The County
attempted to sell the 33 acre parcel at public sale on March 18, 1997 for
the defaulted property taxes and again on April 22, 1997 for the default
under the assessment district obligation, however, the County was not able
to obtain any bids to satisfy the obligations and the sale was not
completed.
The principal balance of the allocated portion of the assessment district
bonds ($1,208,224), and delinquent principal, interest and penalties
($889,758) are classified as "Assessment district obligation- in default"
in the consolidated balance sheet. In addition, accrued property taxes in
the balance sheet include $399,140 of delinquent property taxes and late
fees related to the 33-acre parcel.
In November 1993, the City of Temecula adopted a general development plan
that designated the 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 OVP's property from a "commercial" to "professional office" use.
The property is subject to Assessment District liens that 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.
A- 23
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1996, AND 1995
As a result of the County's judgements for defaulted taxes and assessments
and the County's sale of the 7 acre parcel at public sale in March 1997,
the Company recorded a $2,409,000 provision for impairment loss at June 30,
1997 to reduce the carrying value on the 33-acre parcel to its estimated
fair market value related to the City of Temecula's effective down-zoning
of the property. The estimated fair market value was determined based on
cash flow projections and comparable sales.
5. INTANGIBLE ASSETS:
Intangible assets consisted of the following as of June 30, 1997 and 1996:
1997 1996
---------- ----------
Deferred lease costs:
Subleasehold interest ............ $ 111,674 $ 111,674
Less accumulated amortization .. (28,001) (26,105)
Lease inception fee .............. 232,995 --
Less accumulated amortization .. (9,291) --
---------- ----------
307,377 85,569
---------- ----------
Deferred loan costs ................ 137,137 205,090
Less accumulated amortization .. (66,864) (107,929)
---------- ----------
70,273 97,161
---------- ----------
Goodwill ........................... 1,345,362 1,345,362
Less accumulated amortization .. (1,076,291) (807,218)
Less provision for impairment
loss ......................... (199,113) --
---------- ----------
69,958 538,144
---------- ----------
$ 477,608 $ 720,874
========== ==========
(a) The Company is a sublessor on a parcel of land that 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 future minimum rental
payments payable by the Company to the lessor on the lease are
approximately $129,000 per year for the remaining term of 46 years
(aggregate of $5,935,000) 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 $151,000 per year for the remaining
term of 46 years (aggregate of $6,982,000). The subleases provide for
increases every five years based on increases in the Consumer Price
Index.
(b) In March 1997 the Company paid $232,995 to the lessor of the real estate
in which the Grove bowling center is located. The payment represented
the balance due for a deferred lease inception fee. The fee is being
amortized over the remaining lease term of 75 months
(c) Goodwill relates to two bowling centers acquired in August 1993 and is
being amortized over 5 years. In the year ending June 30, 1997, the
Company has recorded a $199,113 provision for impairment loss related to
the unamortized balance of goodwill for one of the bowling centers.
A- 24
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1996, AND 1995
6. INVESTMENTS:
(a) Investments consist of the following:
1997 1996
------------ ------------
Accounted for on the equity method:
Investment in UCV, L.P. ............... $(10,083,802) $ (9,828,360)
Vail Ranch Limited Partners ........... 1,974,193 2,182,087
------------ ------------
(8,109,609) (7,646,273)
Less Investment in UCV, L.P. classified
as liability-Distributions received in
excess of basis in investment ........ 10,083,802 9,828,360
------------ ------------
1,974,193 2,182,087
Accounted for on the cost basis:
All Seasons Inns, La Paz .............. 37,926 50,032
------------ ------------
Total investments .................. $ 2,012,119 $ 2,232,119
============ ============
The following is a summary of the equity in income (loss) of the
investments accounted for by the equity method:
1997 1996 1995
--------- --------- ---------
UCV, L.P. ................. $ 301,478 $ 104,450 $ 224,222
Old Vail Partners ......... -- -- (50,256)
Vail Ranch Limited Partners (130,510) -- --
Redbird Properties, Ltd. .. -- -- (2,215)
--------- --------- ---------
$ 170,968 $ 104,450 $ 171,751
========= ========= =========
The following is a reconciliation of the investment in Vail Ranch Limited
Partners:
1997 1996
----------- -----------
Balance, July 1, 1996 .............. $ 2,182,087 $ 1,219,033
Assumption of partnership liability -- 56,221
Reversal of accrued liability ..... -- 837,190
Contributions (distributions) ..... (77,384) 69,643
Equity in net loss ................ (130,510) --
----------- -----------
Balance, June 30, 1997 ............. $ 1,974,193 $ 2,182,087
=========== ===========
(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 following is
summarized financial information of UCV as of and for the years ended March
31 (UCV's fiscal year end):
1997 1996 1996
----------- ----------- -----------
Total assets ............... $ 2,062,000 $ 2,587,000 $ 2,867,000
Total liabilities .......... 20,169,000 20,204,000 20,179,000
Revenues ................... 4,353,000 4,169,000 3,990,000
Operating and general and
administrative costs ..... 1,429,000 1,465,000 1,431,000
Redevelopment planning costs 24,000 186,000 --
Depreciation ............... 194,000 194,000 182,000
Interest expense ........... 2,103,000 2,115,000 1,929,000
Net income ................. 603,000 209,000 448,000
The apartment project is managed by the Company, which recognized
management fee income of $111,828, $108,233, and $106,616 in the
twelve-month periods ended June 30, 1997, 1996, and 1995, respectively.
A- 25
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1996, AND 1995
A reconciliation of distributions received in excess of basis in UCV as of
June 30 is as follows:
1997 1996
------------ -----------
Balance, beginning .............. $ 9,828,360 $ 9,559,390
Equity in income ................ (301,478) (104,450)
Cash distributions .............. 503,500 320,000
Amortization of purchase price in
excess of equity in net assets 53,420 53,420
------------ -----------
Balance, ending ................. $ 10,083,802 $ 9,828,360
============ ===========
(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 33 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 in 1994 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 until September 1999. Legal title to the 33 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 sheets.
The following is summarized balance sheet information of OVP included in
the Company's consolidated balance sheet as of June 30, 1997 and 1996:
1997 1996
---------- ----------
Assets:
Undeveloped land (Note 4c) ................. $1,384,014 $4,455,724
Investment in Vail Ranch Limited Partnership 1,974,193 2,182,087
Liabilities
Assessment district obligation-in default .. 2,097,982 2,061,090
Accrued property taxes ..................... 399,140 337,016
Note payable ............................... -- 340,169
Minority interest in subsidiary ............ 2,212,677 2,212,677
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. The VRLP partnership agreement provides for allocating 75
percent of cash distributions from sale proceeds to OVP until OVP receives
approximately $971,000 and then approximately 50 percent of distributions
thereafter. As of June 30, 1997, a 107,749 square foot retail complex is
constructed and fully occupied, which utilized approximately 16 of the 29
developable acres. The remaining 13 acres are still undeveloped.
A- 26
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1996, AND 1995
The following is summarized financial information of VRLP as of June 30,
1997 and 1996 and for the 12 months ended June 30, 1997 and 1996:
1997 1996
----------- -----------
Assets:
Undeveloped land ........................ $ 830,000 $ 2,299,000
Development costs ....................... 2,707,000 6,145,000
Property:
Land .................................. 765,000 --
Buildings and improvements ............ 5,577,000 --
Accumulated depreciation .............. (19,000) --
Other assets ............................ 976,000 --
Total assets ........................ 10,836,000 8,444,000
Liabilities:
Delinquent assessments and property taxes -- 1,316,000
Other liabilities ....................... 774,000 1,398,000
Construction loan payable ............... 5,720,000 --
Assessment district note payable ........ 2,508,000 3,005,000
Total liabilities ................... 9,002,000 5,719,000
Revenues .................................. 104,000 --
Net loss .................................. (261,000) --
(d) Investment in Redbird Properties, Ltd.:
Redbird Properties, Ltd. owned the land and building in which one of the
Company's bowling centers (Red Bird Lanes) was located. Effective July 1,
1995, the Company purchased an additional 29 percent partnership interest
in Redbird Properties, Ltd. from Harold S. Elkan for $419,744. The purchase
price was payable in monthly installments of interest at 8 percent per
annum plus annual principal payments of $100,000 on January 1, 1996-1999
and $19,744 on January 1, 2000. The Company had accounted for its
investment in Redbird Properties using the equity method of accounting
through June 30, 1995. As a result of acquiring the additional 29 percent
interest, Redbird Properties became a consolidated subsidiary, effective
July 1, 1995. This transaction resulted in an increase in the following
assets and liabilities as of that date: Property and equipment- $1,537,984,
Accumulated depreciation- $331,500; Note payable- $713,538; Note payable,
related party- $446,000. The effect of this transaction was also to
eliminate the Company's $134,975 investment in Redbird Properties and to
reduce Minority interests by $93,275, which relates to advances to the
other partners in excess of their basis.
On May 31, 1996, Redbird Properties sold the land and building for
$2,800,000 which resulted in a gain of $1,658,463 of which $556,237 was
allocable to the other partners in Redbird Properties. As a result of the
sale the company ceased operations of the Redbird Lanes bowling center and
sold the equipment for a minimal gain. The proceeds from the sale plus the
sale proceeds of $130,754 from the sale of bowling equipment were partially
used to extinguish $777,079 of long-term debt, pay $15,221 of selling
expense, and pay the other partners distributions of $463,312.
A- 27
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1996, AND 1995
The following are the combined results of operations of Redbird Lanes and
Redbird Properties included in the Company's statements of operations,
excluding the gain from the sale:
1996 1995
----------- -----------
Revenues ............................. $ 1,154,527 $ 1,248,438
Bowling costs ........................ 699,475 845,381
Selling, general and administrative:
Direct ............................. 248,899 252,358
Allocated .......................... 58,000 62,600
Depreciation ......................... 58,681 34,194
Interest ............................. 93,044 20,862
Income (loss) excluding gain from sale (3,572) 33,043
(e) Other investment:
The Company owns a 6 percent limited partnership interest in two
partnerships that own and operate a 109-room hotel (the Hotel) in La Paz,
Mexico (All Seasons Inns, La Paz). The $37,926 carrying value of the Hotel
at June 30, 1997 ($50,032 at June 30, 1996) 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 financial problems,
the note receivable was initially restructured so that all principal was
due on January 1, 1997, however, only an interest payment of $12,106 was
received on that date. Because the cash consideration received at closing
was minimal, the Company has not recorded the sale of its investment. The
Company will record the $58,926 gain from the sale when the when the note
is paid in full. The cash payments of $27,074 received to date
(representing accrued interest through December 1996) were applied to
reduce the carrying value of the investment.
7. LONG-TERM DEBT:
(a) Long-term debt consists of the following:
<TABLE>
1997 1996
---------- ----------
<S> <C> <C>
Long-Term debt extinguished upon sale of assets (Note 12) .............. - 1,808,282
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 ..................... 1,171,380 1,183,093
10-3/4% 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 was due in November 1996
but a $115,000 principal payment was made in July 1996 and the loan
was extended to November 1998. The loan is guaranteed by Harold S.
Elkan ................................................................ 695,662 868,555
A- 28
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1996, AND 1995
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 ................................. 85,418 90,164
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 .... 1,925,035 1,994,403
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, paid June 30, 1997 ................. - 112,445
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, paid August 1996 ............................. - 2,304
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. This note was
paid in full in July 1996 ........................................... - 31,564
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 ........................ 158,246 277,685
9% note payable, unsecured, due in monthly installments of $2,000
thereafter, including principal and interest, balance due April 1997.
Paid in April 1997 .................................................. - 73,474
8-1/2% note payable, unsecured, due in monthly installments of
$3,060 of principal and interest, balance due October 1998 ........... 41,205 73,307
9-1/2% notes payable, unsecured, due in monthly installments of $4,895
including principal and interest, balance due October 1, 1998 ....... 54,075 102,439
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, paid in April 1997 ........ - 340,169
10-1/2% note payable collateralized by $541,000 of manufacturing
equipment, due in monthly installments of $8,225, including principal
and interest, balance due May 2001 ................................... 310,043 -
Other ................................................................... 101,923 78,913
---------- ----------
4,542,987 7,036,797
Less long-term debt extinguished upon sale .............................. - (1,808,282)
Less current maturities ................................................. (481,000) (1,061,000)
---------- ----------
$4,061,987 $4,167,515
========== ==========
</TABLE>
The values of property and equipment as collateral for the notes are
listed at historical cost less valuation adjustments.
A- 29
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1996, AND 1995
The principal payments due on notes payable during the next five fiscal
years are as follows: $481,000 in 1998, $942,000 in 1999, $205,000 in
2000, $1,791,000 in 2001, and $34,000 in 2002.
(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 utilization of the Company's net operating loss
carry-forwards.
(c) The Company had a $300,000 revolving line of credit that matured
September 2, 1996. The line of credit was renewed and increased from
$300,000 to $500,000 on November 1, 1996. The line of credit expires on
November 1, 1997. On April 8, 1997, the line of credit limit was reduced
to $200,000 in conjunction with the bank providing an equipment loan of
$320,000. Amounts drawn on the line of credit bear interest on amounts
drawn at the bank's base rate plus three percentage points (11% at June
30, 1997). Payments of interest and $5,000 principal are due monthly if
any amounts are outstanding. The Company's borrowings from this line of
credit averaged $192,000 during the year ended June 30, 1996 and $40,000
in 1995. The Company did not utilize the line of credit in 1997.
(d) In March 1997 the Company borrowed $250,000 on an unsecured note payable
that is due in monthly payments of interest only at 11 percent per
annum. The principal is due April 8, 1998.
8. COMMITMENTS AND CONTINGENCIES:
(a) The Company leased three of its bowling centers (Grove, Redbird, and
Village) under operating leases. Redbird Lanes' leased its facility from
an entity (Redbird Properties, Ltd.) which became a consolidated
subsidiary on July 1, 1995. The Redbird Lanes bowling center was closed
on May 7, 1996 and the property was sold on May 31, 1996 (See Note 6d).
The Village Lanes bowling center was sold on August 7, 1996 (See Note
12).
The lease agreement for the Grove bowling center provides for
approximate annual minimum rentals in addition to taxes, insurance, and
maintenance as follows: $360,000 for each of the years 1997 through 2001
and $720,000 in the aggregate thereafter. This lease expires in June
2003 and contains three 5-year options at rates increased by 10-15
percent over the last rate in the expiring term of the lease. This lease
also provides for additional rent based on a percentage of gross
revenues, however, Grove has not yet exceeded the minimum amount of
gross revenue.
Rental expense for Grove bowling center was $360,000 in 1997, 1996 and
1995.
(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, 1997, his
annual salary was $250,000.
A- 30
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1996, AND 1995
(c) During the year ended June 30, 1996, the Company reversed amounts
accrued in prior years totaling $769,621 as the Company determined that
the loss contingency was no longer probable.
(d) The Company is involved in other various routine litigation and disputes
incident to its business. In 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, 1997, 1996 and 1995, the Company has not
recorded any income tax expense or benefit due to its utilization of prior
loss carryforward and the uncertainty of the future realizability of deferred
tax assets.
At June 30, 1997, the Company had net operating loss carry-forwards of
$8,034,000 for income tax purposes. The carryforwards expire from years 2000
to 2012. Deferred tax assets are primarily related to these net operating
loss carryforwards and certain other temporary differences. Due to the
uncertainty of the 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, 1997 and 1996.
The following is a reconciliation of the normal expected federal income tax
rate of 35 percent to the income (loss) before extraordinary item reported in
the financial statements:
1997 1996 1995
----------- -------- ---------
Expected federal income tax ............ $(1,178,000) $199,000 $(283,000)
Increase in valuation allowance ........ 611,000 180,000 94,000
Utilization of net operating loss
carryforwards ........................ -- (379,000) --
Losses for which no tax benefits
were recognized ..................... 567,000 -- 189,000
----------- -------- ---------
Provision for income tax expense ... $ -- $ -- $ --
=========== ======== =========
The following is a schedule of the significant components of the Company's
deferred tax assets and deferred tax liabilities as of June 30, 1997 and
1996:
1996 1996
---------- -----------
Deferred tax assets:
Net operating loss carryforwards ........ 2,732,000 $ 2,597,000
Accumulated depreciation and amortization 494,000 498,000
Deferred gain ........................... 286,000 286,000
Capitalized interest and taxes .......... 24,000 200,000
Valuation for impairment losses ......... 1,058,000 36,000
Other ................................... 104,000 470,000
---------- -----------
Total gross deferred tax assets ...... 4,698,000 4,087,000
Less valuation allowance ............. (4,698,000 (4,087,000)
---------- -----------
Net deferred tax assets ..................... $ -- $ --
========== ===========
A- 31
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1996, AND 1995
10. LEASING ACTIVITIES:
The Company, as lessor, leases office space in an office building under
operating leases that are primarily for 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 remaining term
of 65 years which commenced in 1981 and 1982 (see Note 5).
The approximate future minimum rentals for existing non-cancelable leases on
the remaining office building are as follows: $128,000 in 1998, $84,000 in
1999, $37,000 in 2000, $16,000 in 2001, none thereafter, and $265,000 in the
aggregate.
The following is a schedule of the Company's investment in rental property as
of June 30, 1997 and 1996:
1997 1996
----------- -----------
Land ................... $ 258,000 $ 258,000
Building ............... 773,393 773,393
Tenant improvements .... 69,483 49,207
----------- -----------
1,100,876 1,080,600
Accumulated depreciation (236,740) (186,736)
----------- -----------
$ 864,136 $ 893,864
=========== ===========
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 following is a summary of the
results of operations of this office building for the year ended June 30,
1995:
1995
--------
Rents ....................... $ 50,000
Rental costs ................ 19,000
Depreciation ................ 27,000
Interest .................... 12,000
Provision for impairment loss --
Net Loss .................... (8,000)
11. BUSINESS SEGMENT INFORMATION:
The Company operates principally in five business segments: bowling centers,
golf shaft manufacturer, commercial construction (primarily tenant
improvements), commercial real estate rental, real estate development and
golf shaft manufacturing. 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. As described in Note 12c, the golf
shaft manufacturing segment commenced in January 1997 when the Company
acquired a small golf shaft manufacturer. 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 commercial brokerage.
A- 32
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1996, AND 1995
The following is summarized information about the Company's operations by
business segment.
<TABLE>
Real Estate Real Estate Unallocated
Bowling Operation Development Construction Golf And Other Totals
------- --------- ----------- ------------ ---- --------- ------
Year Ended June 30, 1997
- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues .......................... 3,114,016 567,476 -- 3,163,855 67,260 256,748 7,169,355
Depreciation and amortization ..... 507,382 116,488 -- 6,451 1,017 35,629 666,967
Impairment losses ................. 234,248 -- 2,409,000 -- -- -- 2,643,248
Interest expense .................. 234,076 134,545 242,195 1,538 6,494 98,717 717,565
Equity in investees ............... -- 301,478 (130,510) -- -- -- 170,968
Gain (loss) on disposition ........ 1,154,514 -- -- -- -- -- 1,154,514
Segment profit (loss) ............. 317,744 363,629 (2,953,844) (18,401) (574,516) (402,515) (3,267,903)
Investment income ................. 370,762
Net loss before extraordinary item (2,897,141)
Segment assets .................... 2,850,122 1,394,357 3,508,842 533,963 683,070 829,784 9,800,138
Expenditures for segment assets ... 20,534 20,276 -- 1,918 228,477 86,804 358,009
Year Ended June 30, 1996
- ------------------------
Revenues .......................... 7,452,834 562,188 -- 2,008,073 -- 184,371 10,207,466
Depreciation and amortization ..... 825,196 119,362 -- 6,285 -- 34,558 985,401
Interest expense .................. 568,400 135,684 247,184 1,898 -- 132,866 1,086,032
Equity in investees ............... -- 104,450 -- -- -- -- 104,450
Reversal of accrued liability ..... -- -- 769,621 -- -- -- 769,621
Gain (loss) on disposition ........ 1,102,226 -- 120,401 -- -- 21,422 1,244,049
Segment profit (loss) ............. 198,777 149,238 457,147 51,553 -- (588,824) 267,891
Investment income ................. 300,973
Net loss before extraordinary item 568,864
Segment assets .................... 5,791,400 1,470,749 6,921,340 675,450 -- 1,586,142 16,445,081
Expenditures for segment assets ... 37,757 4,164 -- 517 -- 6,173 48,611
Year Ended June 30, 1995
- ------------------------
Revenues .......................... 7,799,991 577,136 -- 1,785,523 -- 232,135 10,394,785
Depreciation and amortization ..... 849,598 146,916 -- 5,582 -- 36,554 1,038,650
Interest expense .................. 520,879 165,565 147,433 1,545 -- 120,608 956,030
Equity in investees ............... (2,215) 224,222 (50,256) -- -- -- 171,751
Gain (loss) on disposition ........ -- -- -- -- -- 19,553 19,553
Segment profit (loss) ............. (601,654) 219,730 (339,080) 23,562 -- (389,002) (1,086,444)
Investment income ................. 277,023
Net loss before extraordinary item (809,421)
Segment assets .................... 6,868,813 1,284,596 6,026,105 340,920 -- 788,007 15,308,441
Expenditures for segment assets ... 113,889 9,516 -- 12,069 -- 6,952 142,426
</TABLE>
1997 1996 1995
---------- ----------- -----------
Revenues per segment schedule 7,169,355 10,207,466 10,394,785
Intercompany rent eliminated (54,214) (53,184) (53,184)
---------- ----------- -----------
Consolidated revenues ....... 7,115,141 10,154,282 10,341,601
========== =========== ===========
A- 33
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1996, AND 1995
12. SIGNIFICANT EVENTS:
(a) On August 7, 1996 the Company sold the Village, Marietta and American
Bowling Centers (all located in Georgia) and related real estate for
$3,950,000 cash, which resulted in a gain of $1,099,514 after deducting
$96,643 of sale expenses. The property and equipment and the long-term debt
extinguished from the sale proceeds were presented as current assets and
liabilities, respectively, at June 30, 1996. The following are the results
of operations of these bowling centers included in the Company's statements
of operations for the years ended June 30, 1997, 1996, and 1995:
1997 1996 1995
-------- ----------- ----------
Revenues ........................... $349,075 $ 3,469,368 $3,617,868
Bowl costs ......................... 254,846 2,159,023 2,094,923
Selling, general and administrative:
Direct ........................... 10,117 787,122 790,245
Allocated ........................ 20,100 212,700 224,700
Depreciation ....................... 18,488 222,370 260,291
Interest expense ................... 7,511 175,774 200,109
Income (loss) ...................... 38,013 (87,621) 47,600
(b) On December 15, 1996, the Company sold its video game operations for
$55,000, resulting in a $55,000 gain. The sale price consisted of $10,000
cash and a $45,000 note receivable. The following are the results of
operations of these bowling centers included in the Company's statements
of operations for the years ended June 30, 1997, 1996, and 1995:
1997 1996 1995
------- -------- --------
Revenues ....... $25,603 $ 73,948 $ 99,581
Bowl costs ..... 18,338 67,112 82,573
Depreciation ... -- 38,677 73,797
Interest expense 7,977 12,425 16,542
Income (loss) .. 712 (42,266) (73,331)
(c) On January 22, 1997, Penley Sports, LLC (Penley), a limited liability
company for which the Company is the managing member and owner of ninety
percent of the units, purchased the assets of Power Sports Group, Inc.,
which was a manufacturer of graphite golf shafts and ski poles. The
purchase price of $172,071 included accounts receivable ($8,594),
inventories ($119,602), and equipment ($43,875). The following are the
results of operations of Penley included in the Company's statement of
operations for the year ended June 30, 1997:
Revenues .................................... $ 67,260
Golf costs .................................. 171,493
Selling, general and administrative-direct .. 344,772
Selling, general and administrative-allocated 118,000
Depreciation ................................ 1,017
Interest expense ............................ 6,494
Net loss .................................... (574,516)
13. LIQUIDITY:
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. The Company has
suffered recurring losses from operations, has a working capital deficiency,
and is forecasting negative cash flows for the next twelve months. These
items raise substantial doubt about the Company's ability to continue as a
going concern. UCV, LP, an investee of the Company, is currently proceeding
with plans to refinance its long-term debt. The proceeds from the planned
refinance are estimated to be sufficient to make a distribution to the
Company that will provide enough funds to cover the estimated future cash
flow deficits for the next 18 months.
A- 34
<PAGE>
INDEPENDENT AUDITORS' REPORT
To 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, 1997 and 1996, 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, 1997. These
consolidated financial statements are the responsibility of Company's
management. Our responsibility is to express an opinion on these consolidated
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 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 1997, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 13 to
the consolidated financial statements, the Company has suffered recurring losses
from operations, has a working capital deficiency, and is forecasting negative
cash flows from operating activities for the next twelve months. These items
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 13. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
KPMG Peat Marwick LLP
San Diego, California
September 26, 1997
A- 35
<PAGE>
SPORTS ARENAS, INC.
[A DELAWARE CORPORATION]
CORPORATE INFORMATION
Corporate Offices 5230 Carroll Canyon Road, Suite
310
San Diego, California 92121
Directors Harold S. Elkan
Steven R. Whitman
James E. Crowley
Robert A. MacNamara
Patrick D. Reiley
Officers Harold S. Elkan, President
Steven R. Whitman, Chief
Financial Officer; Secretary
Legal Counsel Cramer & Zeko, A P.C.
401 West A Street, Suite 2300
San Diego, California 92101
Auditors KPMG Peat Marwick LLP
750 B Street, Suite 3000
San Diego, California 92101
A- 36
<PAGE>
PROXY FOR 1997 ANNUAL MEETING OF
THE SHAREHOLDERS OF SPORTS ARENAS, INC.
The undersigned shareholder of Sports Arenas, Inc. hereby appoints Harold S.
Elkan and Steven R. Whitman or any one of them (with full power to act alone and
to designate substitutes) Proxies of the undersigned with authority to vote and
otherwise represent all of the shares of the undersigned at the Annual Meeting
of Shareholders to be held on December 23, 1997,or an adjourned meeting thereof,
with all of the powers the undersigned would possess if personally present, upon
matters noted below, and upon such other matters as may properly come before the
meeting. All matters intended to be acted upon have been proposed by the Board
of Directors. This Proxy confers authority to vote "FOR" each proposition unless
otherwise indicated.
(1) To elect as Directors and nominess listed below:
Harold S. Elkan Patrick Reiley
Steven R. Whitman James E. Crowley
Robert A. MacNamara
[ ] WITHHOLD AUTHORITY to vote for all nominees listed above
[ ] FOR all nominees listed above, except as marked to the contrary
Note: To withhold authority to vote for an individual nominee, strike a line
through the nominee's name.
(2) In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
For [ ] Against [ ] Abstain [ ]
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF SPORTS ARENAS,
INC. AND MAY BE REVOKED PRIOR TO ITS EXERCISE.
<PAGE>
(Continued from other side)
Dated:__________ ___________________________________
Signature
___________________________________
Signature
___________________________________
Signature
Please sign exactly as your name appears on your stock
certificate(s). Joint owners of the shares must each sign.
Persons holding shares for the benefit of others (fiduciaries)
should indicate their titles. Please sign, date and mail this
Proxy in the enclosed envelope.
