UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to ______________
Commission File Number 0-2380
SPORTS ARENAS, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-1944249
(State of Incorporation) (I.R.S. Employer I.D. No.)
5230 Carroll Canyon Road, Suite 310, San Diego, California 92121
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (619) 587-1060
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _
The number of shares outstanding of the issuer's only class of common stock
($.01 par value) as of January 31, 1997 was 27,250,000 shares.
<PAGE>
SPORTS ARENAS, INC.
FORM 10-Q
QUARTER ENDED DECEMBER 31, 1996
INDEX
Part I - Financial Information:
Item 1.- Consolidated Condensed Financial Statements:
Balance Sheets as of December 31, 1996 and June 30, 1996 1-2
Statements of Operations for the Three Months Ended December 31, 3
1996 and 1995
Statements of Operations for the Six Months Ended 4
December 31, 1996 and 1995
Statements of Cash Flows for the Six Months Ended December 31, 5-6
1996 and 1995
Notes to Financial Statements 7-9
Item 2.- Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-13
Part II - Other Information 14
Signature 15
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and equivalents ............................................. $ 2,330,756 $ 1,093,465
Current portion of notes receivable .............................. 25,000 25,000
Current portion of notes receivable-affiliate .................... 100,000 100,000
Construction contract receivables ................................ 419,484 623,877
Other receivables ................................................ 41,062 134,843
Prepaid expenses ................................................. 211,798 182,823
Property and equipment sold on August 7, 1996 .................... -- 2,745,978
------------ ------------
Total current assets ........................................... 3,128,100 4,905,986
------------ ------------
Receivables due after one year:
Note receivable .................................................. 728,838 731,993
Less deferred gain ............................................. (716,025) (716,025)
Affiliate ........................................................ 306,502 552,567
Other ............................................................ 110,627 81,696
------------ ------------
429,942 650,231
Less current portion ........................................... (125,000) (125,000)
------------ ------------
304,942 525,231
------------ ------------
Property and equipment, at cost:
Land ............................................................. 678,000 678,000
Buildings ........................................................ 2,461,327 2,461,327
Equipment and leasehold and tenant improvements .................. 1,124,523 1,234,170
------------ ------------
4,263,850 4,373,497
Less accumulated depreciation and amortization ................... (1,187,659) (1,175,332)
------------ ------------
Net property and equipment ..................................... 3,076,191 3,198,165
------------ ------------
Other assets:
Undeveloped land, at cost ........................................ 4,737,353 4,737,353
Capitalized carrying costs on leased land ........................ 84,621 85,569
Goodwill, net .................................................... 403,606 538,144
Deferred loan costs, net ......................................... 75,423 97,161
Investments ...................................................... 2,154,735 2,232,119
Other ............................................................ 93,656 125,353
------------ ------------
7,549,394 7,815,699
------------ ------------
$ 14,058,627 $ 16,445,081
============ ============
</TABLE>
1
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
------------ ------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Long-term debt subject to extinguishment ......................... $ -- $ 1,808,282
Assessment district obligation - in default ...................... 2,169,566 2,061,090
Long-term debt due within one year ............................... 912,000 1,061,000
Long-term debt due within one year- related party ................ -- 100,000
Accounts payable ................................................. 548,913 908,530
Accrued payroll and related expenses ............................. 72,807 308,619
Accrued property taxes ........................................... 386,709 385,591
Accrued interest ................................................. 46,853 33,794
Accrued frequent bowler program expense .......................... 210,211 250,506
League bowler prize funds ........................................ 110,686 --
Other accrued liabilities ........................................ 169,689 297,361
------------ ------------
Total current liabilities ...................................... 4,627,434 7,214,773
------------ ------------
Long-term debt, excluding current portion ........................... 3,946,526 4,167,515
------------ ------------
Long-term debt, related party ....................................... -- 219,744
------------ ------------
Distributions received in excess of basis investment ............... 10,001,123 9,828,360
------------ ------------
Tenant security deposits 26,238 25,894
------------ ------------
Minority interests in consolidated subsidiaries ..................... 2,212,677 2,212,677
------------ ------------
Commitments and contingencies
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 .............................................. (6,889,448) (7,448,409)
------------ ------------
(4,886,899) (5,445,860)
Less note receivable from shareholder ............................ (1,868,472) (1,778,022)
------------ ------------
Total shareholders' equity (deficiency) ........................ (6,755,371) (7,223,882)
------------ ------------
$ 14,058,627 $ 16,445,081
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Bowling ..................................................... $ 677,310 $ 1,946,814
Rental ...................................................... 127,733 134,939
Construction ................................................ 1,093,999 821,130
Other ....................................................... 20,970 15,377
Other-related party ......................................... 27,664 26,845
----------- -----------
1,947,676 2,945,105
----------- -----------
Costs and expenses:
Bowling ..................................................... 450,862 1,237,981
Rental ...................................................... 64,267 61,851
Construction ................................................ 986,776 684,748
Development ................................................. 37,849 48,028
Selling, general and administrative ......................... 451,477 662,841
Depreciation and amortization ............................... 160,401 260,709
----------- -----------
2,151,632 2,956,158
----------- -----------
Loss from operations ........................................... (203,956) (11,053)
----------- -----------
Other income (charges):
Investment income:
Related party ............................................. 56,557 54,093
Other ..................................................... 53,209 17,424
Interest expense and amortization of finance ................ (116,867) (219,889)
costs
Interest expense related to development ..................... (68,692) (54,660)
activities
Recognize deferred gain ..................................... -- 5,792
Gain on sale ................................................ 55,000 --
Equity in income of investees ............................... 64,616 55,690
----------- -----------
43,823 (141,550)
----------- -----------
Net loss ....................................................... $ ( 160,133) $ ( 152,603)
=========== ===========
Per common share (based on weighted average shares outstanding):
Net loss .................................................. $ (.01) $ (.01)
=========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Bowling ..................................................... $ 1,667,808 $ 3,710,668
Rental ...................................................... 252,144 258,958
Construction ................................................ 1,760,704 1,349,834
Other ....................................................... 61,832 26,155
Other-related party ......................................... 55,430 53,286
----------- -----------
3,797,918 5,398,901
----------- -----------
Costs and expenses:
Bowling ..................................................... 1,257,608 2,476,715
Rental ...................................................... 118,963 116,778
Construction ................................................ 1,559,825 1,146,139
Development ................................................. 67,459 94,404
Selling, general and administrative ......................... 972,653 1,388,092
Depreciation and amortization ............................... 339,725 522,062
----------- -----------
4,316,233 5,744,190
----------- -----------
Loss from operations ........................................... (518,315) (345,289)
----------- -----------
Other income (charges):
Investment income:
Related party ............................................. 113,831 109,987
Other ..................................................... 65,815 34,992
Interest expense and amortization of finance costs........... (247,019) (440,689)
Interest expense related to development activities........... (137,312) (109,355)
Recognize deferred gain ..................................... -- 11,442
Gain on sale of bowling centers ............................. 1,099,514 --
Gain on sale, other ......................................... 55,000 --
Equity in income of investees ............................... 127,447 96,465
----------- -----------
1,077,276 (297,158)
----------- -----------
Net income (loss) .............................................. $ 558,961 $ ( 642,447)
=========== ===========
Per common share (based on weighted average shares outstanding):
Net income (loss) ......................................... $ .02 $ (.02)
=========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................... $ 558,961 $ (642,447)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Amortization of deferred financing costs .......... 16,135 19,685
Depreciation and amortization ..................... 339,725 522,062
Undistributed income of investees ................. (127,447) (96,465)
Gain on sale of bowling centers and other ......... (1,154,514) --
Interest accrued on assessment district obligation 108,476 112,318
Interest accrued on receivable from shareholder ... (90,450) (85,946)
Recognize deferred gain ........................... -- (11,442)
Changes in assets and liabilities:
(Increase) decrease in receivables ................ 298,174 (92,654)
Increase in prepaid expenses ...................... (48,975) (131,077)
Increase (decrease) in accounts payable and accrued (710,473) 715,916
expenses
Increase (decrease) in billings in excess of costs 71,940 (72,329)
Other ............................................. 26,807 (6,473)
----------- -----------
Net cash provided (used) by operating activities (711,641) 231,148
----------- -----------
Cash flows from investing activities:
(Increase) decrease in notes receivable ............. 265,289 11,886
Capital expenditures ................................ (31,185) (8,978)
Distributions from investees ........................ 380,884 244,999
Contributions to investees .......................... (30,000) (1,800)
Proceeds from sale of bowling centers ............... 2,052,185 --
Proceeds from sale of video games ................... 10,000 --
Acquire additional interest in Redbird Properties ... -- (5,246)
Other ............................................... (648) 12,109
----------- -----------
Net cash provided by investing activities ......... 2,646,525 252,970
----------- -----------
Cash flows from financing activities:
Scheduled principal payments ........................ (696,843) (336,924)
Proceeds from line of credit ........................ -- 210,000
Payments on line of credit .......................... -- (30,000)
Other ............................................... (750) --
----------- -----------
Net cash used by financing activities .......... (697,593) (156,924)
----------- -----------
Net increase in cash and equivalents ................... 1,237,291 327,194
Cash and equivalents, beginning of period .............. 1,093,465 120,027
----------- -----------
Cash and equivalents, end of period .................... $ 2,330,756 $ 447,221
=========== ===========
</TABLE>
5
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (CONTINUED)
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
(Unaudited)
SUPPLEMENTAL CASH FLOW INFORMATION:
Supplemental Schedule of Non-Cash Investing and Financing Activities:
The sale of three bowling centers on August 7, 1996 resulted in the following
increases (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).
The Company acquired an additional 29 percent interest in Redbird Properties,
effective July, 1, 1995, in exchange for a $446,000 note payable. As a
result of the acquisition, Redbird Properties became a consolidated
subsidiary. The acquisition and consolidation, in addition to eliminating
the Company's investment of $134,975, resulted in an increase in the
following assets and liabilities in 1995: property and equipment-
$1,537,984; accumulated depreciation- $331,500; note payable- $713,538;
note payable, related party- $446,000.
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.
See accompanying notes to consolidated condensed financial statements.
6
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(Unaudited)
1. The information furnished reflects all adjustments which management
believes are necessary to a fair statement of the Company's financial
position, results of operations and changes in cash flow for the interim
periods.
2. Due to the seasonal fluctuations of the bowling operations, the financial
results for the interim periods ended December 31, 1996 and 1995, are not
necessarily indicative of operations for the entire year.
3. Investments:
(a) Investments consist of the following:
December 31, June 30,
1996 1996
------------ ------------
Accounted for on the equity method:
Investment in UCV, L.P. ................ $(10,001,123) $ (9,828,360)
Vail Ranch Limited Partnership ......... 2,104,703 2,182,087
------------ ------------
(7,896,420) (7,646,273)
Less Investment in UCV, L.P. classified
as liability- Distributions received
in excess of basis in investment ...... 10,001,123 9,828,360
------------ ------------
2,104,703 2,182,087
Accounted for on the cost basis:
All Seasons Inns, La Paz ............... 50,032 50,032
------------ ------------
$ 2,154,735 $ 2,232,119
============ ============
The following is a summary of the equity in income (loss) of the
investments accounted for by the equity method:
1996 1995
-------- --------
UCV, L.P. .................... $127,447 $ 96,465
Vail Ranch Limited Partnership -- --
-------- --------
$127,447 $ 96,465
======== ========
During the six months ended December 31, 1996, the Company received cash
distributions of $273,500 from UCV, L.P. and $77,384 (net of $30,000
contribution) from Vail Ranch Limited Partners ($244,999 from UCV, L.P. in
1995).
(b) Investment in UCV, L.P.
The operating results of this investment are included in the accompanying
consolidated statements of operations based upon the partnership's fiscal
year (March 31). Summarized information from UCV, L.P.'s unaudited
statements of income for the six-month periods ended September 30, 1996 and
1995 are as follows:
1996 1995
---------- ----------
Revenues ................. $2,160,000 $2,057,000
Operating and general and 752,000 718,000
administrative costs
Depreciation ............. 98,000 62,000
Interest expense ......... 1,054,000 1,0544,000
Net income ............... 255,000 193,000
7
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(Unaudited)
4. Contingencies:
(a) Old Vail Partners (OVP), a consolidated subsidiary and 50 percent owned
by the Company, owns approximately 40 acres of undeveloped land that are
located within a special assessment district of the County of Riverside,
California (the County) which was created to fund and develop roadways,
sewers, and other required infrastructure improvements in the area
necessary for the owners to develop their properties. Property within the
assessment district is collateral for an allocated portion of the bonded
debt that were issued by the assessment district to fund the improvements.
The annual payments due related to the bonded debt are approximately
$156,000 for the 40 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 four years. As of
December 31, 1996, the County had obtained judgments for the defaults under
the assessment district obligations, however, the County has not yet
commenced foreclosure proceedings on these judgments.
The amount due to cure the judgments at December 31, 1996 was approximately
$731,000 ($688,000 at June 30, 1996). The principal balance of the
allocated portion of the bonds ($1,513,730), and delinquent interest and
penalties ($655,836 and $547,360 at December 31, 1996 and 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 includes $381,268 ($337,016 at June 30, 1996) of
delinquent property taxes and late fees related to the 40 acre parcel.
In November 1993, the City of Temecula adopted a general development plan
that designates the 40 acres of property owned by OVP as suitable for
"professional office" use, which is contrary to its zoning as "commercial"
use. As part of the adoption of its general development plan, the City of
Temecula adopted a provision that, until the zoning is changed on
properties affected by the general plan, the general plan shall prevail
when a use designated by the general plan conflicts with the existing
zoning on the property. The result is that the City of Temecula has
effectively down-zoned the 40 acre parcel from a "commercial" to
"professional office" use. The parcel is subject to Assessment District
liens which were allocated in 1989 based on a higher "commercial" use.
Since the Assessment District liens are not subject to reapportionment as a
result of re-zoning, a "professional office" use is not economically
feasible due to the disproportionately high allocation of Assessment
District costs. OVP has filed suit against the City of Temecula claiming
that the City's adoption of a general plan as a means of effectively
re-zoning the property is invalid. Additionally, OVP is claiming that, if
the effective re-zoning is valid, the action is a taking and damaging of
OVP's property without payment of just compensation. OVP is seeking to have
the effective re-zoning invalidated and an unspecified amount of damages.
The outcome of this litigation is uncertain. If the City of Temecula is
successful in its attempt to down-zone the property, the value of the
property may be significantly impaired.
(b) The Company is involved in other various routine litigation and disputes
incident to its business. In the management's opinion, based in part on the
advice of legal counsel, none of these matters will have a material adverse
affect on the Company's financial position.
8
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
(Unaudited)
5. Significant Events:
(a)The Company's revolving line of credit limit was renewed and increased to
from $300,000 to $500,000. The line of credit expires in September 1997.
(b)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. The property and
equipment and the long-term debt extinguished from the sale proceeds were
presented as current assets and liabilities at June 30, 1996,
respectively. The following are the results of operations of these bowling
centers included in the Company's statements of operations for the three
and six months ended December 31, 1996 and 1995:
Three Months Six Months
------------------- ------------------------
1996 1995 1996 1995
------- -------- --------- -----------
Revenues ........... $ 826 $883,426 $ 332,787 $ 1,698,723
Bowl costs ......... (2,338) 548,084 253,846 1,096,827
Selling, general and
administrative:
Direct ........... 3,751 155,560 101,323 367,385
Allocated ........ -- 54,400 20,100 104,700
Depreciation ....... -- 55,687 18,598 111,558
Interest expense ... -- 45,281 7,401 91,966
Income (loss) ...... (588) 24,414 (68,481) (73,713)
(c)On December 15, 1996, the Company sold the video game operations located
at the two San Diego bowling centers for $55,000 ($10,000 cash and $45,000
note receivable) resulting in a $55,000 gain. The note 45,000 receivable
is due in 24 monthly installments of $2,076, including principal and
interest at 10 percent. The following are the results of operations of the
video games which were included in the Company's bowling segment for the
three and six months ended December 31, 1996 and 1995:
Three Months Six Months
------------------ ------------------
1996 1995 1996 1995
------- -------- ------- --------
Revenues .... $10,000 $ 16,000 $26,000 $ 36,000
Bowl costs .. 8,000 17,000 17,000 38,000
Depreciation -- 19,000 -- 37,000
Income (loss) 2,000 (20,000) 9,000 (39,000)
(c)Effective January 22, 1997, the Company purchased the assets of Power
Sports Group, Inc., which was a manufacturer of graphite golf shafts and
ski poles. The purchase price was $40,000 plus the cost of inventory.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS:
Certain statements in this Form 10-Q constitute "forward-looking statements"
within the meaning of the Securities Act of 1933 and the Securities Exchange Act
of 1934. Such statements are subject to certain risks and uncertainties which
could cause the actual results to be materially different from those forecasted.
Readers are cautioned not to place undue reliance on these forward-looking
statements which speak only as of the date hereof. The Company undertakes no
obligation to republish revised forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events. Readers are also urged to carefully review and consider
the various disclosures made by the Company which attempt to advise interested
parties of the factors which affect the Company's business, including the
disclosures made under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" as well as the Company's other
periodic reports on Forms 10-K, 10-Q and 8-K filed with the Securities and
Exchange Commission.
RESULTS OF OPERATIONS
---------------------
The following is a recap of the circumstances related to the significant
differences between the net income for the three and six month periods ended
December 31, 1996 and the net loss for the same period in 1995 (decreases in
items are in brackets except for interest expense, for which increases are in
brackets):
Three Month Period Ended December 31, 1996 versus December 31, 1995
-------------------------------------------------------------------
<TABLE>
<CAPTION>
Corporate &
Bowling Rental Construction Development Unallocated
------- ------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues ............. (1,270,000) (7,000) 273,000 -- 7,000
---------- -------- -------- -------- --------
Costs ................ (787,000) 2,000 302,000 (10,000) --
SG&A:
Direct .............. (225,000) -- (2,000) -- 16,000
Allocated ........... (74,000) -- 6,000 -- 68,000
Depreciation ......... (98,000) (2,000) -- -- --
---------- -------- -------- -------- --------
(1,184,000) -- 306,000 (10,000) 84,000
---------- -------- -------- -------- --------
Operating income(loss) (86,000) (7,000) (33,000) 10,000 (77,000)
---------- -------- -------- -------- --------
Other income(charges):
Interest income ..... -- -- -- -- 38,000
Interest expense .... 72,000 -- -- (14,000) 18,000
Gain ................ -- -- -- -- 49,000
Equity in investees . -- -- -- -- 9,000
---------- -------- -------- -------- --------
72,000 -- -- (14,000) 114,000
---------- -------- -------- -------- --------
Net income (loss) .... (14,000) (7,000) (33,000) (4,000) 37,000
========== ======== ======== ======== ========
</TABLE>
10
<PAGE>
Six Month Period December 31, 1996 versus December 31, 1995
-----------------------------------------------------------
<TABLE>
<CAPTION>
Corporate &
Bowling Rental Construction Development Unallocated
------- ------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues ............. (2,043,000) (7,000) 411,000 -- 38,000
---------- -------- -------- -------- ---------
Costs ................ (1,219,000) 2,000 414,000 (27,000) --
SG&A:
Direct .............. (464,000) -- -- -- 32,000
Allocated ........... (117,000) -- 17,000 -- 117,000
Depreciation ......... (178,000) (4,000) -- -- --
---------- -------- -------- -------- ---------
(1,978,000) (2,000) 431,000 (27,000) 149,000
---------- -------- -------- -------- ---------
Operating income(loss) (65,000) (5,000) (20,000) 27,000 (111,000)
---------- -------- -------- -------- ---------
Other income(charges):
Interest income ..... -- -- -- -- 35,000
Interest expense .... 164,000 -- -- (28,000) 30,000
Gain ................ -- -- -- -- 1,144,000
Equity in investees . -- -- -- -- 31,000
---------- -------- -------- -------- ---------
164,000 -- -- (28,000) 1,240,000
---------- -------- -------- -------- ---------
Net income (loss) .... 99,000 (5,000) (20,000) (1,000) 1,129,000
========== ======== ======== ======== =========
</TABLE>
BOWLING OPERATIONS:
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 three and six month periods ended
December 31, 1996 compared to the same period in 1995:
Three Month Period Ended December 31, 1996 versus December 31, 1995
-------------------------------------------------------------------
Georgia Redbird Other Combined
Bowls Lanes Changes Incr.(Decr.)
-------- -------- ------- --------
Revenues ................ (883,000) (350,000) (37,000) (1,270,000
Bowl costs .............. (550,000) (198,000) (39,000) (787,000)
Selling, general and
administrative:
Direct ................ (152,000) (72,000) (1,000) (225,000)
Allocated ............. (55,000) (18,000) (1,000) (74,000)
Depreciation ............ (56,000) (24,000) (18,000) (98,000)
Loss from operations .... 70,000 38,000 (22,000) 86,000
Interest expense ........ (45,000) (19,000) (8,000) (72,000)
Net loss ................ 25,000 19,000 (30,000) (14,000)
Six Month Period Ended December 31, 1996 versus December 31, 1995:
------------------------------------------------------------------
Georgia Redbird Other Combined
Bowls Lanes Changes Incr.(Decr.)
-------- -------- ------- --------
Revenues ................ (1,366,000) (638,000) (39,000) (2,043,000)
Bowl costs .............. (843,000) (391,000) 15,000 (1,219,000)
Selling, general and
administrative:
Direct ................ (266,000) (146,000) (52,000) (464,000)
Allocated ............. (85,000) (32,000) -- (117,000)
Depreciation ............ (93,000) (50,000) (35,000) (178,000)
Loss from operations .... 79,000 19,000 (33,000) 65,000
Interest expense ........ (85,000) (51,000) (28,000) (164,000)
Net loss ................ (6,000) (32,000) (61,000) (99,000)
11
<PAGE>
The following is a comparison of operations of the two remaining bowling centers
which are located in San Diego:
Bowling revenues decreased 4.4 and 2.1 percent in the three and six month
periods ended December 31, 1996, respectively. The decrease is primarily due to
a decrease in the number of league bowlers (13%) at both bowling centers. This
decrease has been partially offset by an increase in the revenues from open
bowling and shoe rentals.
Bowl costs increased by $15,000 (2%) during the sixth month period primarily
related to the timing of bowling pin purchases and lane resurfacing in the first
quarter that either occurred in a different period in the prior year or had been
deferred. This increase was offset by approximately $39,000 of reductions in
bowl costs in the three month period related to decreases in payroll and related
costs (11%).
Selling, general and administrative expense directly related to the bowling
segment decreased by $52,000 in the sixth month period primarily due to a
decrease in promotions expense during the first quarter. The decrease in
promotions expense primarily related to discontinuing the awarding of points for
the Company's frequent bowler program. Management has concluded that the
frequent bowler program was not achieving the goals of increasing the frequency
of bowling or the loyalty of our customers. The $5,000 decrease (4%) in expense
in the three month period was primarily attributable to a continuing decrease in
promotions expense and also a decrease in insurance expense.
Depreciation expense decreased by $18,000 and $35,000 in the three and six month
periods, respectively, due to the costs related to the video game business
having become fully depreciated in the prior year.
Interest expense decreased by $8,000 and $28,000 in the three and six month
periods, respectively, due to the reduction in the balances of notes payable.
RENTAL OPERATIONS:
There were no significant changes to the components of the consolidated rental
segment in the three and six month periods ended December 31, 1996 other than a
reduction in income in 1996 related to $8,000 of non-rent related income
recorded in December of 1995.
The equity in income of investees increased by $9,000 and $31,000 in the three
and six month periods, respectively, due to improved occupancy of University
City Village (UCV). This "seniors" apartment project has been operating at 97
percent occupancy or better since July 1995. Rental income of the apartments
increased by 2 percent and 5 percent in the three and six month periods ended
September 30, 1996 partially due to a 2 percent increase in rates implemented in
June of 1996 and also due to the high rate of occupancy since July 1995. Rental
costs increased by 3 percent and 5 percent in the three and six month periods
ended September 30, 1996. A portion of the increase in the six month period was
due to an $18,000 increase in roof repairs that were performed in May of 1996.
OTHER ACTIVITIES:
Construction costs as a percentage of construction revenues were 90 percent and
89 percent in the three and six month periods ended December 31, 1996,
respectively, versus 83 percent and 85 percent in the comparable periods of the
prior year. The increase in the percentage is attributable to several large
contracts completed in the second quarter that were bid at a lower profit and
overhead percentage due to the size of the contract. Selling, general and
administrative costs related to the construction segment increased by $17,000 in
the sixth month period primarily due to increased incentive compensation as a
result of the increased profitability in the second quarter.
Development costs and expenses primarily consists of legal costs incurred to
contest the City of Temecula's attempts to down-zone the undeveloped land owned
by Old Vail Partners. Interest expense related to development activities
primarily relates to interest accrued on the past due and current assessment
district obligations of Old Vail Partners.
12
<PAGE>
Other than changes associated with the bowling and construction segments,
selling, general and administrative expense did not change significantly in
1996. However, as a result of the disposition of the four bowling centers in May
and August 1996, there was an increase in the unallocated portion of corporate
overhead of $68,000 and $117,000 in the three and six month periods,
respectively. This essentially represents the inability to reduce fixed
corporate overhead equal to that amount which had previously been allocated to
the administration of the disposed bowling centers.
Other investment income increased by $20,000 and $31,000 in the three and six
month periods, respectively, due to the increase in cash that was available for
short term investment during those periods as a result of the sales of the
bowling centers in May and August of 1996.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The working capital deficit at December 31, 1996 was $1,499,384 and $2,308,787
at June 30, 1996. Excluding the balance of the
assessment-district-obligation-in-default and delinquent property taxes
described below, which are included in current liabilities, the Company's
adjusted working capital of $1,051,500 as of December 31, 1996 is a $962,181
increase from the $89,319 of adjusted working capital as of June 30, 1996. The
$872,862 increase in working capital is primarily attributable to the $2,052,000
proceeds from the sale of three bowling centers on August 7, 1996.
On August 7, 1996, the Company sold its three bowling centers in Georgia for
$3,950,000 cash. The cash proceeds from the sale were $2,052,000 after deducting
selling expenses and extinguishing related long-term debt. The Company has no
plans to sell the two remaining bowling centers.
As described in Note 4 of the Notes to Consolidated Condensed Financial
Statements, Old Vail Partners is delinquent in the payment of special assessment
district obligations and property taxes on 40 acres of undeveloped land. The
County of Riverside has obtained judgments for the default in assessment
district payments. The amount due to cure the judgment as of December 31, 1996
is $731,000. Other than a notice of levy received in November 1995 on a 33 acre
portion of the 40 acres of land, the County has not yet commenced foreclosure
proceedings on the judgments. If the County of Riverside takes the property to
public sale and the judgments are not satisfied prior to the sale, Old Vail
Partners could lose title to the property and the property would not be subject
to redemption. Also as described in Note 4 of the Notes to Consolidated
Condensed Financial Statements, Old Vail Partners is contesting an attempt by
the City of Temeculah to effectively down-zone the property. As a results of the
judgments and the attempts to down-zone the property, the recoverability of the
carrying value of this property is uncertain.
On January 22, 1997, the Company, purchased the assets of Power Sports Group,
Inc. (PSG) for $40,000 cash. PSG manufactured premium graphite golf shafts and
ski poles and had averaged approximately $400,000 in sales in each of the past
two years. The Company plans to acquire approximately $450,000 of new equipment
to automate the manufacturing process and develop a sales and marketing staff
and program to expand the sales. In addition to the equipment purchase, which
may be financed, the Company expects to incur losses totaling $500,000 over the
next 18 months before forecasting a profit. The Company believes that, even if
no financing is available for the equipment purchase, it has sufficient working
capital and cash to fund these costs.
13
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings
As of December 31, 1996, there were no changes in legal proceedings from
those set forth in Item 3 of the Form 10-K filed for the year ended June
30, 1996.
ITEM 2. Changes in Securities
NONE
ITEM 3. Defaults upon Senior Securities
N/A
ITEM 4. Submission of Matters to a Vote of Security Holder
NONE
ITEM 5. Other Information
NONE
ITEM 6. Exhibits & Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K: NONE
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPORTS ARENAS, INC.
By: /s/ Harold S. Elkan
-------------------
Harold S. Elkan, President and Director
Date: February 14, 1997
-----------------
By: /s/ Steven R. Whitman
--------------------
Steven R. Whitman, Treasurer,
Principal Accounting Officer and Director
Date: February 14, 1997
------------------
15
<PAGE>
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,330,756
<SECURITIES> 0
<RECEIVABLES> 585,546
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,128,100
<PP&E> 4,253,850
<DEPRECIATION> 1,187,659
<TOTAL-ASSETS> 14,058,627
<CURRENT-LIABILITIES> 4,627,434
<BONDS> 0
0
0
<COMMON> 272,500
<OTHER-SE> (5,159,399)
<TOTAL-LIABILITY-AND-EQUITY> 14,058,627
<SALES> 1,760,704
<TOTAL-REVENUES> 3,797,918
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<INCOME-PRETAX> 558,961
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