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, 1998
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, 1998, 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 9, 1998 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 23, 1998
<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, 1998
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, 1998, 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 23, 1998. 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 9, 1998 (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
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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 three meetings during the fiscal year ended June
30, 1998. The meetings were 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, 1998.
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, 1998.
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 55 Chairman of the 1983
Board
President
Steven R. Whitman 45 Director 1989
Chief Financial
Officer
Secretary
Patrick D. Reiley 57 Director 1986
James E. Crowley 51 Director 1989
Robert A. MacNamara 50 Director 1989
2
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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 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 has been a principal of A.R.I.S., Inc., an international
insurance brokerage company, since 1997.
James E. Crowley has been an owner and operator of various automobile
dealerships for the last twenty years. Mr. Crowley was President and controlling
shareholder of Jamar Holdings, Ltd., doing business as San Diego Mitsubishi,
from August 1988 to October 1994, President of Coast Nissan from 1992 to August
1996; and has been President of the Automotive Group since March 1994. The
Automotive Group operates North County Ford, North County Jeep GMC, TAG
Collision Repair, and Lake Elsinore Ford.
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, 1998, 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, 1998 $250,000 $ -- $ -- $ -- $ --
President 1997 250,000 -- -- -- --
1996 250,000 100,000 -- -- --
Steven R. Whitman 1998 100,000 -- -- -- --
Chief Financial 1997 100,000 -- -- -- --
Officer 1996 100,000 40,000 -- -- --
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.
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.
3
<PAGE>
The employment agreement for Harold S. Elkan (Elkan), the Company's
President, expired in January 1998, however, the Company is continuing to honor
the terms of the agreement until such time as the Compensation Committee can
finish its review and propose a new contract. Pursuant to the expired employment
agreement, Elkan is to receive a sum equal to twice his annual salary ($250,000
as of June 30, 1998) plus $50,000 if he is discharged by the Company without
good cause, or the employment agreement is terminated as a result of a change in
the Company's management or voting control. The agreement also provides for
miscellaneous perquisites, which do not exceed either $50,000 or 10 percent of
his annual salary. The Board of Directors has authorized that up to $625,000 of
loans can be made to Harold S. Elkan at interest rates not to exceed 10 percent.
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 1998.
Outside members of Board of Directors approving the Compensation for Harold
S. Elkan are: Patrick D. Reiley, James E. Crowley, and 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 1993) 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, S&P 500 Time
Inc.
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
6/98 300 252 172
4
<PAGE>
Security Ownership of Certain Beneficial Owners and Management
- --------------------------------------------------------------
The following table sets forth, as of November 12, 1998, 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 of
Name and Address Owned Class
------------------------ ------------ ----------
Harold S. Elkan 21,808,267 (a) 80.0%
5230 Carroll Canyon Road
San Diego, California
All directors and officer 21,808,267 80.0%
as 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 $523,408 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, 1998 ($539,306 as of June 30, 1997). The balance at June 30, 1998
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,
1999-2000. The balance is due January 1, 2001. The largest amount outstanding
during the year was $573,528 in October 1997.
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, 1998) and to be added to the
principal balance annually. At June 30, 1998, $1,126,197 of interest had been
accrued ($909,396 as of June 30, 1997). The loan is due in November 2003. The
loan is collateralized by 10,900,000 shares of the Company's stock.
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE FOR THE NOMINEES FOR
---------------------------------------------------------------
DIRECTORS AS SET FORTH IN PROPOSAL 1 ON YOUR PROXY.
---------------------------------------------------
5
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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 1999,
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, 1999, 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 1998. A representative of KPMG Peat Marwick LLP is expected
to be at the Meeting.
ANNUAL REPORT
- -------------
The Company's Annual Report for the fiscal year ended June 30, 1998, 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,
1998, 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 23, 1998
<PAGE>
APPENDIX A
SPORTS ARENAS, INC.
[A DELAWARE CORPORATION]
ANNUAL REPORT
FISCAL YEAR ENDED JUNE 30, 1998
A - 1
<PAGE>
SPORTS ARENAS, INC.
[A DELAWARE CORPORATION]
ANNUAL REPORT
FISCAL YEAR ENDED JUNE 30, 1998
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, an apartment project (50% owned), one office
building, a construction company (sold in January 1998), 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, excluding construction, stated as a percentage of total revenues for
each of the last three years:
1998 1997 1996
---- ---- ----
Bowling 74 79 92
Real estate rental 13 13 6
Real estate development - - -
Golf 6 2 -
Other 7 6 2
BOWLING
-------
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.
On average, 40 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
A - 2
<PAGE>
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 70 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, 1998, 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 13 acre parcel of undeveloped land in Temecula, California
(Riverside County).
In September 1994, Vail Ranch Limited Partnership (VRLP) was formed as a
partnership between Old Vail Partners, L.P. (OVP), a subsidiary of the Company,
and Landgrant Corporation (Landgrant) to develop a 32 acre parcel of land of
which 27 acres was developable. Landgrant is not affiliated with the Company.
VRLP completed construction of a shopping center on 10 acres of land in May 1997
and sold approximately 3.6 partially improved acres in the year ended June 30,
1997 and .59 partially improved acres during the year ended June 30, 1998 to
unaffiliated purchasers for cash of $2,365,000 and $400,000, respectively. The
cash proceeds from these sales were applied to reduce the construction loan
balance. On January 2, 1998, VRLP sold the shopping center to Excel Realty
Trust, Inc. (Excel) for $9,500,000 cash. On August 7, 1998, VRLP entered into a
an operating agreement (Agreement) with ERT Development Corporation (ERT), an
affiliate of Excel, to form Temecula Creek, LLC, a California limited liability
company (TC). TC was formed for the purpose of developing, constructing and
operating the remaining 13 acres of land as part of the community shopping
center in Temecula, California. VRLP contributed the 13 acres of land to TC and
TC assumed the balance of the assessment district obligation payable. For
purposes of maintaining capital account balances in calculating distributions,
VRLP's contribution, net of the liability assumed by TC, was valued at
$2,000,000. ERT contributed $1,000,000 cash which was immediately distributed by
TC to VRLP. VRLP, which is the managing member, and ERT are each 50 percent
members. ERT also advanced approximately $220,000 to TC to reimburse VRLP for
certain predevelopment costs incurred by VRLP for the 13 acres. The Agreement
provides that ERT will advance funds over the next 12 months to fund
predevelopment costs, other than property taxes and assessment district costs.
Each member is required to advance 50 percent of the property taxes and
assessment district costs as they become due (approximately $163,000 annually).
As of June 30, 1998, OVP owns a 33 acre parcel which was 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 six years related to 33 acres owned by
OVP. On March 18, 1997, the County of Riverside (the County) sold a 7-acre
parcel that had been owned by OVP 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, however, the County was not able to
obtain any bids to satisfy the obligations and the sale was not completed. The
County did not attempt to sell the property at public sale in 1998.
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 land 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 land. 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 50 percent ownership
interest in 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 is
currently 96 percent occupied.
The following is a schedule of selected operating information over the last five
years:
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Occupancy 97% 98% 92% 93% 88%
Average monthly
rent/square foot $.86 $.87 $.88 $.86 $.88
Real property tax $18,000 $17,000 $17,000 $17,000 $17,000
Real Property tax rate 1.12% 1.12% 1.12% 1.12% 1.12%
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. (SAPI), 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 following is a schedule of selected
operating information over the last five years:
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Occupancy 99% 98% 97% 94% 91%
Average monthly
rent/unit $675 $662 $648 $644 $630
Real property tax $108,000 $107,000 $105,000 $104,000 $102,000
Real Property tax rate 1.12% 1.12% 1.12% 1.12% 1.12%
CONSTRUCTION
------------
The Company's former wholly-owned subsidiary, Ocean West Builders, Inc. (OWB),
was a general contractor that primarily constructed tenant improvements for
commercial real estate in the San Diego, California area. The Company originally
became associated with OWB in 1988 when it formed a limited partnership with
Michael J. Assof (Assof). The Company was the general partner and provided
administrative services and a minimum amount of working capital. Assof was a 50
percent limited partner and provided the general contractors license. The
Company's objective was to provide for a reliable source of general contracting
work for its various business that were involved in real estate. In 1992 the
limited partnership was liquidated and the assets and liabilities transferred to
OWB, a wholly-owned subsidiary of the Company. Assof was the President of OWB
and had a compensation agreement that essentially provided him with the same
compensation as the previous limited partnership agreement. On January 1, 1998,
the Company sold OWB to Assof for $66,678, which represents the Company's
investment in OWB. The Company had determined that the minimal benefit of the
results of operations exceeded the risks associated with general contracting.
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 managing member and Carter Penley as a
10 percent member. PPS was a manufacturer of graphite golf shafts that primarily
A - 4
<PAGE>
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. Penley's plans are to market its products to golf club
manufacturers and golf club component distributors. To compliment the program of
marketing to higher volume purchasers, Penley purchased approximately $498,000
of equipment in the year ended June 30, 1997 to automate some of the production
processes. 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.
Penley 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. Penley is principally
using its internal sales staff in the marketing and sale of its shafts to
manufacturers, distributors and golf shops. Penley is also promoting its shafts
to professional golfers as a means of achieving acceptance with the club
manufacturers as the golfers endorse the shafts. Management 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 has been successful in building a reputation as a leader in new shaft
design and concepts. Penley has applied for several patents on shaft designs for
which the patents are pending. Although Penley has developed several new
products, no assurance can be given that they will meet with market acceptance
or that Penley will be able to continue to design and manufacture additional new
products.
The primary raw material used in all of Penley's graphite shafts is carbon
fiber, which is combined with epoxy resin to produce sheets of graphite prepreg.
Due to low production levels, Penley currently purchases most of its graphite
prepreg from one supplier. There are numerous alternative suppliers of graphite
prepreg. Although Management believes that it will be able to establish
relationships with other graphite prepreg suppliers to ensure sufficient
supplies of the material at competitive pricing as production increases, there
can be no assurances the unforeseen difficulties will occur that could lead to
an interruption and delays to Penley's production process.
Penley uses hazardous substances and generates hazardous waste in the ordinary
course of its manufacturing of graphite golf shafts and other related products.
Penley is subject to various federal, state, and local environmental laws and
regulations, including those governing the use, discharge and disposal of
hazardous materials. Management believes it is in substantial compliance with
the applicable laws and regulations and to date has not incurred any liabilities
under environmental laws and regulations nor has it received any notices of
violations. However, there can be no assurance that environmental liabilities
will not arise in the future which may affect Penley's business.
Penley is trying to enter a highly competitive environment among established
golf club shaft manufacturers. Although Penley has made significant progress in
establishing its reputation for technology, the unproven production capability
of Penley is making it difficult to attract the golf club manufacturers as
customers. Penley is currently evaluating alternatives to relocate the
manufacturing facility to a larger facility and further automate the production
process.
Penley currently has two patents pending and several copyrighted trademarks and
logos. Although Management believes these items are of considerable value to the
business and Penley will protect them to the fullest extent possible, Management
does not believe these items are critical to Penley's ability to develop
business with the golf club manufacturers.
Penley currently has approximately 30 full and part-time employees.
Due to Penley's low sales volume, there is currently no impact from the
seasonality of sales (expected to be from April through September), no backlog
of sales orders, or customer concentration.
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
A - 5
<PAGE>
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.
1998 1997
------------ ------------
High Low High Low
----- ----- ----- -----
First Quarter $ .02 $ .02 $ .01 $ .01
Second Quarter $ .02 $ .02 $ .01 $ .01
Third Quarter $ .44 $ .02 $ .02 $ .02
Fourth Quarter $ .03 $ .03 $ .02 $ .02
(b) The number of holders of record of the common stock of the Company as
of September 30, 1998 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)
- ---------------------------------------------------------------------
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (NOT COVERED BY INDEPENDENT
- --------------------------------------------------------------------------------
AUDITORS' REPORT)
-----------------
<TABLE>
Year Ended June 30,
--------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues .............. $ 3,813,751 $ 3,951,286 $ 8,146,209 $ 8,547,275 $ 8,801,920
Loss from operations .. (2,603,065) (4,327,225) (817,648) (355,628) (2,217,246)
Income (loss) from
continuing operations
operations .......... (895,524) (3,347,008) 517,311 (841,786) (2,100,839)
Basic and diluted
income (loss) per
common share from
continuing operations (.03) (.12) .02 (.03) (.08)
Total assets .......... 9,448,653 9,933,755 16,445,081 15,308,441 13,673,871
Long-term debt,
excluding current
portion ............. 3,287,783 4,061,987 4,387,259 6,803,635 7,401,805
</TABLE>
See Notes 4c, 6c, and 12 of Notes to Consolidated Financial Statements regarding
disposition of business operations and material uncertainties.
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 working capital of $988,166 at June 30,
1998, which is a $1,272,904 increase from the similarly calculated working
capital deficit of $284,738 at June 30, 1997. Working capital increased
primarily from $4,258,511 of distributions received from investees and the
payment of notes receivable totaling $768,108. These sources of funds were
offset by $450,000 paid to the limited partner in OVP and the $3,897,000 of cash
used by operations after capital expenditures and debt service.
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 investees and proceeds from real estate and bowling center
sales to fund these deficits. The Company estimates that its current working
capital is sufficient to fund additional operating cash flow deficits until the
operations of the golf shaft manufacturer become sufficient to generate cash
flow from operations.
A - 6
<PAGE>
The cash provided (used) before changes in assets and liabilities segregated by
business segments was as follows:
<TABLE>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Bowling ..................................... $ (173,000) $ (87,000) $ (51,000)
Rental ...................................... 164,000 185,000 170,000
Golf ........................................ (2,027,000) (574,000) --
Development ................................. (164,000) (206,000) (300,000)
General corporate expense and other ......... (166,000) (171,000) (425,000)
----------- ----------- -----------
Cash provided (used) by continuing operations (2,366,000) (853,000) (606,000)
Capital expenditures, net of financing ...... (322,000) (314,000) (49,000)
Discontinued operations ..................... (24,000) (12,000) 58,000
Acquisition of golf shaft manufacturer ...... -- (172,000) --
Principal payments on long-term debt ........ (935,000) (1,392,000) (755,000)
----------- ----------- -----------
Cash used ................................... $(3,647,000) $(2,743,000) $(1,352,000)
=========== =========== ===========
Distributions received from investees ....... $ 4,259,000 $ 581,000 $ 320,000
=========== =========== ===========
Proceeds from sale of assets ................ $ 57,000 $ 2,086,000 $ 1,836,000
=========== =========== ===========
</TABLE>
Other than the $2,000,000 distribution received in May 1998 from the proceeds of
UCV's refinancing of long term debt, 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 $12,280,101 at June 30, 1998. 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. In May 1998, UCV refinanced the existing
$19,833,500 note payable with a $25,000,000 note payable due in May 2001. Due to
a decrease in the interest rate, the monthly debt service for the new loan is
approximately the same as the old loan. UCV is currently evaluating the
feasibility of redeveloping the apartment project from 542 units to
approximately 1,100 units.
At June 30, 1998, the Company owned a 50 percent limited partnership interest in
Vail Ranch Limited Partnership (VRLP), which was formed to develop 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. On January 2, 1998
VRLP sold the completed portion of the development (14 acres) for $9,500,000 to
Excel, which resulted in cash proceeds of approximately $2,929,000. VRLP used
these proceeds for distributions to partners of which the Company received
$1,772,511. On August 7, 1998 VRLP contributed the remaining undeveloped land to
a limited liability company, the other member of which is ERT Development
Corporation (an affiliate of Excel Realty) and received a cash distribution of
$1,220,000. VRLP used these proceeds for distributions to its partners of which
the Company received an additional $575,600 in August 1998. The Company
estimates that the value of the Company's 50 percent interest in VRLP at June
30, 1998 is approximately $1,000,000 to $1,500,000.
As described in Note 4c of the Notes to Consolidated Financial Statements, OVP
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. 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 County
did not attempt to sell the property in 1998. The amounts due to cure the
judgment for the default under the Assessment District obligation on the 33 acre
parcel at June 30, 1998 was approximately $1,159,000 ($890,000 for both parcels
at June 30, 1997). The principal balance of the allocated portion of the bonds
($1,384,153 as of June 30, 1998 and 1997), and delinquent interest and penalties
($935,673 as of June 30, 1998 and $713,829 as of June 30, 1997) are classified
as "Assessment district obligation- in default" in the consolidated balance
sheet. In addition, accrued property taxes in the consolidated balance sheet
include $487,728 of delinquent property taxes and late fees as of June 30, 1998
($399,140 as of June 30, 1997). 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, OVP 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".
A - 7
<PAGE>
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 judgment and
the down-zoning of the property, the recoverability of the remaining $1,384,014
carrying value of this property is uncertain.
The Company is expecting a $1,300,000 cash flow deficit in 1998 from operating
activities after estimated distributions from UCV operations ($560,000) and VRLP
($576,000) and estimated capital expenditures ($460,000) and scheduled principal
payments on long-term debt. The Company's $1,416,460 of cash as of June 30, 1998
will be sufficient to fund this estimated cash flow deficit.
NEW ACCOUNTING PRONOUNCEMENTS
-----------------------------
In June 1997, The Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS 130) and No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS 131). SFAS 130 establishes standards for the reporting and
display of comprehensive income and its components in the financial statements.
SFAS 131 establishes standards for the manner in which public business
enterprises report information about operating segments and also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. These statements are effective for the years beginning
after December 15, 1997. The Company does not expect that the adoption of SFAS
130 and 131 will result in disclosures that will be materially different from
those presently included in its financial statements.
YEAR 2000 COMPLIANCE
--------------------
The Company has a program to identify, evaluate and implement changes to its
computer systems as necessary to address the Year 2000 issue. The program is
broken down into three separate categories: computer systems, embedded
technologies, and third party relationships.
Computer systems- This category consists primarily of the Company's software
and hardware for its accounting system. The Company is in the process of
evaluating its existing desktop computers and software systems. Based upon
an initial evaluation as well as representations from some of the software
suppliers, the management's best estimate is that, other than software and
equipment upgrades made in the normal course of business, it will not incur
any significant expenses to become fully Year 2000 compliant.
Embedded Technologies- This category includes company owned or lease
equipment with microprocessors or microcontrollers. This type of equipment
principally consists of phone equipment, automatic scorekeepers and cash
registers at the bowling centers, and manufacturing equipment at the golf
shaft manufacturer. Based upon an initial evaluation as well as
representations from some of the equipment suppliers, the management's best
estimate is that, other than acquiring a software upgrade for the automatic
scorekeeping equipment, the price of which has not yet been determined, it
will not incur any significant expenses to become fully Year 2000
compliant.
Third Party Relationships- This category includes critical relationships with
vendors such as graphite manufacturers in the golf shaft segment, and
providers of local utilities (water and electricity). The Company will
implement a program of initiating discussions with these types of suppliers
in the beginning of calendar year 1999. There can be no guarantee that the
systems of other companies that support the Company's operations will be
timely converted or that a failure by these companies to correct their Year
2000 problems would not have a material adverse effect on the Company. At
the present time, the Company does not have a contingency plan in place in
the event of a Year 2000 failure at one of the Company's significant
suppliers. However, the Company plans to create a contingency plan in the
calendar year 1999.
If the steps taken by the Company and its vendors to be Year 2000 compliant are
not successful, the Company could experience various operational difficulties.
These could include, among other things, processing transactions to an incorrect
accounting period, difficulties in posting general ledger interfaces and lapse
of certain services by vendors to the Company's operations. If the Company's
plan to install new systems which effectively address the Year 2000 issue is not
successfully or timely implemented, the Company may need to devote more
resources to the process and additional costs may be incurred. The Company
believes that the Year 2000 issue is being appropriately addressed by the
Company and its critical vendors and does not expect the Year 2000 issue to have
a material adverse impact on the financial position, results of operations or
cash flows of the Company in future periods. However, should the remaining
review of the Company's Year 2000 risks reveal potentially non-compliant
computer systems or material third parties, contingency plans will be developed
at that time.
A - 8
<PAGE>
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES
----------------------------------------------------
LITIGATION REFORM ACT OF 1995
-----------------------------
With the exception of historical information (information relating to the
Company's financial condition and results of operations at historical dates or
for historical periods), the matters discussed in this Management's Discussion
and Analysis of Financial Condition and Results of Operations are forward-
looking statements that necessarily are based on certain assumptions and are
subject to certain risks and uncertainties. These forward-looking statements are
based on management's expectations as of the date hereof, and the Company does
not undertake any responsibility to update any of these statements in the
future. Actual future performance and results could differ from that contained
in or suggested by these forward-looking statements as a result of the factors
set forth in this Management's Discussion and Analysis of Financial Condition
and Results of Operations, the Business Risks described in Item 1 of this Report
on Form 10-K and elsewhere in the Company's filings with the Securities and
Exchange Commission.
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, 1998 and 1997:
<TABLE>
Real Estate Real Estate Unallocated
Bowling Operation Development Golf And Other Totals
----------- ---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Year Ended June 30, 1998
- ------------------------
Revenues .................... $ (303,154) $ (7,447) -- $ 174,376 $ 3,720 $ (132,505)
Costs ....................... (226,467) 12,103 (15,397) 605,287 -- 375,526
SG&A-direct ................. 31,521 -- -- 944,412 (2,077) 973,856
SG&A-allocated .............. 8,820 3,000 -- 54,000 (38,820) 27,000
Depreciation and amortization (218,949) 5,097 -- 78,207 14,114 (121,531)
Impairment losses ........... (234,248) -- (1,929,000) -- -- (2,163,248)
Interest expense ............ (38,831) (1,408) (13,159) 23,232 8,157 (22,009)
Equity in investees ......... -- 41,643 1,580,846 -- -- 1,622,489
Gain (loss) on disposition .. (1,154,514) -- 468,268 -- 716,025 29,779
Segment profit (loss) ....... (779,514) 15,404 4,006,670 (1,530,762) 738,371 2,450,169
Investment income ........... -- -- -- -- -- 1,315
Net loss from continuing
operations ................ -- -- -- -- -- 2,451,484
Year Ended June 30, 1997
- ------------------------
Revenues .................... $(4,338,818) $ 5,288 -- $ 67,260 $ 72,377 $(4,193,893)
Costs ....................... (2,618,182) (10,062) (13,552) 171,493 -- (2,470,303)
SG&A-direct ................. (1,169,393) -- -- 344,772 (152,308) (976,929)
SG&A-allocated .............. (200,032) 2,000 -- 118,000 50,032 (30,000)
Depreciation and amortization (317,814) (2,874) -- 1,017 1,071 (318,600)
Impairment losses ........... 234,248 -- 2,409,000 -- -- 2,643,248
Interest expense ............ (321,534) (1,139) (4,989) 6,494 (46,939) (368,107)
Equity in investees ......... -- 197,028 (130,510) -- -- 66,518
Reversal of accrued liability -- -- (769,621) -- -- (769,621)
Gain (loss) on disposition .. 52,288 -- (588,669) -- (21,422) (557,803)
Segment profit (loss) ....... 106,177 214,391 (3,879,259) (574,516) 199,099 (3,934,108)
Investment income ........... -- -- -- -- -- 69,789
Net loss from continuing
operations ................ -- -- -- -- -- (3,864,319)
</TABLE>
A - 9
<PAGE>
BOWLING OPERATIONS:
- -------------------
1998 vs. 1997
-------------
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, 1998 compared
to 1997:
Sale of San Diego Combined
Bowls- 1997 Bowls Incr.(Decr.)
---------- --------- ----------
Revenues ......................... (374,000) 71,000 (303,000)
Bowl costs ....................... (273,000) 47,000 (226,000)
Selling, general & administrative:
Direct ......................... 29,000 2,000 31,000
Allocated ...................... (26,000) 35,000 9,000
Depreciation ..................... (19,000) (200,000) (219,000)
Impairment loss .................. (35,000) (199,000) (234,000)
Interest expense ................. (26,000) (13,000) (39,000)
Segment profit (loss) before
gain on sale ................... (24,000) 399,000 375,000
The 3 percent increase in revenues of the San Diego bowls was primarily
attributable to a 13 percent increase in revenues from open play ($76,000) and a
10 percent increase in snack bar revenues ($40,000). These increases were
partially offset by a 2 percent decrease in revenues from league play ($22,000)
and a 4 percent decrease in bar sales ($10,000). The $47,000 increase in bowl
costs represents a 2 percent increase and was primarily attributable to a 10
percent increase in food and beverage costs ($39,000). Allocated SG&A costs
increased by $35,000 due to the disposition of the other bowling centers in May
and August of 1996 resulting in higher corporate overhead costs allocated per
business location. Depreciation expense decreased by $200,000 because most
property and equipment became fully depreciated in 1998. Interest expense
related to the San Diego bowls decreased by $13,000 due to the declining
principal balances of long-term debt. The Company does not anticipate any
further declines in bowl revenues.
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
A - 10
<PAGE>
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.
CONSTRUCTION OPERATIONS
- -----------------------
On January 1, 1998 the Company sold the stock it owned in Ocean West Builders,
Inc. (OWB) to Michael Assof, OWB's president. The sale price of $66,678 equaled
the balance of the Company's investment in OWB, therefore, there was no gain or
loss recognized on the transaction. The results of operations of OWB have been
reclassified to "income (loss) from discontinued operations.
RENTAL OPERATIONS
- -----------------
There were no significant changes to the rental segment in 1998 or 1997 other
than the increases in the equity in income of UCV, LP of $41,643 in 1998 and
$197,028 in 1997.
The vacancy rate for the office building was 8%, 2% and 3% for 1996, 1997 and
1998, respectively. The average monthly rent per square foot was $.88, $.87, and
$.86 for 1996, 1997 and 1998, respectively. The Company is currently leasing
space to new tenants and renewing existing leases at monthly rates ranging from
$1.10-$1.25 per square foot.
The following is a summary of the changes in the operations of UCV, LP in 1998
and 1997 compared to the previous years:
1998 1997
--------- ---------
Revenues ....................... $ 137,000 $ 184,000
Costs .......................... 90,000 (36,000)
Redevelopment planning costs ... (18,000) (162,000)
Depreciation ................... (18,000) --
Interest and amortization
of loan costs ................ -- (12,000)
Net income ..................... 83,000 394,000
Vacancy rates at UCV have averaged 3.1%, 1.8% and 1.1% in 1996, 1997 and 1998,
respectively. The increase in revenues is primarily due to increases to the
average rent rates of 2% in 1997 and 1998. 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.
REAL ESTATE DEVELOPMENT:
- ------------------------
The real estate development segment consists primarily of OVP's operations
related to undeveloped land in Temecula, California, and an investment in VRLP.
Development costs consist primarily of legal expenses ($67,000 in 1998, $80,000
in 1997, and $120,000 in 1996) related to the litigation regarding the effective
down-zoning of the 33 acres of land and property taxes ($89,000 in 1998, $85,000
in 1997, and $62,000 in 1996). Development interest primarily represents the
interest portion of the assessment district payments due each year and the
interest accrued on the delinquent payments.
The following is a summary of the changes in the operations of VRLP in 1998 and
1997 compared to the previous years:
1998 1997
---------- ----------
Revenues ........................ $ 513,000 $ 127,000
Gain on sale .................... 3,047,000 60,000
Operating expenses .............. 252,000 185,000
Depreciation and amortization ... 145,000 108,000
Interest ........................ 109,000 185,000
Net income (loss) ............... 3,054,000 (291,000)
A - 11
<PAGE>
During the year ended June 30, 1997, VRLP completed construction of a shopping
center on 10 acres of land in May 1997 and sold approximately 3.6 acres of land.
During the year ended June 30, 1998, VRLP sold the completed shopping center for
$9,500,000 and an additional .59 acres of land. As a result, the operating
results only reflect shopping center operations for two months in 1997 and six
months in 1998. The remaining 13 acres of undeveloped land were contributed to a
limited liability company in August 1998. The agreement provides that the other
member will advance funds over the next 12 months to fund predevelopment
expenses and obtain financing for the eventual development. However, each of the
members is required to advance funds equal to 50 percent of the annual property
taxes and assessments ($163,000 annually) until development commences.
The Company recorded a $480,000 provision for impairment loss in the year ended
June 30, 1998 to reduce the carrying value of the Company's investment in VRLP
at June 30, 1998 to reflect the estimated distributions the Company will receive
from VRLP. 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 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 years 1998 and 1997 were insignificant because Penley has not
yet developed sales with golf club manufacturers or distributors. The sales were
principally to custom golf shops. Operating expenses of the golf segment
consisted of the following in 1998 and 1997:
1998 1997
---------- --------
Costs of sales and
manufacturing overhead ... $ 643,000 $ 97,000
Research and development ... 134,000 75,000
---------- --------
Total golf costs ........ 777,000 172,000
========== ========
Marketing and promotion .... 1,151,000 206,000
Administrative costs- direct 138,000 139,000
---------- --------
Total SG&A-direct ........ 1,289,000 345,000
========== ========
The Company expects that it will be another six to twelve months before Penley
is able to develop sales with these types of customers.
UNALLOCATED AND OTHER:
- ----------------------
Revenues increased by $72,000 in 1997 due to a $47,000 increase in brokerage
commissions earned in 1997.
Unallocated SG&A and Other SG&A decreased by $41,000 in 1998 and $102,000 in
1997. The primary reason for the decrease in 1997 related to discretionary
bonuses of $140,000 awarded in 1996 that were not awarded in 1997 or 1998. 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.
Investment income increased by $70,000 in 1997 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.
In 1998, the Company recognized a deferred gain of $716,025 related to the sale
of two bowling centers in 1989 because it collected the balance of a note
receivable from the sale.
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....... 55 Director since November 7, 1983;
President since November 11, 1983
Steven R. Whitman..... 45 Chief Financial Officer and Treasurer
since May 1987;Director and Assistant
Secretary since August 1, 1989
Secretary since January 1995
Patrick D. Reiley..... 57 Director since August 21, 1986
James E. Crowley...... 51 Director since January 10, 1989
Robert A. MacNamara... 50 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 has been a principal of A.R.I.S., Inc., an
international insurance brokerage company, since 1997.
James E. Crowley has been an owner and operator of various automobile
dealerships for the last twenty years. Mr. Crowley was President and
controlling shareholder of Jamar Holdings, Ltd., doing business as San Diego
Mitsubishi, from August 1988 to October 1994, President of Coast Nissan from
1992 to August 1996; and has been President of the Automotive Group since
March 1994. The Automotive Group operates North County Ford, North County
Jeep GMC, TAG Collision Repair, and Lake Elsinore Ford.
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, 1998 AND 1997
ASSETS
<TABLE>
1998 1997
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................. $ 1,416,460 $ 821,513
Current portion of notes receivable ................... 12,105 25,000
Current portion of notes receivable-affiliate (Note 3b) 50,000 50,000
Other receivables ..................................... 166,427 68,244
Inventories (Note 2)................................... 302,595 89,118
Prepaid expenses ...................................... 246,135 124,306
Current assets of discontinued operation (Note 12d) ... -- 431,199
----------- -----------
Total current assets ............................... 2,193,722 1,609,380
----------- -----------
Receivables due after one year:
Note receivable (Note 3a) ............................. -- 728,838
Less deferred gain (Note 3a) .......................... -- (716,025)
Note receivable- Affiliate (Note 3b) .................. 523,408 539,306
Note receivable- Other, net (Note 3d) ................. 12,105 35,477
----------- -----------
535,513 587,596
Less current portion .................................. (62,105) (75,000)
----------- -----------
473,408 512,596
----------- -----------
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 ....... 1,997,192 1,752,244
----------- -----------
5,136,519 4,891,571
Less accumulated depreciation and amortization ..... (1,654,521) (1,291,861)
----------- -----------
Net property and equipment ........................ 3,481,998 3,599,710
----------- -----------
Other assets:
Undeveloped land, at cost (Notes 4 and 6c) ............ 1,665,643 1,665,643
Intangible assets, net (Note 5) ....................... 315,015 447,608
Investments (Note 6) .................................. 1,209,944 2,012,119
Other assets .......................................... 108,923 86,699
----------- -----------
3,299,525 4,212,069
----------- -----------
$ 9,448,653 $ 9,933,755
=========== ===========
</TABLE>
A - 14
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - JUNE 30, 1998 AND 1997 (CONTINUED)
LIABILITIES AND SHAREHOLDERS' DEFICIT
<TABLE>
1998 1997
---- ----
<S> <C> <C>
Current liabilities:
Assessment district obligation-in-default (Note 4c) .. $ 2,319,826 $ 2,097,982
Current portion of long-term debt (Note 7a) .......... 347,000 481,000
Notes payable, short-term (Note 7d) .................. -- 250,000
Accounts payable ..................................... 577,847 412,510
Accrued payroll and related expenses ................. 108,497 76,087
Accrued property taxes, in default (Note 4c) ......... 478,665 408,784
Accrued interest ..................................... 28,581 29,353
Accrued frequent bowler program expense .............. -- 60,239
Other liabilities .................................... 152,694 147,324
Current liabilities of discontinued
operation (Note 12d) .............................. -- 365,837
------------ ------------
Total current liabilities ......................... 4,013,110 4,329,116
------------ ------------
Long-term debt, excluding current portion (Note 7) ...... 3,287,783 4,061,987
------------ ------------
Distributions received in excess of basis in
investment (Notes 6a and 6b) .......................... 12,280,101 10,083,802
------------ ------------
Tenant security deposits ................................ 25,951 27,847
------------ ------------
Minority interest in consolidated subsidiary (Note 6c) .. 1,762,677 2,212,677
------------ ------------
Commitments and contingencies (Notes 4a, 4c, 5a, 6c,
8 and 10)
Shareholders' deficit:
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 .................................. (11,736,312) (10,813,818)
------------ ------------
(9,733,763) (8,811,269)
Less note receivable from shareholder (Note 3c) ...... (2,187,206) (1,970,405)
------------ ------------
Total shareholders' deficit ........................ (11,920,969) (10,781,674)
------------ ------------
$ 9,448,653 $ 9,933,755
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
A - 15
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1998, 1997, AND 1996
<TABLE>
1998 1997 1996
---- ---- ----
Revenues:
<S> <C> <C> <C>
Bowling ......................................... $ 2,810,862 $ 3,114,016 $ 7,452,834
Rental .......................................... 500,785 513,262 509,004
Golf ............................................ 241,636 67,260 --
Other ........................................... 146,713 144,920 76,138
Other-related party (Note 6b) ................... 113,755 111,828 108,233
----------- ----------- -----------
3,813,751 3,951,286 8,146,209
----------- ----------- -----------
Costs and expenses:
Bowling ......................................... 1,997,237 2,223,704 4,841,886
Rental .......................................... 251,395 239,292 249,354
Golf ............................................ 776,780 171,493 --
Development ..................................... 156,742 172,139 185,691
Selling, general, and administrative ............ 2,695,677 1,699,851 2,707,810
Depreciation and amortization ................... 538,985 660,516 979,116
Loss on disposition of undeveloped
land (Note 4c) ................................. -- 468,268 --
Provision for impairment
losses (Notes 3d, 4c and 5c) ................... -- 2,643,248 --
----------- ----------- -----------
6,416,816 8,278,511 8,963,857
----------- ----------- -----------
Loss from operations ............................... (2,603,065) (4,327,225) (817,648)
----------- ----------- -----------
Other income (expenses):
Investment income:
Related party (Notes 3b and 3c) ............... 259,936 234,650 222,556
Other ......................................... 112,141 136,112 78,417
Interest expense related to development
activities .................................... (221,844) (234,790) (239,190)
Interest expense and amortization of finance
costs ......................................... (472,174) (481,237) (844,944)
Equity in income of investees (Note 6) .......... 1,793,457 170,968 104,450
Provision for impairment
loss-investee (Note 6c) ....................... (480,000) -- --
Recognition of deferred gain (Note 3a) .......... 716,025 -- 21,422
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 income of consolidated
subsidiary (Note 6d) ......................... -- -- (556,237)
Reversal of accrued liability (Note 8c) ......... -- -- 769,621
----------- ----------- -----------
1,707,541 980,217 1,334,959
----------- ----------- -----------
Income (loss) from continuing operations ........... (895,524) (3,347,008) 517,311
Net income (loss) from discontinued
operations (Note 12d) ............................. (26,970) (18,401) 51,553
----------- ----------- -----------
Net income (loss) .................................. ($ 922,494) ($3,365,409) $ 568,864
=========== =========== ===========
Basic and diluted net income (loss) per common share
from continuing operations ...................... ($ 0.03) ($ 0.12) $ 0.02
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
A - 16
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
YEARS ENDED JUNE 30, 1998, 1997, AND 1996
<TABLE>
Common Stock Note
--------------- Additional Receivable
Number of paid-in Accumulated From
Shares Amount capital Deficit Shareholder Total
----------- -------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1995 27,250,000 $272,500 $1,730,049 ($8,017,273) ($1,601,278) ($ 7,616,002)
Interest accrued .... -- -- -- -- (176,744) (176,744)
Net income .......... -- -- -- 568,864 -- 568,864
---------- -------- ---------- ------------ ----------- ------------
Balance at June 30, 1996 27,250,000 272,500 1,730,049 (7,448,409) (1,778,022) (7,223,882)
Interest accrued .... -- -- -- -- (192,383) (192,383)
Net loss ............ -- -- -- (3,365,409) -- (3,365,409)
---------- -------- ---------- ------------ ----------- ------------
Balance at June 30, 1997 27,250,000 272,500 1,730,049 (10,813,818) (1,970,405) (10,781,674)
Interest accrued .... -- -- -- -- (216,801) (216,801)
Net loss ............ -- -- -- (922,494) -- (922,494)
---------- -------- ---------- ------------ ----------- ------------
Balance at June 30, 1998 27,250,000 $272,500 $1,730,049 ($11,736,312) ($2,187,206) ($11,920,969)
========== ======== ========== ============ =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
A - 17
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1998, 1997, AND 1996
<TABLE>
1998 1997 1996
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss) ............................. ($ 922,494) ($3,365,409) $ 568,864
Adjustments to reconcile net income (loss) to
the net cash provided (used) by operating
activities:
Amortization of deferred financing
costs and discount ...................... 23,455 31,555 38,976
Depreciation and amortization ............. 543,178 666,967 985,401
Equity in income of investees ............. (1,793,457) (170,968) (104,450)
Loss on disposition of undeveloped land ... -- 468,268 --
Interest income accrued on note receivable
from shareholder ........................ (216,801) (192,383) (176,744)
Interest accrued on assessment district
obligations ............................. 221,844 208,564 132,687
Provision for impairment losses ........... 480,000 2,643,248 --
Gain on sale of assets .................... (10,279) (1,154,514) (1,778,864)
Recognition of deferred gain .............. (716,025) -- --
Reversal of accrued liability ............. -- -- (769,621)
Minority interest in income of
consolidated subsidiary ................. -- -- 556,237
Changes in assets and liabilities:
(Increase) decrease in receivables ......... (98,183) 61,219 (82,875)
(Increase) decrease in assets of
discontinued operation .................. 130,607 219,675 (356,355)
(Increase) decrease in inventories ......... (213,477) 30,484 --
(Increase) decrease in prepaid expenses .... (121,829) 25,494 (24,359)
Increase (decrease) in accounts payable ... 188,337 19,019 (42,064)
Increase (decrease) in accrued expenses ... 46,650 (501,620) 460,752
Increase (decrease) in liabilities of
discontinued operation .................. (77,105) (178,896) 313,435
Other ..................................... 2,916 50,836 (23,406)
----------- ----------- -----------
Net cash used by operating activities ... (2,532,663) (1,138,461) (302,386)
----------- ----------- -----------
Cash flows from investing activities:
(Increase) decrease in notes receivable ....... 768,108 72,500 87,212
Other capital expenditures ................... (321,483) (314,134) (48,611)
Sale of discontinued operation (Note 12d) .... 30,207 -- --
Increase in lease inception fee .............. -- (232,995) --
Proceeds from sale of other assets ........... 26,950 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)
Distributions received from investees ........ 4,258,511 580,884 320,000
Distribution to holder of minority interest .. (450,000) -- --
Acquisition of golf shaft
manufacturer (Note 12c) .................. -- (172,071) --
Acquire additional interest in
investees (Notes 6c and 6d) .............. -- -- (5,289)
----------- ----------- -----------
Net cash provided by investing activities 4,312,293 2,019,911 2,119,212
----------- ----------- -----------
Cash flows from financing activities:
Scheduled principal payments ................. (934,683) (1,392,382) (754,646)
Proceeds from short-term borrowings .......... 400,000 250,000 --
Payments of short-term borrowings ............ (650,000) -- --
Proceeds from line of credit ................. -- -- 510,000
Payments on line of credit ................... -- -- (598,742)
Other ........................................ -- (11,020) --
----------- ----------- -----------
Net cash used by financing activities ... (1,184,683) (1,153,402) (843,388)
----------- ----------- -----------
Net increase (decrease) in cash and equivalents . 594,947 (271,952) 973,438
Cash and cash equivalents, beginning of year .... 821,513 1,093,465 120,027
=========== =========== ===========
Cash and cash equivalents, end of year .......... $ 1,416,460 $ 821,513 $ 1,093,465
=========== =========== ===========
</TABLE>
A - 18
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED JUNE 30, 1998, 1997, AND 1996
SUPPLEMENTAL CASH FLOW INFORMATION:
1998 1997 1996
-------- -------- --------
Interest paid $451,000 $469,000 $793,000
------------- ======== ======== ========
Supplemental schedule of non-cash investing and financing activities:
- ---------------------------------------------------------------------
Long-term debt of $45,486 in 1998 and $380,000 in 1997 was incurred to finance
capital expenditures of $70,849 in 1998 and $535,963 in 1997.
On January 1, 1998, the Company sold all of the common stock of Ocean West
Builders, Inc. for $66,678, which after deducting the cash of Ocean West
Builders, Inc., provided net proceeds to the Company of $30,207. The sale
resulted in the following decreases to assets and liabilities: accounts
receivable- $8,847; contracts receivable- $300,175; prepaid expenses-
$13,553; property and equipment- $44,041; accumulated depreciation- $6,687;
accounts payable- $260,446; accrued expenses- $28,286; billings in excess of
costs- $21,983; notes payable- $19,007
During the year ended June 30, 1998, the Company sold miscellaneous assets for
cash proceeds of $26,950 and extinguished an account payable of $23,000. The
sale reduced property and equipment by $77,980 and accumulated depreciation
by $38,309.
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.
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.
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 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.
The sale of undeveloped land in January 1996 for cash of $160,401 resulted in a
decrease in undeveloped land of $40,000.
See accompanying notes to consolidated financial statements.
A - 19
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
1. Summary of significant accounting policies and practices:
Description of business- The Company, primarily through its subsidiaries, owns
and operates two bowling centers, an apartment project (50% owned), one
office building, a construction company (sold in January 1998), 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.
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 $1,011,343 and $595,412 at June 30, 1998 and 1997,
respectively.
Inventories - Inventories are stated at the lower of cost (first-in,
first-out) or market.
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. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in the
period that includes the enactment date.
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 was amortized over 5 years on the
straight-line method and is fully amortized as of June 30, 1998.
Valuation impairment - SFAS No. 121,"Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" 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 (undiscounted and without interest) 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.
A - 20
<PAGE>
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, cash equivalents, accounts receivable and accounts payable - the
carrying amount reported in the balance sheet approximates the fair
value due to their short-term maturities.
Notes receivable- The aggregate carrying value of notes receivable reported
in the balance sheet approximates the fair value. The fair value was
determined by discounting future cash flows using interest rates for
similar types of borrowing arrangements
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, 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.
Income (loss) Per Share - In 1997, the Financial Accounting Standards Board
issued Statement No. 128, "Earnings per Share" (SFAS No. 128). SFAS No. 128
replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. All
earnings per share amounts for all periods have been presented to conform to
SFAS No. 128 requirements. No prior period earnings per share amounts were
restated as a result of implementing SFAS No. 128.
Basic earnings per share is computed by dividing earnings (loss) by the
weighted average number of common shares outstanding during each period.
Diluted earnings per share is computed by dividing the amount of earnings
(loss) for the period by each share that would have been outstanding
assuming the issuance of common shares for all potentially dilutive
securities outstanding during the reporting period. The Company currently
has no potentially dilutive securities outstanding. The weighted average
shares used for basic and diluted earnings per share computation was
27,250,000 for each of the years in the three-year period ended June 30,
1998.
Reclassifications - Certain reclassifications have been made to the prior
years financial statements to conform to the classifications used in 1998.
2. Inventories:
Inventories consist of the following:
1998 1997
---- ----
Raw materials $121,548 $29,614
Work in process 111,837 25,106
Finished goods 69,210 34,398
-------- -------
$302,595 $89,118
======== =======
A - 21
<PAGE>
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 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 became
sufficient to support the payment of their obligations or as the
principal balance was paid. The note was paid in full in June 1998 and
the balance of the deferred gain of $716,025 was recognized in the year
ended June 30, 1998.
(b) Affiliate - The Company made unsecured loans to Harold S. Elkan, the
Company's President and, indirectly, the Company's majority shareholder,
and recorded interest income of $43,135, $42,267, and $45,812 in 1998,
1997, and 1996, respectively. The balance of $523,408 at June 30, 1998
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 until maturity. 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, 1998) 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 $1,126,197 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 $216,801 in 1998, $192,383 in 1997, and $176,744 in 1996.
(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, 1998 and 1997:
1998 1997
----------- -----------
Lake of Ozarks, MO ....... $ 281,629 $ 281,629
Temecula, CA ............. 3,793,014 3,793,014
Less provision for
impairment loss ....... (2,409,000) (2,409,000)
----------- -----------
$ 1,665,643 $ 1,665,643
=========== ===========
(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, 1998 and 1997.
(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>
(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 of undeveloped land in Temecula,
California. The carrying value of the property consists of:
1998 1997
---------- -----------
Acres................................ 33 33
Acquisition cost..................... $ 2,142,789 $ 2,142,789
Capitalized assessment district costs 1,434,315 1,434,315
Other development planning costs..... 215,910 215,910
Provision for impairment loss........ ( 2,409,000) ( 2,409,000)
----------- -----------
$ 1,384,014 $ 1,384,014
=========== ===========
The 33 acres of land 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.
The payments continue through the year 2014 and include interest at
approximately 7-3/4 percent. OVP has been delinquent in the payment of
property taxes and assessments for the last six years. The property is
currently subject to default judgments to the County of Riverside,
California totaling approximately $1,647,054 regarding delinquent
assessment district payments ($1,159,326) and property taxes ($487,728).
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 County did not attempt to sell the property at public sale
in 1998.
On March 18, 1997, the County sold a 7-acre parcel, which had been owned by
OVP and subject to default judgements for delinquent assessment district
and property tax payments, at public-sale for delinquent property taxes
totaling $22,770 and the buyer assumed the delinquent 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 taxes extinguished and assessment
district obligations assumed.
The principal balance of the allocated portion of the assessment district
bonds ($1,160,500), and delinquent principal, interest and penalties
($1,159,326) are classified as "Assessment district obligation- in default"
in the consolidated balance sheet at June 30, 1998. In addition, accrued
property taxes in the balance sheet at June 30, 1998 includes $487,728 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 obligations that were
allocated in 1989 based on a higher "commercial" use. Since the assessment
district obligations 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, 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. A stipulation
was entered that dismissed this suit without prejudice and agreed to toll
all applicable statute of limitations while OVP and the City of Temecula
attempted to informally resolve this litigation. 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>
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 during the
year ended 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, 1998 and 1997:
1998 1997
--------- -----------
Deferred lease costs:
Subleasehold interest .............. $ 111,674 $ 111,674
Less accumulated amortization .... (29,897) (28,001)
Lease inception fee ................ 232,995 232,995
Less accumulated amortization .... (46,575) (9,291)
--------- -----------
268,197 307,377
--------- -----------
Deferred loan costs .................. 85,137 137,137
Less accumulated amortization .... (38,319) (66,864)
--------- -----------
46,818 70,273
--------- -----------
Goodwill ............................. -- 1,345,362
Less accumulated amortization .... -- (1,076,291)
Less provision for impairment loss -- (199,113)
--------- -----------
-- 69,958
--------- -----------
$ 315,015 $ 447,608
========= ===========
(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 $136,000 per year for the remaining term of 45 years
(aggregate of $6,145,000) 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 $160,000 per year for the remaining
term of 45 years (aggregate of $7,200,000). 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 then remaining lease term of 75 months.
(c) Goodwill relates to two bowling centers acquired in August 1993 and was
amortized over 5 years. In the year ending June 30, 1997, the Company
recorded a $199,113 provision for impairment loss related to the
unamortized balance of goodwill for one of the bowling centers. The
balance of goodwill was amortized in the year ended June 30, 1998.
A - 24
<PAGE>
6. Investments:
(a) Investments consist of the following:
1998 1997
------------ ------------
Accounted for on the equity method:
Investment in UCV, L.P. ............... $(12,280,101) $(10,083,802)
Vail Ranch Limited Partnership ........ 1,172,018 1,974,193
------------ ------------
(11,108,083) (8,109,609)
Less Investment in UCV, L.P. classified
as liability- Distributions received
in excess of basis in investment .... 12,280,101 10,083,802
------------ ------------
1,172,018 1,974,193
Accounted for on the cost basis:
All Seasons Inns, La Paz .............. 37,926 37,926
------------ ------------
Total investments ................... $ 1,209,944 $ 2,012,119
============ ============
The following is a summary of the equity in income (loss) of the
investments accounted for by the equity method:
1998 1997 1996
---------- --------- --------
UCV, L.P. ........ $ 343,121 $ 301,478 $104,450
Vail Ranch Limited
Partnership .. 1,450,336 (130,510) --
---------- --------- --------
$1,793,457 $ 170,968 $104,450
========== ========= ========
(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):
1998 1997 1996
----------- ----------- -----------
Total assets .................... $ 1,765,000 $ 2,062,000 $ 2,587,000
Total liabilities ............... 20,110,000 20,169,000 20,204,000
Revenues ........................ 4,491,000 4,353,000 4,169,000
Operating and general and
administrative costs........... 1,520,000 1,429,000 1,465,000
Redevelopment planning costs .... 6,000 24,000 186,000
Depreciation .................... 176,000 194,000 194,000
Interest and amortization expense 2,103,000 2,103,000 2,115,000
Net income ...................... 686,000 603,000 209,000
The apartment project is managed by the Company, which recognized
management fee income of $113,755, $111,828, and $108,233 in the
twelve-month periods ended June 30, 1998, 1997, and 1996, respectively.
A reconciliation of distributions received in excess of basis in UCV as of
June 30 is as follows:
1998 1997
------------ ------------
Balance, beginning .............. $ 10,083,802 $ 9,828,360
Equity in income ................ (343,121) (301,478)
Cash distributions .............. 2,486,000 503,500
Amortization of purchase price in
excess of equity in net assets 53,420 53,420
------------ ------------
Balance, ending ................. $ 12,280,101 $ 10,083,802
============ ============
A - 25
<PAGE>
(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). The
other partner in OVP holds a liquidating limited partnership interest which
entitles him to 50 percent of future distributions up to $2,450,000, of
which $450,000 was paid during the year ended June 30, 1998. Under certain
circumstances, which have not yet occurred, the Company may have to make an
additional minimum distribution of $50,000 in September 1999. This limited
partner's capital account balance 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, 1998 and 1997:
1998 1997
---------- ----------
Assets:
Undeveloped land (Note 4c) .... $1,384,014 $1,384,014
Investment in Vail Ranch
Limited Partnership ......... 1,172,018 1,974,193
Liabilities
Assessment district
obligation-in-default ....... 2,319,826 2,097,982
Accrued property taxes ........ 487,728 399,140
Minority interest in subsidiary 1,762,677 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. During the fiscal year ended June 30, 1997, VRLP constructed a
107,749 square foot retail complex which utilized approximately 14 of the
27 developable acres. On January 1, 1998, VRLP sold the retail complex for
$9,500,000. On August 7, 1998, VRLP executed a limited liability company
operating agreement with the buyer of the retail center to develop the
remaining 13 acres. VRLP, as a 50 percent member and the manager,
contributed the remaining 13 acres of developable land at an agreed upon
value of $2,000,000 and the other member contributed cash of $1,000,000,
which was distributed to VRLP as a capital distribution. The Company
recorded a provision for impairment loss of $480,000 in June 1998 to reduce
the carrying value of its investment in VRLP to reflect an amount equal to
the estimated distributions the Company would receive based on the
estimated fair market value of VRLP's assets and liabilities as of June 30,
1998.
As a result of the sale of the property in January 1998, OVP received
distributions totaling $1,772,511 in the year ended June 30, 1998. OVP
received an additional distribution of $575,600 in August 1998 related to
the distribution VRLP received from the limited liability company.
Hereafter, VRLP's partnership agreement provides for OVP to receive 60
percent of future distributions, income and loss.
A - 26
<PAGE>
The following is summarized financial information of VRLP as of June 30,
1998 and 1997 and for the years then ended:
1998 1997
---------- ------------
Assets:
Operating property:
Land .................... $ -- $ 744,000
Buildings and
improvements .......... -- 5,842,000
Deferred costs .......... -- 829,000
Accumulated depreciation
and amortization ...... -- (108,000)
Land held for development . 3,454,000 3,250,000
Other assets .............. 37,000 570,000
Total assets .......... 3,491,000 11,127,000
Liabilities:
Accounts payable .......... 45,000 985,000
Construction loan payable . -- 5,779,000
Assessment district
obligation .............. 1,508,000 2,559,000
Total liabilities ..... 1,553,000 9,323,000
Partners' capital ......... 1,938,000 1,804,000
Revenues .................... 640,000 128,000
Gain on sale of property, net 3,107,000 60,000
Net income (loss) ........... 2,762,000 (292,000)
The following is a reconciliation of the investment in Vail Ranch Limited
Partnership:
1998 1997
----------- -----------
Balance, beginning .......... $ 1,974,193 $ 2,182,087
Distributions ............... (1,772,511) (77,384)
Provision for impairment loss (480,000) --
Equity in net income (loss) . 1,450,336 (130,510)
----------- -----------
Balance, ending ............. $ 1,172,018 $ 1,974,193
=========== ===========
(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>
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
-----------
Revenues .................... $ 1,154,527
Bowling costs ............... 699,475
Selling, general and
administrative:
Direct .................... 248,899
Allocated ................. 58,000
Depreciation ................ 58,681
Interest .................... 93,044
Loss excluding gain from sale (3,572)
(e) Other investment:
The Company owns 6 percent limited partnership interests 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, 1998 and 1997 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.
A - 28
<PAGE>
7. Long-term debt:
(a) Long-term debt consists of the following:
<TABLE>
1998 1997
---------- ---------
<S> <C> <C>
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 November 2004. 1,158,325 1,171,380
10-3/4% note payable collateralized by partnership
interest in Old Vail Partners (OVP), principal is due
in monthly payments of $6,458 plus interest at a
variable rate (prime plus 1-1/2 points) adjusted
monthly. The loan is guaranteed by Harold S. Elkan.
The was due in November 1998, however, in connection
with a required principal payment of $400,000 from
distributions received from OVP, the loan was
extended to July 2001. 232,506 695,662
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. 80,673 85,418
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. 1,849,921 1,925,035
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. -- 158,246
8-1/2% note payable, unsecured, due in monthly
installments of $3,060 of principal and interest. -- 41,205
9-1/2% notes payable, unsecured, due in monthly
installments of $4,895 including principal and
interest. -- 54,075
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. 241,063 310,043
Other 72,295 101,923
----------- -----------
3,634,783 4,542,987
Less current maturities ( 347,000) ( 481,000)
----------- -----------
$ 3,287,783 $ 4,061,987
=========== ===========
</TABLE>
The values of property and equipment as collateral for the notes are
listed at historical cost less valuation adjustments.
The principal payments due on notes payable during the next five fiscal
years are as follows: $347,000 in 1999, $284,000 in 2000, $1,874,000 in
2001, $40,000 in 2002, and $23,000 in 2003.
(b) The Company had a $200,000 revolving line of credit that expired on
November 1, 1997. Amounts drawn on the line of credit bore interest on
amounts drawn at the bank's base rate plus three percentage points (11%
at June 30, 1997). The Company's borrowings from this line of credit
averaged $192,000 during the year ended June 30, 1996. The Company did
not utilize the line of credit in the year ended June 30, 1998 or 1997.
A - 29
<PAGE>
(c) In November 1997, the Company entered into a short-term loan agreement
with Loma Palisades, Ltd. (Loma), an affiliate of the Company's partner
in UCV, whereby Loma would lend the Company up to $800,000. The loan
bore interest at "Wall Street" prime rate plus 1 percent on the amounts
drawn. Interest was payable monthly , the principal was due within 30
days of demand and the agreement expired in May 1998. During the year
ended June 30, 1998, the Company borrowed $400,000, which was paid in
January and May 1998. The Company's borrowings from this short term loan
averaged $115,000 during the year ended June 30, 1998.
(d)In March 1997 the Company borrowed $250,000 on an unsecured note payable
that was due in monthly payments of interest only at 11 percent per annum.
The note was paid in full in May 1998.
8. Commitments and contingencies:
(a) The Company leases one of its two bowling centers (Grove) under an
operating lease. 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
1999 through 2003 and $1,800,000 in the aggregate. 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
1998, 1997 and 1996.
The Company also leases its golf shaft manufacturing plant under an
operating lease it assumed on January 21, 1997 and expires November
1998. Rental expense for this facility was $43,822 in 1998 and 19,134 in
1997.
(b) The Company's employment agreement with Harold S. Elkan expired on
January 1, 1998, however the Company is continuing to honor the terms of
the agreement until such time as it is able to negotiate a new contract.
The agreement 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, 1998, his annual salary
was $250,000.
(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, 1998, 1997 and 1996, 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, 1998, the Company had net operating loss carry-forwards of
$10,886,000 for income tax purposes. The carryforwards expire from years 2000
to 2018. 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, 1998 and 1997.
A - 30
<PAGE>
The following is a reconciliation of the normal expected federal income tax
rate of 34 percent to the income (loss) in the financial statements:
1998 1997 1996
--------- ----------- ---------
Expected federal income tax .... $(314,000) $(1,144,000) $ 193,000
Increase (decrease) in valuation
allowance ................... 284,000 1,171,000 (105,000)
Other .......................... 30,000 (27,000) (88,000)
--------- ----------- ---------
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, 1998 and
1997:
1998 1997
----------- ----------
Deferred tax assets (liabilities):
Net operating loss carryforwards $ 3,701,000 $2,732,000
Accumulated depreciation and
amortization .................. 505,000 420,000
Deferred gain ................... -- 243,000
Valuation for impairment losses . 1,014,000 919,000
Other ........................... (396,000) 226,000
----------- ----------
Total net deferred tax assets.. 4,824,000 4,540,000
Less valuation allowance ...... (4,824,000) (4,540,000)
----------- ----------
Net deferred tax assets ............ $ -- $ --
=========== ==========
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 45 years which commenced in 1981 and 1982 (see Note 5).
The approximate future minimum rentals for existing non-cancelable leases on
the office building are as follows: $248,000 in 1999, $215,000 in 2000,
$99,000 in 2001, none thereafter, and $562,000 in the aggregate.
The following is a schedule of the Company's investment in rental property
included in property and equipment as of June 30, 1998 and 1997:
1998 1997
----------- -----------
Land ................... $ 258,000 $ 258,000
Building ............... 773,393 773,393
Tenant improvements .... 135,975 69,483
----------- -----------
1,167,368 1,100,876
Accumulated depreciation (292,761) (236,740)
----------- -----------
$ 874,607 $ 864,136
=========== ===========
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. The golf shaft manufacturing segment commenced in
January 1997 when the Company acquired a small golf shaft manufacturer. The
construction segment was disposed of on January 1, 1998 (see Note 12). 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 - 31
<PAGE>
The following is summarized information about the Company's operations by
business segment.
<TABLE>
Real Real
Estate Estate Unallocated
Bowling Operation Development Golf And Other Totals
----------- --------- ------------ ----------- ----------- ------------
YEAR ENDED JUNE 30, 1998
------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues ............... $ 2,810,862 $ 560,029 $ -- $ 241,636 $ 260,468 $ 3,872,995
Depreciation and
amortization ......... 288,433 121,585 -- 79,224 49,743 538,985
Impairment losses ...... -- -- 480,000 -- -- 480,000
Interest expense ....... 208,035 133,137 229,036 29,726 94,084 694,018
Equity in income of
investees ............ -- 343,121 1,450,336 -- -- 1,793,457
Recognition of deferred
gain ................. -- -- -- -- 716,025 716,025
Segment profit (loss) .. (474,560) 379,033 584,558 (2,105,278) 348,646 (1,267,601)
Investment income ...... -- -- -- -- -- 372,077
Loss from continuing
operations........... -- -- -- -- -- (895,524)
Segment assets ......... 2,139,412 1,060,142 2,882,781 1,211,407 2,154,911 9,448,653
Expenditures for
segment assets ....... 3,200 66,492 -- 199,121 52,670 321,483
YEAR ENDED JUNE 30, 1997
------------------------
Revenues ............... 3,114,016 567,476 -- 67,260 256,748 4,005,500
Depreciation and
amortization ......... 507,382 116,488 -- 1,017 35,629 660,516
Impairment losses ...... 234,248 -- 2,409,000 -- -- 2,643,248
Interest expense ....... 246,866 134,545 242,195 6,494 85,927 716,027
Equity in income (loss)
of investees ......... -- 301,478 (130,510) -- -- 170,968
Gain (loss) on
disposition .......... 1,154,514 -- (468,268) -- -- 686,246
Segment profit (loss) .. 304,954 363,629 (3,422,112) (574,516) (389,725) (3,717,770)
Investment income ...... -- -- -- -- -- 370,762
Loss from continuing
operations ........... -- -- -- -- -- (3,347,008)
Segment assets ......... 2,850,122 1,394,357 3,642,459 683,070 829,784 9,399,792
Segment assets-
discontinued ......... -- -- -- -- -- 533,963
Expenditures for
segment assets ....... 20,534 20,276 -- 228,477 88,722 358,009
YEAR ENDED JUNE 30, 1996
------------------------
Revenues ............... 7,452,834 562,188 -- -- 184,371 8,199,393
Depreciation and
amortization ......... 825,196 119,362 -- -- 34,558 979,116
Interest expense ....... 568,400 135,684 247,184 -- 132,866 1,084,134
Equity in income of
investees ............ -- 104,450 -- -- -- 104,450
Reversal of accrued
liability ............ -- -- 769,721 -- -- 769,721
Gain on disposition .... 1,102,226 -- 120,401 -- 21,422 1,244,049
Segment profit (loss) .. 198,777 149,238 457,147 -- (588,824) 216,338
Investment income ...... -- -- -- -- -- 300,973
Income from continuing
operations ........... -- -- -- -- -- 517,311
Segment assets ......... 5,791,400 1,470,749 6,921,340 -- 1,586,142 15,769,631
Segment assets-
discontinued ......... -- -- -- -- -- 675,450
Expenditures for
segment assets ....... 37,757 4,164 -- -- 6,690 48,611
</TABLE>
1998 1997 1996
----------- ----------- -----------
Revenues per segment schedule $ 3,872,995 $ 4,005,500 $ 8,199,393
Intercompany rent eliminated (59,244) (54,214) (53,184)
----------- ----------- -----------
Consolidated revenues ....... $ 3,813,751 $ 3,951,286 $ 8,146,209
=========== =========== ===========
A - 32
<PAGE>
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 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 and 1996:
1997 1996
----------- -----------
Revenues ........... $ 349,075 $ 3,469,368
Bowling costs ...... 254,846 2,159,023
Selling, general and
administrative:
Direct .......... 10,117 787,122
Allocated ....... 20,100 212,700
Depreciation ....... 18,488 222,370
Interest expense ... 7,511 175,774
Income (loss) ...... 38,013 (87,621)
(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, and 1996:
1997 1996
-------- --------
Revenues ....... $ 25,603 $ 73,948
Bowl costs ..... 18,338 67,112
Depreciation ... -- 38,677
Interest expense 7,977 12,425
Income (loss) .. (712) (42,266)
(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 cash
purchase price of $172,071 was allocated to 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 years ended June 30:
1998 1997
----------- -----------
Revenues ................. $ 241,636 $ 67,260
Golf costs ............... 776,780 171,493
Selling, general and
administrative-direct .. 1,289,184 344,772
Selling, general and
administrative-allocated 172,000 118,000
Depreciation ............. 79,224 1,017
Interest expense ......... 29,726 6,494
Net loss ................. $(2,105,278) $ (574,516)
A - 33
<PAGE>
(d)On January 1, 1998, the Company sold the stock of Ocean West Builders,
Inc. (OWB) to Michael Assof, its president and licensed contractor.
The sale price of $66,678 equaled the carrying value of the Company's
investment in OWB. The following are the results of operations of OWB
for the six months ended December 31, 1997 and for the years ended
June 30, 1997 and 1996, which are presented in the consolidated
statements of operations as discontinued operations. Prior year
results have been restated to conform to this method of presentation.
1998 1997 1996
----------- ----------- -----------
Revenues .................... $ 1,359,879 $ 3,163,855 $ 2,008,073
Costs ....................... 1,215,857 2,785,471 1,734,261
Selling, general and
administrative-direct...... 116,819 312,796 168,076
Selling, general and
administrative-allocated... 49,000 76,000 46,000
Depreciation ................ 4,193 6,451 6,285
Interest expense ............ 980 1,538 1,898
Net income (loss) from
discontinued operations .... ($26,970) ($18,401) $51,553
Basic and diluted net income
(loss) per common share
from discontinued operations ($ .00) ($ .00) $ .00
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. The Company's ability to continue as a going concern is
dependent on either refinancing or selling certain real estate assets or
increases in the sales volume of Penley.
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 (the "Company") as of June 30, 1998 and 1997, and the
related consolidated statements of operations, shareholders' deficit and cash
flows for each of the years in the three-year period ended June 30, 1998. 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 1998, 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 shareholders' deficit, 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 30, 1998
<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 & Egan, 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 - 35
<PAGE>
PROXY FOR 1998 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, 1998,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.
