UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to ______________
Commission File Number 0-2380
SPORTS ARENAS, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-1944249
(State of Incorporation) (I.R.S. Employer I.D. No.)
5230 Carroll Canyon Road, Suite 310, San Diego, California 92121
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (619) 587-1060
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days. Yes: X No:__
The number of shares outstanding of the issuer's only class of common stock
($.01 par value) as of April 30, 1998 was 27,250,000 shares.
<PAGE>
SPORTS ARENAS, INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 1998
INDEX
Part I - Financial Information:
Item 1.- Consolidated Condensed Financial Statements:
Balance Sheets as of March 31, 1998 and June 30, 1997 ............ 1-2
Statements of Operations for the Three Months Ended
March 31, 1998 and 1997 .................................... 3
Statements of Operations for the Nine Months Ended
March 31, 1998 and 1997 .................................... 4
Statements of Cash Flows for the Nine Months Ended
March 31, 1998 and 1997 .................................... 5-6
Notes to Financial Statements .................................... 7-10
Item 2.- Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................. 11-14
Part II - Other Information ........................................... 15
Signature ............................................................. 16
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
------------ -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $362,084 $821,513
Current portion of notes receivable 25,000 25,000
Current portion of notes receivable-affiliate 50,000 50,000
Construction contract receivables - 384,732
Other receivables 146,442 82,972
Costs in excess of billings on uncompleted contracts - 17,462
Inventories 142,392 89,118
Prepaid expenses 171,249 138,583
------------ -----------
Total current assets 897,167 1,609,380
------------ -----------
Receivables due after one year:
Note receivable 672,645 728,838
Less deferred gain (672,645) (716,025)
Note receivable- Affiliate 549,893 539,306
Note receivable- Other 18,835 35,477
------------ -----------
568,728 587,596
Less current portion (75,000) (75,000)
------------ -----------
493,728 512,596
------------ -----------
Property and equipment, at cost:
Land 678,000 678,000
Buildings 2,461,327 2,461,327
Equipment and leasehold and tenant improvements 1,979,665 1,752,244
------------ -----------
5,118,992 4,891,571
Less accumulated depreciation and amortization (1,551,471) (1,291,861)
------------ -----------
Net property and equipment 3,567,521 3,599,710
------------ -----------
Other assets:
Undeveloped land, at cost 1,665,643 1,665,643
Intangible assets, net 348,161 447,608
Investments 1,783,608 2,012,119
Other 98,778 86,699
------------ -----------
3,896,190 4,212,069
------------ -----------
$8,854,606 $9,933,755
============ ===========
</TABLE>
1
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
------------ -----------
(Unaudited)
<S> <C> <C>
Current liabilities:
Assessment district obligation-in default $2,260,802 $2,097,982
Current portion of long-term debt 369,000 481,000
Notes payable, short-term 400,000 250,000
Accounts payable 629,094 738,185
Accrued payroll and related expenses 55,718 116,249
Accrued property taxes 481,925 408,784
Accrued interest 27,596 29,353
Accrued frequent bowler program expense 60,059 60,239
Other liabilities 242,250 147,324
------------ -----------
Total current liabilities 4,526,444 4,329,116
------------ -----------
Long-term debt, excluding current portion 3,830,709 4,061,987
------------ -----------
Distributions received in excess of basis in investment 10,177,008 10,083,802
------------ -----------
Tenant security deposits 24,062 27,847
------------ -----------
Minority interest in consolidated subsidiary 1,812,677 2,212,677
------------ -----------
Commitments and contingencies (Note 4)
Shareholders' equity (deficiency):
Common stock, $.01 par value, 50,000,000 shares
authorized, 27,250,000 shares issued
and outstanding 272,500 272,500
Additional paid-in capital 1,730,049 1,730,049
Accumulated deficit (11,395,438)(10,813,818)
------------ -----------
(9,392,889) (8,811,269)
Less note receivable from shareholder (2,123,405) (1,970,405)
------------ -----------
Total shareholders' equity (deficiency) (11,516,294)(10,781,674)
------------ -----------
$8,854,606 $9,933,755
============ ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revenues:
Bowling $790,850 $ 761,338
Rental 119,763 130,408
Construction -- --
Golf 49,359 22,425
Other 49,176 32,786
Other-related party 28,262 28,005
----------- -----------
1,037,410 974,962
----------- -----------
Costs and expenses:
Bowling 499,111 457,751
Rental 63,467 57,272
Construction -- --
Golf 256,734 45,609
Development 41,709 53,546
Selling, general, and administrative 769,932 424,691
Depreciation and amortization 134,245 160,940
----------- -----------
1,765,198 1,199,809
----------- -----------
Loss from operations (727,788) (224,847)
----------- -----------
Other income (charges):
Investment income:
Related party 61,243 59,560
Other 39,687 43,862
Interest expense related to development activities (51,898) ( 55,033)
Interest expense and amortization of finance costs (114,085) ( 111,355)
Equity in income of investees 1,624,359 82,793
Recognize deferred gain 43,380 --
Gain on sale, other 9,175 --
Loss on disposition of undeveloped land -- (468,268)
----------- -----------
1,611,861 (448,441)
----------- -----------
Income (loss) from continuing operations 884,073 (673,288)
Loss from discontinued operations (Note 5b) -- (19,008)
----------- -----------
Net income (loss ) 884,073 $ (692,296)
=========== ===========
Per common share (based on weighted average
shares outstanding):
Income (loss) from continuing operations $0.03 ($0.02)
===== =======
Net income (loss) $0.03 ($0.02)
===== =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
1998 1997
---- ----
Revenues:
Bowling $2,106,492 $2,429,146
Rental 367,606 382,552
Golf 133,262 22,425
Other 100,760 94,618
Other-related party 85,145 83,435
----------- -----------
2,793,265 3,012,176
----------- -----------
Costs and expenses:
Bowling 1,497,405 1,715,359
Rental 184,830 176,235
Golf 514,752 45,609
Development 115,407 121,005
Selling, general, and administrative 2,234,674 1,189,233
Depreciation and amortization 401,723 497,437
----------- -----------
4,948,791 3,744,878
----------- -----------
Loss from operations (2,155,526) (732,702)
----------- -----------
Other income (charges):
Investment income:
Related party 185,046 173,410
Other 73,693 109,658
Interest expense related to development activities (162,820) (192,345)
Interest expense and amortization of finance costs (355,457) (357,557)
Equity in income of investees 1,802,859 210,240
Gain on sale, other 9,175 --
Recognized deferred gain 43,380 --
Loss on disposition of undeveloped land -- (468,268)
Gain on sale of bowling centers -- 1,154,514
----------- -----------
1,595,876 629,652
----------- -----------
Loss from continuing operations (559,650) (103,050)
Loss from discontinued operations (Note 5b) (21,970) (30,285)
----------- -----------
Net loss $ (581,620) $ (133,335)
=========== ===========
Per common share (based on weighted average
shares outstanding):
Loss from continuing operations ($0.08) ($0.00)
======= =======
Net loss ($0.08) ($0.00)
======= =======
See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
1998 1997
---- ----
Cash flows from operating activities:
Net loss ($581,620) ($133,335)
Adjustments to reconcile net income (loss) to the
net cash provided (used) by operating activities:
Amortization of deferred financing costs and 17,595 22,879
discount
Depreciation and amortization 405,916 502,250
Undistributed income of investees (1,802,859) (210,240)
Interest income accrued on note receivable from
shareholder (153,000) (141,114)
Interest accrued on assessment district
obligations 162,820 154,925
Recognized deferred gain (43,380) --
Gain on sale (10,279) (686,246)
Changes in assets and liabilities:
Decrease in receivables 12,240 109,455
Decrease in costs in excess of billings 39,445 9,075
Increase in inventories (53,274) (1,567)
Increase in prepaid expenses (46,219) (9,114)
Increase in accounts payable 151,355 145,239
Decrease in accrued expenses 133,885 (282,132)
Other 4,743 26,955
----------- -----------
Net cash used by operating activities (1,762,632) (492,970)
----------- -----------
Cash flows from investing activities:
Increase in notes receivable 62,248 80,233
Other capital expenditures (280,956) (243,121)
Acquisition of Penley Sports -- (172,071)
Proceeds from sale of bowling centers -- 2,052,185
Proceeds from sale of Ocean West Builders 30,207 --
Proceeds from sale of other assets 26,950 10,000
Contributions to investees -- (30,000)
Distributions from investees 2,084,511 512,990
Payments to holder of minority interest (400,000) --
----------- -----------
Net cash provided by investing activities 1,522,960 2,210,216
----------- -----------
Cash flows from financing activities:
Scheduled principal payments (369,757) (871,489)
Proceeds from short term debt 400,000 --
Payments on short-term debt (250,000) --
Other -- (8,270)
----------- -----------
Net cash used by financing activities (219,757) (879,759)
----------- -----------
Net increase (decrease) in cash and equivalents (459,429) 837,487
Cash and cash equivalents, beginning of year 821,513 1,093,465
----------- -----------
Cash and cash equivalents, end of year $362,084 $1,930,952
=========== ===========
5
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued)
NINE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
SUPPLEMENTAL CASH FLOW INFORMATION:
Supplemental Schedule of Non-Cash Investing and Financing Activities:
Long-term debt of $45,486 was incurred to finance capital expenditures of
$79,572 in 1997.
The sale of the stock of Ocean West Builders on January 1, 1998 for $67,678
resulted in the following decreases in assets and liabilities: Cash-$37,471,
contract and other receivables-$309,022, prepaid expenses-$13,553,
equipment-$44,041, accumulated depreciation-$6,687, accounts
payable-$260,446, accrued expenses-$28,236, billings in excess of
costs-$21,983, and notes payable-$19,007.
The sale of other assets for $26,950 resulted in decreases of $54,980 in
equipment and $38,309 in accumulated depreciation.
See accompanying notes to consolidated condensed financial statements.
6
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31 1998 AND 1997
(Unaudited)
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
(Unaudited)
1. The information furnished reflects all adjustments which management
believes are necessary to a fair statement of the Company's financial
position, results of operations and changes in cash flow for the interim
periods.
2. Due to the seasonal fluctuations of the bowling operations, the financial
results for the interim periods ended March 31, 1998 and 1997, are not
necessarily indicative of operations for the entire year.
3. Investments:
(a) Investments consist of the following:
March 31, June 30,
1998 1997
------------ -----------
Accounted for on the equity method:
Investment in UCV, L.P. $(10,177,008) $(10,083,802)
Vail Ranch Limited Partnership 1,745,682 1,974,193
------------ ------------
(8,431,326) (8,109,609)
Less Investment in UCV, L.P. classified
as liability-Distributions received in
excess of basis in investment 10,177,008 10,083,802
------------ ------------
1,745,682 1,974,193
------------ ------------
Accounted for on the cost basis:
All Seasons Inns, La Paz 37,926 37,926
------------ ------------
Total investments $ 1,783,608 $ 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
---------- ----------
UCV, L.P. $ 258,859 $ 210,240
Vail Ranch Limited Partnership 1,544,000 --
----------- -----------
$ 1,802,859 $ 210,240
=========== ===========
The following is a summary of distributions received from investees:
1998 1997
---- ----
UCV, L.P. $ 312,000 $ 393,500
All Seasons Inns -- 12,106
Vail Ranch Limited Partnership 1,772,511 107,384
----------- --------
$ 2,084,511 $ 512,990
=========== ========
(b) Investment in UCV, L.P.
The operating results of this investment are included in the accompanying
consolidated statements of operations based upon the partnership's fiscal
year (March 31). Summarized information from UCV, L.P.'s unaudited
statements of income for the nine-month periods ended December 31, 1997 and
1996 are as follows:
1997 1996
--------- ---------
Revenues $3,368,000 $3,250,000
Operating and general and
administrative costs 1,122,000 1,100,000
Depreciation 143,000 146,000
Interest expense 1,584,000 1,584,000
Net income 519,000 420,000
7
<PAGE>
(b) Investment in UCV, L.P. (continued):
On May 4, 1998, UCV paid off its existing $19,833,500 note payable with the
proceeds of a new loan of $25,000,000. The new loan is for a term of three
years and is payable in monthly payments of interest only for the first two
years and then in monthly payments of interest and principal based on a
25-year amortization schedule and the then adjusted interest rate. Interest
is adjusted monthly and based on Libor plus 200 basis points (approximately
7.64% as of May 12, 1998). The loan also provides for two 12-month
extensions upon meeting certain operating criteria. UCV used the remaining
$4,500,000 of proceeds after deducting approximately $500,000 of loan costs
to fund distributions of $2,000,000 to each of the two limited partners.
(c) Investment in Vail Ranch Limited Partners:
On January 1, 1998, Vail Ranch Limited Partners (VRLP) sold the developed
portion of the development for $9,500,000 to Excel Realty Trust, Inc.
(Excel), resulting in a gain of approximately $3,300,000. In addition, VRLP
entered into a joint venture agreement with Excel to develop the remaining
13 acres for which VRLP will receive a $1,000,000 distribution from the new
joint venture upon execution of the joint venture agreement, which is
expected in May 1998. VRLP is in the process of determining the total
distributions to be made from the sale proceeds, however, the Company
received partial distributions of $1,772,511. VRLP estimates that the
Company will receive an additional $600,000 in May 1998 when the final
distributions from the sales proceeds are calculated and the joint venture
agreement with Excel is consummated.
Pursuant to the agreement with the former limited partner in Old Vail
Partners, the Company paid $400,000 to the former partner as his share of
the amounts received from VRLP after deducting amounts due the Company for
advances.
4. Contingencies:
(a) Old Vail Partners (OVP), a consolidated subsidiary and 50 percent owned
by the Company, owns approximately 33 acres of undeveloped land that are
located within a special assessment district of the County of Riverside,
California (the County) which was created to fund and develop roadways,
sewers, and other required infrastructure improvements in the area
necessary for the owners to develop their properties. Property within the
assessment district is collateral for an allocated portion of the bonded
debt that was issued by the assessment district to fund the improvements.
The annual payments (made in semiannual installments) due related to the
bonded debt are approximately $144,000 for the 33 acres. The payments
continue through the year 2014 and include interest at approximately 7-3/4
percent. OVP is delinquent in the payment of property taxes and assessments
for the last five years. The property is currently subject to default
judgments to the County of Riverside, California totaling approximately
$1,520,538 regarding delinquent assessment district payments ($1,076,440)
and property taxes ($464,587).
The principal balance of the allocated portion of the assessment district
bonds ($1,184,362 at March 31, 1998 and $1,208,224 at June 30, 1997), and
delinquent principal, interest and penalties ($1,076,440 at March 31, 1998
and $889,758 at June 30, 1997) are classified as "Assessment district
obligation- in default" in the consolidated balance sheet. In addition,
accrued property taxes in the balance sheet include $464,587 at March 31,
1998 and $399,140 at June 30, 1997 of delinquent property taxes and late
fees related to the 33-acre parcel.
8
<PAGE>
(a) (continued):
In November 1993, the City of Temecula adopted a general development plan
that designated the property owned by OVP as suitable for "professional
office" use, which is contrary to its zoning as "commercial" use. As part
of the adoption of its general development plan, the City of Temecula
adopted a provision that, until the zoning is changed on properties
affected by the general plan, the general plan shall prevail when a use
designated by the general plan conflicts with the existing zoning on the
property. The result is that the City of Temecula has effectively
down-zoned OVP's property from a "commercial" to "professional office" use.
The property is subject to Assessment District liens that were allocated in
1989 based on a higher "commercial" use. Since the Assessment District
liens are not subject to reapportionment as a result of re-zoning, a
"professional office" use is not economically feasible due to the
disproportionately high allocation of Assessment District costs. OVP has
filed suit against the City of Temecula claiming that the City's adoption
of a general plan as a means of effectively re-zoning the property is
invalid. Additionally, OVP is claiming that, if the effective re-zoning is
valid, the action is a taking and damaging of OVP's property without
payment of just compensation. OVP is seeking to have the effective
re-zoning invalidated and an unspecified amount of damages. The outcome of
this litigation is uncertain. If the City of Temecula is successful in its
attempt to down-zone the property, the value of the property may be
significantly impaired.
(b) The Company is involved in other various routine litigation and disputes
incident to its business. In the management's opinion, based in part on the
advice of legal counsel, none of these matters will have a material adverse
affect on the Company's financial position.
5. Significant Events:
(a) Short term debt: The Company's $300,000 line of credit expired on
November 1, 1997 and was not renewed. 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 bears interest at "Wall Street" prime
rate plus 1 percent on the amounts drawn. Interest is payable monthly ,
the principal is due within 30 days of demand and the agreement will
expire upon consummation of new financing for UCV. As of March 31, 1998,
the Company had borrowed $450,000 of which $300,000 was repaid.
The balance was paid in May 1998 and the loan agreement expired in
conjunction with the closing of the new financing for UCV described in
Note 3b.
9
<PAGE>
(b)Effective January 1, 1998, the Company sold its wholly owned subsidiary,
Ocean West Builders, Inc. (OWB), to Michael Assof, OWB's president, for
67,676 cash. The sale price is subject to adjustment based on the profits
realized on jobs in progress at December 31, 1997. The following is a
summary of the results of OWB's operations for the three and nine month
periods ended March 31, 1998 and 1997, which are presented as discontinued
operations. Prior periods have been restated to include this business as
discontinued operations:
Three Months Nine Months
------------ ----------------
1998 1997 1998 1997
---- ------ -------- --------
Revenues -- 240,212 $1,361,485 $2,000,916
Construction costs -- 205,858 1,211,739 1,765,683
Selling general & administrative:
Direct -- 23,404 123,647 168,515
Allocated -- 28,000 44,000 91,000
Depreciation -- 1,585 4,193 4,813
Interest -- 373 980 1,190
Gain on sale of asset -- -- 1,104 --
Income (loss) from discontinued
operations -- (19,008) (21,970) (30,285)
The following is a summary of the assets and liabilities of OWB included in
the consolidated financial statements at June 30, 1997:
Cash 84,995
Accounts receivable 399,460
Costs in excess of billings 17,462
Prepaid expense 14,277
Equipment 35,117
Accumulated depreciation (17,348)
Accounts payable 325,675
Accrued expenses 40,162
Note payable 11,052
Advances from parent 134,829
Accumulated deficit 22,245
The Company will continue to provide administrative services to OWB and
receive a fee based on an allocation of its corporate overhead.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
Liquidity and Capital Resources
Excluding the balance of the assessment-district-obligation-in-default and
property taxes in default related to the same property which are included in
current liabilities, the Company has a working capital deficit of $903,888 at
March 31, 1998, which is a $681,274 increase from the similarly calculated
working capital deficit of $222,614 at June 30, 1997. The increase in the
working capital deficit is attributable to the cash used by operating activities
for the nine months ended March 31, 1998. The following is a schedule of the
cash provided (used) before changes in assets and liabilities, segregated by
business segments:
1998 1997 Change
--------- ---------- ----------
Bowling $ (177,000) $ (206,000) $ 29,000
Rental 120,000 130,000 (10,000)
Construction (19,000) (25,000) 6,000
Golf (1,625,000) (128,000) (1,497,000)
Development (121,000) (164,000) 43,000
General corporate expense and
other (183,000) (98,000) (85,000)
----------- ---------- ----------
Cash provided (used) by
operations (2,005,000) (491,000) (1,514,000)
Capital expenditures, net of
financing (281,000) (243,000) (38,000)
Principal payments on long-term
debt (370,000) (871,000) 501,000
----------- ---------- ----------
Cash used (2,656,000) (1,605,000) (1,051,000)
----------- ---------- ----------
Distributions received from
investees 1,685,000 513,000 1,172,000
Proceeds from sale of assets 30,000 2,052,000 (2,022,000)
As described in Note 4 of the Notes to Consolidated Condensed Financial
Statements, Old Vail Partners is delinquent in the payment of special assessment
district obligations and property taxes on 33 acres of undeveloped land. The
County of Riverside has obtained judgments for the defaults in assessment
district payments and property taxes. The amount due to cure the judgments as of
March 31, 1998 is $1,520,000. If the County of Riverside takes the property to
public sale and the judgments are not satisfied prior to the sale, Old Vail
Partners could lose title to the property and the property would not be subject
to redemption. Also as described in Note 4 of the Notes to Consolidated
Condensed Financial Statements, Old Vail Partners is contesting an attempt by
the City of Temecula to effectively down-zone the property. As a result of the
judgments and the attempts to down-zone the property, the recoverability of the
carrying value of this property is uncertain.
UCV, L.P. (UCV) is currently evaluating the feasibility of redeveloping the
apartment project from 542 units to approximately 1,100 units. In conjunction
with the planning for possible redevelopment and the September 1998 maturity of
UCV's long-term debt, on May 4, 1998, UCV paid the existing $19,833,500 note
payable with a portion of the proceeds from new long-term debt of $25,000,000.
After paying the note payable and loan costs, the net proceeds to UCV were
approximately $4,500,000. UCV made distributions of approximately $4,000,000 to
its partners of which the Company received $2,000,000.
On January 1, 1998, Vail Ranch Limited Partners (VRLP) sold the developed
portion of the development for $9,500,000 to Excel Realty Trust, Inc. (Excel).
In addition, VRLP entered into a joint venture agreement with Excel to develop
the remaining 13 acres for which VRLP will receive a $1,000,000 distribution
from the new joint venture upon execution of the joint venture agreement, which
is expected in May 1998. VRLP is in the process of determining the total
distributions to be made from the sale proceeds, however, the Company received a
partial distributions of $1,772,511. The Company estimates that it will receive
an additional $600,000 from the sales proceeds in May 1998 when the calculations
are finalized. In accordance with the partnership agreement for Old Vail
Partners (OVP), the Company paid $400,000 to OVP's limited partner in February
1998. The limited partner will be entitled up to an additional $120,000 when the
Company receives the remainder of the distribution from VRLP.
11
<PAGE>
Management estimates positive cash flow of $1,000,000 to $1,100,000 for the
remaining quarter of the year ending June 30, 1998 from operating activities
after adding estimated distributions from UCV ($2,172,000) and Vail Ranch
Limited Partners ($600,000 net of distribution to OVP limited partner) and
deducting capital expenditures and scheduled principal payments on long-term
debt and short-term debt. The debt payments include extinguishment of short-term
debt of $400,000 and a special principal payment of $400,000 on one of the
long-term notes payable as part of a proposed plan to extend the maturity date.
Results of Operations
The following is a summary of the comparison of the results of operations of the
nine and three-month periods ended March 31, 1998 to the same period in 1997:
<TABLE>
<CAPTION>
Real Real
Estate Estate Unallocated
Bowling Operation Development Golf And Other Totals
------- -------- ---------- ---- --------- ------
<S> <C> <C> <C> <C> <C> <C>
Nine Months Ended
- -----------------
Revenues ................. $ (322,654) $(11,592) -- $ 110,837 4,498 (218,911)
Costs .................... (217,954) 8,595 (5,598) 469,143 -- 254,186
SG&A-direct .............. (30,378) -- -- 1,018,803 10,016 998,441
SG&A-allocated ........... (82,854) (9,000) -- 97,000 41,854 47,000
Depreciation and
amortization ......... (168,459) 3,704 -- 58,592 10,449 (95,714)
Interest expense ......... (25,852) (993) (29,633) 23,009 1,844 (31,625)
Equity in investees ...... -- 48,619 1,544,000 -- -- 1,592,619
Gain (loss) on disposition (1,154,514) -- 468,268 1,225 51,330 (633,691)
Segment profit (loss) .... (951,671) 34,721 2,047,499 (1,554,485) (8,335) (432,271)
Investment income ........ (24,329)
Income from discontinued
operations ............. 8,315
Net loss ................. (448,285)
Three Months Ended
- ------------------
Revenues ................. 29,512 (10,069) -- 26,934 $ 16,071 62,448
Costs .................... 41,360 6,195 (11,837) 211,125 -- 246,843
SG&A-direct .............. 1,661 -- -- 288,799 26,781 317,241
SG&A-allocated ........... (41,727) (4,000) -- 36,000 37,727 28,000
Depreciation and
amortization ........... (50,602) (1,059) -- 21,271 3,695 (26,695)
Interest expense ......... (4,864) (339) (3,191) 7,108 881 (405)
Equity in investees ...... - (2,434) 1,544,000 -- -- 1,541,566
Gain (loss) on disposition - -- 468,268 1,225 51,330 520,823
Segment profit (loss)..... 83,684 (13,300) 2,027,296 (536,144) (1,683) 1,559,853
Investment income ........ (2,492)
Income from discontinued
operations ............. 19,008
Net income ............... 1,576,369
</TABLE>
BOWLING OPERATIONS:
- -------------------
On August 7, 1996, the Company sold its three bowling centers located in Georgia
and then on December 15, 1996, the Company sold the video game operations that
were located in the two San Diego bowling centers. The Company has no plans to
sell the two remaining bowling centers located in San Diego.
12
<PAGE>
The following is a summary of the changes to the components of the loss from
operations of the bowling segment during the nine and three-month periods ended
March 31, 1998 compared to 1997:
Georgia Video California
Bowls Games Bowls Combined
------- ------ ------- --------
Nine Months:
------------
Revenues (333,039) (25,603) 35,988 (322,654)
Bowl costs (254,846) (18,138) 55,030 (217,954)
Selling, general &
administrative:
Direct (104,483) -- 74,105 (30,378)
Allocated (39,889) -- (42,965) (82,854)
Depreciation (18,488) -- (149,971) (168,459)
Interest expense (20,301) (3,514) (2,037) (25,852)
Segment profit before
gain on sale 104,968 (3,951) 101,826 202,843
Three Months:
-------------
Revenues (252) -- 29,764 29,512
Bowl costs -- (1,151) 42,511 41,360
Selling, general &
administrative:
Direct (17,803) -- 19,464 1,661
Allocated -- -- (41,727) (41,727)
Depreciation -- -- (50,602) (50,602)
Interest expense -- (1,159) (3,705) (4,864)
Segment profit before
gain on sale 17,551 2,310 63,823 83,684
The following is a comparison of operations of the two remaining bowling centers
in California:
Bowling revenues increased 2% in the nine-month period and 4% in the three month
period. In each period the bowling centers experienced a 3-4% decline in league
revenues, however these decreases were offset in each period by 10-14% increases
in open play revenues. Management feels this will be a continuing trend through
the remainder of the year.
Bowl costs increased by 4% and 5% in the nine and three month periods,
respectively. Increases in payroll and related costs of $22,000 and $24,000 in
the nine and three month periods, respectively, were primarily attributable to
the increase in the minimum wage. The remainder of the increases in the nine and
three month periods were primarily attributable to increases in food and
beverage costs associated with the increase in snack bar revenues.
Selling, general and administrative expense directly related to the bowling
segment increased by 19% and 7% in the nine and three month periods
respectively. A portion of the increase in the nine month period is attributable
to a $38,000 increase in promotion of which $17,000 related to a credit recorded
in first quarter of 1996 when the Company discontinued its frequent bowler
program. The remaining $21,000 increase related to increases in other promotion
costs related to food and beverage comps and other promotional costs related to
special programs. The increase in the three month period was primarily
attributable to a one time charge of $10,000 for payroll related expenses.
Depreciation expense decreased by $50,602 and $149,971 in the three and nine
month periods, respectively, due to equipment and goodwill acquired in 1983,
when the bowls were purchased, becoming fully depreciated after the similar
periods in 1997.
RENTAL OPERATIONS:
- ------------------
There were no significant changes to the components of the rental segment in the
nine and three-month periods ended March 31, 1998 except for the $48,619
increase in the equity in income of UCV for the nine month period. The income of
UCV increased primarily due to a $118,000 increase in revenues in the nine month
period, which was attributable to a 2% increase in rent rates and a decrease in
the vacancy rate from 1.9% to 1.1%.
13
<PAGE>
CONSTRUCTION OPERATIONS:
- ------------------------
Effective January 1, 1998, the Company sold the stock of Ocean West Builders,
Inc. to its President, Michael Assof for $67,676 cash.
REAL ESTATE DEVELOPMENT OPERATIONS:
- -----------------------------------
Development costs and expenses primarily consists of legal costs incurred to
contest the City of Temecula's attempts to down-zone the undeveloped land owned
by Old Vail Partners. Interest expense related to development activities
primarily relates to interest accrued on the past due and current assessment
district obligations of Old Vail Partners. This interest expense decreased by
$29,633 and 3,191 in the nine and three-month periods, respectively, due to the
payment of a $340,000 note payable in April 1997. As described in Note 5c to the
consolidated condensed financial statements, Vail Ranch Limited Partners (VRLP)
sold the developed portion of the shopping center in January 1998 which resulted
in a gain of approximately $3,300,000. This resulted in an increase in income
from investees of $1,544,000.
GOLF OPERATIONS:
- ----------------
Sales during the nine and three-month periods ended March 31, 1998 continued to
be insignificant because the Company has not yet developed sales with golf club
manufacturers or distributors. The Company expects that it will be another three
to six months before the Company is able to develop sales with these types of
customers. Sales during the nine and three-month periods were principally to
custom golf shops. The following is a breakdown of the character of the costs
associated with the golf operation:
Nine Months Three Months
Costs of goods sold
& manufacturing overhead 325,000 174,000
Research & development 190,000 84,000
--------- ---------
Total golf costs 515,000 258,000
--------- ---------
Marketing & promotion 750,000 245,000
Administrative-direct 374,000 149,000
--------- ---------
Total SG&A-direct 1,124,000 394,000
--------- ---------
Allocated corporate costs 97,000 36,000
--------- ---------
14
<PAGE>
PART II
OTHER INFORMATION
-----------------
ITEM 1. Legal Proceedings
As of March 31, 1998, there were no changes in legal proceedings from
those set forth in Item 3 of the Form 10-K filed for the year ended June
30, 1997.
ITEM 2. Changes in Securities
NONE
ITEM 3. Defaults upon Senior Securities
N/A
ITEM 4. Submission of Matters to a Vote of Security Holder
On December 23, 1997 the Company held its annual shareholder meeting in
which the following item was voted upon:
Tabulation of Votes
---------------------------
For Against Abstain
--- ------- -------
Election of Directors:
Harold S. Elkan 22,932,896 105,399 105,054
Steven R. Whitman 22,932,296 105,699 105,354
Patrick D. Reiley 22,932,496 105,574 105,279
James E. Crowley 22,932,496 105,599 105,254
Robert A. MacNamara 22,932,496 105,574 105,279
ITEM 5. Other Information
NONE
ITEM 6. Exhibits & Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K: NONE
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPORTS ARENAS, INC.
By: /s/ Harold S. Elkan
------------------------
Harold S. Elkan, President and Director
Date: May 15, 1998
--------------------
By:/s/ Steven R. Whitman
------------------------
Steven R. Whitman, Treasurer,
Principal Accounting Officer and Director
Date: May 15, 1998
------------------
16
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 362,084
<SECURITIES> 0
<RECEIVABLES> 221,442
<ALLOWANCES> 0
<INVENTORY> 142,392
<CURRENT-ASSETS> 897,167
<PP&E> 5,118,992
<DEPRECIATION> 1,551,471
<TOTAL-ASSETS> 8,854,606
<CURRENT-LIABILITIES> 4,526,444
<BONDS> 0
0
0
<COMMON> 272,500
<OTHER-SE> 1,730,049
<TOTAL-LIABILITY-AND-EQUITY> 8,854,606
<SALES> 2,793,265
<TOTAL-REVENUES> 2,793,265
<CGS> 514,752
<TOTAL-COSTS> 4,948,791
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 518,277
<INCOME-PRETAX> (559,650)
<INCOME-TAX> 0
<INCOME-CONTINUING> (559,650)
<DISCONTINUED> (21,970)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (581,620)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
