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 September 30, 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 October 31, 1998 was 27,250,000 shares.
<PAGE>
SPORTS ARENAS, INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1998
INDEX
Part I - Financial Information:
Item 1.- Consolidated Condensed Financial Statements:
Balance Sheets as of September 30, 1998 and June 30, 1998......... 1-2
Statements of Operations for the Three Months Ended
September 30, 1998 and 1997..................................... 3
Statements of Cash Flows for the Three Months Ended
September 30, 1998 and 1997..................................... 4
Notes to Financial Statements..................................... 5-6
Item 2.- Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 7-10
Part II - Other Information.............................................. 11
Signature................................................................ 12
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
September June 30,
30, 1998 1998
----------- -----------
(Unaudited)
Current assets:
Cash and cash equivalents ..................... $ 1,017,835 $ 1,416,460
Current portion of notes receivable ........... 6,129 12,105
Current portion of notes receivable-affiliate . 50,000 50,000
Other receivables ............................. 160,143 166,427
Inventories ................................... 335,150 302,595
Prepaid expenses .............................. 276,415 246,135
----------- -----------
Total current assets ....................... 1,845,672 2,193,722
----------- -----------
Receivables due after one year:
Note receivable- Affiliate .................... 544,607 523,408
Note receivable- Other ........................ 6,129 12,105
----------- -----------
550,736 535,513
Less current portion .......................... (56,129) (62,105)
----------- -----------
494,607 473,408
----------- -----------
Property and equipment, at cost:
Land .......................................... 678,000 678,000
Buildings ..................................... 2,461,327 2,461,327
Equipment and leasehold and tenant improvements 2,011,205 1,997,192
----------- -----------
5,150,532 5,136,519
Less accumulated depreciation and amortization (1,731,342) (1,654,521)
----------- -----------
Net property and equipment ................ 3,419,190 3,481,998
----------- -----------
Other assets:
Undeveloped land, at cost ..................... 1,665,643 1,665,643
Intangible assets, net ........................ 301,956 315,015
Investments ................................... 624,327 1,209,944
Other ......................................... 107,650 108,923
----------- -----------
2,699,576 3,299,525
----------- -----------
$ 8,459,045 $ 9,448,653
=========== ===========
1
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (CONTINUED)
LIABILITIES AND SHAREHOLDERS' DEFICIT
September June 30,
30, 1998 1998
----------- -----------
(Unaudited)
Current liabilities:
Assessment district obligation-in default ..... $ 2,377,576 $ 2,319,826
Current portion of long-term debt ............. 342,000 347,000
Accounts payable .............................. 649,747 577,847
Accrued payroll and related expenses .......... 85,269 108,497
Accrued property taxes, in default ............ 510,530 487,728
Accrued interest .............................. 26,699 28,581
Other liabilities ............................. 132,310 143,631
----------- -----------
Total current liabilities .................. 4,124,131 4,013,110
----------- -----------
Long-term debt, excluding current portion ........ 3,234,792 3,287,783
----------- -----------
Distributions received in excess
of basis in investment ......................... 12,364,268 12,280,101
----------- -----------
Tenant security deposits ......................... 25,023 25,951
----------- -----------
Minority interest in consolidated subsidiary ..... 1,762,677 1,762,677
----------- -----------
Commitments and contingencies (Note 4)
Shareholders' equity 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 ........................... (12,812,078) (11,736,312)
----------- -----------
(10,809,529) (9,733,763)
Less note receivable from shareholder ......... (2,242,317) (2,187,206)
----------- -----------
Total shareholders' deficit ................. (13,051,846) (11,920,969)
----------- -----------
$ 8,459,045 $ 9,448,653
=========== ===========
See accompanying notes to consolidated condensed financial statements.
2
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
1998 1997
----------- -----------
Revenues:
Bowling ........................................ $ 641,070 $ 621,104
Rental ......................................... 137,229 125,679
Golf ........................................... 73,833 50,701
Other .......................................... 53,246 27,821
Other-related party ............................ 29,077 28,599
----------- -----------
934,455 853,904
----------- -----------
Costs and expenses:
Bowling ........................................ 526,225 498,460
Rental ......................................... 64,471 60,805
Golf ........................................... 275,020 130,085
Development .................................... 41,261 32,928
Selling, general, and administrative ........... 953,174 743,136
Depreciation and amortization .................. 93,434 182,925
----------- -----------
1,953,585 1,648,339
----------- -----------
Loss from operations ............................. (1,019,130) (794,435)
----------- -----------
Other income (charges):
Investment income:
Related party ................................ 65,716 61,973
Other ........................................ 11,885 33,323
Interest expense:
Development activities ........................ (57,750) (51,898)
Other and amortization of finance costs ....... (90,675) (120,855)
Equity in income of investees .................. 14,188 92,471
----------- -----------
(56,636) 15,014
----------- -----------
Loss from continuing operations .................. (1,075,766) (779,421)
Loss from discontinued operations ................ -- (27,442)
----------- -----------
Net loss ......................................... $(1,075,766) $ (806,863)
=========== ===========
Basic and diluted net loss per common share from
continuing operations (based on 27,250,000
weighted average common shares outstanding).... ($0.04) ($0.03)
======= =======
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
1998 1997
----------- -----------
Cash flows from operating activities:
Net loss ....................................... ($1,075,766) ($ 806,863)
Adjustments to reconcile net loss to the net
cash provided (used) by operating activities:
Amortization of deferred financing costs ... 5,839 5,865
Depreciation and amortization .............. 93,434 184,563
Equity in income of investees .............. (14,188) (92,471)
Interest income accrued on note receivable
from shareholder .......................... (55,111) (51,000)
Interest accrued on assessment district
obligations ............................... 57,750 51,898
Changes in assets and liabilities:
Decrease in receivables .................... 6,284 26,741
(Increase) decrease in inventories ......... (32,555) 6,970
Increase in prepaid expenses ............... (30,280) (62,176)
Decrease in assets of discontinued
operation ................................. -- 109,991
Increase in accounts payable ............... 71,900 125,756
Decrease in accrued expenses ............... (13,629) (40,047)
Decrease in liabilities of discontinued
operation ................................. -- 34,970
Other ...................................... 4,307 685
----------- -----------
Net cash used by operating activities .... (982,015) (505,118)
----------- -----------
Cash flows from investing activities:
Increase in notes receivable .................. (15,223) (6,459)
Capital expenditures .......................... (14,013) (98,131)
Distributions from investees .................. 670,617 185,000
----------- -----------
Net cash provided by investing activities 641,381 80,410
----------- -----------
Cash flows from financing activities-
Scheduled principal payments on long-term debt (57,991) (117,182)
----------- -----------
Net decrease in cash and cash equivalents ........ (398,625) (541,890)
Cash and cash equivalents, beginning of year ..... 1,416,460 821,513
=========== ===========
Cash and cash equivalents, end of year ........... $ 1,017,835 $ 279,623
=========== ===========
See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 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 September 30, 1998 and 1997, are not
necessarily indicative of operations for the entire year.
3. Investments:
(a) Investments consist of the following:
September June 30,
30, 1998 1998
---------- ----------
Vail Ranch Limited
Partnership (equity method)............. 586,401 1,172,018
All Seasons Inns, La Paz (cost basis)..... 37,926 37,926
---------- ----------
Total $ 624,327 $1,209,944
========== ==========
Investment in UCV, L.P. classified as
liability- Distributions received
in excess of basis in investment $12,364,268 $12,280,101
=========== ===========
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. .................... $ 24,188 $92,471
Vail Ranch Limited Partnership (10,000) --
-------- -------
$ 14,188 $92,471
======== =======
The following is a summary of distributions received from investees:
1998 1997
-------- -------
UCV, L.P. .................... $ 95,000 $185,000
Vail Ranch Limited Partnership 575,617 --
-------- --------
$670,617 $185,000
======== ========
(b) Investment in UCV, L.P.
The operating results of this investment are included in the accompanying
consolidated condensed 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 three-month periods ended
June 30, 1998 and 1997 are as follows:
1998 1997
---------- ----------
Revenues .......................... $1,134,000 $1,117,000
Operating and general and ......... 343,000 360,000
administrative costs
Depreciation ...................... 7,000 48,000
Interest expense .................. 534,000 524,000
Write off of unamortized loan costs 197,000 --
Net income ........................ 53,000 185,000
5
<PAGE>
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 six years. The property is currently subject to default
judgments to the County of Riverside, California totaling approximately
$1,727,606 regarding delinquent assessment district payments ($1,217,076)
and property taxes ($510,530).
The principal balance of the allocated portion of the assessment district
bonds ($1,160,500 at September 30, 1998 and June 30, 1998), and delinquent
principal, interest and penalties ($1,217,076 at September 30, 1998 and
$1,159,326 at June 30, 1998) are classified as "Assessment district
obligation- in default" in the consolidated condensed balance sheet. In
addition, accrued property taxes in the consolidated condensed balance
sheet include $510,530 at September 30, 1998 and $487,728 at June 30, 1998
of delinquent property taxes and late fees related to the 33-acre parcel.
In November 1993, the City of Temecula adopted a general development plan
that designated the property owned by OVP as suitable for "professional
office" use, which is contrary to its zoning as "commercial" use. As part
of the adoption of its general development plan, the City of Temecula
adopted a provision that, until the zoning is changed on properties
affected by the general plan, the general plan shall prevail when a use
designated by the general plan conflicts with the existing zoning on the
property. The result is that the City of Temecula has effectively
down-zoned OVP's property from a "commercial" to "professional office" use.
The property is subject to Assessment District liens that were allocated in
1989 based on a higher "commercial" use. Since the Assessment District
liens are not subject to reapportionment as a result of re-zoning, a
"professional office" use is not economically feasible due to the
disproportionately high allocation of Assessment District costs. OVP has
filed suit against the City of Temecula claiming that the City's adoption
of a general plan as a means of effectively re-zoning the property is
invalid. Additionally, OVP is claiming that, if the effective re-zoning is
valid, the action is a taking and damaging of OVP's property without
payment of just compensation. OVP is seeking to have the effective
re-zoning invalidated and an unspecified amount of damages. 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.
(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. Comprehensive Income- On July 1, 1998, the company adopted Statement of
Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive
Income. SFAS No. 130 requires the reporting of comprehensive income in
addition to net income. Comprehensive income is a more inclusive financial
reporting methodology that includes disclosure of certain financial
information that historically has not been recognized in the calculation on
net income. The adoption of this statement did not have an effect on the
consolidated condensed financial statements.
6. Reclassifications- Certain reclassifications have been made to the prior
year financial statements to conform to the classifications used in 1998.
6
<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 working capital of $609,647 at September
30, 1998, which is a $378,519 decrease from the similarly calculated working
capital of $988,166 at June 30, 1998. The decrease in working capital is
primarily attributable to the cash used by operating activities for the three
months ended September 30, 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 ..................... $ (156,000) $ (153,000) $ (3,000)
Rental ...................... 51,000 43,000 8,000
Golf ........................ (780,000) (480,000) (300,000)
Development ................. (43,000) (35,000) (8,000)
General corporate expense and
other ..................... (60,000) (57,000) (3,000)
----------- ----------- -----------
Cash used by continuing
operations ................ (988,000) (682,000) (306,000)
Discontinued operations ..... -- (28,000) 28,000
Capital expenditures, net of
financing ................. (14,000) (98,000) 84,000
Principal payments on
long-term debt ............ (58,000) (117,000) 59,000
----------- ----------- -----------
Cash used ................... (1,060,000) (925,000) (135,000)
=========== =========== ===========
Distributions received from
investees ................. 670,000 185,000 485,000
=========== =========== ===========
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
September 30, 1998 is $1,728,000. 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. Management does
not expect the redevelopment planning process to affect the distributions to
partners from operating activities because $500,000 of the refinancing proceeds
(May 1998) were allocated for the planning costs.
Old Vail Partners received a $576,000 distribution from Vail Ranch Limited
Partnership in August 1998 as its share of the distribution from the new
partnership with an affiliate of Excel Realty. It is unlikely that there will be
significant distributions in the future until the remaining undeveloped land in
the new partnership is developed and sold.
Management estimates negative cash flow of $1,200,000 to $1,500,000 for the
remaining quarters of the year ending June 30, 1999 from operating activities
after adding estimated distributions from UCV ($115,000) and deducting capital
expenditures and scheduled principal payments on long-term debt. Management is
currently evaluating other sources of working capital from refinancing its
office building or the sale of undeveloped land in Temecula to provide
sufficient funds for this cash flow deficit.
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.
7
<PAGE>
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 leased
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.
"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 and elsewhere in the Company's filings with the
Securities and Exchange Commission.
8
<PAGE>
RESULTS OF OPERATIONS
---------------------
The following is a summary of the changes in the results of operations of the
three-month period ended September 30, 1998 to the same period in 1997:
<TABLE>
<CAPTION>
Real
Rental Estate Unallocated
Bowling Operation Development Golf And Other Totals
------- --------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues .......................... $ 19,966 $ 12,126 $ -- $ 23,132 $ 25,903 $ 81,127
Costs ............................. 27,765 3,666 8,333 144,935 -- 184,699
SG&A-direct ....................... 4,812 -- -- 163,705 15,097 183,614
SG&A-allocated .................... 5,170 1,000 -- 16,000 4,830 27,000
Depreciation and
amortization..................... (95,681) 627 -- 4,519 1,044 (89,491)
Interest expense .................. (17,533) (359) 5,753 (1,867) (10,322) (24,328)
Equity in investees ............... -- (68,283) (10,000) -- -- (78,283)
Segment profit (loss) ............. 95,433 (61,091) (24,086) (304,160) 15,254 (278,650
Investment income ................. (17,695)
Net loss from continuing operations (296,345)
</TABLE>
Note: The change in rental revenues and SG&A expenses do not include the
effect of the net change in elimination of intercompany rent of $592.
BOWLING OPERATIONS:
- -------------------
The 3% increase in bowling revenues was attributable to a combination of small
increase in revenue from open bowling and snack bar revenues. Declines in the
number of games bowled (5%) have been offset with price increases in open play
(12%). The results of the quarter ended September 30 typically relate only to
the summer league season. However, management feels that there will continue to
be a decline in league bowling but that this is likely to be offset by increases
in open play and the price per game of open play.
Bowl costs increased by 5% primarily due to pin purchases ($16,000) in 1998 that
occurred during a different time period in 1997.
Depreciation expense decreased by $95,681 due to equipment and goodwill acquired
in 1983 (when the bowls were purchased) becoming fully depreciated and amortized
in the year ended June 30, 1998.
Interest expense related to the bowling segment decreased because of the
extinguishment of all bowl related financing during the year ended June 30,
1998.
RENTAL OPERATIONS:
- ------------------
There were no significant changes to the components of the rental segment in the
three-month period ended September 30, 1998 except for the $68,283 decrease in
the equity in income of UCV. The income of UCV decreased primarily due to a
$197,401 write-off of unamortized loan fees in May 1998 related to a refinancing
of long-term debt. This increase in UCV's expense was partially offset by a
$41,000 reduction in UCV's depreciation expense, which relates to the
acquisition cost of the building becoming fully depreciated in the prior year.
Rental revenues and operating expenses of UCV remained relatively flat.
9
<PAGE>
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.
GOLF OPERATIONS:
- ----------------
Sales during the three-month period ended September 30, 1998 continued to be
insignificant because the Company has not yet generated sales with golf club
manufacturers or distributors. The Company expects that it will be at least six
to nine months before the Company is able to generate sales with these types of
customers. Sales during the three-month periods were principally to custom golf
shops. The following is a breakdown of the costs associated with the golf
operation:
1998 1997
------- -------
Costs of goods sold ................ $35,000 $10,000
Underutilized manufacturing overhead 198,000 85,000
Research & development ............. 42,000 35,000
------- -------
Total golf costs .............. 275,000 130,000
------- -------
Marketing & promotion .............. 489,000 245,000
Administrative-direct .............. 35,000 115,000
------- -------
Total SG&A-direct ............. 524,000 360,000
------- -------
Allocated corporate costs .......... 48,000 32,000
------- -------
10
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings
As of September 30, 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, 1998.
ITEM 2. Changes in Securities
NONE
ITEM 3. Defaults upon Senior Securities
N/A
ITEM 4. Submission of Matters to a Vote of Security Holder
NONE
ITEM 5. Other Information
NONE
ITEM 6. Exhibits & Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K: NONE
11
<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: November 13, 1998
-------------------
By:/s/ Steven R. Whitman
----------------------
Steven R. Whitman, Treasurer,
Principal Accounting Officer and Director
Date: November 13, 1998
-------------------
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-3-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,017,835
<SECURITIES> 0
<RECEIVABLES> 216,272
<ALLOWANCES> 0
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0
0
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</TABLE>
