SPORTS ARENAS INC, 10-K405, 2000-10-13

SPORTS ARENAS INC
10-K405, 2000-10-13
AMUSEMENT & RECREATION SERVICES

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

For the fiscal year ended June 30, 2000
---------------------------------------

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

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 (858) 587-1060

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12 (g) of the Act:

Common Stock, $.01 par value
----------------------------
(Title of class)

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
---- ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K. [ X ]

The aggregate market value of the voting stock held by non-affiliates (5,441,733
shares) of the Registrant as of September 20, 2000 was $163,000 (based on
average of bid and asked prices). The number of shares of common stock
outstanding as of September 20, 2000 was 27,250,000.

Documents Incorporated by Reference - None.
----

1
<PAGE>
PART I

ITEM I. BUSINESS
-----------------
General Development and Narrative Description of Business
---------------------------------------------------------
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 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. Overall, the Company
and its consolidated subsidiaries has 105 employees. 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:

2000 1999 1998
---- ---- ----
Bowling .................... 56 68 74
Real estate operations ..... 13 15 13
Real estate development .... -- -- --
Golf ....................... 23 9 6
Other ...................... 8 8 7

(1) Bowling Centers
-------------------
The Company's wholly owned subsidiary, Cabrillo Lanes, Inc.(the "Bowls"),
operates two bowling centers containing 110 lanes in San Diego, California.
These two centers were purchased in August 1993.

The bowling centers' operations include food and beverage facilities and coin
operated video and other games. The revenues from these activities have averaged
32 percent of total bowling related revenues for the last three fiscal years.
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. 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 has a computerized cash
control system.

On average, 39 percent of the games bowled are by bowling leagues that enter
into league reservation agreements to use a specified number of lanes at a
specified time and day for a specified period of weeks. On average, the league
reservation agreements are for 35 weeks for the winter season (September through
April) and 15 weeks for the summer season (May through August). League revenues
for September through April average 75 percent of league revenues annually.
Approximately 69 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, 2000, 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.

(2) Real Estate Development
----------------------------
The Company, through its subsidiaries (see Item 2. Properties (b) Real Estate
Development for ownership), has ownership interests in a 33 acre parcel and a 13
acre parcel of partially developed 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., a California limited partnership,
(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 community

2
<PAGE>
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 New Plan 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 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). In July 2000, TC completed development of the
first phase of the shopping center consisting of 60,229 square feet of space (of
which 56,307 square feet is currently leased) on approximately 7 acres of land.
TC is currently in the process of obtaining construction financing to construct
an additional 50,032 square feet of shopping center space on the remaining 6
acres of land.

As of June 30, 1999, Old Vail Partners, a California general partnership,
(OVPGP), a subsidiary of the Company, 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 (see Item 3. Legal Proceedings for description).

OVPGP has not paid property taxes or annual payments for a county assessment
district obligation for over eight years related to 33 acres currently owned by
OVPGP, other than the $330,000 payment noted below that was made on June 22,
2000. On March 18, 1997, the County of Riverside (the County) sold a 7-acre
parcel that had been owned by OVPGP at public-sale for delinquent property taxes
totaling $22,770 and the buyer assumed the delinquent assessment district
obligation of $171,672. OVPGP has no continuing obligation from this sale. The
County had scheduled the 33 acres for public sale for the defaulted property
taxes on September 27, 1999. OVPGP had unsuccessfully attempted to negotiate a
payment plan with the County subject to the successful resolution of the zoning
problems with the property. On September 23, 1999 OVPGP filed a petition for
relief under Chapter 11 of the federal bankruptcy laws in the United States
Bankruptcy Court. The primary claim affected by this action was the County's
secured claim for delinquent taxes and assessment district payments. OVPGP's
plan was to use the relief from stay to continue its efforts to negotiate a
settlement of the zoning issues described in Item 3. Legal Proceedings, and
restore the economic value of the property. The bankruptcy proceeding was
dismissed on February 15, 2000 with the concurrence of OVPGP. This dismissal
allows the County of Riverside to proceed with a public sale of the property
within 45 days after giving notice. On June 23, 2000, the County of Riverside
agreed to remove the property from the planned public sale originally schedule
for June 26, 2000 in exchange for an immediate payment of $330,000 with the
balance of property taxes due on December 29, 2000. Separately, the County of
Riverside stated that a foreclosure sale related to the default judgement for
assessment district payments would not be scheduled until some time after
January 1, 2001

OVPGP has applied to the City of Temecula for approval of a development plan
which includes a combination of multi-family and commercial uses. If this plan
is approved or the zoning is otherwise restored, OVPGP expects that it would
either be able to develop or sell the property, using the proceeds from
development loans or sale to satisfy the County's claims.

The 33 acres of land is located in an area of the City of Temecula that has a
population within its trade area of approximately 72,000. 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 OVPGP 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.
3
<PAGE>
As of June 30, 1999, Downtown Properties, Inc. (Downtown), a wholly-owned
subsidiary of the Company, owned undeveloped land in Missouri. The land was sold
on September 7, 1999 for $215,000, less selling expenses of $24,638.

(3) 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. The
Company occupies approximately 14 percent of the office building.

The following is a schedule of selected operating information over the last five
years:
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Occupancy................ 99% 99% 97% 98% 92%
Average monthly
rent/square foot....... $1.11 $.98 $.86 $.87 $.88
Real property tax........ $19,000 $19,000 $18,000 $17,000 $17,000
Real Property tax rate... 1.12% 1.12% 1.12% 1.12% 1.12%

On September 28, 2000 the Company agreed to sell the office building for
$3,725,000. The sale is contingent on the results of the buyers 10 day due
diligence period and the existing lender's approval of the buyer assuming the
loan (balance of $1,957,592 as of June 30, 2000) related to the office building.
Once the sale is completed, the Company plans to relocate its corporate offices
into the facilities leased by Penley Sports, LLC., as noted below.

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 subleases. The subleases also expire in
September 2043. The master lease provides for the payment of rent equal to the
greater of a minimum rent, which is adjusted for increases in the consumer price
index every five years, or 85 percent of the rents collected on the subleases,
which are also adjusted for increases in the consumer price index every five
years.

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:
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Occupancy............. 99% 99% 99% 98% 97%
Average monthly
rent/unit............ $728 $694 $675 $662 $648
Real property tax..... $112,000 $110,000 $108,000 $107,000 $105,000
Real Property tax rate 1.12% 1.12% 1.12% 1.12% 1.12%

(4) 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
sold its shafts to custom golf shops. PPS's sales had averaged approximately
$375,000 in calendar 1995 and 1996. 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 $1,077,000
of equipment since January 22, 1997 to automate some of the production
processes. Additionally, in June 2000 Penley moved from its 8,559 square foot
facility into a 38,025 square foot facility, of which approximately 10,000
square feet will be subleased to another tenant for a one to two year period.

4
<PAGE>
Until January 2000, Penley's sales were principally to custom golf shops where
the orders are for 2 to 10 shafts per order at prices averaging $18 per shaft.
In January 2000, Penley commenced sales to two of the largest golf component
distributors. As a result of the sales to these two distributors and other small
golf club manufacturers, golf shaft sales increased by $735,654 in the year
ended June 30, 2000. Penley currently has products in testing by several large
golf club manufacturers. However, there can be no assurances that the Penley
will be able to enter into any significant sales contracts or that, if it does,
the contracts will be profitable to Penley.

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 believes 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, of which one was issued and the others 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 not occur that could lead
to interruptions 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 currently has one patent and two other patents pending and several
copyrighted trademarks and logos. Although Management believes these items are
of 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 35 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
significant backlog of sales orders, or customer concentration (based on
consolidated revenues).

(b) Industry Segment Information:
------------------------------------
See Note 11 of Notes to Consolidated FinancialStatements for required industry
segment financial information.

ITEM 2. Properties
------------------
(a) Bowling Centers:
-------------------
The Company's two bowling centers occupy the following facilities:
Name Location Size Expiration Date of Lease
----------- --------------------- -------- -----------------------------
Grove Bowl San Diego, California 60 lanes June 2003- options to 2018
Valley Bowl San Diego, California 50 lanes October 2003- options to 2013

5
<PAGE>
The Grove Bowl occupies its facility pursuant to a long-term operating lease
described in Note 8(a) to the Notes to Consolidated Financial Statements. The
Valley Bowl real estate is owned by Bowling Properties, Inc., a wholly-owned
subsidiary of the Company and is collateral for a $1,680,920 note payable. The
property was purchased in November 1993 from an unaffiliated third party in
conjunction with the acquisition of the bowling center in August 1993.

(b) Real Estate Development:
----------------------------
As of June 30, 1999, Downtown Properties Inc. (DPI), a wholly-owned subsidiary
of the Company, owned 507 acres of undeveloped land in Lake of the Ozarks,
Missouri. The land was collateral for a $75,927 bank loan (first deed of trust).
On September 7, 1999 the property was sold to a third party for $215,000 cash,
less selling expenses of $24,638, and the loan was paid from the proceeds.

RCSA Holdings, Inc. (RCSA) and OVGP, Inc., 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), which owns a 60
percent limited partnership interest in Vail Ranch Limited Partnership (VRLP).
As described in Note 6(c) of Notes to Consolidated Financial Statements, the
other partner in OVP is entitled to 50 percent of the cash distributions from
OVP, not to exceed $2,450,000, of which $500,000 has been paid as of June 30,
2000.

RCSA and DPI are the general partners of Old Vail Partners (OVPGP), a California
general partnership, which owns 33 acres of unimproved land in Temecula,
California. OVPGP is obligated to contribute the land to OVP once the litigation
regarding the zoning is settled (see below).

The 33 acres of land owned by OVPGP as of June 30, 2000 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 principal balance of the allocated portion of the
bonds is $1,384,153. The annual payments (due in semiannual installments)
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 over the last eight years. The property is currently subject to
default judgments to the County of Riverside, California totaling approximately
$2,132,421 regarding delinquents assessment district payments ($1,776,243) and
property taxes ($356,178).

The County had scheduled the 33 acres for public sale for the defaulted property
taxes on September 27, 1999. OVPGP had unsuccessfully attempted to negotiate a
payment plan with the County subject to the successful resolution of the zoning
problems with the property. On September 23, 1999, OVPGP filed a petition for
relief under Chapter 11 of the federal bankruptcy laws in the United States
Bankruptcy Court. The primary claim affected by this action was the County's
secured claim for delinquent taxes and assessment district payments. OVPGP's
plan was to use the relief from stay to continue its efforts to negotiate a
settlement of the zoning issues described in Item 3. Legal Proceedings, and
restore the economic value of the property. The bankruptcy proceeding was
dismissed on February 15, 2000 with the concurrence of OVPGP. This dismissal
allows the County of Riverside to proceed with a public sale of the property
within 45 days after giving notice. On June 23, 2000, the County of Riverside
agreed to remove the property from the planned public sale originally schedule
for June 26, 2000 in exchange for an immediate payment of $330,000 with the
balance of property taxes due on December 29, 2000. Separately, the County of
Riverside stated that a foreclosure sale related to the default judgement for
assessment district payments would not be scheduled until some time after
January 1, 2001.

The 33-acre parcel is subject to an action that essentially down-zones 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 for description).

(c) Real Estate Operations:
---------------------------
UCVGP, Inc. and SAPI, wholly owned subsidiaries of the Company, own a one
percent managing general partnership interest and a 49 percent limited
partnership interest, respectively, in UCV, L.P. (UCV). UCV owns a 542-unit
apartment project (University City Village) in the University City area of San
Diego, California. The property is collateral for a $28,262,022 note payable by
the partnership as of June 30, 2000.
6
<PAGE>
DPDC owns an approximate 36,000 square foot office building located in San
Diego, California, which was constructed in 1983. As of June 30, 2000, the
property is collateral for a $1,957,592 note payable. On September 28, 2000 the
Company agreed to sell the office building for $3,725,000. The sale is
contingent on the results of the buyers day due diligence period and the
existing lender's approval of the buyer assuming the loan (balance of $1,957,592
as of June 30, 2000) related to the office building.

DPDC is the lessee of 15 acres of land in the Palm Springs, California area
under a lease expiring in September 2043. The land is subleased to the owners of
the condominium units constructed on the property. The subleases also expire in
September 2043.

(d) Golf Operations:
--------------------
Penley Sports, LLC leases 38,025 square feet of industrial space in San Diego,
California pursuant to a lease that expires in March 31 2010 with options to
March 31, 2020. Penley is attempting to sublease approximately 10,000 square
feet to a third party for approximately one to two years.

ITEM 3. LEGAL PROCEEDINGS
-------------------------
At June 30, 2000, except as noted below, the Company or its subsidiaries were
not parties to any material legal proceedings other than routine litigation
incidental to the business.

In November 1993, the City of Temecula adopted a general development plan
that designated 33 acres of property owned by Old Vail Partners, a general
partnership (the predecessor to Old Vail Partners, L.P., a California limited
partnership) (OVPGP) as suitable for "professional office" use, which is
contrary to its zoning as "commercial" use. As part of the adoption of its
general development plan, the City of Temecula adopted a provision that,
until the zoning is changed on properties affected by the general plan, the
general plan shall prevail when a use designated by the general plan
conflicts with the existing zoning on the property. The result is that the
City of Temecula has effectively down-zoned the 33 acres from a "commercial"
to "professional office" use. As described in Item 2. Properties, the parcel
is subject to assessment district obligations, which 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.

On May 6, 1998, OVPGP filed suit against the City of Temecula, California in
the California Superior Court for the County of Riverside. OVPGP is claiming
that, if the effective re-zoning is valid, the action would be a taking and
damaging of OVPGP's property without payment of just compensation. OVPGP is
seeking to have the effective re-zoning invalidated and an unspecified amount
of damages. OVPGP has previously suffered adverse outcomes in other suits
filed in relation to this matter. A stipulation was entered that dismissed
this suit without prejudice and agreed to toll all applicable statute of
limitations while OVPGP and the City of Temecula attempted to informally
resolve this litigation. The outcome of this litigation is uncertain.

ITEM 4. Submissions of Matters to a Vote of Security Holders: NONE
------------------------------------------------------------

PART II
-------
ITEM 5. Market for the Registrant's Common Stock and Related Stockholder Matters
--------------------------------------------------------------------------------

(a) There is no recognized market for the Company's common stock except for
limited or sporadic quotations, which may occur from time to time. The
following table sets forth the high and low bid prices per share of the
Company's common stock in the over-the-counter market, as reported on
the OTC Bulletin Board, which is a market quotation service for market
makers. The over-the-counter quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not necessarily
reflect actual transactions in shares of the Company's common stock.
2000 1999
------------ ------------
High Low High Low
----- ----- ----- -----
First Quarter.... $ .02 $ .02 $ .05 $ .02
Second Quarter... $ .02 $ .02 $ .03 $ .02
Third Quarter.... $ .05 $ .02 $ .02 $ .02
Fourth Quarter... $ .06 $ .02 $ .02 $ .02

7
<PAGE>
(b) The number of holders of record of the common stock of the Company as of
September 20, 2000 is approximately 4,300. 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.

ITEM 6. Selected Consolidated Financial Data (Not covered by Independent
-------------------------------------------------------------------------
Auditors' Report)
-----------------
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues ..................... $ 4,839,286 $ 4,097,090 $ 3,813,751 $ 3,951,286 $ 8,146,209
Loss from operations ......... (3,424,495) (3,654,212) (2,603,065) (4,327,225) (817,648)
Income (loss) from
continuing operations ....... (3,625,063) (3,501,933) (895,524) (3,347,008) 517,311
Basic and diluted income
(loss) per common share
from continuing operations .. (.13) (.13) (.03) (.12) .02
Total assets ................. 6,601,236 6,998,820 9,448,653 9,933,755 16,445,081
Long-term debt, excluding
current portion ............. 1,967,169 3,911,694 3,287,783 4,061,987 4,387,259
</TABLE>
See Notes 4(b), 6(c), and 12 of Notes to Consolidated Financial Statements
regarding disposition of business operations and material uncertainties.

ITEM 7. 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 $3,640,645 at
June 30, 2000, which is a $3,507,097 increase from the similarly calculated
working capital deficit of $133,548 at June 30, 1999. Working capital decreased
primarily from $3,252,822 of cash used by operations after capital expenditures
and debt service. This use of funds was partially offset by $2,193,000 of
distributions received from investees and $190,000 of proceeds from sale of
assets. Working capital also decreased due to a $1,585,000 increase in current
portion of long-term debt related to a note that matures on December 31, 2000.

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 several years. It has used its share of
distributions from investees and proceeds from real estate and bowling center
sales to fund these deficits.

The cash provided (used) before changes in assets and liabilities segregated by
business segments was as follows:
2000 1999 1998
----------- ---------- ----------
Bowling ........................... $ (356,000) $ (157,000) $ (173,000)
Rental ............................ 219,000 207,000 164,000
Golf .............................. (2,652,000) (2,587,000) (2,027,000)
Development ....................... (246,000) (215,000) (164,000)
General corporate expense and other (217,000) (257,000) (166,000)
----------- ----------- -----------
Cash provided (used) by continuing
operations ...................... (3,252,000) (3,009,000) (2,366,000)
Capital expenditures, net of
financing ...................... (446,000) (148,000) (322,000)
Discontinued operations .......... -- -- (24,000)
Principal payments on
long-term debt ................. (360,000) (262,000) (935,000)
----------- ----------- -----------
Cash used ( 4,058,000) ( 3,419,000) ( 3,647,000)
=========== =========== ===========
Distributions received from
investees ...................... 2,193,000 1,420,000 4,259,000
=========== =========== ===========
Contributions to investees ....... (43,000) -- --
=========== =========== ===========
Proceeds from sale of assets ..... 190,000 -- 57,000
=========== =========== ===========

8
<PAGE>

Other than distributions of $2,000,000 received in May 1998 and $1,757,000
received in October 1999 from the proceeds of UCV's 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 $14,498,208 at June 30,
2000. 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) exceeded its liabilities by
$14,000,000-$17,000,000 as of June 30, 2000. UCV is currently evaluating the
feasibility of redeveloping the apartment project from 542 units to
approximately 1,100 units.

At June 30, 2000, the Company owned a 60 percent limited partnership interest in
Vail Ranch Limited Partnership (VRLP), which is a 50 percent partner in Temecula
Creek, LLC (TC),a limited liability company, the other member of which is ERT
Development Corporation (an affiliate of Excel). In July 2000, TC completed
development of the first phase of a shopping center consisting of 60,229 square
feet of space (of which 56,307 square feet is currently leased) on approximately
7 acres of land. TC is currently in the process of obtaining construction
financing to construct an additional 50,032 square feet of shopping center space
on the remaining 6 acres of land. The Company estimates that the value of the
Company's 60 percent interest in VRLP at June 30, 2000 is approximately
$1,000,000 to $1,500,000.

As described in Note 4(b) of the Notes to Consolidated Financial Statements,
OVPGP 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 amounts due to cure the judgment for the default under the
assessment district obligation on the 33 acre parcel at June 30, 2000 was
approximately $1,776,000 ($1,456,000 at June 30, 1999). The principal balance of
the allocated portion of the bonds ($1,384,153 as of June 30, 2000 and 1999),
and delinquent interest and penalties ($1,447,027 as of June 30, 2000 and
$1,181,026 as of June 30, 1999) are classified as "Assessment district
obligation- in default" in the consolidated balance sheets. In addition, the
consolidated balance sheets include $356,178 of delinquent property taxes and
late fees as of June 30, 2000 ($582,859 as of June 30, 1999). The Company
estimates the value of this land is approximately $4,000,000 to $5,000,000 if
the property was zoned "commercial". However, the City of Temecula has adopted a
general development plan as a means of down-zoning the property to a lower use
and, if successful, may significantly impair the value of the property. The
Company is contesting this action (see Item 3. Legal Proceedings for
description). The County had scheduled the 33 acres for public sale for the
defaulted property taxes on September 27, 1999. OVPGP had unsuccessfully
attempted to negotiate a payment plan with the County subject to the successful
resolution of the zoning problems with the property. On September 23, 1999 OVPGP
filed a petition for relief under Chapter 11 of the federal bankruptcy laws in
the United States Bankruptcy Court. The primary claim affected by this action
was the County's secured claim for delinquent taxes and assessment district
payments. OVPGP's plan was to use the relief from stay to continue its efforts
to negotiate a settlement of the zoning issues described below, and restore the
economic value of the property. The bankruptcy proceeding was dismissed on
February 15, 2000 with the concurrence of OVPGP. This dismissal allows the
County of Riverside to proceed with a public sale of the property within 45 days
after giving notice. On June 23, 2000, the County of Riverside agreed to remove
the property from the planned public sale originally schedule for June 26, 2000
in exchange for an immediate payment of $330,000 with the balance of the
property taxes due on December 29, 2000. Separately, the County of Riverside
stated that a foreclosure sale related to the default judgement for assessment
district payments would not be scheduled until some time after January 1, 2001.

The Company is expecting a $1,700,000 cash flow deficit in the year ending June
30, 2001 from operating activities after estimated distributions from UCV,
estimated proceeds from the sale of the office building, estimated capital
expenditures ($422,000) and scheduled principal payments on short-term and
long-term debt. Management expects continuing cash flow deficits until Penley
Sports develops sufficient sales volume to become profitable. However, there can
be no assurances that Penley Sports will ever achieve profitable operations.

9
<PAGE>
Management is currently evaluating other sources of working capital from the
sale of undeveloped land in Temecula or obtaining additional investors in Penley
Sports to provide sufficient funds for the expected future cash flow deficits.
If the Company is not successful in obtaining other sources of working capital
this could have a material adverse effect on the Company's ability to continue
as a going concern.

New Accounting Pronouncements
-----------------------------
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No 101B (SAB 101B), Revenue Recognition in Financial
Statements. The Company will be required to adopt SAB 101B effective in the
fourth quarter of the year ending June 30, 2001. SAB 101B requires, among other
things, that license and other up-front fees be recognized over the term of the
agreement unless the fees are in exchange for products delivered or services
performed that represent the culmination of a separate earnings process. The
Company does not expect this to have a material impact on the Company's
financial position or results of operations.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The Company is exposed to market risk primarily due to fluctuations in interest
rates. The Company utilizes both fixed rate and variable rate debt. The
following table presents principal cash flows and related weighted average
interest rates of the Company's long-term fixed rate and variable rate debt for
the fiscal years ended June 30:
<TABLE>
<CAPTION>
2001 2002 2003 2004 2005 Thereafter Total
--------- ----------- -------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed rate debt .. $ 115,000 $ 39,000 $ 21,000 $ 22,000 $ 24,000 $ 1,854,000 $ 2,075,000
Weighted average
interest rate . 8.2% 8.2% 8.2% 8.2% 8.2% 8.2% 8.2%

Variable rate debt $3,109,000 $ 6,000 -- -- -- -- $3,115,000
Weighted average
interest rate . 10.0% 11.8% -- -- -- -- 10.0%
</TABLE>

The variable rate debt includes a $1,350,000 short term note payable that is due
on demand, which for purposes of this calculation has been treated as though
paid during the year ending June 30, 2001.

The Company's unconsolidated subsidiary, UCV, has variable rate debt of
$29,039,000 as of March 31, 2000 for which the interest rate is 9.0 percent. The
principal cash flows for each of UCV's fiscal years ending March 31 is: 2001-
$660,000; 2002- $28,432,000; and $29,039,000 in total.

The Company does not enter into derivative or interest rate transactions for
speculative or trading purposes.

"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.

10
<PAGE>
The following is a summary of the changes to the components of the segments in
the years ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Rental Real Estate Unallocated
Bowling Operation Development Golf And Other Totals
--------- --------- --------- --------- --------- ---------
YEAR ENDED JUNE 30, 2000
------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues ....................... $(110,638) $ 76,477 $ -- $ 735,654 $ 43,388 $ 744,881
Costs .......................... 113,520 30,332 44,661 629,528 -- 818,041
SG&A-direct .................... (37,195) -- -- 107,880 (326,384) (255,699)
SG&A-allocated ................. 18,508 5,000 (7,000) 73,000 (89,508) --
Depreciation and amortization .. (4,497) 835 -- 11,349 (2,162) 5,525
Impairment losses .............. -- -- (90,629) -- 37,926 (52,703)
Interest expense ............... (6,329) 29,437 15,049 (8,540) 12,090 41,707
Equity in income (loss)
of investees .................. -- (79,293) (114,880) -- -- (194,173)
Segment profit (loss) .......... (194,645) (68,420) (76,961) (77,563) 411,426 (6,163)
Investment income .............. (116,967)
Loss from continuing operations. (123,130)
</TABLE>
<TABLE>
<CAPTION>
Rental Real Estate Unallocated
Bowling Operation Development Golf And Other Totals
--------- --------- --------- --------- --------- ---------
YEAR ENDED JUNE 30, 1999
------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues ....................... $ (6,918) $ 72,676 $ -- $ 142,167 $ 77,781 $ 285,706
Costs .......................... (44,885) 22,615 24,276 254,521 -- 256,527
SG&A-direct .................... 71,254 -- -- 396,251 630,681 1,098,186
SG&A-allocated ................. 537 3,000 27,000 60,000 (41,537) 49,000
Depreciation and amortization .. (179,725) 12,985 -- 6,879 2,372 (157,489)
Impairment losses .............. -- -- (389,371) -- -- (389,371)
Interest expense ............... (59,929) 3,954 22,937 (7,713) (67,044) (107,795)
Equity in income (loss)
of investees .................. -- 173,592 (1,395,256) -- -- (1,221,664)
Gain (loss) on disposition ..... -- -- -- -- (716,025) (716,025)
Segment profit (loss) .......... 205,830 203,714 (1,080,098) (567,771) (1,162,716) (2,401,041)
Investment income .............. (205,368)
Loss from continuing operations. (2,606,409)
</TABLE>

BOWLING OPERATIONS:
-------------------
2000 vs. 1999
-------------
Bowling revenues decreased by 4 percent. The number of league games bowled
continued to decrease at each of the bowling centers by approximately 15%
(54,000 games in total). This decrease is being partially offset by an increase
in the open-play games bowled at one of the bowling centers (18,000). One of the
bowling centers is located in a shopping center that just completed a major
renovation and "reopened" in April 2000 with two major retail stores. As a
result, the bowling center has experienced a significant increase in open play
since the "reopening". Although management forecasts continued increases in open
play at the bowling center, the amount of the increase and how long it will
continue is uncertain.

Bowl costs increased by 6% primarily due to due to a $76,000 increase in
supplies and maintenance expenses. Approximately $46,000 of the increase in
maintenance expenses related to lane resurfacing or painting the exterior of a
building, which are not indicative of a trend of increases in expenses to be
annualized. There was no significant change in selling, general and
administrative expenses.

1999 vs. 1998
-------------
Although there was no overall significant change to bowling revenues, there was
a continued decline in league games bowled (7%) and league bowling revenues
(9%). This was offset by an increase in open games bowled (2%) and open bowling
revenues (13%). The price per game of open games bowled increased 10 percent in
1999. Bowling costs decreased 2 percent in 1999 without any primary cause.
Direct selling, general and administrative costs increased 12 percent primarily
due to a $55,000 increase in marketing and promotion expenses. Depreciation and
amortization expense decreased by $180,000 because most property and equipment
became fully depreciated in 1998. Interest expense decreased by $60,000 because
a significant portion of the debt associated with the acquisition of the bowling
centers was extinguished in 1998.

11
<PAGE>

RENTAL OPERATIONS
-----------------
Rental revenues increased in 2000 and 1999 primarily to the continued increases
in the rental rates at the office building. The vacancy rate for the office
building was 3%, 1% and 1% for 1998, 1999 and 2000, respectively. The average
monthly rent per square foot was $.86, $.98, and $1.11 for 1998, 1999 and 2000,
respectively. The Company is currently leasing space to new tenants and renewing
existing leases at monthly rates ranging from $1.40-$1.50 per square foot.

Rental costs increased in 2000 primarily due to the increase in the minimum rent
that is paid for the subleasehold interest in Palm Springs. The master lease
agreement provides for rent expense equal to the greater of the minimum rent or
85 percent of the rents collected on the subleases. The minimum rent increased
from $81,000 to $162,000 annually, which is approximately the amount collected
on the subleases. Rental costs increased by $22,615 in 1999 primarily due to
termite treatment of the office building that was non-recurring. Interest
expense increased in 2000 due to the increase in the loan amount resulting from
the refinance of the office building in May 1999.

The equity in income of UCV decreased by $79,000 in 2000 primarily due to
increases in interest expense and other costs that were only partially offset by
a 4 percent increase in revenues (related to increase in average rental rates).
Interest expense increased primarily due to the increase in financing that
occurred in October 1999. Costs increased primarily due to an increase in water
expense ($60,000) related to increased irrigation of the property. Otherwise,
costs increased 6 percent over the prior year. The equity in income of UCV
increased by $173,592 in 1999 excluding the equity in the extraordinary loss.
The increase in revenues in 1999 was due to a 3% increase in the average rent
rates. Depreciation decreased in 1999 because the buildings for UCV became fully
depreciated in 1998. UCV refinanced its long-term debt in May of 1998 increasing
outstanding debt by $5,166,500 but also decreasing the average interest rate
from 10 percent to 7-1/2 percent. The refinance resulted in an extraordinary
loss of $197,000 related to a prepayment penalty and the write off of the
unamortized loan fees of the previous long-term debt.

The following is a summary of the changes in the operations of UCV, LP in 2000
and 1999 compared to the previous years:
2000 1999
--------- ---------
Revenues ........................ $ 202,000 $ 132,000
Costs ........................... 148,000 (10,000)
Redevelopment planning costs .... -- ( 6,000)
Depreciation .................... ( 3,000) ( 147,000)
Interest and amortization
of loan costs ................. 216,000 (54,000)
Income before extraordinary loss (159,000) 349,000
Extraordinary loss from
debt extinguishment ........... (197,000) 197,000
Net income ...................... 38,000 152,000

Vacancy rates at UCV have averaged 1.1%,1.3% and 1.7% in 1998, 1999 and 2000,
respectively.

REAL ESTATE DEVELOPMENT:
------------------------
The real estate development segment consists primarily of OVPGP's operations
related to undeveloped land in Temecula, California, and an investment in VRLP.
Development costs consist primarily of legal expenses ($104,000 in 2000, $62,000
in 1999, and $67,000 in 1998) related to the litigation regarding the effective
down-zoning of the 33 acres of land and property taxes ($106,000 in 2000,
$95,000 in 1999, and $89,000 in 1998). OVPGP also incurred expense of $12,000 in
2000 and $19,000 in 1999 to remove two old building structures from the
property. 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 2000 and
1999 compared to the previous years:
2000 1999
---------- ----------
Revenues .................... $( 122,000) $( 508,000)
Gain on sale ................ -- (3,107,000)
Operating expenses 78,000 (447,000)
Depreciation and amortization -- (265,000)
Interest .................... -- ( 294,000)
Equity in loss of investee .. (43,000) 82,000
Net income (loss)............ (157,000) (2,691,000)

12
<PAGE>

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 six months in 1998. The
remaining 13 acres of undeveloped land were contributed to a limited liability
company (Temecula Creek) 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
operations for 1999 and 2000 reflect the results of negotiating property tax
refunds that are non-recurring. The equity in the loss of investee represents
VRLP's share of the property taxes expensed by Temecula Creek during 1999 and
2000.

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 $90,629 provision for impairment loss in the
year ended June 30, 1999 to reduce the carrying value of the undeveloped land in
Missouri to the value realized when it was sold in September 1999.

GOLF SHAFT MANUFACTURING:
-------------------------
Sales during the years 1999 and 1998 were small because Penley had not yet
developed sales with golf club manufacturers or distributors. The sales were
principally to custom golf shops. In January 2000, Penley commenced sales to two
of the largest golf equipment distributors. In addition to increases in sales
related to these two customers, direct sales to the after market also increased,
likely due to the credibility and increased exposure from the Penley products
being included in the catalogs of these two distributors. In the year 2000,
approximately 40 percent of the revenues were from sales to six golf equipment
distributors, 7 percent from small golf club manufacturers, and the remainder
related to sales directly to golf shops.

Operating expenses of the golf segment consisted of the following in 1999, 1998
and 1997:
2000 1999 1998
---------- ---------- ----------
Costs of sales and manufacturing
overhead ....................... $1,412,000 $ 797,000 $ 643,000
Research and development ......... 248,000 234,000 134,000
---------- ---------- ----------
Total golf costs .............. 1,660,000 1,031,000 777,000
========== ========== ==========
Marketing and promotion .......... 1,603,000 1,511,000 1,151,000
Administrative costs- direct ..... 190,000 174,000 138,000
---------- ---------- ----------
Total SG&A-direct .............. 1,793,000 1,685,000 1,289,000
========== ========= =========

Total golf costs increased in 2000 primarily due to an increase in the amount of
cost of goods sold related to increased sales, an increase in the cost of
prototype shafts developed during the periods, and an increase in the payroll
for research and development. Marketing and promotion expenses increased in 2000
primarily due increases in player sponsorship costs and promotional goods.

UNALLOCATED AND OTHER:
----------------------
Revenues increased by $43,000 in 2000 due to a $37,000 increase in brokerage
commissions. Other revenues increased by $76,000 in 1999 due to an increase in
brokerage commissions of $28,000 and management fees of $51,000.

Unallocated SG&A and Other SG&A combined decreased by $326,000 in 2000 and
increased by $590,000 in 1999 primarily due to a $390,000 provision for the
uncertainty of the collectability of the note receivable from affiliate recorded
in 1999. These expenses also increased in 1999 due to increases in wages in the
corporate segment of which $110,000 related to discretionary bonuses to the
officers.

Interest expense increased in 2000 due to interest related to short term
borrowings. Interest expense declined by $67,000 in 1999 due to the reduction of
the outstanding principal balances of long-term debt.

13
<PAGE>

Investment income decreased by $116,967 in 2000 and $205,000 in 1999 due to the
collection of $728,000 note receivable in June 1998 and the cessation of the
accrual of interest income on the note receivable from shareholder (See Note 3c
of the Notes to Consolidated Financial Statements).

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.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
---------------------------------------------------

(a) The Financial Statements and Supplementary Data of Sports Arenas, Inc.
and Subsidiaries are listed and included under Item 14 of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
-------------------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------
NONE

<PAGE>

PART III

ITEM 10. Directors and Executive Officers of the Registrant

(a) - (c) The following were directors and executive officers of the
Company during the year ended June 30, 2000. 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 57 Director since November 7, 1983;
President since November 11, 1983

Steven R. Whitman 47 Chief Financial Officer and Treasurer
since May 1987; Director since August 1,
1989, Secretary since January 1995

Patrick D. Reiley 59 Director since August 21, 1986

James E. Crowley 53 Director since January 10, 1989

Robert A. MacNamara 52 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.

(d) Family Relationships - None

(e) Business Experience

1. 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.

2. 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.

3. 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.

4. James E. Crowley has been an owner and operator of various automobile
dealerships for over the last twenty years. Mr. Crowley was President and
controlling shareholder 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.

14
<PAGE>

5. 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.

(f) Involvement in legal proceedings - None
-------------------------------------

Section 16(a) Compliance -Section 16(a) of the Securities Exchange Act of
1934 requires the Company's directors and executive officers, and persons who
own more than ten percent of a registered class of the Company's equity
securities, to file with the Securities and Exchange Commission initial reports
of ownership and reports of changes in ownership of Common Stock and other
equity securities of the Company. Officers, directors and greater than
ten-percent shareholders are required by SEC regulation to furnish the Company
with copies of all Section 16(a) forms they file.

To the Company's knowledge, based solely on written representations that no
other reports were required, during the three fiscal years ended June 30, 1998
through 2000, all Section 16(a) filing requirements applicable to officers,
directors and greater than ten-percent beneficial owners were complied with.

ITEM 11. Executive Compensation
--------------------------------

(b) 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 most highly compensated executive officers of the Company
whose total annual compensation for the fiscal year ended June 30, 2000 exceeded
$100,000.

Long-term All Other
Name and Compen- Compen-
--------- -------- -------
Principal Position Year Salary Bonus Other sation sation
------------------ ---- ------ ----- ----- ------ ------

Harold S. Elkan, 2000 $350,000 $100,000 $ -- $ -- $ --
President 1999 350,000 $100,000 -- -- --
1998 250,000 -- -- -- --

Steven R. Whitman, 2000 100,000 10,000 -- -- --
Chief Financial 1999 100,000 10,000 -- -- --
Officer 1998 100,000 -- -- -- --

The Company has no Long-Term Compensation Plans. Although the Company
provides some miscellaneous perquisites and other personal benefits to its
executives, the amount of this compensation did not exceed the lesser of $50,000
or 10 percent of an executive's annual compensation.

(c)-(f) and (i) 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.

(g) Compensation of Directors - 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.

(h) Employment Contracts, Termination of Employment and Change-in-Control
Arrangements: 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 ($350,000 as of June 30, 2000) 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.

15
<PAGE>

(j) Compensation Committee Interlocks and Insider Participation: Harold S.
Elkan, the Company's President, was appointed by the Company's Board of
Directors as a compensation committee of one to review and set compensation for
all Company employees other than Harold S. Elkan. The Company's outside
Directors set compensation for Harold S. Elkan. None of the executive officers
of the Company had an "interlock" relationship to report for the fiscal year
ended June 30, 2000.

(k) Board Compensation Committee Report on Executive Compensation

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 compensation levels. Annual cash bonus payments are
discretionary and would typically relate to subjective performance criteria.
Bonuses of $100,000 and $10,000 were awarded to Harold Elkan and Steven Whitman,
respectively, in each of the years ended June 30, 1999 and 2000.

In the fiscal year ended June 30, 1993 the outside members of the Board
of Directors approved a new employment agreement for Harold S. Elkan (Elkan)
effective from January 1, 1993 until December 31, 1997. This agreement provided
for annual base salary of $250,000 plus discretionary bonuses as the Board of
Directors may determine and approve. In setting the compensation levels in this
agreement, the Board of Directors, in addition to utilizing their personal
knowledge of executive compensation levels in San Diego, California, referred to
a special compensation study performed in 1987 for the Board of Directors by an
independent outside consultant. The Board of Directors are currently reviewing
information for purposes of entering into a new employment agreement with Elkan.
In the meantime, the Board of Directors approved an increase in Elkan's base pay
to $350,000 annually effective July 1, 1998.

Outside members of Board of Directors approving the Compensation for Harold S.
Elkan:
Patrick D. Reiley
James E. Crowley
Robert A. MacNamara

Directors' Compensation Committee for Other Employees:
Harold S. Elkan

(l) Performance Graph: The following schedule and 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 performance graph and schedule provide information required by regulations
of the Securities and Exchange Commission. However, the Company believes that
this performance graph and schedule could be misleading if it is not understood
that there is limited trading of the Company's stock. The Company's common stock
has traded in the range of $.01 to $.02 for most of the past five years. As a
result, a small increase in the per share price results in large percentage
changes in the value of an investment.

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.

16
<PAGE>

SCHEDULE OF COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
Sports S&P Leisure
Year Ended Arenas, Inc. S&P 500 Time
---------- ----------- ------- -----------
6/95 100 100 100
6/96 100 152 116
6/97 100 200 160
6/98 300 255 128
6/99 200 309 116
6/2000 200 327 95

ITEM 12. Security Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------------
(a) - (c):
----------
Shares Nature of
Beneficially Beneficial Percent
Name and Address Owned Ownership of Class
---------------- -------------- ----------------- --------
Harold S. Elkan 21,808,267 (a) Sole investment 80.0%
5230 Carroll Canyon Road and voting power
San Diego, California

All directors and 21,808,267 Sole investment 80.0%
officer as a group and voting power

(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 3(c) of Notes to
Consolidated Financial Statements.

ITEM 13. Certain Relationships and Related Transactions
--------------------------------------------------------
(a) - (c):
----------

1. The Company has $463,866 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, 2000 ($494,829 as of June 30, 1999). The balance at June
30, 2000 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
December 31 of each year. The balance is due January 1, 2002. The largest amount
outstanding during the year was $514,987 in December 1999.

Elkan's primary source of repayment of the unsecured loans from the Company is
withholding from compensation received from the Company. Due to the Company's
financial condition, there is uncertainty about the Company's ability to
continue funding the additional compensation necessary to repay the unsecured
loans. Therefore, during the year ended June 30, 1999, the Company recorded a
$390,000 charge to reflect the uncertainty of the collectability of the
unsecured loans.

17
<PAGE>

2. 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 (12.25 percent at June 30, 2000) and to be added to the
principal balance annually. As of June 30, 2000 and 1999, $1,230,483 of interest
had been accrued and added to the loan balance. The loan is due in November
2003. The loan is collateralized by 10,900,000 shares of the Company's stock.

Effective January 1, 1999, the Company discontinued recognizing the accrual of
interest income on the note receivable from shareholder. This policy was adopted
in recognition that the shareholder's most likely source of funds for repayment
of the loan is from sale of the Company's stock or dividends from the Company
and that the Company has unresolved liquidity problems. The cumulative amount of
interest that accrued but was not recorded was $359,797 as of June 30, 2000
($117,494 as of June 30, 1999).

18
<PAGE>

PART IV

ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
-------------------------------------------------------------------------

A. The following documents are filed as a part of this report:

1. Financial Statements of Registrant

Independent Auditors' Report 20
Sports Arenas, Inc. and subsidiaries consolidated financial
statements:
Balance sheets as of June 30, 2000 and 1999 21-22
Statements of operations for each of the years in the
three-year period ended June 30, 2000 23
Statements of shareholders' deficit for each of the years
in the three-year period ended June 30, 2000 24
Statements of cash flows for each of the years in the
three-year period ended June 30, 2000 25-26
Notes to financial statements 27-39

2. Financial Statements of Unconsolidated Subsidiaries

UCV, L.P. (a California limited partnership)- 50 percent owned
investee:
Independent Auditors' Report 40
Balance sheets as of March 31, 2000 and 1999 41
Statements of income and partners' deficit for each of the
years 42
in the three-year period ended March 31, 2000
Statements of cash flows for each of years in the
three-year period ended March 31, 2000 43
Notes to financial statements 44-46

3. Financial Statement Schedules

There are no financial statement schedules because they are either not
applicable or the required information is shown in the financial
statement or notes thereto.

4. Exhibits

22.1 Subsidiaries of the Registrant 48

B. Reports on Form 8-K:

No reports on Form 8-K have been filed during the last quarter of the period
covered by this report.

19
<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, 2000 and 1999, 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, 2000. 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 auditing standards generally accepted
in the United States of America. 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, 2000 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 2000, in conformity with accounting principles generally accepted
in the United States of America.

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, 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 LLP

San Diego, California
September 8, 2000

20
<PAGE>

SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS-JUNE 30, 2000 AND 1999

ASSETS

<TABLE>
<CAPTION>
2000 1999
----------- -----------

Current assets:
<S> <C> <C>
Cash and cash equivalents ............................... $ 13,961 $ 357,906
Current portion of notes
receivable-affiliate (Note 3b) ........................ 50,000 50,000
Other receivables ....................................... 193,510 116,404
Inventories (Note 2) .................................... 304,906 310,160
Prepaid expenses ........................................ 238,719 199,668
----------- -----------
Total current assets ................................. 801,096 1,034,138
----------- -----------

Receivables due after one year:
Note receivable- Affiliate, net (Note 3b) ............... 73,866 104,829
Less current portion .................................. (50,000) (50,000)
----------- -----------
23,866 54,829
----------- -----------
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 ................................... 2,347,767 2,137,993
----------- -----------
5,487,094 5,277,320
Less accumulated depreciation
and amortization ........................................ (2,160,132) (1,968,191)
----------- -----------
Net property and equipment .......................... 3,326,962 3,309,129
----------- -----------

Other assets:
Undeveloped land, at cost (Note 4) ...................... 1,501,318 1,582,468
Intangible assets, net (Note 5) ......................... 246,123 294,423
Investments (Note 6) .................................... 564,446 618,853
Other assets ............................................ 137,425 104,980
----------- -----------
2,449,312 2,600,724
----------- -----------

$ 6,601,236 $ 6,998,820
=========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

21
<PAGE>

SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - JUNE 30, 2000 AND 1999 (CONTINUED)

LIABILITIES AND SHAREHOLDERS' DEFICIT

<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Current liabilities:
Assessment district obligation
-in default (Note 4b) ................................. $ 2,831,180 $ 2,565,179
Notes payable-short term (Note 7d) ...................... 1,350,000 --
Current portion of long-term debt (Note 7a) ............. 1,874,000 289,000
Accounts payable ........................................ 796,483 453,203
Accrued payroll and related expenses .................... 164,170 164,877
Accrued property taxes, in default (Note 4b) ............ 356,178 582,859
Accrued interest ........................................ 41,079 14,395
Other liabilities ....................................... 216,009 246,211
----------- -----------
Total current liabilities ............................ 7,629,099 4,315,724
----------- -----------

Long-term debt, excluding
current portion (Note 7a) ................................ 1,967,169 3,911,694
----------- -----------

Distributions received in excess
of basis in investment (Notes 6a and 6b) .................. 14,498,208 12,688,808
----------- -----------

Other liabilities .......................................... 123,831 74,602
----------- -----------

Minority interest in consolidated
subsidiary (Note 6c) ..................................... 1,712,677 1,712,677
----------- -----------

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 ..................................... (19,040,805) (15,415,742)
----------- -----------
(17,038,256) (13,413,193)
Less note receivable from shareholder (Note 3c) ......... (2,291,492) (2,291,492)
----------- -----------
Total shareholders' deficit ........................... (19,329,748) (15,704,685)
----------- -----------

Commitments and contingencies (Notes 4b, 5a, 6c, 8 and 10)

$ 6,601,236 $ 6,998,820
=========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

22
<PAGE>

SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 2000, 1999, AND 1998
<TABLE>
<CAPTION>
2000 1999 1998
----------- ----------- -----------
Revenues:
<S> <C> <C> <C>
Bowling ....................................... $ 2,693,306 $ 2,803,944 $ 2,810,862
Rental ........................................ 644,886 571,094 500,785
Golf .......................................... 1,119,457 383,803 241,636
Other ......................................... 209,671 172,996 146,713
Other-related party (Note 6b) ................. 171,966 165,253 113,755
----------- ----------- -----------
4,839,286 4,097,090 3,813,751
----------- ----------- -----------
Costs and expenses:
Bowling ....................................... 2,065,872 1,952,352 1,997,237
Rental ........................................ 304,342 274,010 251,395
Golf .......................................... 1,660,829 1,031,301 776,780
Development ................................... 225,679 181,018 156,742
Selling, general, and
administrative (Note 3b) .................... 3,582,112 3,840,496 2,695,677
Depreciation and amortization ................. 387,021 381,496 538,985
Provision for impairment
losses (Notes 4a, and 6d) ................... 37,926 90,629 --
----------- ----------- -----------
8,263,781 7,751,302 6,416,816
----------- ----------- -----------

Loss from operations ............................. (3,424,495) (3,654,212) (2,603,065)
----------- ----------- -----------

Other income (expenses):
Investment income:
Related party (Notes 3b and 3c) ............. 38,450 145,276 259,936
Other ....................................... 11,292 21,433 112,141
Interest expense related to
development activities ...................... (266,001) (245,353) (221,844)
Interest expense and amortization
of finance costs ............................ (361,929) (340,870) (472,174)
Equity in income of investees (Note 6a) ....... 377,620 571,793 1,793,457
Provision for impairment
loss - investee (Note 6c) .................... -- -- (480,000)
Recognition of deferred gain (Note 3a) ........ -- -- 716,025
----------- ----------- -----------
(200,568) 152,279 1,707,541
----------- ----------- -----------

Loss from continuing operations .................. (3,625,063) (3,501,933) (895,524)

Net loss from discontinued operations (Note 12d) . -- -- (26,970)
----------- ----------- -----------
(3,625,063) (3,501,933) (922,494)
----------- ----------- -----------
Extraordinary losses from:
Early extinguishment of debt (Note 7a) ........ -- (78,997) --
Early extinguishment of investee debt (Note 6a) -- (98,500) --
----------- ----------- -----------
-- (177,497) --
----------- ----------- -----------

Net loss ......................................... ($3,625,063) ($3,679,430) ($ 922,494)
=========== =========== ===========

Basic and diluted net loss per common share from:
Continuing operations ......................... ($0.13) ($0.13) ($0.03)
Extraordinary items ........................... -- ( 0.01) --
------- ------- -------
($0.13) ($0.14) ($0.03)
======= ======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

23
<PAGE>

SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
YEARS ENDED JUNE 30, 2000, 1999, AND 1998

<TABLE>
<CAPTION>
Common Stock Note
--------------------------- Additional Receivable
Number paid-in Accumulated From
Of Shares Amount Capital Deficit Shareholder Total
------------ ------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
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)

Interest accrued .................. -- -- -- -- (104,286) (104,286)
Net loss .......................... -- -- -- (3,679,430) -- (3,679,430)
------------ ------------ ------------ ------------ ------------ ------------

Balance at June 30, 1999 .......... 27,250,000 272,500 1,730,049 (15,415,742) (2,291,492) (15,704,685)

Net loss .......................... -- -- -- (3,625,063) -- (3,625,063)
------------ ------------ ------------ ------------ ------------ ------------

Balance at June 30, 2000 .......... 27,250,000 $ 272,500 $ 1,730,049 ($19,040,805) ($2,291,492) ($19,329,748)
============ ============ ============ ============ ============ ============
</TABLE>

See accompanying notes to consolidated financial statements.

24
<PAGE>

SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2000, 1999, AND 1998

<TABLE>
<CAPTION>
2000 1999 1998
----------- ----------- -----------
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss ......................................... ($3,625,063) ($3,679,430) ($ 922,494)
Adjustments to reconcile net loss to the
net cash used by operating activities:
Amortization of deferred financing costs ... 9,120 13,565 23,455
Depreciation and amortization .............. 387,021 381,496 543,178
Equity in income of investees .............. (377,620) (473,293) (1,793,457)
Deferred income ............................ 48,000 48,000 --
Interest income accrued on note
receivable from shareholder .............. -- (104,286) (216,801)
Interest accrued on assessment
district obligations ..................... 266,001 245,353 221,844
Provision for note receivable- affiliate ... -- 390,000 --
Provision for impairment losses ............ 37,926 90,629 480,000
(Gain) loss on sale of assets .............. 1,793 -- (10,279)
Recognition of deferred gain ............... -- -- (716,025)
Extraordinary loss on debt extinguishment .. -- 78,997 --
Changes in assets and liabilities:
(Increase) decrease in other receivables .... (77,106) 50,023 (98,183)
(Increase) decrease in assets
of discontinued operation ................ -- -- 130,607
(Increase) decrease in inventories .......... 5,254 (7,565) (213,477)
(Increase) decrease in prepaid expenses ..... (39,051) 46,467 (121,829)
Increase (decrease) in accounts payable .... 343,280 (124,644) 188,337
Increase (decrease) in accrued expenses
and other liabilities .................... (230,906) 239,905 46,650
Increase (decrease) in liabilities
of discontinued operation ................ -- -- (77,105)
Other ...................................... (8,705) 26,793 2,916
----------- ----------- -----------
Net cash used by operating activities .... (3,260,056) (2,777,990) (2,532,663)
----------- ----------- -----------
Cash flows from investing activities:
Decrease in notes receivable .................. 30,963 40,684 768,108
Additions to property and equipment ........... (335,920) (140,801) (321,483)
Proceeds from sale of discontinued
operation (Note 12d) ........................ -- -- 30,207
Proceeds from sale of other assets ............ -- -- 26,950
Proceeds from sale of undeveloped
land (Note 4a) .............................. 190,362 -- --
Increase in development costs on
undeveloped land ............................ (109,850) (7,454) --
Distributions received from investees ......... 2,193,400 1,419,671 4,258,511
Contributions to investees .................... (43,319) -- --
Distribution to holder of minority interest ... -- (50,000) (450,000)
----------- ----------- -----------
Net cash provided by investing activities 1,925,636 1,262,100 4,312,293
----------- ----------- -----------
Cash flows from financing activities:
Scheduled principal payments .................. (283,598) (261,528) (934,683)
Proceeds from short-term borrowings ........... 1,900,000 -- 400,000
Payments of short-term borrowings ............. (550,000) -- (650,000)
Proceeds from refinancing of long-term debt.... -- 1,975,000 --
Loan costs .................................... -- (62,598) --
Extinguishment of long-term debt .............. (75,927) (1,147,561) --
Costs to extinguish long-term debt ............ -- (45,977) --
----------- ----------- -----------
Net cash provided (used) by
financing activities .................... 990,475 457,336 (1,184,683)
----------- ----------- -----------
Net increase (decrease) in cash and equivalents .. (343,945) (1,058,554) 594,947
Cash and cash equivalents, beginning of year ..... 357,906 1,416,460 821,513
----------- ----------- -----------
Cash and cash equivalents, end of year ........... $ 13,961 $ 357,906 $ 1,416,460
=========== =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements

25
<PAGE>

SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED JUNE 30, 2000, 1999, AND 1998

SUPPLEMENTAL CASH FLOW INFORMATION:
2000 1999 1998
--------- --------- ---------
Interest paid $ 326,000 $ 341,000 $ 451,000
------------- ========= ========= =========

Supplemental schedule of non-cash investing and financing activities:
---------------------------------------------------------------------
Long-term debt of $45,486 was incurred in 1998 to finance capital expenditures
of $70,849 in 1998.

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.

During the year ended June 30, 2000, the Company discarded fully depreciated
equipment with a cost and accumulated depreciation of $112,829.

During the year ended June 30, 2000, the Company abandoned leasehold
improvements with a cost of $13,317 and accumulated depreciation of $12,162.

See accompanying notes to consolidated financial statements.

26
<PAGE>

SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000, 1999 AND 1998

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 investments in entities in
which its ownership interest 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 $299,960 at June 30, 1999 and none at June 30, 2000.

Inventories - Inventories are stated at the lower of cost (first-in,
first-out) or market and relate to golf shaft manufacturing.

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 range from 3 to 15 years
for the other assets.

Investments - 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, which approximates
the effective interest method. Unamortized loan costs related to loans
refinanced or paid prior to their contractual maturity are written off.
Goodwill related to the acquisition of a bowling center was amortized over 5
years on the straight-line method and was 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.

27
<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.

Fair value of financial instruments - The following methods and assumptions
were used to estimate the fair value of each class of financial instruments
where it is practical to estimate that value:
Cash,cash equivalents, other receivables, accounts payable, and notes
payable- short term - the carrying amount reported in the balance
sheet approximates the fair value due to their short-term maturities.
Note receivable-affiliate - It is impractical to estimate the fair value of
the note receivable-affiliate due to the related party nature of the
instrument.
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 generally accepted accounting
principles. Actual results could differ from these estimates.

Loss per share- 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, 2000.

2. Inventories:

Inventories consist of the following:
2000 1999
--------- ---------
Raw materials $ 86,152 $ 99,220
Work in process 100,317 75,651
Finished goods 118,437 135,289
---------- ----------
$304,906 $310,160
========== ==========

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.

28
<PAGE>

(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 $38,450, $40,990, and $43,135 in 2000,
1999, and 1998, respectively. The outstanding balance of $463,866 at
June 30, 2000 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, 2002.

Elkan's primary source of repayment of unsecured loans from the Company
is withholding from compensation received from the Company. Due to the
Company's financial condition, there is uncertainty about the Company's
ability to continue funding the additional compensation necessary to
repay the unsecured loans. Therefore, during the year ended June 30,
1999, the Company recorded a $390,000 charge to reflect the uncertainty
of the collectability of the unsecured loans. This charge is included in
selling, general and administrative expense.

(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 (12.25 percent at June 30, 2000) 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 $1,230,483 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
$104,286 in 1999 and $216,801 in 1998.

Effective January 1, 1999, the Company discontinued recognizing the
accrual of interest income on the note receivable from shareholder. This
policy was adopted in recognition that the shareholder's most likely
source of funds for repayment of the loan is from sale of the Company's
stock or dividends from the Company and that the Company has unresolved
liquidity problems. The cumulative amount of interest that accrued but
was not recorded was $359,797 as of June 30, 2000 ($117,494 as of June
30, 1999).

4. Undeveloped land:

Undeveloped land consisted of the following at June 30, 2000 and 1999:

2000 1999
----------- -----------
Lake of Ozarks, MO .................. $ -- $ 281,629
Less provision for impairment loss -- (90,629)
Temecula, CA ........................ 3,910,318 3,800,468
Less provision for impairment loss ( 2,409,000) ( 2,409,000)
----------- -----------
$1,501,318 $1,582,468
=========== ===========

(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. On September 7, 1999, the Company
sold the land for cash of $215,000, less selling expenses of $24,638. As
a result of the sale, the Company recorded a provision for impairment
loss as of June 30, 1999 of $90,629 to reduce the carrying value to the
net sales proceeds realized.

(b) RCSA Holdings, Inc. (RCSA), a wholly owned subsidiary of the Company, owns
a 50 percent managing general partnership interest in Old Vail Partners, a
general partnership (OVPGP), which owns 33 acres of undeveloped land in
Temecula, California. On September 23, 1999, the other partner assigned
his partnership interest to Downtown Properties, Inc., a wholly owned
subsidiary of the Company. Once the legal matters described below are
resolved, OVPGP is obligated to assign its interest in the 33 acres of
land to Old Vail Partners, L.P. (see Note 6c).

29
<PAGE>

The carrying value of the property consists of:
2000 1999
---------- ----------
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 333,214 223,364
---------- ----------
3,910,318 3,800,468
Provision for impairment loss ( 2,409,000) (2,409,000)
---------- ----------
$ 1,501,318 $ 1,391,468
=========== ===========

The 33 acres of land owned by OVPGP 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 (required 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. OVPGP has been delinquent in the payment of
property taxes and assessments for over the last eight years. The property
is currently subject to default judgments to the County of Riverside,
California totaling approximately $2,132,421 regarding delinquent
assessment district payments ($1,776,243) and property taxes ($356,178).

The County had scheduled the 33 acres for public sale for the defaulted
property taxes on September 27, 1999. OVPGP had unsuccessfully attempted to
negotiate a payment plan with the County subject to the successful
resolution of the zoning problems with the property described below. On
September 23, 1999 OVPGP filed a petition for relief under Chapter 11 of
the federal bankruptcy laws in the United States Bankruptcy Court. The
primary claim affected by this action was the County's secured claim for
delinquent taxes and assessment district payments. OVPGP's plan was to use
the relief from stay to continue its efforts to negotiate a settlement of
the zoning issues described below, and restore the economic value of the
property. The bankruptcy proceeding was dismissed on February 15, 2000 with
the concurrence of OVPGP. This dismissal allows the County of Riverside to
proceed with a public sale of the property within 45 days after giving
notice. On June 23, 2000, the County of Riverside agreed to remove the
property from the planned public sale originally scheduled for June 26,
2000 in exchange for an immediate payment of $330,000 with the balance of
property taxes due on December 29, 2000. Separately, the County of
Riverside stated that a foreclosure sale related to the default judgement
for assessment district payments would not be scheduled until some time
after January 1, 2001.

OVPGP has applied to the City of Temecula for approval of a development
plan which includes a combination of multi-family and commercial uses. If
this plan is approved or the zoning is otherwise restored, OVPGP expects
that it would either be able to develop or sell the property, using the
proceeds from development loans or sale to satisfy the County's claims.

The following is summarized balance sheet information of OVPGP included in
the Company's consolidated balance sheet as of June 30, 2000 and 1999:
2000 1999
----------- -----------
Assets:
Undeveloped land (Note 4c) .... $ 1,501,318 $ 1,391,468
Liabilities:
Assessment district
obligation-in default ........ 2,831,180 2,565,179
Accrued property taxes ........ 356,178 582,859

30
<PAGE>

The delinquent principal, interest and penalties ($1,776,243) and the
remaining principal balance of the allocated portion of the assessment
district bonds ($1,054,937) are classified as "Assessment district
obligation- in default" in the consolidated balance sheet at June 30, 2000.
In addition, accrued property taxes in the balance sheet at June 30, 2000
includes $356,178 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 OVPGP 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 OVPGP'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. OVPGP
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 OVPGP's property
without payment of just compensation. OVPGP is seeking to have the
effective re-zoning invalidated and an unspecified amount of damages. OVPGP
has previously suffered adverse outcomes in other suits filed in relation
to this matter. A stipulation was entered that dismissed this suit without
prejudice and agreed to toll all applicable statute of limitations while
OVPGP 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.

As a result of the County's judgements for defaulted taxes 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, 2000 and 1999:
2000 1999
--------- ---------
Deferred lease costs:
Subleasehold interest ......... $ 111,674 $ 111,674
Less accumulated amortization ( 33,689) ( 31,793)
Lease inception fee ........... 232,995 232,995
Less accumulated amortization (121,143) (83,859)
--------- ---------
189,837 229,017
--------- ---------
Deferred loan costs ............. 82,598 87,712
Less accumulated amortization .. (26,312) (22,306)
--------- ---------
56,286 65,406
--------- ---------
$ 246,123 $ 294,423
========= =========

(a) The Company is a sublessor of 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 $162,000 per year for the remaining term of 43 years
(aggregate of $6,966,000). The Company is obligated to pay the greater
of a base rent (currently $162,000), adjusted every five years based on
an increase in a consumer price index, or 85 percent of the minimum rent

31
<PAGE>

due from the sublessees. The minimum rent had been $81,000 annually
until October 1, 1998. The future minimum rents due to the Company from
the sublessees are approximately $160,000 per year for the remaining
term of 43 years (aggregate of approximately $6,927,000). The subleases
provide for increases every five years based on increases in a 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.

6. Investments:
(a) Investments consist of the following:
2000 1999
------------ ------------
Accounted for on the equity method:
Investment in UCV, L.P. .................. $(14,498,208) $(12,688,808)
Vail Ranch Limited Partnership ........... 564,446 580,927
------------ -----------
(13,933,762) (12,107,881)
Less Investment in UCV, L.P. classified as
liability- Distributions received
in excess of basis in investment ........ 14,498,208 12,688,808
------------ -----------
564,446 580,927
------------ -----------
Accounted for on the cost basis:
All Seasons Inns, La Paz ................. 37,926 37,926
Less provision for impairment loss ..... (37,926) --
------------ -----------
-- 37,926
------------ -----------
Total investments $ 564,446 $ 618,853
============ ===========

The following is a summary of the equity in income (loss) (before
extraordinary loss of $98,500 related to UCV, L.P. during the year ended
June 30, 1999):
2000 1999 1998
--------- --------- ----------
UCV, L.P. ........... $ 437,420 $ 516,713 $ 343,121
Vail Ranch Limited
Partnerhsip ........ (59,800) 55,080 1,450,336
--------- --------- ----------
$ 377,620 $ 571,793 $1,793,457
========= ========= ==========

(b) Investment in UCV, L.P. (real estate operation segment):
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):
2000 1999 1998
---------- ----------- -----------
Total assets ...................... $3,013,000 $ 2,556,000 $ 1,765,000
Total liabilities ................. 29,630,000 25,511,000 20,110,000

Revenues .......................... 4,824,000 4,622,000 4,490,000
Operating and general and
administrative costs ............ 1,658,000 1,510,000 1,520,000
Redevelopment planning costs -- -- 6,000
Depreciation ...................... 26,000 29,000 176,000
Interest and amortization of
loan costs ...................... 2,265,000 2,049,000 2,103,000
Extraordinary loss from early debt
extinguishement ................. -- 197,000 --
Net income ........................ 875,000 837,000 685,000

The apartment project is managed by the Company, which recognized
management fee income of $123,966, $117,253, and $113,755 in the
twelve-month periods ended June 30, 2000, 1999, and 1998, respectively. In
addition, pursuant to a development fee agreement with UCV dated July 1,
1998, the Company received development fees totaling $96,000 each in the
years ended June 30, 2000 and 1999, of which $48,000 in each year was
recorded as deferred income.

32
<PAGE>

A reconciliation of distributions received in excess of basis in UCV as of
June 30 is as follows:
2000 1999
----------- -----------
Balance, beginning ............... $12,688,808 $12,280,101
Equity in income ................. (437,420) (418,213)
Cash distributions ............... 2,193,400 773,500
Amortization of purchase price in
excess of equity in net assets 53,420 53,420
----------- -----------
Balance, ending .................. $14,498,208 $12,688,808
=========== ===========

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 a 60
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 $500,000 was paid during the years ended June 30, 1998
and 1999. This limited partner's capital account balance is presented as
"Minority interest" in the consolidated balance sheets.

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 for Temecula Creek, LLC (Temecula Creek) 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 additional distributions totaling $646,171 in 1999 related to the
distribution VRLP received from the limited liability company and
miscellaneous property tax refunds. Hereafter, VRLP's partnership agreement
provides for OVP to receive 60 percent of future distributions, income and
loss.

The following is summarized financial information of VRLP as of June 30,
2000 and 1999 and for the years then ended:
2000 1999
-------- --------
Assets:
Investment in Temecula Creek .. $822,000 $800,000
Other assets .................. 14,000 54,000
Total assets ............. 836,000 854,000
Total liabilities .............. 17,000 --
Partners' capital .............. 819,000 854,000
Revenues ....................... 10,000 133,000
Equity in loss of Temecula Creek (39,000) (82,000)
Net income (loss)............... (86,000) 71,000

33
<PAGE>

The following is a reconciliation of the investment in Vail Ranch Limited
Partnership:
2000 1999
--------- -----------
Balance, beginning $ 580,927 $ 1,172,018
Distributions ............. -- (646,171)
Contributions ............. 43,319 --
Equity in net income (loss) (59,800) 55,080
--------- -----------
Balance, ending $ 564,446 $ 580,927
========= ===========

(d) 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 cost basis of this investment
($162,629) has been reduced by provisions for impairment loss of $37,926
recorded in the year ended June 30, 2000 and $125,000 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 cash payments of
$27,074 received to date (representing accrued interest through December
1996) were applied to reduce the cost of the investment.

7. Long-term and short-term debt:
(a) Long-term debt consists of the following:

2000 1999
--------- ---------
8.15% note payable collateralized by first trust
deed on $1,170,000 of land and office building,
due in monthly installments of $14,699 including
interest, balance due in May 2009.................. 1,957,592 1,973,715

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 balance is due July 2001.... 83,960 161,462

8-1/2% note payable to bank, collateralized by deed
of trust on $282,000 of undeveloped land, paid
September 1999.................................... -- 75,927

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 interest
and varying principal payments, balance
due December 31, 2000. See (e) below............. 1,680,920 1,768,583

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.................... 79,138 164,370

Other................................................ 39,559 56,637
---------- ----------
3,841,169 4,200,694
Less current maturities.............................. (1,874,000) (289,000)
---------- ----------
$1,967,169 $3,911,694
========== ==========

34
<PAGE>

Property and equipment held as collateral for the notes are carried at
historical cost less valuation adjustments.

On May 11, 1999 the Company used the proceeds of a $1,975,000 loan to
payoff an existing note payable of $1,147,560. The prepayment of the
existing note resulted in a prepayment penalty of $45,977 and the write-off
of unamortized loan fees of $33,020, both of which were charged to
extraordinary loss from early extinguishment of debt.

The principal payments due on notes payable during the next five fiscal
years are as follows: $1,874,000 in 2001, $45,000 in 2002, $21,000 in 2003,
$22,000 in 2004, and $24,000 in 2005.

(b) 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.

(c) On August 24, 1999 and September 25, 1999 the Company borrowed a total of
$550,000 from the Company's partner in UCV on an unsecured note payable.
Payments of interest only were due monthly at a base rate plus 1 percent
(9-1/4% at September 25, 1999). The loan plus interest of $4,562 was paid
on October 14, 1999.

(d) Through June 30, 2000, the Company has borrowed a total of $1,350,000 from
the Company's partner in UCV. The Company has borrowed an additional
$700,000 through September 11, 2000. The loans are unsecured, due on demand
and bear interest at monthly at a base rate plus 1 percent (9-1/2% at June
30, 2000. The Company has agreed in principal to assign to the Company's
partner in UCV two percent of its right to distributions from OVPGP and
five percent of its right to distributions from Penley Sports.

(e) On September 12, 2000, the Company agreed to terms to extend the due date
of a note payable with a balance of $1,680,920 at June 30, 2000 from August
30, 2000 to December 31, 2000. The Company has the option to extend the due
date to August 31, 2001 by paying a $25,000 extension fee. The interest
rate was modified from a fixed rate of 8% to a rate adjusted monthly equal
to a base rate plus 3 percentage points (approximately 9-1/2 % at September
12, 2000) from August 31 to December 31, 2000 and a base rate plus 3-1/2
percentage points from January 1 through August 30, 2001. In addition to
the monthly payment of interest, monthly principal payments are due as
follows: $5,000 in October through December 2000; $10,000 in January
through March 2001; $20,000 in April through June 2001; and $30,000 in July
and August 2001. In addition to these principal payments, a principal
payment of $250,000 is due by December 31, 2000, $200,000 of which must be
made from the proceeds of any sale of the Company's office building. Due to
the Company's liquidity problems as described in Note 13 and the
uncertainty of the office building sale, the balance of this note is
included in current portion of long-term debt.

(f) 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 2001 through 2003
and $1,080,000 in the aggregate. This lease expires in June 2003 and
contains three 5-year options at rates increased by 10-15 percent over the

35
<PAGE>

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 2000, 1999 and 1998.

The Company also leases its golf shaft manufacturing plant under a ten year
operating lease agreement, which commenced April 1, 2000. The lease
provides for fixed annual minimum rentals in addition to taxes, insurance
and maintenance for each of the years ending June 30 as follows: 2001-
$221,000, 2002- $227,000, 2003- $234,000, 2004- $241,000, 2005- $247,000,
thereafter- $1,171,000. Commencing April 1, 2005 the lease provides for
adjustments to the rent based on increases in a consumer price index, not
to exceed six percent per annum. The lease also provides for two options
that each extend the lease for an additional five years. The rent for the
first year of the first option will be based on a five percent increase
over the previous year's rent. Subsequent year's rent will be adjusted
based on increases in the consumer price index. The Company had previously
leased facilities for its golf shaft manufacturing plant pursuant to an
operating lease that expired June 30, 2000. Rental expense for the
manufacturing facilities was $112,252 in 2000, of which $66,760 related to
the old plant, $53,834 in 1999, and $43,822 in 1998.

(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, 2000, his annual salary was
$350,000.

(c) 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, 2000, 1999 and 1998, 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, 2000, the Company had net operating loss carry-forwards of
$10,745,000 for federal income tax purposes. The carryforwards expire from
years 2001 to 2020. 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, 2000 and 1999.

The following is a reconciliation of the normal expected federal income tax
rate of 34 percent to the income (loss) in the financial statements:
2000 1999 1998
------- ------- ---------
Expected federal income tax benefit $(1,233,000) $(1,251,000) $(314,000)
Increase (decrease) in valuation
allowance ...................... (121,000) 1,199,000 284,000
Expiration of net operating loss
carryforward ................... 1,340,000 -- --
Other ............................. 14,000 52,000 30,000
----------- ----------- ---------
Provision for income tax expense $ -- $ -- $ --
=========== =========== =========

36
<PAGE>

The following is a schedule of the significant components of the Company's
deferred tax assets and deferred tax liabilities as of June 30, 1999 and
1998:
2000 1999
---------- ----------
Deferred tax assets (liabilities):
Net operating loss carryforwards ..... $3,653,000 $3,962,000
Accumulated depreciation and
amortization ....................... 468,000 487,000
Valuation allowance for impairment
losses ............................. 1,366,000 1,268,000
Other ................................ 455,000 346,000
---------- ----------
Total net deferred tax assets ...... 5,942,000 6,063,000
Less valuation allowance ........... (5,942,000) (6,063,000)
---------- ----------
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, occasionally with options to renew. The Company is also a sublessor of
land to condominium owners under operating leases with an approximate
remaining term of 44 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: $197,000 in 2001, $109,000 in 2002,
$13,000 in 2003, none thereafter, and $319,000 in the aggregate.

The following is a schedule of the Company's rental property included in
property and equipment as of June 30, 2000 and 1999:
2000 1999
---------- -----------
Land $ 258,000 $ 258,000
Building 773,393 773,393
Tenant improvements 140,306 138,358
---------- -----------
1,171,699 1,169,751
Accumulated depreciation (424,821) (359,505)
---------- -----------
$ 746,878 $ 810,246
========== ===========

On September 28, 2000 the Company agreed to sell the office building for
$3,725,000. The sale is contingent on the results of the buyers day due
diligence period and the existing lender's approval of the buyer assuming
the loan (balance of $1,957,592 as of June 30, 2000) related to the office
building. The following is a summary of the results from operations of the
office building included in the financial statements:

2000 1999 1998
--------- --------- ---------
Rents $ 477,000 $ 424,000 $ 361,000
Costs 112,000 138,000 118,000
Allocated SG&A 26,000 21,000 18,000
Depreciation 80,000 79,000 66,000
--------- --------- ---------
Income from operations 259,000 186,000 159,000
Interest expense 167,000 137,000 133,000
--------- --------- ---------
Income from continuing operations 92,000 49,000 26,000
========= ========= =========

11. Business segment information:

The Company operates principally in four business segments: bowling centers,
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. A 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
and development 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.
37
<PAGE>

The following is summarized information about the Company's operations by
business segment.
<TABLE>
<CAPTION>
Real Real Unallocated
Estate Estate And
Bowling Operation Development Golf Other Totals
----------- ----------- ----------- ----------- ----------- -----------
YEAR ENDED JUNE 30, 2000
------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues ........................... $ 2,693,306 $ 709,182 -- $ 1,119,457 $ 381,637 $ 4,903,582
Depreciation and
amortization ..................... 104,211 135,405 -- 97,452 49,953 387,021
Impairment losses .................. -- -- -- -- 37,926 37,926
Interest expense ................... 141,777 166,528 267,022 13,473 39,130 627,930
Equity in income of
investees ........................ -- 437,420 (59,800) -- -- 377,620
Segment profit (loss) .............. (463,375) 514,327 (572,501) (2,750,612) (402,644) (3,674,805)
Investment income .................. -- -- -- -- -- 49,742
Loss from continuing
operations ....................... -- -- -- -- -- (3,625,063)
Segment assets ..................... 1,846,575 986,767 2,066,888 1,448,947 252,059 6,601,236
Expenditures for
segment assets ................... 20,146 1,948 109,850 294,386 19,440 445,770

YEAR ENDED JUNE 30, 1999
------------------------
Revenues ........................... $ 2,803,944 $ 632,705 -- $ 383,803 $ 338,249 $ 4,158,701
Depreciation and
amortization ..................... 108,708 134,570 -- 86,103 52,115 381,496
Impairment losses .................. -- -- 90,629 -- -- 90,629
Interest expense ................... 148,106 137,091 251,973 22,013 27,040 586,223
Equity in income of
investees ........................ -- 516,713 55,080 -- -- 571,793
Segment profit (loss) .............. (268,730) 582,747 (495,540) (2,673,049) (814,070) (3,668,642)
Investment income .................. -- -- -- -- -- 166,709
Loss from continuing
operations ....................... -- -- -- -- -- (3,501,933)
Segment assets ..................... 1,997,376 1,054,729 2,644,111 1,157,089 145,515 6,998,820
Expenditures for
segment assets ................... 38,960 2,383 7,454 96,271 3,187 148,255

YEAR ENDED JUNE 30, 1998
------------------------
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
</TABLE>

2000 1999 1998
---------- ---------- ----------
Revenues per segment schedule.. $4,903,582 $4,158,701 $3,872,995
Intercompany rent eliminated... (64,296) (61,611) (59,244)
---------- ---------- ----------
Consolidated revenues ......... $4,839,286 $4,097,090 $3,813,751
========== ========== ==========

38
<PAGE>

12. Significant Event:

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, which are presented in the consolidated statements
of operations for the year ended June 30, 1998 as discontinued operations.

Revenues ............................. $1,359,879
Costs ................................ 1,215,857
Selling, general and administrative:
Direct ............................. 116,819
Allocated .......................... 49,000
Depreciation ......................... 4,193
Interest expense ..................... 980
Net income (loss) from discontinued
operations ......................... (26,970)
Basic and diluted net income (loss)
per common share from discontinued
operations ......................... ($.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, 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.

39
<PAGE>

INDEPENDENT AUDITORS' REPORT

General Partners
UCV, L.P., a California limited partnership:

We have audited the accompanying balance sheets of UCV, L.P., a California
limited partnership, as of March 31, 2000 and 1999, and the related statements
of income and partners' deficit and cash flows for each of the years in the
three-year period ended March 31, 2000. These financial statements are the
responsibility of UCV, L.P.'s management. Our responsibility is to express an
opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of UCV, L.P., a California limited
partnership, as of March 31, 2000 and 1999, and the results of its operations
and its cash flows for each of the years in the three-year period ended March
31, 2000, in conformity with accounting principles generally accepted in the
United States of America.

KPMG LLP

San Diego, California
August 29, 2000

40
<PAGE>

UCV, L.P.
(a California Limited Partnership)
BALANCE SHEETS - MARCH 31, 2000 and 1999

ASSETS

2000 1999
------------ ------------
Property and equipment (Note 3):
Land ................................... $ 1,289,565 $ 1,289,565
Buildings .............................. 5,189,188 5,189,188
Equipment .............................. 529,825 512,860
------------ ------------
7,008,578 6,991,613
Less accumulated depreciation .......... (5,670,346) (5,644,010)
------------ ------------
1,338,232 1,347,603

Cash ........................................ 293,684 338,867
Restricted cash (Note 3) .................... 157,420 110,559
Accounts receivable ......................... 12,167 13,977
Prepaid expenses ............................ 109,199 104,666
Redevelopment planning costs ................ 831,154 333,113
Deferred loan costs, less accumulated
amortization of $295,196 in 2000 and
$135,377 in 1999 ......................... 270,767 307,672
------------ ------------

$ 3,012,623 $ 2,556,457
============ ============

LIABILITIES AND PARTNERS' DEFICIT

Long-term debt (Note 3) ..................... $ 29,039,490 $ 25,000,000
Accounts payable ............................ 156,529 158,706
Accrued interest ............................ 208,053 150,694
Other accrued expenses ...................... 30,559 22,347
Tenants' security deposits .................. 195,534 179,709
------------ ------------

29,630,165 25,511,456

Partners' deficit ........................... (26,617,542) (22,954,999)
------------ ------------

$ 3,012,623 $ 2,556,457
============ ============

See accompanying notes to financial statements.

41
<PAGE>

UCV, L.P.
(a California Limited Partnership)
STATEMENTS OF INCOME AND PARTNERS' DEFICIT
YEARS ENDED MARCH 31, 2000, 1999 AND 1998

2000 1999 1998
------------ ------------ ------------
Revenues:
<S> <C> <C> <C>
Apartment rentals ..................... $ 4,650,709 $ 4,455,235 $ 4,332,273
Other rental related .................. 173,092 166,529 158,274
------------ ------------ ------------
4,823,801 4,621,764 4,490,547
------------ ------------ ------------

Costs and expenses:
Operating ............................. 1,299,381 1,186,348 1,214,612
General and administrative ............ 236,045 207,828 191,886
Management fees, related party (Note 2) 122,194 116,088 113,538
Redevelopment planning costs .......... -- -- 5,808
Depreciation .......................... 26,336 28,563 175,515
Interest and amortization of loan costs 2,264,888 2,049,110 2,102,944
------------ ------------ ------------
3,948,844 3,587,937 3,804,303
------------ ------------ ------------

Income before extraordinary loss ......... 874,957 1,033,827 686,244

Extraordinary loss from the early
extinguishment of debt ................. -- (197,401) _
------------ ------------ ------------

Net income ............................... 874,957 836,426 686,244

Partners' deficit, beginning of year ..... (22,954,999) (18,344,925) (18,107,169)

Cash distributed to partners ............. (4,537,500) (5,446,500) (924,000)
------------ ------------ ------------

Partners' deficit, end of year ........... $(26,617,542) $(22,954,999) $(18,344,925)
============ ============ ============
</TABLE>

See accompanying notes to financial statements

42
<PAGE>

UCV, L.P.
(a California Limited Partnership)
STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
2000 1999 1998
------------ ------------ ------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income .............................. $ 874,957 $ 836,426 $ 686,244
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation .......................... 26,336 28,563 175,515
Amortization of deferred loan costs ... 159,819 145,343 119,592
Extraordinary loss from extinguishment
of debt ............................ -- 197,401 --
Changes in assets and liabilities:
(Increase) decrease in restricted cash (46,861) 5,808 50,361
Decrease in accounts receivable ....... 1,810 14,671 2,482
(Increase) decrease in prepaid expenses (4,533) (4,126) (28,713)
Increase (decrease) in accounts payable
and other accrued expenses ........... 6,035 80,112 (62,624)
Increase in accrued interest .......... 57,359 150,694 --
Other ................................. 15,825 3,951 3,672
------------ ------------ ------------

Net cash provided by operating activities 1,090,747 1,458,843 946,529
------------ ------------ ------------

Net cash from investing activities:
Additions to redevelopment planning costs (498,041) (303,649) (29,464)
Additions to property and equipment ..... (16,965) (37,433) (13,184)
------------ ------------ ------------
Net cash used by investing activities ... (515,006) (341,082) (42,648)
------------ ------------ ------------

Cash flows from financing activities:
Extinguishment of long-term debt ........ -- (19,833,500) --
Costs related to early extinguishment of
long-term debt ........................ -- (157,521) --
Proceeds from long term debt ............ 4,039,490 25,000,000 --
Loan costs .............................. (122,914) (383,049) (60,000)
Cash distributed to partners ............ (4,537,500) (5,446,500) (924,000)
------------ ------------ ------------

Net cash used by financing activities ... (620,924) (820,570) (984,000)
------------ ------------ ------------

Net increase (decrease) in cash ............ (45,183) 297,191 (80,119)

Cash, beginning of year .................... 338,867 41,676 121,795
------------ ------------ ------------

Cash, end of year .......................... $ 293,684 $ 338,867 $ 41,676
============ ============ ============

Supplemental cash flow information:
Interest paid ........................... $ 2,047,710 $ 1,753,073 $ 1,983,350
============ ============ ============
</TABLE>
Non-cash investing activities:
In the year ended March 31, 1999 the Partnership disposed of fully
depreciated assets with a cost and accumulated depreciation of $22,213.

See accompanying notes to financial statements.

43
<PAGE>

UCV, L.P.
(a California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2000, 1999 AND 1998

1. Organization and Summary of Significant Accounting Policies:
(a) Organization- Effective June 1, 1994 the form of organization was
changed from a joint venture to a limited partnership and the name of
the entity was changed from University City Village to UCV, L.P., a
California limited partnership (the Partnership). The Partnership
conducts business as University City Village.

(b) Leasing arrangements- The Partnership leases apartments under operating
leases that are substantially all on a month-to-month basis. The
apartment operations are the Partnership's only business segment.

(c) Property and equipment and depreciation- Property and equipment are
stated at cost. Depreciation is provided using the straight-line method
based on the estimated useful lives of the property and equipment (33
years for real property and 3-10 years for equipment). The depreciable
basis of the property and equipment for tax purposes is essentially the
same as the financial statement basis.

(d) Income taxes- For income tax purposes, any profit or loss from
operations is includable in the income tax returns of the partners and,
therefore, a provision for income taxes is not required in the
accompanying financial statements.

(e) Redevelopment planning costs- The Partnership capitalizes engineering,
architectural and other costs incurred related to the planning of the
possible redevelopment of the apartment project. In the year ended March
31, 1998 the Partnership expensed as incurred certain redevelopment
planning expenses that had no future benefit.

(f) Deferred loan costs- Costs incurred in obtaining financing are amortized
using the straight-line method over the term of the related loan.

(g) 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,restricted cash, accounts receivable, accounts payable, accrued
interest and other accrued expenses- the carrying amount reported
in the balance sheet approximates the fair value due to their
short-term maturities.

Long-term debt - The carrying value of long-term debt reported in the
balance sheet approximates the fair value based on management's
belief that the interest rates and terms of the debt are
comparable to those commercially available to the Partnership in
the marketplace for similar instruments.

(h) Use of estimates - Management of the Partnership 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 financial statements and reported amounts of revenue and
expenses during the reporting period to prepare these financial
statements in conformity with general accepted accounting principles.
Actual results could differ from these estimates.

(i) Valuation impairment - Long-lived assets and certain identifiable
intangibles are 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.

44
<PAGE>

UCV, L.P.
(a California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 2000, 1999 AND 1998

2. Related party transactions:

An affiliate of a partner provides management services for an unspecified
term to the Partnership and is paid a fee equal to 2-1/2 percent of gross
revenues, as defined. A general contractor that was an affiliate of a partner
was paid $27,302 in 1998 for roof repairs and other maintenance.

In July 1998 the Partnership entered into development services agreements
with two affiliates of a partner. The agreements are cancelable on 30 days
notice and relate to planning for redevelopment of the apartments. During the
years ended March 31, 2000 and 1999, the affiliate was paid $96,000 and
$72,000, respectively, for these development services.

3. Long-term debt:

As of March 31, 1998 long-term debt was a $19,833,500 note payable that
originated in June 1994 and was scheduled to mature in September 1998. The
note provided for payments of interest only at a fixed annual rate of 10
percent. On May 4, 1998 the Partnership paid the $19,833,500 note with the
proceeds of a $25,000,000 note payable. The note was scheduled to mature May
1, 2001. On October 14, 1999, the loan amount was increased by $4,450,000, of
which the lender is holding back $410,510 for capital replacements, and
modified its existing long-term loan agreement. The interest rate on the
original $25,000,000 loan remains unchanged, however the due date of the loan
was changed from May 1, 2001 to October 15, 2001. The loan may not be prepaid
prior to January 1, 2001. On maturity, a fee of up to $294,500 may be due
under certain circumstances. The note payable is collateralized by the land,
buildings, leases and security deposits. Payments are due as follows:

2000 1999
----------- -----------
Payable through April 2000 in monthly installments
of interest only (7.94% as of March 31, 2000)
based on a variable rate of interest equal to
LIBOR plus 2 percentage points, thereafter
payable in monthly installments of interest
plus principal based on a 25 year amortization
schedule ....................................... $25,000,000 $25,000,000
Payable through April 2000 in monthly installments
of interest only (10.69% as of March 31, 2000)
based on a variable rate of interest equal to
the greater of 10% or LIBOR plus 4.75 percentage
points, thereafter payable in monthly installments
of interest plus principal based on a 25 year
amortization schedule. Additional principal
payments are due quarterly equal to 50% of the
quarterly cash flow ............................. 4,039,490 --
----------- -----------
Total $29,039,490 $25,000,000
=========== ===========

The Partnership is also required to make monthly payments of approximately
$9,600 to a property tax impound account and may have to pay an amount into a
capital replacement and maintenance reserve annually if the Partnership's
qualifying annual expenditures do not exceed $135,500. Restricted cash
represents the balance of the tax impound and replacement reserve accounts
and the bank accounts used for security deposits.

45
<PAGE>

UCV, L.P.
(a California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 2000, 1999 AND 1998

The proceeds of the from the $25,000,000 loan, after extinguishing the
$19,833,500 note payable, were utilized in 1999 to: pay a prepayment penalty
of $157,521, pay loan costs of $443,049 (of which $60,000 was a deposit as of
March 31, 1998), pay distributions to the partners of $4,000,000, and provide
working capital of $565,930. The refinancing resulted in charges of $197,401
related to the prepayment penalty of $157,521 and $39,880 of the unamortized
portion of deferred loan costs related to the old note payable. These charges
were classified as an extraordinary loss from extinguishment of debt in the
year ended March 31, 1999.

The proceeds of the additional loan of $4,039,490, which is net of the
capital replacement hold back, were used in the year ended March 31, 2000 to
pay loan costs of approximately $125,000 and make distributions to partners.

Principal maturities of long-term debt, based on the interest rate at
September 1, 2000, are as follows: 2001 - $660,000; 2002 - $28,379,000.

46
<PAGE>

SIGNATURES

Pursuant to the Requirements of Section 13 or 15(d) 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.

(Registrant) SPORTS ARENAS, INC.

By (Signature and Title) /s/ Harold S. Elkan
------------------
Harold S. Elkan, President & Director

DATE: October 12, 2000
----------------

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

SIGNATURE TITLE DATE
------------------------- ----------------------- ----------------

/s/ Steven R. Whitman Chief Financial Officer, October 12, 2000
------------------------- Director, and Principal ----------------
Steven R. Whitman Accounting Officer

/s/ Robert A. MacNamara Director October 12, 2000
----------------------- ----------------
Robert A. MacNamara

/s/ Patrick D. Reiley Director October 12, 2000
------------------------- ----------------
Patrick D. Reiley

47
<PAGE>