UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to ______________
Commission File Number 0-2380
SPORTS ARENAS, INC.
-------------------
(Exact name of registrant as specified in its charter)
Delaware 13-1944249
-------------------
(State of Incorporation) (I.R.S. Employer I.D. No.)
7415 Carroll Road, Suite C, San Diego, California 92121
-------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (858) 408-0364
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of the issuer's only class of common stock
($.01 par value) as of October 31, 2001 was 27,250,000 shares.
SPORTS ARENAS, INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2001
INDEX
Part I - Financial Information:
Item 1.- Consolidated Condensed Financial Statements:
Unaudited Balance Sheets as of September 30, 2001
and June 30, 2001.......................................... 1-2
Unaudited Statements of Operations for the Three Months Ended
September 30, 2001 and 2000........................... 3
Unaudited Statements of Cash Flows for the Three Months Ended
September 30, 2001 and 2000........................... 4
Notes to Financial Statements................................. 5-6
Item 2.- Management's Discussion and Analysis of Financial Condition
and Results of Operations............................. 7-9
Item 3.- Quantitative and Qualitative Disclosures about Market Risk... 10
Part II - Other Information........................................... 11
Signatures.......................................................... 12
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
(Unaudited)
September 30, June 30,
2001 2001
----------- -----------
Current assets:
Cash and cash equivalents ........................$ 163,334 $ 515,204
Receivables ...................................... 212,920 324,912
Inventories ...................................... 564,105 585,111
Prepaid expenses ................................. 80,203 61,365
----------- -----------
Total current assets .......................... 1,020,562 1,486,592
----------- -----------
Receivables due after one year:
Note receivable- affiliate, net .................. -- --
----------- -----------
Property and equipment, at cost:
Equipment and leasehold improvements ............. 2,345,406 2,345,406
Less accumulated depreciation and amortization (1,118,460) (1,060,626)
----------- -----------
Net property and equipment ................... 1,226,946 1,284,780
----------- -----------
Other assets:
Intangible assets, net ........................... 140,862 150,657
Investments ...................................... 352,446 405,446
Other ............................................ 120,999 120,999
----------- -----------
614,307 677,102
----------- -----------
$ 2,861,815 $ 3,448,474
=========== ===========
1
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (CONTINUED)
LIABILITIES AND SHAREHOLDERS' DEFICIT
(Unaudited)
September 30, June 30,
2001 2001
----------- -----------
Current liabilities:
Notes payable-short term .........................$ 1,250,000 $ 1,250,000
Current portion of long-term debt ................ 22,000 32,000
Accounts payable ................................. 640,183 708,307
Accrued payroll and related expenses ............. 225,908 195,367
Accrued interest ................................. 227,439 203,578
Other liabilities ................................ 204,851 183,466
----------- -----------
Total current liabilities ..................... 2,570,381 2,572,718
----------- -----------
Long-term debt, excluding current portion ........... 11,182 13,942
----------- -----------
Distributions received in excess of basis
in investment ..................................... 15,931,529 15,792,373
----------- -----------
Other liabilities ................................... 156,000 144,000
----------- -----------
Minority interest in consolidated subsidiary ........ 827,677 852,677
----------- -----------
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 ..............................(16,346,011) (15,638,293)
----------- -----------
(14,343,462) (13,635,744)
Less note receivable from shareholder ............ (2,291,492) (2,291,492)
----------- -----------
Total shareholders' deficit ....................(16,634,954) (15,927,236)
----------- -----------
Commitments and contingencies (Note 5)
$ 2,861,815 $ 3,448,474
=========== ===========
See accompanying notes to consolidated condensed financial statements.
2
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(Unaudited)
2001 2000
----------- -----------
Revenues:
Bowling ..........................................$ 383,821 $ 608,911
Rental ........................................... 58,859 168,833
Golf ............................................. 444,223 287,009
Other ............................................ 38,139 34,282
Other-related party .............................. 46,069 44,351
----------- -----------
971,111 1,143,386
----------- -----------
Costs and expenses:
Bowling .......................................... 346,919 533,377
Rental ........................................... 58,710 69,283
Golf ............................................. 499,069 552,597
Development ...................................... -- 41,280
Selling, general, and administrative ............. 652,763 748,238
Depreciation and amortization .................... 71,663 99,116
----------- -----------
1,629,124 2,043,891
----------- -----------
Loss from operations ................................ (658,013) (900,505)
----------- -----------
Other income (charges):
Investment income:
Related party .................................. 6,771 --
Other .......................................... 1,807 --
Interest expense:
Development activities ......................... -- (83,394)
Other and amortization of finance costs ........ (24,982) (129,990)
Equity in income (loss) of investees ............. (33,301) 55,162
----------- -----------
(49,705) (158,222)
----------- -----------
Net loss ............................................$ (707,718) $(1,058,727)
=========== ===========
Basic and diluted net loss per common share
(based on 27,250,000 weighted average
common shares outstanding) ......................... $(0.03) $(0.04)
======= =======
See accompanying notes to consolidated condensed financial statements.
3
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(Unaudited)
2001 2000
----------- -----------
Cash flows from operating activities:
Net loss ..........................................$ (707,718) $(1,058,727)
Adjustments to reconcile net loss to the net
cash used by operating activities:
Amortization of deferred financing costs ...... -- 2,280
Depreciation and amortization ................. 71,663 99,116
Equity in (income) loss of investees .......... 33,301 (55,162)
Deferred income ............................... 12,000 12,000
Interest accrued on assessment district
obligations ................................. -- 83,394
Changes in assets and liabilities:
Decrease in receivables ....................... 111,992 81,315
Decrease in inventories ....................... 21,006 27,973
Increase in prepaid expenses .................. (18,838) (41,169)
Increase (decrease) in accounts payable ....... (68,124) 141,018
Increase in accrued expenses .................. 75,787 97,257
Other ......................................... 9,321 8,997
----------- -----------
Net cash used by operating activities ....... (459,610) (601,708)
----------- -----------
Cash flows from investing activities:
Decrease in notes receivable ..................... -- 71,079
Capital expenditures ............................. -- (167,767)
Increase in development costs on
undeveloped land ............................... -- (5,734)
Distribution to holders of minority interest ..... (25,000) --
Distributions from investees ..................... 145,500 84,000
----------- -----------
Net cash provided (used) by investing
activities ................................ 120,500 (18,422)
----------- -----------
Cash flows from financing activities:
Scheduled principal payments on long-term debt ... (12,760) (70,804)
Proceeds from note payable ....................... -- 700,000
----------- -----------
Net cash provided (used) by financing
activities ................................ (12,760) 629,196
----------- -----------
Net increase (decrease) in cash and
cash equivalents ................................. (351,870) 9,066
Cash and cash equivalents, beginning of period ...... 515,204 13,961
----------- -----------
Cash and cash equivalents, end of period ............$ 163,334 $ 23,027
=========== ===========
See accompanying notes to consolidated condensed financial statements.
4
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001 AND 2000(Unaudited)
1. The information furnished reflects all adjustments which management believes
are necessary to a fair statement of the Company's financial position,
results of operations and cash flows for the interim periods.
2. Certain prior period amounts have been reclassified to conform to the
presentation used in the current period.
3. Due to the seasonal fluctuations of the bowling and golf club shaft
manufacturing operations, the financial results for the interim periods ended
September 30, 2001 and 2000, are not necessarily indicative of operations for
the entire year.
4. Investments:
(a) Investments consist of the following:
September 30, June 30,
2001 2001
----------- -----------
Vail Ranch Limited Partnership
(equity method) ..............................$ 352,446 $ 405,446
=========== ===========
Investment in UCV, L.P. classified
as liability- Distributions received
in excess of basis in investment ..............$15,931,529 $15,792,373
=========== ===========
The following is a summary of the equity in income (loss) of the
investments accounted for by the equity method:
2001 2000
-------- --------
UCV, L.P. .................... $ 19,699 $ 70,162
Vail Ranch Limited Partnership (53,000) (15,000)
-------- --------
$(33,301) $ 55,162
======== ========
The following is a summary of distributions received from investees:
2001 2000
-------- --------
UCV, L.P. .................... $145,500 $ 84,000
Vail Ranch Limited Partnership -- --
-------- --------
$145,500 $ 84,000
======== ========
(b) Investment in UCV, L.P.
The operating results of this investment are included in the accompanying
consolidated condensed statements of operations based upon the
partnership's fiscal year (March 31). Summarized information from UCV,
L.P.'s (UCV) unaudited statements of income for the three-month periods
ended June 30, 2001 and 2000 are as follows:
2001 2000
---------- ----------
Revenues ..................... $1,329,000 $1,235,000
Operating and general and
administrative costs ....... 418,000 407,000
Depreciation ................. 3,000 5,000
Interest expense ............. 868,000 683,000
Net income ................... 40,000 140,000
5. Contingencies:
The Company is involved in 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 effect on
the Company's financial position.
5
6. Business segment information:
The Company operates principally in four business segments: bowling centers,
commercial real estate rental, real estate development, and golf club shaft
manufacturing. 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.
The following is summarized information about the Company's operations by
business segment.
Real Estate Real Estate Unallocated
Bowling Rental Development Golf And Other Totals
------------ ------------ ------------ ------------ ------------ ------------
THREE MONTHS ENDED SEPTEMBER 30, 2001:
--------------------------------------
Revenues ....................... $ 383,821 $ 58,859 $ -- $ 444,223 $ 84,208 $ 971,111
Depreciation and amortization... 2,490 13,829 -- 42,774 12,570 71,663
Interest expense ............... -- -- -- -- 24,982 24,982
Equity in income of investees .. -- 19,699 (53,000) -- -- (33,301)
Segment profit (loss) .......... (53,573) 6,019 (58,000) (465,254) (145,488) (716,296)
Investment income .............. 8,578
Loss from operations ........... (707,718)
THREE MONTHS ENDED SEPTEMBER 30, 2000:
--------------------------------------
Revenues ....................... $ 608,911 $ 185,081 $ -- $ 287,009 $ 78,633 $ 1,159,634
Depreciation and amortization... 25,842 29,612 -- 33,585 10,077 99,116
Interest expense ............... 37,417 41,423 83,394 2,019 49,131 213,384
Equity in income of investees .. -- 70,162 (15,000) -- -- 55,162
Loss on sale ................... -- -- -- -- -- --
Segment profit (loss) .......... (155,380) 108,925 (144,674) (742,411) (125,187) (1,058,727)
Investment income .............. --
Loss from operations ........... (1,058,727)
2001 2000
----------- -----------
Revenues per segment schedule .. $ 971,111 $ 1,159,634
Intercompany rent eliminated ... -- (16,248)
----------- -----------
Consolidated revenues .......... $ 971,111 $ 1,143,386
=========== ===========
7. Liquidity
The accompanying consolidated condensed 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 its subsidiary, Penley Sports. The consolidated condensed financial
statements do not contain adjustments, if any, including diminished recovery
of asset carrying amounts, that could arise from forced dispositions and
other insolvency costs.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS:
-----------------------------------
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company has a working capital deficit of $1,549,819 at September 30, 2001,
which is a $463,693 increase from the working capital deficit of $1,086,126 at
June 30, 2001. The increase in working capital deficit is primarily attributable
to the cash used by operating activities for the three months ended September
30, 2001. The following is a schedule of the cash provided (used) before changes
in assets and liabilities, segregated by business segments:
2001 2000 Change
---------- ---------- ----------
Bowling ................... $ (51,000) $ (129,000) $ 78,000
Rental .................... -- 70,000 (70,000)
Golf ...................... (423,000) (709,000) 286,000
Development ............... (5,000) (46,000) 41,000
General corporate expense
and other ............... (112,000) (103,000) (9,000)
---------- ---------- ----------
Cash used by continuing
operations .............. (591,000) (917,000) 326,000
Capital expenditures, net
of financing ............ -- (174,000) 174,000
Principal payments on
long-term debt .......... (13,000) (71,000) 58,000
---------- ---------- ----------
Cash used ................. (604,000) (1,162,000) 558,000
========== ========== ==========
Distributions received from
investees ............... 146,000 84,000 62,000
========== ========== ==========
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 refinancings and sales of assets
to fund these deficits.
Management estimates negative cash flow of $900,000 to $1,000,000 in total for
the remaining quarters of the year ending June 30, 2002 from operating
activities after deducting capital expenditures and principal payments on notes
payable. 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.
Management is currently evaluating other sources of working capital from
refinancing the long-term debt of UCV 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 June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") SFAS No. 143, Accounting
for Asset Retirement Obligations. SFAS No. 143 is effective for financial
statements issued for fiscal years beginning after June 15, 2002 and requires
that the fair value of a liability for an asset retirement obligation be
recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made. The associated asset retirement costs are capitalized as
part of the carrying amount of the long-lived asset. The Company has not yet
assessed the impact of SFAS No. 143.
In August 2001, the Financial Accounting Standards Board issued SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, which supersedes
both SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of and the accounting and reporting provisions
of APB Opinion No. 30, Reporting the Results of Operations--Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions (Opinion 30), for the disposal of
a segment of a business (as previously defined in that Opinion). SFAS 144
retains the fundamental provisions in SFAS 121 for recognizing and measuring
impairment losses on long-lived assets held for use and long-lived assets to be
disposed of by sale, while also resolving significant implementation issues
associated with SFAS 121. The provisions of SFAS No. 144 are effective for
financial statements issued for fiscal years beginning after December 15, 2001.
Management does not expect the adoption of SFAS 144 for long-lived assets held
for use to have a material impact on the Company's financial statements because
7
the impairment assessment under SFAS 144 is largely unchanged from SFAS 121. The
provisions of the Statement for assets held for sale or other disposal generally
are required to be applied prospectively after the adoption date to newly
initiated disposal activities. Therefore, management cannot determine the
potential effects that adoption of SFAS 144 will have on the Company's financial
statements.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
----------------------------------------------------
With the exception of historical information (information relating to the
Company's financial condition and results of operations at historical dates or
for historical periods), the matters discussed in this Management's Discussion
and Analysis of Financial Condition and Results of Operations are forward-
looking statements that necessarily are based on certain assumptions and are
subject to certain risks and uncertainties. These forward-looking statements are
based on management's expectations as of the date hereof, and the Company does
not undertake any responsibility to update any of these statements in the
future. Actual future performance and results could differ from that contained
in or suggested by these forward-looking statements as a result of the factors
set forth in this Management's Discussion and Analysis of Financial Condition
and Results of Operations and elsewhere in the Company's filings with the
Securities and Exchange Commission.
RESULTS OF OPERATIONS
---------------------
The following is a summary of the changes in the results of operations of the
three-month period ended September 30, 2001 to the same period in 2000 and a
discussion of the significant changes:
Rental Real Estate Unallocated
Bowling Operation Development Golf And Other Totals
--------- --------- --------- --------- --------- ---------
Revenues ........................ $(225,090) $(126,222) $ -- $ 157,214 $ 5,575 (188,523)
Costs ........................... (186,458) (10,573) (41,280) (53,528) -- (291,839)
SG&A-direct ..................... (57,040) -- -- (72,585) 17,902 (111,723)
SG&A-allocated .................. (22,630) (6,000) -- (1,000) 29,630 --
Depreciation and amortization ... (23,352) (15,783) -- 9,189 2,493 (27,453)
Interest expense ................ (37,417) (41,423) (83,394) (2,019) (24,149) (188,402)
Equity in investees ............. -- (50,463) (38,000) -- -- (88,463)
Segment profit (loss) ........... 101,807 (102,906) 86,674 277,157 (20,301) 342,431
Investment income ............... 8,578
Loss from operations ............ 351,009
Note: The change in rental revenues and SG&A expenses do not include the
effect of the net change in elimination of intercompany rent of $16,248.
BOWLING OPERATIONS:
-------------------
The segment includes the operations of two bowling centers, Valley Bowl and
Grove Bowl. On December 21, 2000, the Company closed the operations of Valley
Bowl in conjunction with the sale of the real estate on December 29, 2000. The
following is a summary by bowling center of the changes in the results of
operations:
2001 vs. 2000
-------------------------------------
Grove Valley Combined
--------- ---------- ----------
Revenues .................. $ (4,802) $(220,288) $(225,090)
Costs ..................... (15,578) (170,880) (186,458)
SG&A-direct ............... (11,578) (45,462) (57,040)
SG&A-allocated ............ (5,930) (16,700) (22,630)
Depreciation and
amortization ........... -- (23,352) (23,352)
Interest expense .......... -- (37,417) (37,417)
Segment profit (loss) ..... 28,284 73,523 101,807
The following is a comparison of the operations of the Grove Bowl to the prior
year. Bowl revenues decreased by 1% primarily due to a 16% decrease in the
number of games bowled. All of this decrease was in the open play. This decrease
was offset by a 9% increase in the average price of all games bowled. Bowl costs
decrease primarily due to decreases in utility rates. SG&A costs decreased
primarily due to decreases in promotion costs.
8
RENTAL OPERATIONS:
------------------
This segment includes the operations of the office building sold December 28,
2000, the equity in income of the operation of a 542 unit apartment project
(UCV), a subleasehold interest in land underlying a condominium project, the
sublease of a portion of the Penley factory and other miscellaneous rents
received on undeveloped land. The following is a summary of the changes in
operations:
2001 vs. 2000
--------------------------------------
Office Other Combined
---------- ---------- ----------
Revenues .................. $ (126,708) $ 486 $(126,222)
Costs ..................... (27,973) 17,400 (10,573)
SG&A-allocated ............ (6,000) -- (6,000)
Depreciation and .......... (15,783) -- (15,783)
amortization
Interest expense .......... (41,423) -- (41,423)
Equity in income of UCV ... -- (50,463) (50,463)
Segment profit (loss) ..... (35,529) (67,377) (102,906)
A temporary easement granted by the Company for the use of a portion of its
undeveloped land in Temecula, California expired in September 2000. The Company
had been amortizing approximately $17,000 of deferred rent to income each
quarter. Other rental revenues decreased by $17,000 in 2001 related to this
easement.
Other rental revenues and other rental costs increased in 2001 by $17,000 and
$18,000 respectively, related to the sublease for the Penley factory.
Approximately 10,000 square feet of the Penley factory space (38,000 square
feet) was subleased commencing in November 2000 under a lease that expires in
October 2002.
The equity in income of UCV decreased by $50,000 in 2001 and $79,000 in 2000
primarily due to increases in interest expense and other costs of UCV that were
only partially offset by increases in revenues. The following is a summary of
the changes in the operations of UCV, LP in 2001 compared to the prior period:
Revenues .............................. $ 94,000
Costs ................................. 11,000
Depreciation .......................... (2,000)
Interest and amortization of loan costs 185,000
Net income ............................ (100,000)
Rental income of UCV increased primarily due to a 6% increase in the average
rental rate plus a decrease in the vacancy rate from 2.7% to 1.4%. UCV's
interest expense increased primarily due to an increase in long-term debt in
March 2001. UCV increased its long-term debt in March 2001 by $3,960,510.
REAL ESTATE DEVELOPMENT OPERATIONS:
-----------------------------------
Development costs primarily consisted of legal costs incurred to contest the
City of Temecula's attempts to down-zone the undeveloped land owned by Old Vail
Partners and property taxes on the undeveloped land. Interest expense related to
development activities primarily related to interest accrued on assessment
district obligations of Old Vail Partners. The undeveloped land was sold in June
2001.
The increase in the equity in loss of Vail Ranch Limited Partners (VRLP),
relates to the increase in the loss from the operation of the partially
completed shopping center for which the first store commenced operations in July
2000.
GOLF OPERATIONS:
----------------
Prior to January 2000, golf club shaft 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.
9
Operating expenses of the golf segment consisted of the following in 2001 and
2000:
2001 2000 Decrease
---------- ---------- ----------
Costs of sales and
manufacturing overhead . $ 440,000 $ 485,000 $ (45,000)
Research and development .. 59,000 68,000 (9,000)
---------- ---------- ----------
Total golf costs ....... 499,000 553,000 (54,000)
========== ========== ==========
Marketing and promotion ... 266,000 319,000 (53,000)
Administrative costs- direct 41,000 60,000 (19,000)
---------- ---------- ----------
Total SG&A-direct ....... 307,000 379,000 (72,000)
========== ========== ==========
Total golf costs decreased in 2001 primarily due to cost cutting measures to
reduce manufacturing overhead. Marketing and promotion expenses decreased
primarily due to decreases in player sponsorship fees ($18,000), trade show
expenses ($22,000) and tour program expenses ($9,000). The Company changed its
approach to sponsorship fees to fewer but higher profile players for calendar
2001. The decrease in trade show expenses related to the Company not presenting
a trade booth at the Las Vegas golf industry trade show in September 2001, which
was cancelled. Administrative expenses decreased primarily due to $11,000
decrease in professional fees related to trade mark and patent filings.
ITEM 3 - 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 maturities 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.
2002 2003 2004 Total Fair Value
---------- ------- ------- ---------- ----------
(1)
Fixed rate debt .. $ 22,000 $ 7,000 $ 4,000 $ 33,000 $ 33,000
Weighted average
interest rate . 11.9% 13.4% 13.6% 12.7%
Variable rate debt $1,250,000 -- -- $1,250,000 $1,250,000
Weighted average
interest rate . 7.8% -- -- 7.8%
The amounts for 2002 relate to the nine months ending June 30, 2002.
(1)The fair value of fixed-rate debt and variable-rate debt were estimated
based on the current rates offered for fixed-rate debt and variable-rate
debt with similar risks and maturities.
The variable rate debt includes a $1,250,000 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, 2002.
The Company's unconsolidated subsidiary, UCV, has variable rate debt of
$33,000,000 as of June 30, 2001 for which the interest rate was 8.5 percent.
However, the combination of a floor established by the lender and a cap
purchased by UCV has resulted in the rate being fixed at 8.5 percent for the
initial term of the loan. The scheduled principal payments for each of UCV's
fiscal years ending March 31 is: 2002- none; 2003- $33,000,000, and in total-
$33,000,000. The estimated fair value of this debt is $33,800,000 based on the
current rates offered for this type of loan with similar risks and maturities.
The Company does not enter into derivative or interest rate transactions for
speculative or trading purposes.
10
PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings
As of September 30, 2001, there were no changes in legal proceedings
from those set forth in Item 3 of the Form 10-K filed for the year
ended June 30, 2001.
ITEM 2. Changes in Securities
NONE
ITEM 3. Defaults upon Senior Securities
N/A
ITEM 4. Submission of Matters to a Vote of Security Holder
--------------------------------------------------
NONE
ITEM 5. Other Information
NONE
ITEM 6. Exhibits & Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K: NONE
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPORTS ARENAS, INC.
By: /s/ Harold S. Elkan
----------------------
Harold S. Elkan, President and Director
Date: November 14, 2001
--------------------
By:/s/ Steven R. Whitman
---------------------
Steven R. Whitman, Treasurer,
Principal Accounting Officer and Director
Date: November 14, 2001
------------------
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