-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S2qVvaV1UVLto7YO/Y0gYwVlDhThYCEHOVkGSsTK6ziAEgzqFWRmq8SGrP58f1P0 1J0MtSJaKRaRxlWoF2Mcow== 0000950144-96-002543.txt : 19960517 0000950144-96-002543.hdr.sgml : 19960517 ACCESSION NUMBER: 0000950144-96-002543 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOUNTASIA ENTERTAINMENT INTERNATIONAL INC CENTRAL INDEX KEY: 0000912027 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AMUSEMENT & RECREATION SERVICES [7900] IRS NUMBER: 581949379 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11709 FILM NUMBER: 96566575 BUSINESS ADDRESS: STREET 1: 5895 WINDWARD PKWY STREET 2: STE 220 CITY: ALPHARETTA STATE: GA ZIP: 30202 BUSINESS PHONE: 4044426640 MAIL ADDRESS: STREET 1: 5895 WINDWARD PARKWAY SUITE 220 CITY: ALPHARETTA STATE: GA ZIP: 30202 10-Q 1 MOUNTASIA ENTERTAINMENT FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended March 31, 1996 Commission File No. 0-22458 -------------- ----------- Mountasia Entertainment International, Inc. ------------------------------------------- (Exact name of registrant as specified in its charter) Georgia 58-1949379 - ------- ---------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.)
5895 Windward Parkway, Suite 220 Alpharetta, Georgia 30202-4128 ------------------------------- (Address of principal executive offices) (770) 442-6640 -------------- (Registrant's telephone number, including area code) 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 shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at May 10, 1996 ----- ---------------------------- Common Stock, no par value 12,014,158 2 Part 1. FINANCIAL INFORMATION Item 1. Financial Statements MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEET ASSETS
March 31, December 31, September 30, 1996 1995 1995 (Unaudited) (Unaudited) ------------ ------------- ------------- ASSETS Current Cash and cash equivalents $ 1,576,676 $ 1,549,338 $ 7,196,026 Restricted cash 1,276,446 2,116,546 2,107,165 Restricted certificates of deposit 1,951,533 3,169,429 3,127,208 Accounts receivable 64,700 79,708 161,137 Inventories 1,547,652 1,551,180 1,855,545 Current portion of notes receivable 511,220 391,491 393,069 Other current assets 4,770,821 2,763,912 1,111,060 ------------ ------------ ------------- Total current assets 11,699,048 11,621,604 15,951,210 ------------ ------------ ------------- Property and equipment, less accumulated depreciation 69,703,752 71,482,152 70,884,585 ------------ ------------ ------------- Other noncurrent Investments in and advances to limited partnerships 5,734,948 5,111,847 5,129,758 Notes receivable 1,204,784 1,042,528 1,062,387 Other assets 4,105,370 1,116,455 630,431 Debt issuance costs, less accumulated amortization 1,235,907 1,532,135 2,037,463 Intangible assets, less accumulated amortization 4,329,454 4,414,112 4,498,776 ------------ ------------ ------------- Total other noncurrent assets 16,610,463 13,217,077 13,358,815 ------------ ------------ ------------- $ 98,013,263 $ 96,320,833 $ 100,194,610 ============ ============ ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Current portion of notes payable $ 16,109,586 $ 17,663,706 $ 10,406,788 Convertible subordinated debenture 5,650,000 5,650,000 5,650,000 Current portion of contingent liability for guaranteed stock values 1,795,510 1,419,730 1,151,238 Accounts payable 1,445,296 1,227,808 1,239,903 Accrued expenses 6,373,667 6,234,270 5,746,412 Reserve for discontinued operations 795,000 795,000 Income taxes payable 9,888 9,888 9,888 ------------ ------------ ------------- Total current liabilities 32,178,947 33,000,402 24,204,229 Notes payable 6,238,267 6,834,514 15,545,067 Convertible subordinated debenture 5,407,849 6,518,334 8,500,000 Other accrued expenses 448,784 448,858 460,418 Deferred revenue 1,856,248 1,856,248 2,444,140 Deferred income taxes 674,021 674,021 674,021 ------------ ------------ ------------- Total liabilities 46,804,116 49,332,377 51,827,875 ------------ ------------ ------------- Contingent liability for guaranteed stock values 1,813,848 1,694,381 1,377,626 ------------ ------------ ------------- Shareholders' equity Preferred stock, 6,000,000 shares authorized with no par value Class A, 2,000 shares authorized, 0, 30 and 1,150 shares issued and outstanding 470,686 11,575,616 Class B, 2,000 shares authorized, 430, 430 and 0 shares issued and outstanding 4,407,500 4,300,000 Class C, 1,000 shares authorized, 50, 50 and 0 shares issued and outstanding 500,000 500,000 Class D, 2,000 shares authorized, 4,118, 0 and 0 shares issued and outstanding 3,551,500 Common stock, 100,000,000 shares authorized with no par value; 11,328,182, 10,079,834 and 7,850,868 shares issued and outstanding 47,301,984 43,868,329 35,558,175 Outstanding warrants 3,064,933 3,064,933 2,683,333 Unearned compensation (384,722) (497,222) (250,000) Accumulated deficit (9,045,896) (6,412,651) (2,578,015) ------------ ------------ ------------- Total shareholders' equity 49,395,299 45,294,075 46,989,109 ------------ ------------ ------------- Commitments and contingencies $ 98,013,263 $ 96,320,833 $ 100,194,610 ============ ============ =============
3 MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 1996 1995 OPERATING REVENUES Entertainment revenue $ 6,535,477 $ 6,333,642 Construction and development revenue from related parties - 1,197,227 Other 461,252 331,783 ------------ ----------- Total operating revenues 6,996,729 7,862,652 ------------ ----------- OPERATING EXPENSES Development and construction expense - 999,845 Salaries and wages 3,249,730 3,144,486 General and administrative 5,535,327 4,427,187 ------------ ----------- Total operating expenses before depreciation and amortization and realized loss on sale of securities 8,785,057 8,571,518 ------------ ----------- Depreciation and amortization 1,569,897 1,095,703 Realized loss on sale of securities 293,430 ------------ ----------- Operating loss (3,358,225) (2,097,999) OTHER (EXPENSE) INCOME Interest expense (892,251) (778,879) Interest income 42,938 105,988 Other 847,549 1,293,342 ------------ ----------- Loss before benefit for income taxes (3,359,989) (1,477,548) Benefit for income taxes 1,256,674 624,855 Equity in net losses of limited partnerships, net of tax (72,368) (5,722) ------------ ----------- Net loss $ (2,175,683) $ (858,415) ============ =========== NET LOSS APPLICABLE TO COMMON STOCK Net loss $ (2,175,683) $ (858,415) Less: Preferred stock dividends (166,872) ------------ ----------- Net loss applicable to common stock $ (2,342,555) $ (858,415) ============ =========== Net loss per share of common stock $ (0.21) $ (0.11) ============ =========== Weighted average number of shares of common stock and common stock equivalents used in calculating net loss per share 10,966,810 7,872,111 ============ ===========
4 MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
Preferred Stock ------------------------------------------------ Common Outstanding Class A Class B Class C Class D Stock Warrants ---------- ---------- ---------- ------------ ----------- ------------- Balance, September 30, 1993 $ 5,683,831 Issuance of common stock in connection with initial public offering 24,800,000 Stock issuance costs (3,942,729) Issuance of common stock for investment in limited partnerships 516,768 Issuance of common stock to purchase East Cobb FunCenter 558,463 Issuance of common stock to purchase Greenville FunCenter 388,930 Issuance of common stock to purchase Kingwood FunCenter 780,500 Issuance of common stock to purchase Malibu facilities 1,582,031 Warrants issued in connection with the formation of NEF $ 300,000 Adjustment to common stock as a result of guaranteed stock prices 30,693 Unrealized loss on investment in securities, net of tax Net income ----------- ----------- ----------- ------------ ----------- -------------- Balance, September 30, 1994 30,398,487 300,000 Issuance of preferred stock $11,500,000 Issuance of common stock 13,051,923 Stock issuance costs (2,547,164) Purchase and cancellation of stock (5,658,027) Warrants issued in connection with purchase of MGPC 900,000 Warrants issued in connection with financial advisory agreement 333,333 Unearned compensation in connection with the financial advisory agreement Warrants issued in connection with the Company's initial public offering 650,000 Warrants issued in connection with November 1994 equity offering 100,000 Warrants issued in connection with NEF 25,000 Warrants issued in connection with September 1995 equity offering 375,000 Adjustment to common stock as a result of guaranteed stock prices 312,956 Change in unrealized loss on securities available for sale, net of tax Accretion of preferred stock dividends 75,616 Net loss ----------- ----------- ----------- ------------ ----------- -------------- Balance, September 30, 1995 11,575,616 35,558,175 2,683,333 Issuance of preferred stock $ 500,000 Issuance of common stock 101,364 Stock issuance costs (221,529) Purchase and cancellation of stock (51,257) Warrants issued in connection with financial advisory agreement 350,000 Unearned compensation in connection with the financial advisory agreements Warrants issued 31,600 Adjustment to common stock as a result of guaranteed stock prices (585,247) Accretion of preferred stock dividends 230,001 Preferred stock converted (7,034,931) 7,034,931 Subordinated debt converted 2,031,892 Transfer of Class A preferred stock to Class B preferred stock (4,300,000)$ 4,300,000 Net loss ----------- ----------- ----------- ------------ ----------- -------------- Balance, December 31, 1995 470,686 4,300,000 500,000 43,868,329 3,064,933 Issuance of preferred stock 3,500,000 Issuance of common stock 2,825,000 Stock issuance costs (519,167) Purchase and cancellation of stock (6,875) Unearned compensation in connection with the financial advisory agreements Adjustment to common stock as a result of guaranteed stock prices (495,247) Accretion of preferred stock dividends 60,000 107,500 51,500 Preferred stock converted (310,126) 310,126 Subordinated debt converted 1,319,818 Payment of dividends (138,455) Adjust previous accretion of dividends to actual (82,105) Net loss ----------- ----------- ----------- ------------ ----------- -------------- Balance, March 31, 1996 $ $ 4,407,500 $ 500,000 $ 3,551,500 $47,301,984 $ 3,064,933 =========== =========== =========== ============ =========== ==============
Unrealized Loss on Securities Retained Unearned Available Earnings Compensation for Sale (Deficit) Total ------------ ---------- --------- ----- Balance, September 30, 1993 $ 123,916 $ 5,807,747 Issuance of common stock in connection with initial public offering 24,800,000 Stock issuance costs (3,942,729) Issuance of common stock for investment in limited partnerships 516,768 Issuance of common stock to purchase East Cobb FunCenter 558,463 Issuance of common stock to purchase Greenville FunCenter 388,930 Issuance of common stock to purchase Kingwood FunCenter 780,500 Issuance of common stock to purchase Malibu facilities 1,582,031 Warrants issued in connection with the formation of NEF 300,000 Adjustment to common stock as a result of guaranteed stock prices 30,693 Unrealized loss on investment in securities, net of tax $ (227,714) (227,714) Net income 1,232,079 1,232,079 --------- ----------- ----------- ----------- Balance, September 30, 1994 (227,714) 1,355,995 31,826,768 Issuance of preferred stock 11,500,000 Issuance of common stock 13,051,923 Stock issuance costs (862,500) (3,409,664) Purchase and cancellation of stock (5,658,027) Warrants issued in connection with purchase of MGPC 900,000 Warrants issued in connection with financial advisory agreement 333,333 Unearned compensation in connection with the financial advisory agreement $(250,000) (250,000) Warrants issued in connection with the Company's initial public offering 650,000 Warrants issued in connection with November 1994 equity offering 100,000 Warrants issued in connection with NEF 25,000 Warrants issued in connection with September 1995 equity offering 375,000 Adjustment to common stock as a result of guaranteed stock prices 312,956 Change in unrealized loss on securities available for sale, net of tax 227,714 227,714 Accretion of preferred stock dividends (75,616) Net loss (2,995,894) (2,995,894) --------- ----------- ----------- ----------- Balance, September 30, 1995 (250,000) (2,578,015) 46,989,109 Issuance of preferred stock 500,000 Issuance of common stock 101,364 Stock issuance costs (36,617) (258,146) Purchase and cancellation of stock (51,257) Warrants issued in connection with financial advisory agreement 350,000 Unearned compensation in connection with the financial advisory agreements (247,222) (247,222) Warrants issued 31,600 Adjustment to common stock as a result of guaranteed stock prices (585,247) Accretion of preferred stock dividends (230,001) Preferred stock converted Subordinated debt converted 2,031,892 Transfer of Class A preferred stock to Class B preferred stock Net loss (3,568,018) (3,568,018) --------- ----------- ----------- ----------- Balance, December 31, 1995 (497,222) (6,412,651) 45,294,075 Issuance of preferred stock 3,500,000 Issuance of common stock 2,825,000 Stock issuance costs (290,690) (809,857) Purchase and cancellation of stock (6,875) Unearned compensation in connection with the financial advisory agreements 112,500 112,500 Adjustment to common stock as a result of guaranteed stock prices (495,247) Accretion of preferred stock dividends (248,977) (29,977) Preferred stock converted Subordinated debt converted 1,319,818 Payment of dividends (138,455) Adjust previous accretion of dividends to actual 82,105 Net loss (2,175,683) (2,175,683) --------- ----------- ----------- ----------- Balance, March 31, 1996 $(384,722) $ $(9,045,896) $49,395,299 ========= =========== =========== ===========
4 5 MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 1996 1995 Operating activities: Net loss $ (2,175,683) $ (858,415) Adjustments to reconcile net loss to net cash used by operating activities Equity in net losses of limited partnerships, net of tax 72,368 5,722 Increase in allowance for doubtful accounts receivable 30,000 Depreciation and amortization 1,569,897 1,095,703 Amortization of warrants 112,500 Unrealized loss on securities available for sale 293,430 Gain on sale of property and equipment (847,549) Changes in assets and liabilities, net of acquisition Increase in accounts receivable (14,992) Decrease in inventory 3,528 Increase in other assets (3,396,241) (1,635,457) Increase (decrease) in debt issuance costs and intangible assets (75,001) 4,521 Increase (decrease) in accounts payable 217,488 (248,938) Increase in accrued expenses 348,656 195,081 ------------- ------------ Cash used by operating activities (4,155,029) (1,148,353) ------------- ------------ Investing activities: Purchases of property and equipment (471,137) Proceeds from sale of property and equipment 2,663,359 1,250,000 Principal payments under notes receivable 5,636 Increase in notes receivable (191,500) (Increase) decrease in investments in and advances to limited partnerships (695,469) 298,097 (Increase) decrease in restricted cash 840,100 (729,140) (Increase) decrease in restricted certificates of deposit (25,847) 562,875 Purchase of facilities (250,971) ------------- ------------ Cash provided by investing activities 2,316,642 939,361 ------------- ------------ Financing activities: Proceeds from borrowings 24,910 Payments of borrowings (3,568,278) (840,930) Issuance of preferred stock 3,500,000 Issuance of common stock 2,825,000 Stock issuance costs (715,690) Purchase of stock (6,875) (405,683) Payment of dividends (168,432) ------------- ------------ Cash (used) provided by financing activities 1,865,725 (1,221,703) ------------- ------------ Increase in cash and cash equivalents 27,338 (1,430,695) Cash and cash equivalents, beginning of period 1,549,338 3,108,644 ------------- ------------ Cash and cash equivalents, end of period $ 1,576,676 $ 1,677,949 ============= ============
5 6 MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1996 AND MARCH 31, 1995 (UNAUDITED) BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. On January 19, 1996 the Board of Directors approved a change in the Company's fiscal year end from September 30th to December 31st. Operating results for the three month period ended March 31, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's report on Form 10-K/A for the year ended September 30, 1995. NET LOSS PER SHARE OF COMMON STOCK Net loss per share of common stock is computed by dividing net loss applicable to common stock by the weighted average number of shares of common stock outstanding during the periods. The Company previously entered into three purchase transactions for FECs in which the Company issued common stock as partial consideration and guaranteed to the respective seller(s) that the aggregate market value of the common stock would have a certain value, as defined, on specified future dates. In the event that the common stock does not achieve the guaranteed value, the Company has the option of issuing cash for the shortfall between the market value and the guaranteed price or, with respect to two transactions, issuing additional shares of stock. In the circumstances in which the Company has agreed to pay cash or issue common stock, the contingent shares are considered to be common stock equivalents. Common stock equivalents are not included in the weighted average number of shares of common stock outstanding in loss periods. On March 29, 1996, the Company distributed an offering circular to its shareholders offering to exchange one share of its Class E Preferred Stock, with a liquidation preference of $12.00 per share, for two shares of its common stock, no par value, up to a maximum of 7,000,000 shares of common stock (the "Exchange Offer"). The Exchange Offer is anticipated to close on May 24, 1996. DISCONTINUED SEGMENT In January 1996, the Company signed a memorandum of understanding to exclusively engage an outside development and construction firm to provide all future design, development and construction services for its FEC's. However, in April 1996, the Board of Directors determined that it was in the Company's best interest to retain this division. Accordingly, the Company will record a gain of $795,000 during the quarter ended June 30, 1996 to reverse the loss accrued during the three months ended December 31, 1995 for the estimated loss on the disposal of the division. All expenses related to development and construction are included in determining loss from operations for the three months ended March 31, 1996. 6 7 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information about the Company's operations as they related to entertainment, development and construction, and corporate for the three months ended March 31, 1996 and 1995 is presented below (in millions):
1996 DEVELOPMENT ---- AND ENTERTAINMENT CONSTRUCTION CORPORATE ------------- ------------ --------- Operating revenues $ 6,535 $ - $ 461 Operating loss (306) (228) (1,255) Depreciation and amortization - - (1,570) 1995 DEVELOPMENT ---- AND ENTERTAINMENT CONSTRUCTION CORPORATE ------------- ------------ --------- Operating revenues $ 6,334 $ 1,197 $ 332 Operating income (loss) 211 (38) (881) Depreciation and amortization - - (1,096) Realized loss on sale of securities - - (293)
The Company has not allocated corporate general and administrative overhead (i.e. rent, utilities, travel, etc.) to the entertainment or development and construction operations. Operating revenues Total operating revenues decreased from $7,863,000 during the three-month period ended March 31, 1995 to $6,997,000 during the three-month period ended March 31, 1996, a decrease of $866,000 or 15%. The decrease is primarily a result of a decrease in development and construction revenue from related parties of $1,197,000. The decrease in development and construction revenue from related parties is a result of the Company having no FECs under construction during the current period. The increase in entertainment revenues is a result of the addition of two FEC's which the Company is leasing from limited partnerships. Operating expenses Total operating expenses before depreciation and amortization and the realized loss on the sale of securities, excluding development and construction expense, increased from $7,572,000 during the three-month period ended March 31, 1995 to $8,785,000 during the three-month period ended March 31, 1996, an increase of $1,213,000 or 16%3,903,000. The increase is primarily a result of an increase in general and administrative expenses of $1,108,000. The increase in general and administrative expenses and the related increase in the operating loss from entertainment and corporate overhead disclosed above is a result of the Company incurring the following expenses during the period ended March 31, 1996 which were not present during the same period in the prior year: (i) the recognition of approximately $554,000 of expenses related to two limited partnerships which the Company has been leasing since January 1996; (ii) the recognition of approximately $112,000 in non-cash warrant expense associated with amortizing the value of warrants issued in connection with financial advisory agreements which the Company entered into in previous periods; (iii) the recognition of approximately $100,000 for marketing promotions for the FEC's; (iv) approximately $120,000 of consulting expense; and (v) legal expenses of approximately $160,000 related to the Exchange Offer and other restructuring issues which the Company is researching. The remaining increase in general and administrative is due to overall 7 8 increases commensurate with the increase in revenues and also repair and maintenance work which is being completed at the Malibu FEC's. The decrease in development and construction expense is consistent with the decrease in related revenue. The increase in depreciation and amortization of $474,000 from the three month period ended March 31, 1996 as compared to the same period in the prior year is due to the acceleration of amortization of certain loan costs due to the change of final maturity of a certain bank note to October 1996. The "other income" balance for the three month period ended March 31, 1995 is a fee recognized for the termination of a construction contract related to a limited partnership. There was no such fee for the three month period ended March 31, 1996, however, the Company recognized a gain of approximately $848,000 on the sale of excess land at one of the FEC's. Liquidity and Capital Resources During the period ended March 31, 1996, the Company financed its operations primarily through cash flow from operations and the issuance of equity. During the period ended March 31, 1996 the Company expended cash as follows (i) purchased property and equipment of approximately $471,000 and (ii) repaid indebtedness of approximately $3,568,000. At March 31, 1996 the Company had non-restricted cash and cash equivalents of $1,577,000. The increase in other current assets is primarily a result of an income tax benefit of approximately $3,464,000. The Company anticipates that the income tax benefit will be offset by income taxes payable in the more profitable months of April through September. The increase in long-term other assets is a result of deposits towards the purchase of FEC's. The Company is current with all scheduled principal and interest payments under existing senior bank debt and subordinated debenture agreements. At March 31, 1996, the Company was not in compliance with certain financial covenants under the $5,650,000 9% convertible subordinated debentures and a credit agreement with NationsBank N.A. However, the Company is currently in discussions with debenture holders to waive and amend the covenant violations. Additionally, as discussed below, the Company is presently in the final stages of entering into a new credit facility which will replace the current senior debt. Stock Price Guarantee Agreements All of the Company's agreements under which it has agreed to specified future stock prices have matured and the Company is in the process of settling the guarantees. Under two of the stock price guarantee agreements as of March 31, 1996, the Company is required to issue an additional 510,960 shares of common stock. Under a third agreement, the Company has agreed to purchase the 87,050 shares issued in the initial purchase transaction for the guaranteed purchase price of $1,795,510. Subsequent to March 31, 1996, a restricted certificate of deposit for approximately $1,100,000 was liquidated to satisfy the stock guarantee for $1,795,510. Working Capital At March 31, 1996, the Company has negative working capital of approximately $20,500,000 which includes approximately $5,506,000 of senior debt which has been classified as current due to a financial covenant violation in a senior credit agreement which the bank had not waived at the date of this report. The negative current debt also included $5,650,000 due to financial covenant violations under the 9% subordinated debentures as discussed above. In April 1996 the Company accepted a commitment letter from Foothill Capital Corporation, a major U.S. financial institution, for a $25 million credit facility. Proceeds from the credit facilities will be used to (i) refinance the Company's existing balance of $9.5 million with its existing senior lender; (ii) fund the cash 8 9 portion of acquisition costs for six family entertainment centers presently owned by limited partnerships and either managed or leased by the Company; (iii) fund general working capital requirements. On January 1, 1996, the Company entered into a Lease Agreement with M.F.G. of Willowbrook, L.P. ("Willowbrook"), whereby Willowbrook agreed to lease the FEC located in Willowbrook, Texas to the Company. The term of the lease expires upon the earlier to occur of (i) December 31, 1996, (ii) the sale of the FEC to the Company, and (iii) the termination of the Management Agreement. Under the terms of the lease, the Company has agreed to pay rent of $1,800 per day and is responsible for the maintenance and repair of the facility. The Company will receive all revenues and be responsible for payment of all expenses at the FEC. The Company has also entered into an agreement to acquire the FEC for a purchase price of approximately $5.5 million (plus the assumption of approximately $1.4 million of secured debt). The Company has paid a deposit of approximately $650,000 on the purchase price and is obligated to pay an additional $500,000 on September 30, 1996 if the closing of the acquisition has not taken place by such date. The closing of the acquisition is anticipated to take place prior to December 31, 1996. On March 28, 1996, the Company formalized a Lease Agreement with F.F.C. of Columbus, Limited Partnership ("Columbus"), whereby Columbus agreed to lease the FEC located in Columbus, Ohio to the Company. The term of the lease commenced on January 1, 1996 and expires upon the earlier to occur of (i) April 30, 1996, (ii) the sale of the FEC to the Company, or (iii) the termination of the Management Agreement. Under the terms of the lease, the Company has agreed to pay as rent Columbus' obligations with respect to three bank loans made to Columbus in order to develop and construct the FEC. The Company will receive all revenues and be responsible for the maintenance and repair of the facility, as well as for all taxes, insurance and utilities with respect to the FEC during the term of the lease. Additionally, the Company is currently in negotiations with two other limited partnerships to purchase an aggregate of four FEC's. The purchase of these FECs is part of management's strategy to increase the core business of entertainment revenue. Issuance of Preferred Stock In February 1996 the Company's Board of Directors designated 20,000 shares of the Company's Preferred Stock as Class D Preferred Stock (the "Class D Preferred Stock"). In March 1996 the Company issued 4,118 shares of Class D Preferred Stock with a face value of $4,118,000 for $3,500,000. Holders of the Class D Preferred Stock are entitled to receive annual dividends at 4% of the face amount of the Class D Preferred Stock, payable quarterly. Subsequent to March 31, 1996 the Company issued 3,410 shares of Class D Preferred Stock with a face value of $3,410,000 for $2,830,000. The difference between the face value of the Class D Preferred Stock and the issuance price will be accreted over one year. In the event of liquidation, the holders of the Class D Preferred Stock are entitled to receive $1,000 for each share of Class D Preferred Stock. The right of the holders of Class D Preferred Stock to distributions of the assets of the Company in the event of a voluntary or involuntary liquidation are in parity with the rights of the holders of the other classes of Preferred Stock. Beginning sixty days following the date of the issuance, the Class D Preferred Stock is convertible into the number of shares of common stock equal to the Class D Original Issue Price, divided by the lesser of (i) $6.00 or (ii) the average closing bid price, as defined, for the five trading days immediately preceding the date the Class D Preferred Stock is converted (the "Class D Conversion Price"). However, the Class D Conversion Price can not be less than seventy percent of the average closing bid price for the five trading days immediately preceding the date the Class D Preferred Stock is converted. The Company is required to convert, at the Class D Conversion Price, all of the shares of Class D Preferred Stock outstanding two years following the date of the issuance The Company may, at its option, redeem shares of Class D Preferred Stock immediately prior to the conversion of such shares, if the Class D Conversion Price is less than $3.00 per share on the date of a proposed conversion. 9 10 In March 1996, the Company's Board of Directors designated 3,500,000 shares of the Company's Preferred Stock as Class E Preferred Stock (the "Class E Preferred Stock"). Holders of the Class E Preferred Stock are entitled to cumulative dividends payable at the annual rate of 10%. The holders of the Class E Preferred Stock are entitled to elect one director to the Company's Board of Directors if the Company defaults with respect to any six consecutive quarterly dividend payments. In the event of liquidation the holders of the Class E Preferred Stock are entitled to receive $12.00 for each share of Class E Preferred Stock, plus accrued and unpaid dividends. Holders of the Class E Stock may convert the Class E Preferred Stock into common stock at any time from the date of issuance for an initial conversion price of $8.00 per share. The Company is required to redeem the Class E Preferred Stock on the fifth anniversary of its issuance at a redemption price equal to $12.00 per share plus accrued and unpaid dividends. If the market price of the common stock exceeds $10.00 per share for any fifteen consecutive trading days, the Company may compel the holders of the Class E Preferred Stock to convert such shares into shares of common stock at an initial price of $8.00 per share. 10 11 PART II. OTHER INFORMATION Item 1. Legal Proceedings On May 24, 1994, the Company filed a complaint in the Superior Court of Fulton County, Georgia against M.B. Kahn Construction Company, Inc. ("Kahn"), a company engaged to perform various construction management and construction related services in connection with six planned Mountasia FunCenters, alleging breach of contract and requesting unspecified damages. Kahn answered the complaint and filed a counterclaim seeking damages of $1,954,185 for breach of contract, quantum merit and indemnity plus attorneys fees, and litigation expenses. The Company intends to vigorously pursue its claims and defend against Kahn's counterclaim, and management does not anticipate that the ultimate resolution of this litigation will have a material adverse impact on the Company's consolidated financial statements. While the Company intends to vigorously defend this action, if necessary, due to the present posture of this case, there can be no assurance that the Company will prevail in this matter or that it will not incur damages in excess of the amount covered by insurance. On December 21, 1994, the Company was served with a complaint for damages filed by Thrill Technology, Inc. ("Thrill"). Thrill alleges that negotiations with the Company for the construction and installation of "Sky Coaster amusement rides" in more than one Mountasia/Malibu facility bound the Company to purchase the rides, and that the company damaged Thrill by refusing to purchase the rides. Thrill alleges claims and damages for 1) breach of contract in the amount not less than $500,000; 2) promissory estoppel with damages not less than $500,000; 3) equitable estoppel; 4) fraud; 5) breach of a duty of good faith; 6) punitive damages; and 7) attorney's fees. The Company strongly believes there is no liability or obligation to Thrill, and has filed a counterclaim against Thrill for actionable defamation and tortuous interference with business relations based upon alleged slanderous remarks regarding the Company that Thrill's president has made to the manufacturer of the Sky Coaster ride and others. Company management believes that Thrill's claims are without merit both factually and legally. While the Company intends to vigorously defend this action, if necessary, due to the present posture of this case, there can be no assurance that the Company will prevail in this matter or that it will not incur damages in excess of the amount covered by insurance. On or about June 26, 1995, the Company was served with a Complaint for damages filed by WXZ Development, Inc. in the Court of Common Pleas, Franklin County, Ohio. This lawsuit arises out of the Company's purchase of some real property from codefendant PDI Columbus II Limited Partnership. The Complaint set forth claims for relief against the Company for tortuous interference and intentional interference with prospective economic opportunity. The Complaint seeks damages on the tortuous interference count in excess of $900,000 and on the intentional interference with prospective economic opportunity in excess of $450,000. On or about August 18, 1995, the Company filed a timely motion to dismiss the suit for failure to state a claim upon which relief can be granted. The Court denied the motion to dismiss on January 2, 1996. The Company filed a timely answer denying liability on February 8, 1996. The Company is in the process of preparing to conduct discovery in the case. While the Company intends to vigorously defend this action, if necessary, due to the present posture of this case, there can be no assurance that the Company will prevail in this matter or that it will not incur damages in excess of the amount covered by insurance. On or about February 23, 1996, the Company, Scott Demerau and Juli Demerau were served with a Complaint for damages filed by Douglas E. Hesse in the State Court of Fulton County, Georgia. Mr. Hesse alleges breach of contract and recovery under the theory of quantum meruit. He demands actual damages of $400,000, pre- and post-judgment interest, attorneys fees and costs of litigation. A timely answer on behalf of all defendants was filed March 25, 1996, denying the allegations and asserting numerous affirmative defenses. Discovery is proceeding. The Company has instructed counsel to vigorously defend this action. Due to the present posture of the case, we are unable to assess the likelihood that the Company will prevail in this matter or estimate its exposure for damages and other expenses. 11 12 Malibu's business, primarily due to the operation of the Virage(R) race tracks, has been, and will likely continue to be subject to a significant number of personal injury lawsuits, certain of which may involve claims for substantial damages, which could result in substantial damage awards and legal and other expenses. From time to time, the Company is a party to routine claims and litigation incidental to its business. Currently, the Company is subject to certain claims and lawsuits, the outcomes of which are not determinable at this time. In the opinion of the Company, any liability that might be incurred upon the resolution of these routine claims and lawsuits will not, in the aggregate, exceed the limits of the Company's insurance policies or otherwise have a material adverse effect on the financial condition or results of operations of the Company. Item 2. Change in Securities The Company issued 4,118 shares of Class D Preferred Stock in March 1996. The rights and privileges under the Class D Preferred Stock are discussed above. Additionally, the Company's Board of Directors designated 3,500,000 shares of Preferred Stock to be designated Class E Preferred Stock (the "Class E Preferred Stock"). The rights and privileges under the Class E Preferred Stock are disclosed above. Item 3. Defaults Upon Senior Securities The Company was not in compliance with certain financial covenants within a credit agreement with its senior lender at March 31, 1996. Additionally, the Company was not in compliance with certain financial convenants regarding its $5,650,000 9% convertible subordinated debentures. At the date of this report, the Company had not obtained waivers of non-compliance of these covenants, therefore, all the amounts have been classified as current in the accompanying balance sheet. Although the following unaudited financial statements for the three month transition period ended March 31, 1996 have not been audited by Arthur Andersen LLP, they have informed the Company that if the covenant violation described above continues to exist at the time of their audit of the financial statements for the transition period and for the year ended December 31, 1996, their report on those statements may include an explanatory fourth paragraph with respect to that uncertainty. Item 4. Submission of Matters to a Vote of Securityholders During the period covered by this report, no matters were submitted to the vote of the securityholders of the Company. Item 5. Other Information At the shareholders meeting on May 9, 1996 the shareholders approved, for a period of one year, any Board approved sales by the Company of common stock (or securities convertible into or exercisable for common stock): (a) in amounts which may equal (or may result in the issuance of) 20% or more of the Company's common shares outstanding before any such sale, and (b) at a price that is less than the greater of book or market value of the Company's common stock at the time of such sale. Shareholders also ratified all such previous sales. This proposal was considered in response to an indication by the Nasdaq National Market Inc. ("Nasdaq") that the Company was in violation of a NASD By-Law which would affect the continued listing of the Company's common stock on the Nasdaq National Market System. Nasdaq has taken the position that: (a) certain of the Company's outstanding convertible securities have been converted or could hypothetically be converted into common stock at a share price below book or market value of the Company's common stock at the time of issuance of the securities, and (b) the conversion of these securities have been or could 12 13 hypothetically be in an amount equaling 20% or more of the common shares outstanding at the time of issuance of the securities. Therefore, Nasdaq has concluded the Company is in violation of NASD rules requiring shareholder approval of such sales. The Company believes that the shareholders' vote at the Annual Meeting approving such previous transactions, along with other considerations, satisfies all NASD compliance issues and should ensure continued listing on the Nasdaq National Market System. A hearing before Nasdaq on this matter is scheduled to be held on May 22, 1996. Items 6. Exhibits and Reports on Form 8-K Exhibit Description - ------- ----------- 27 Financial Data Schedule (for SEC use only) Reports on Form 8-K: Date Form 8-K was Filed Description - ----------------------- ----------- January 31, 1996 Change in the Company's year end from September 30th to December 31st. May 6, 1996 Disclosure of Rights Agreement Plan. 13 14 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC. By: /s/ L. Scott Demerau ----------------------------- L. Scott Demerau President, Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-Q was signed by the following persons in the capacities indicated on May 13, 1996.
Signature Title /s/ L. Scott Demerau President, Chief Executive Officer and a Director - -------------------- (principal executive officer) L. Scott Demerau /s/ Ann C. Travis Vice President Finance - --------------------- Ann C. Travis
14 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10-Q FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 4,804,655 0 1,780,704 0 1,547,652 11,699,048 69,703,752 0 98,013,263 32,178,947 33,405,702 0 8,459,000 47,301,984 (6,365,685) 98,013,263 6,535,477 6,996,729 0 8,785,057 (890,487) 0 892,251 (3,359,989) (1,256,674) (2,175,683) 0 0 0 (2,175,683) (0.21) (0.21) The asset value for receivables and PP&E represent net amounts
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