-----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, G2GStV1hBzgEkQ+QPdFXpAmkBY36i7IdIdo5AYVcMUi0XB56agu4t1DhJ6hs8/Pp fzPX5lpuGIkMtLarJ+S0jw== 0000950144-96-007942.txt : 19961113 0000950144-96-007942.hdr.sgml : 19961113 ACCESSION NUMBER: 0000950144-96-007942 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961112 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOUNTASIA ENTERTAINMENT INTERNATIONAL INC CENTRAL INDEX KEY: 0000912027 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] 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: 96660127 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 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 THE QUARTER ENDED SEPTEMBER 30, 1996 Mountasia Entertainment International, Inc. 5895 Windward Parkway, Suite 220 Alpharetta, GA 30202-4128 (770) 442-6640 -------------------------------------------------- (Name, address and telephone number of Registrant) Georgia Commission File No. 0-22458 58-1949379 ------------------------ ----------------------------- ------------- (State of Incorporation) (IRS Employer I.D. No.) The Registrant (1) had filed all reports required to be filed by Section 12, 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for at least the past 90 days. The number of shares outstanding of the Registrant's Common Stock as of November 6, 1996 was 28,175,628. The Company has obligations to issue a substantial number of shares of Common Stock under outstanding convertible securities and other obligations. See Item 2 of Part I of this report. 2 Part 1. FINANCIAL INFORMATION Item 1. Financial Statements MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, 1996 1995 1995 (UNAUDITED) (UNAUDITED) --------------- -------------- --------------- ASSETS Current Cash and cash equivalents $ 2,324,870 $ 1,549,338 $ 7,196,026 Restricted cash 1,059,862 2,116,546 2,107,165 Restricted certificates of deposit 3,169,429 3,127,208 Accounts receivable, net of allowance for doubtful accounts 557,592 79,708 161,137 Inventories 1,578,530 1,551,180 1,855,545 Current portion of notes receivable 597,345 391,491 393,069 Other current assets 8,739,962 2,763,912 1,111,060 --------------- -------------- --------------- Total current assets 14,858,161 11,621,604 15,951,210 --------------- -------------- --------------- Property and equipment, less accumulated depreciation 80,966,564 71,482,152 70,884,585 --------------- -------------- --------------- Other noncurrent Investments in and advances to limited partnerships 5,985,005 5,111,847 5,129,758 Notes receivable 279,001 1,042,528 1,062,387 Earnest money deposits 1,048,881 418,821 Other assets 370,285 697,634 630,431 Debt issuance costs, less accumulated amortization 2,343,290 1,532,135 2,037,463 Intangible assets, less accumulated amortization 10,532,504 4,414,112 4,498,776 --------------- -------------- --------------- Total other noncurrent assets 20,558,966 13,217,077 13,358,815 --------------- -------------- --------------- Total Assets $ 116,383,691 $ 96,320,833 $ 100,194,610 =============== ============== =============== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Current portion of notes payable $ 1,452,060 $ 17,663,706 $ 10,406,788 Convertible subordinated debentures 5,650,000 5,650,000 Current portion of liability for guaranteed stock values 1,419,730 1,151,238 Accounts payable 1,797,631 1,227,808 1,239,903 Accrued expenses 6,330,317 6,234,270 5,746,412 Reserve for discontinued operations 795,000 Income taxes payable 9,888 9,888 9,888 --------------- -------------- --------------- Total current liabilities 9,589,896 33,000,402 24,204,229 Notes payable 8,277,830 6,834,514 15,545,067 Convertible subordinated debentures 21,666,369 6,518,334 8,500,000 Other accrued expenses 546,127 448,858 460,418 Deferred revenue 1,856,248 2,444,140 Deferred income taxes 674,021 674,021 674,021 --------------- -------------- --------------- Total liabilities 40,754,243 49,332,377 51,827,875 --------------- -------------- --------------- Liability for guaranteed stock values 775,998 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, 0, 430 and 0 shares issued and outstanding 4,300,000 Class C, 1,000 shares authorized, 0, 50 and 0 shares issued and outstanding 500,000 Common stock, 100,000,000 shares authorized with no par value; 27,960,927, 10,079,834 and 7,850,868 shares issued and outstanding 96,316,803 43,868,329 35,558,175 Outstanding warrants 2,440,100 3,064,933 2,683,333 Unearned compensation (497,222) (250,000) Notes receivable from employees (5,884,125) Accumulated deficit (18,019,328) (6,412,651) (2,578,015) --------------- -------------- --------------- Total shareholders' equity 74,853,450 45,294,075 46,989,109 Commitments and contingencies --------------- -------------- --------------- Total liabilities and shareholders' equity $ 116,383,691 $ 96,320,833 $ 100,194,610 =============== ============== ===============
2 3 MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE FOR THE THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1996 1995 1996 1995 OPERATING REVENUES Entertainment revenue $ 11,955,996 $ 11,234,228 $ 29,192,106 $ 28,199,235 Development and construction revenue from related parties 2,251,214 8,091,473 Formation and development revenue 542,500 1,600,000 Other 444,165 1,028,862 1,362,281 1,935,921 ------------ ------------ ------------- ------------ Total operating revenues 12,400,161 15,056,804 30,554,387 39,826,629 ------------ ------------ ------------- ------------ OPERATING EXPENSES Family Entertainment Center expenses 9,710,146 8,405,620 25,218,929 21,998,943 General and administrative expenses 2,070,897 3,730,661 7,094,258 7,000,019 Development and construction expense 2,339,949 7,440,901 ------------ ------------ ------------- ------------ Total operating expenses 11,781,043 14,476,230 32,313,187 36,439,863 ------------ ------------ ------------- ------------ Depreciation and amortization 1,906,460 1,660,890 5,541,795 3,994,254 Loss due to impairment of assets 2,871,000 Realized loss on sale of securities 293,430 ------------ ------------ ------------- ------------ Operating loss (1,287,342) (1,080,316) (10,171,595) (900,918) OTHER (EXPENSE) INCOME Interest expense (1,604,816) (858,683) (3,423,456) (2,708,334) Interest income 88,205 124,752 163,124 337,829 Loss on settlement of strategic alliance agreements (1,005,751) Gain associated with development and construction division 795,000 Gain associated with cancellation of warrants 86,500 422,333 Other (86,189) (163,411) 1,107,183 1,129,931 ------------ ------------ ------------- ------------ Loss before benefit for income taxes and extraordinary item (2,803,642) (1,977,658) (12,113,162) (2,141,492) Extraordinary item (less applicable income tax benefit of $300,000) (537,580) (537,580) Benefit for income taxes 1,354,442 446,845 4,540,616 546,215 Equity in net (losses) earnings of limited partnerships, net of tax 73,607 (45,976) 95,554 ------------ ------------ ------------- ------------ Net loss $ (1,986,780) $ (1,457,206) $ (8,156,102) $ (1,499,723) ============ ============ ============= ============ NET LOSS APPLICABLE TO COMMON STOCK Net loss before extraordinary item $ (1,449,200) $ (1,457,206) $ (7,618,522) $ (1,499,723) Less: Preferred stock dividends (379,680) ------------ ------------ ------------- ------------ Net loss applicable to common stock before extraordinary item (1,449,200) (1,457,206) (7,998,202) (1,499,723) Extraordinary item (537,580) (537,580) ------------ ------------ ------------- ------------ Net loss applicable to common stock $ (1,986,780) $ (1,457,206) $ (8,535,782) $ (1,499,723) ============ ============ ============= ============ Net loss per share of common stock before extraordinary item $ (0.07) $ (0.18) $ (0.58) $ (0.19) Extraordinary item (0.03) (0.04) ------------ ------------ ------------- ------------ Net loss per share of common stock $ (0.10) $ (0.18) $ (0.62) $ (0.19) ============ ============ ============= ============ Weighted average number of shares of common stock and common stock equivalents used in calculating net loss per share 18,151,057 8,047,433 13,867,288 7,901,366 ============ ============ ============= ============
3 4 MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
PREFERRED COMMON OUTSTANDING UNEARNED STOCK STOCK WARRANTS COMPENSATION ----------- ----------- ----------- -------------- 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 $ (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 Accretion of preferred stock dividends 75,616 Net loss ----------- ----------- ---------- ----------- Balance, September 30, 1995 11,575,616 35,558,175 2,683,333 (250,000) 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 financial advisory agreements (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 (7,034,931) 7,034,931 Subordinated debt converted 2,031,892 Net loss ----------- ----------- ---------- ----------- Balance, December 31, 1995 5,270,686 43,868,329 3,064,933 (497,222) Issuance of preferred stock 6,662,000 Issuance of common stock 51,006,000 Stock issuance costs (3,468,618) Issuance of common stock to employees Purchase and cancellation of stock (722,744) Unearned compensation in connection with the financial advisory agreements 234,722 Warrants issued 60,000 Adjustment to common stock as a result of guaranteed stock prices (680,338) Accretion of preferred stock dividends 275,000 Accretion of preferred stock discount 548,500 Preferred stock converted (3,497,126) 3,725,077 Preferred stock redeemed (5,878,000) Subordinated debt converted 2,589,097 Preferred stock converted to subordinated debt (3,160,500) Payment of dividends (138,455) Cancellation of warrants (684,833) 262,500 Adjust previous accretion of dividends to actual (82,105) Net loss ----------- ----------- ---------- ----------- Balance, September 30, 1996 $ - $96,316,803 $2,440,100 $ - =========== =========== ========== =========== - UNREALIZED NOTES LOSS ON RECEIVABLE SECURITIES RETAINED FROM AVAILABLE EARNINGS EMPLOYEES FOR SALE (DEFICIT) TOTAL ----------- ---------- ----------- ------------ Balance, September 30, 1994 $ - $(227,714) $ 1,355,995 $ 31,826,768 Issuance of preferred stock 23,000,000 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) 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) 75,616 Net loss (2,995,894) (2,995,894) ----------- --------- ------------- ------------ Balance, September 30, 1995 - - (2,578,015) 58,564,725 Issuance of preferred stock 1,000,000 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 financial advisory agreements (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) 230,001 Preferred stock converted (7,034,931) Subordinated debt converted 2,031,892 Net loss (3,568,018) (3,568,018) ----------- ----------- ------------- ------------ Balance, December 31, 1995 - - (6,412,651) 50,564,761 Issuance of preferred stock 13,324,000 Issuance of common stock 51,006,000 Stock issuance costs (531,657) (4,000,275) Issuance of common stock to employees (5,884,125) (5,884,125) Purchase and cancellation of stock (722,744) Unearned compensation in connection with the financial advisory agreements 234,722 Warrants issued 60,000 Adjustment to common stock as a result of guaranteed stock prices (680,338) Accretion of preferred stock dividends (379,680) 170,320 Accretion of preferred stock discount (2,621,343) (1,524,343) Preferred stock converted (3,269,175) Preferred stock redeemed (11,756,000) Subordinated debt converted 2,589,097 Preferred stock converted to subordinated debt (6,321,000) Payment of dividends (276,910) Cancellation of warrants (422,333) Adjust previous accretion of dividends to actual 82,105 (82,105) Net loss (8,156,102) (8,156,102) ----------- --------- ------------- ------------ Balance, September 30, 1996 $(5,884,125) $ - $ (18,019,328) $ 74,853,450 =========== ========= ============= ============
4 5 MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 1995 Operating activities: Net loss $ (8,156,102) $ (1,499,723) Extraordinary item, net of income taxes 537,580 Adjustments to reconcile net loss to net cash used by operating activities Syndication revenue (1,050,000) Equity in net losses (earnings) of limited partnerships, net of tax (95,554) Allowance for doubtful accounts 470,000 793,617 Depreciation and amortization 5,541,795 3,994,254 Deferred income taxes (1,417,000) Loss on impairment of assets 2,871,000 Amortization of warrants 234,722 408,333 Issuance of warrants 60,000 Gain associated with cancellation of warrants (422,333) Gain associated with development and construction division (795,000) Realized loss on securities available for sale 293,430 (Gain) loss on sales or write off of property and equipment (1,107,183) 146,202 -------------- -------------- (765,521) 1,573,559 Changes in assets and liabilities, net of acquisition Increase in accounts receivable (867,884) (504,351) Decrease (increase) in inventory 56,650 (238,979) Increase in other assets (5,336,425) (429,120) Increase (decrease) in accounts payable 569,823 (909,205) Increase in accrued expenses (103,217) 123,581 Increase in income taxes payable 9,888 (Decrease) increase in deferred revenue (1,856,248) 2,444,140 -------------- -------------- Cash (used) provided by operating activities (8,302,822) 2,069,513 -------------- -------------- Investing activities: Purchases of property and equipment (4,826,904) (633,873) Proceeds from sale of property and equipment 3,460,683 1,600,331 Proceeds from sale of securities available for sale 2,665,921 Increase in notes receivable (435,745) (300,329) Principal receipts under notes receivable 27,315 66,116 Increase in investments in and advances to limited partnerships (2,913,720) (1,251,236) (Increase) decrease in restricted cash 1,056,684 (448,633) (Increase) decrease in restricted certificates of deposit 1,925,686 (761,833) Increase in earnest money deposits (630,060) Purchase of facilities (609,097) (4,036,399) -------------- -------------- Cash used by investing activities (2,945,158) (3,099,935) -------------- -------------- Financing activities: Proceeds from borrowings 40,391,379 1,312,455 Proceeds from issuance of subordinated debentures 8,500,000 Payments of borrowings (59,116,981) (13,560,304) Increase in debt issuance costs (1,752,548) (1,679,178) Issuance of preferred stock 6,662,000 11,500,000 Redemption of preferred stock (7,398,690) Redemption of subordinated debentures (4,003,598) Issuance of common stock 45,121,875 5,167,716 Stock issuance costs (4,000,275) (1,033,087) Payment of guaranteed stock values (3,018,451) Purchase of stock (722,744) (5,089,798) Payment of dividends on preferred stock (138,455) -------------- -------------- Cash provided by financing activities 12,023,512 5,117,804 Increase in cash and cash equivalents 775,532 4,087,382 Cash and cash equivalents, beginning of period 1,549,338 3,108,644 -------------- -------------- Cash and cash equivalents, end of period $ 2,324,870 $ 7,196,026 ============== ==============
5 6 MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 AND SEPTEMBER 30, 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, the accompanying consolidated financial statements include all adjustments (consisting only of normal recurring accruals) considered necessary to present fairly, in all material respects, the consolidated financial position and results of operations of the Company and its subsidiaries. Operating results for the nine month period ended September 30, 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. CERTAIN ACCOUNTING EFFECTS In January 1996, the Company changed its fiscal year end from the twelve months ended September 30th to the twelve months ended December 31st. Additionally, in 1996, the Company effected a recapitalization (the "Recapitalization") pursuant to which, among other things, the Company refinanced certain indebtedness, including indebtedness which was then in default and therefore, classified as a current liability , incurred losses as a result of the impairment of certain assets and recognized substantial costs and expenses related to various transactions. As a result, the Company's financial position and results of operations as of or for a period ended on a particular date are not fully comparable to prior periods. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction--Recapitalization In the third quarter of 1996, the Company closed on a loan agreement ("Senior Credit Facility") to provide up to $25 million in senior secured borrowings. The Company also closed on an equity investment agreement with an investment group (the "Equity Investment Group") providing for an initial equity commitment of $62.7 million with an additional $30 million to backstop certain rights offerings made available to all shareholders. The Senior Credit Facility is comprised of a $12.5 million senior secured term loan and a $7.5 million senior secured revolving credit facility, with a "best efforts" commitment for an additional $5 million term loan. Each credit facility matures in August 2001 with no interim principal amortization. The credit facilities are secured by substantially all of the Company's assets and bear interest at a floating rate. 6 7 Under the Senior Credit Facility, the Company is required to maintain affirmative covenants regarding among other things, the maintenance of certain financial ratios and net worth. At September 30, 1996, the Company was in compliance with those covenants. In connection with the closing of the Investment Agreement with the Equity Investment Group, the Company initially received $40 million in exchange for 11,727,970 shares of Common Stock. In addition, the Company has the right to require the Equity Investment Group, in certain circumstances, and the Equity Investment Group, has the option, to invest up to an additional $22.7 million in Common Stock (or, if shareholder approval of such investment is not obtained, non-voting preferred stock at a per share price equal to 85% of the per share price for voting stock). The Equity Investment Group has also agreed to provide up to $30 million to backstop certain future rights offerings to the Company's shareholders. In addition, as contemplated by the Investment Agreement, the Company sold 2,210,000 shares to employees, the purchase of which, was financed with the Company by recourse loans made to the employee purchasers. The Equity Investment Group has the right to be issued additional shares of Common Stock in the circumstances described under "Certain Additional Terms of the Recapitalization" below. Results of Operations The Company's operations for the three months ended September 30, 1996, resulted in a net loss of $2.0 million ($0.10 per share) as compared to a net loss of $1.5 million ($0.18 per share) for the comparable period in the prior year. For the nine months ended September 30, 1996, the Company's operations resulted in a net loss of $8.2 million ($0.62 per share) as compared to a net loss of $1.5 million ($.19 per share) in the comparable period last prior year. The Company presently expects to continue to report losses from operations until the Company's growth strategy is implemented and the effects thereof are realized. The Company presently expects to renovate and upgrade eight to ten of its family entertainment centers ("FECs") commencing this winter and to develop a prototype facility over the course of 1997 for expected roll-out in 1998. In addition, the Company is pursuing possible acquisition opportunities in accordance with its growth strategy, but there can be no assurance that the Company will be able to effect any such acquisition or, if so, as to the timing or terms thereof. Operating revenues Total operating revenues for the three months ended September 30, 1996 declined by $2.7 million (18%) to $12.4 million and by $9.3 million (23%) to $30.6 million, as compared to the comparable periods in the prior year. Entertainment revenue increased $.7 million (6%) to $12.0 million and $1.0 million (4%) to $29.2 million for the three and nine months, respectively, as compared to the prior year. The increase in entertainment revenue was primarily due to the recognition of entertainment revenue for two FECs leased since January 1996 and three FECs acquired in August 1996. These increases in revenue were partially offset by declines in entertainment revenue of $.6 million and $1.4 million for the three and nine month periods in 1996, respectively, when compared to the comparable periods in the prior year, for FECs owned in both years. The decline in year-to-year revenue for these FECs is principally due to the deferral of maintenance expenditures and park enhancements necessary to maintain similar levels of operating performance. The impact of the increase in entertainment revenue was offset by a reduction in development and construction revenue of $2.8 million and $9.7 million for the three and nine month periods in 1996, when compared to comparable periods in the prior year due to the discontinuation, in December 1995, of development and construction activities for limited partnerships. Other revenues also declined to $.4 million and $1.4 million for the three and nine months ended September 30, 1996, respectively, a three and nine month decline of $.6 million due to a reduction in management fees and rental income related to 7 8 revenue recognized in 1995 and a portion of 1996 from the FECs now leased and acquired as previously discussed. Operating expenses Total operating expenses declined by $2.7 million (19%) to $11.8 million and by $4.1 million (11%) to $32.3 million for the three and nine months ended September 30, 1996, respectively, as compared to the comparable periods of the prior year. The decline in operating expenses is primarily due to the discontinuation of development and construction services previously provided to limited partnerships which totaled $2.3 million and $7.4 million for the three and nine months ended September 30, 1995, respectively. FEC operating expenses increased by $1.3 million (16%) to $9.7 million and by $3.2 million (15%) to $25.2 million for the three and nine months ended September 30, 1996, respectively, as compared to the comparable periods of the previous year. These increases are primarily due to the recognition of operating expenses related to the two newly leased FECs and the three acquired FECs. General and administrative expenses decreased by $1.7 million (44%) from $3.7 million for the three months ended September 30, 1995, to $2.0 million for the three months ended September 30, 1996 due primarily to the timing of incurring insurance claims, legal costs and bad debt reserves. Other operating expenses The increase in depreciation and amortization expense of $.2 million (15%) for the three months ended September 30, 1996 as compared to the comparable period of the prior year is primarily due to the FECs acquired in August 1996. The increase of $1.5 million (39%) for the nine months ended September 30, 1996 as compared to the nine months ended September 30, 1995, is primarily due to depreciation expense recorded on assets not placed into service until the latter part of 1995, the write off of unamortized loan costs on refinanced debt and the three acquired FECs. The Company determined, as a result of certain due diligence for the Recapitalization, that the carrying value of certain assets should be adjusted in accordance with Statement of Financial Accounting Standards No. 121, thus the Company recorded a loss of $2.9 million during the nine month period ended September 30 ,1996. Other (expenses)income The increase in interest expense of $.7 million for both the three and nine months ended September 30, 1996 as compared to the comparable periods in the prior year is primarily attributable to interest incurred on convertible debentures issued pursuant to the acquisition of three FECs and higher debt levels preceding the Recapitalization. The Company recorded a loss of $1.0 million during the nine months ended September 30, 1996, relating to the termination of two strategic alliance agreements in which the Company had previously granted rights to third parties to build, own and construct FECs domestically and internationally. In addition, the Company recognized a gain of $.8 million associated with the reversal of an accrual for the costs of the disposal of its development and construction division. The Company also recognized a gain associated with the cancellation of previously issued warrants resulting in a gain of $1.5 million and $.4 million for the three and nine months ended September 30, 1996, respectively. Liquidity and Capital Resources Cash used in operations was $8.3 million for the nine months ended September 30, 1996, compared to cash provided by operations of $2.0 million for the nine months ended September 30, 1995, primarily as a result of an increase in the Company's operating loss before income taxes. The Company believes that cash on hand, 8 9 cash from operations, borrowings under the Senior Credit Facility and the commitments from the Equity Investment Group to provide additional equity capital in certain circumstances will be sufficient to enable the Company to obtain the capital to fund operations and expected growth initiatives. In connection with the Recapitalization, in July 1996, the Company redeemed 30% of the outstanding balance of its 10% Convertible Subordinated Debentures and its Class B Preferred Stock and the Company exchanged the remaining 70% outstanding balance under the Class B Preferred Stock and the 10% Convertible Subordinated Debentures into newly structured 10% Convertible Subordinated Debentures due January 31, 1998 (the "New 10% Debentures"). The New 10% Debentures are convertible into Common Stock at the lesser of $3.50 or the average closing bid price for the Common Stock as determined under the terms of the New 10% Debentures upon (i) election by the Holders' beginning November 7, 1996, or (ii) automatically on January 31, 1998. The redemption of the 10% Debentures, along with the issuance of the New 10% Debentures resulted in the Company recognizing a "loss on the extinguishment of debt" for the redemption premium of 20%, along with the write off of unamortized debt issue costs of approximately $838,000. During the third quarter of 1996, the Debentureholders of the Company's $5.65 million aggregate principal amount of 9% Convertible Subordinated Debentures (the "9% Debentures") waived certain past defaults under financial covenants with respect to its 9% Debentures. Additionally, the Company amended certain terms such that the 9% Debentures are payable only in shares of the Company's Common Stock at the lesser of $4.50 per share or 95% of the average closing bid price for the Common Stock as determined under the terms of the Debentures. The 9% Debentureholders are able to convert 25% of the principal balance currently and can convert the remaining 75% after February 1, 1997, with a mandatory conversion on August 1, 1997. On November 7, 1996, the Company announced that it was redeeming the New 10% Debentures in order to comply with the requirements of the American Stock Exchange, on which the Company's Common Stock is presently listed. Funds for the redemption will be provided by the Equity Investment Group in exchange for nonvoting preferred stock ("Series G Preferred"), which shares will be convertible into Common Stock if shareholder approval is obtained. In connection with the redemption of the New 10% Debentures, the Company also announced that the Equity Investment Group would commence a tender offer for shares of Common Stock at $3.50 per share and the Company's $17 million aggregate principal amount of 9.0% and 9.1% Debentures at par plus accrued and unpaid interest. Shares of Common Stock purchased in the tender offer will be voted in the same proportion as shares held by shareholders, other than the Equity Investment Group, until shareholder approval is obtained. The 9.0% and 9.1% Debentures purchased in the tender offer will be converted into equity securities at a conversion price of $3.50 per share. In August 1996, the Company acquired the general and limited partnership interests which it did not own in National Entertainment Funding, L.P. ("NEF"), the owner of three FECs in Miami, Florida; Henderson, Nevada; and McAllen, Texas, for approximately $19,000,000, comprised of the issuance of $11,422,422 of 9.1% Subordinated Convertible Debentures due January 1, 2002, assumption of a note payable of $4,400,000, cash of $600,000 and the assumption of NEF's net liabilities. Certain Additional Terms of the Recapitalization In order to maintain the Equity Investment Group's relative equity interest in the Company, the Equity Investment Group received a warrant (the "Investor Warrant") under which it is entitled to receive, without any further consideration, 0.8333 shares of Common Stock (adjustable upward proportionally to the event the additional $22.7 million investment is made) for each share of Common Stock issued pursuant to the conversion of the Company's 9.0%, 9.1% and 10.0% Debentures (collectively the "Converts"), as well as, certain equity purchase rights. At September 30, 1996 the aggregate principal balance of converts was $21.7 million. Each of the Converts is convertible at market prices determined with reference to the date of notice of conversion and subject to maximum conversion prices ranging from $3.50 to $5.00 per share. The actual number of shares issuable 9 10 under the Investor warrant will vary depending upon the market price of the Common Stock at the time of conversion. In addition, if certain events occur which vary adversely from specified assumptions as of the closing of the Equity Investment Group's initial investment funding as to (i) litigation and other contingent liabilities, (ii) the Company's ownership of certain assets and rights and (iii) the Company's Representations and Warranties in the Investment Agreement, the Company will be required to issue to the Equity Investment Group (without the payment of additional consideration) the number shares of Common Stock necessary to protect the Purchaser from the economically dilutive effects thereof. In addition, the Company has the right in certain circumstances to cause the Equity Investment Group to purchase, and the Equity Investment Group has the option to purchase up to $22.7 million of additional equity securities (which will be nonvoting until shareholder approval is obtained) at a price equal to the Equity Investor Group's net per share price for its initial $40.0 million investment (after issuance under the Investor Warrant and post-closing value adjustments as described above). If any such investment is in non-voting preferred stock rather than Common Stock, because shareholder approval for the issuance of Common Stock has not been obtained, such preferred stock will be issued at a 15% discount to the price at which Common Stock would have been issued. As part of the Recapitalization, the Company adopted an Employee Stock Purchase Program pursuant to which up to 4,150,000 shares of Common Stock is available for purchase by senior management pursuant to recourse financing made available by the Company. The purchase of such allocated shares would not cause antidilution adjustments under the Investor Warrant or the Converts. At September 30, 1996, the Company had issued 2,210,000 shares of Common Stock for an aggregate purchase price of $5.8 million to senior management. The Company financed the purchase of the stock with notes which bear interest at 7.0% to 8.5% and mature five years from the date of inception. The specific number of shares of Common Stock issuable upon exercise of the Converts and other rights described above or pursuant to the Investment Warrant and the post-closing adjustment provisions of the Investment Agreement cannot be ascertained at this time because it depends upon future events, including market prices for the Company's Common Stock, the number of shares to be issued pursuant to the post-closing adjustment provisions of the Investment Agreement, whether the Company or the Equity Investment Group exercises the right to invest up to an additional $22.7 million in the Company and other factors. However, such number is expected to be material and the issuance of such shares could result in material dilution of the value of an equity investment in the Company held by some shareholders. PART II. OTHER INFORMATION Item 1. Legal Proceedings On or about June 26, 1996, the Company was furnished a copy of a Complaint filed in the United States District Court for the Southern District of New York by Durham Capital Corporation ("Durham") against the Company and other defendants, including the Equity Investment Group and an executive officer of the Company, seeking actual damages of $1,850,000, punitive damages of $3,700,000 and other relief based upon, among other things, a financial advisory agreement alleged to exist between the Company and Durham and alleged interference therewith by the Equity Investment Group. On August 21, 1996, Durham settled the litigation upon payment by the Company of $579,500. 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, 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 alleged tortiuous interference and international interference with prospective economic opportunity. The Complaint seeks damages on the tortiuous 10 11 g interference count in excess of $900,000 and on the intentional interference with prospective economic opportunity in excess of $450,000. The Company settled the lawsuit in October 1996 upon payment of $25,000. Item 2. Exhibits and Reports on Form 8-K Exhibits Description - -------- ----------- Exhibit 27 Financial Data Schedule (for SEC use only) Date Form 8-K was Filed Description - ----------------------- ----------- September 12, 1996 Acquisition of NEF. September 12, 1996 Amendment to Form 8-K filed June 19, 1996. 11 12 SIGNATURES In accordance with the requirements of the Exchange Act, the Company caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC. By: /s/ Richard M. FitzPatrick ---------------------------- Richard M. FitzPatrick Chief Financial Officer By: /s/ Ann C. Travis ---------------------------- Ann C. Travis Vice President, Finance November 12, 1996 12 EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 3,384,732 0 1,433,938 0 1,578,530 14,858,161 80,966,564 0 116,383,691 9,589,896 31,396,259 0 0 96,316,803 (21,463,353) 116,383,691 29,192,106 30,554,387 0 40,725,982 (1,481,889) 0 3,423,456 (12,113,162) (4,540,616) (7,618,522) 0 (537,580) 0 (8,156,102) (0.62) 0 ACCOUNTS RECEIVABLE AND PROPERTY AND EQUIPMENT REPRESENT NET NUMBERS.
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