10-Q 1 d81774e10-q.txt FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 2000 1 ================================================================================ UNITED STATES 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, 2000 --------------- MALIBU ENTERTAINMENT WORLDWIDE, INC. 717 North Harwood, Suite 1650 Dallas, Texas 75201 (214) 210-8701 --------------- ~~Incorporated in Georgia SEC File No.: 0-22458 IRS Employer Id. No.: 58-1949379~~

--------------- The Company (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 and (2) has been subject to such filing requirements for the past 90 days. At November 9, 2000, 57,142,547 shares of the Company's Common Stock were outstanding. ================================================================================ 2 MALIBU ENTERTAINMENT WORLDWIDE, INC. CONSOLIDATED BALANCE SHEETS

2 3 MALIBU ENTERTAINMENT WORLDWIDE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

3 4 MALIBU ENTERTAINMENT WORLDWIDE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

4 5 MALIBU ENTERTAINMENT WORLDWIDE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 (UNAUDITED) 1. 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 necessary to present fairly, in all material respects, the consolidated financial position and results of operations of the Company and its subsidiaries as of the dates and for the periods presented. The Company's business is seasonal in nature, therefore, operating results for the nine month period ended September 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's report on Form 10-K for the year ended December 31, 1999. Among other things, the auditor's opinion accompanying the Company's financial statements for the year ended December 31, 1999 includes a going-concern qualification. 2. ASSET SALES In February 2000, the Company sold its McAllen, Texas facility for a profit participation based on future income earned at the location for the next 5 years. In calendar year 1999, this facility generated $0.8 million of net revenues and $0.2 million of operating losses. Substantially all of the assets were transferred to the new owner. In the third quarter, two raw land properties were sold for total net proceeds of $686,000. In addition, the Company sold an operating park for total net proceeds of $486,000. Proceeds from all three sales were used to pay down the Company's primary lender. In November 2000, the Company closed the sale of another property for approximately $4.5 million. The net proceeds of the sale were used to pay down the Company's primary lender in accordance with the amended loan agreement and to fund working capital requirements. 3. DEBT OBLIGATIONS In September 2000, the Company and its primary lender amended the Company's credit agreement to (i) restructure the repayment schedule of $20.4 million of secured debt; (ii) eliminate all covenants that require the Company to maintain financial ratios and similar financial requirements; (iii) remove certain restrictions on the Company in connection with asset divestitures; (iv) in all but one case, require 80% of the proceeds of divestitures to repay this debt instead of specific dollars amounts; and (v) establish a specific asset marketing and disposition plan. In addition, the restructured agreement requires the debt to be reduced as follows: to $17 million by November 30, 2000, to $9 million by April 30, 2001 and to $5 million by June 30, 2001. The Company closed on the sale of a property in November which provided the funds sufficient to satisfy the November 30, 2000 repayment requirement. The Company also restructured its debt obligations with another lender, which resulted in debt forgiveness of approximately $485,000 during the second quarter. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources; Recent Developments The Company's internally generated cash has been insufficient to fund its working capital, debt service and capital expenditure 5 6 requirements for the past several years. The Company historically funded its operations and capital expenditures principally through external financing, sales of non-core assets, and cash flow from operations. In September 2000, the Company and its primary lender amended the Company's credit agreement to (i) restructure the repayment schedule of $20.4 million of secured debt; (ii) eliminate all covenants that require the Company to maintain financial ratios and similar financial requirements; (iii) remove certain restrictions on the Company in connection with asset divestitures; (iv) in all but one case, require 80% of the proceeds of divestitures to repay this debt instead of specific dollars amounts; and (v) establish a specific asset marketing plan. In addition, the restructured agreement requires the debt to be reduced as follows: to $17 million by November 30, 2000, to $9 million by April 30, 2001 and to $5 million by June 30, 2001. The Company closed on a property sale in November 2000 which provided the funds sufficient to satisfy the November 30, 2000 repayment requirement. The amended credit agreement requires the Company to generate cash to fund its working capital, debt service, capital expenditure requirements and to repay indebtedness. If the Company is unsuccessful in selling assets, in obtaining other financing, in modifying the terms of its existing indebtedness or if the proceeds of such sales are significantly less than their recorded value, the Company will be required to take extraordinary steps to preserve cash and satisfy its obligations or to restructure its obligations, including seeking to curtail normal operations at various facilities, liquidating assets or significantly altering its operations. There can be no assurance that the Company will be able to take such actions or, if so, as to the timing, terms or effects thereof. If the Company is unable to take such actions or they are not sufficient to permit the Company to continue to operate, the Company may seek or be forced to seek to restructure or reorganize its liabilities, including through proceedings under the federal bankruptcy laws. At September 30, 2000, the Company had $21.4 million of current assets (including $1.5 million of restricted cash) and $ 28.9 million of current liabilities (including $20.9 million of current debt), or negative working capital of $7.5 million (compared to working capital of $0.8 million at December 31, 1999, which included $1.5 million of restricted cash). The Company's principal uses of cash during the nine months ended September 30, 2000 were to pay debt ($1.5 million) and capital expenditures ($0.7 million). During the nine months ended September 30, 2000, the Company financed its operations primarily through borrowings from its primary lender ($2.8 million) and disposition of property ($1.3 million). Seasonality The business of the Company is seasonal. Approximately two-thirds of the Company's revenues have historically been generated during the six-month period of April through September. As a result, the Company's operating income can be expected to be substantially lower in the first and last quarters of the year than the second and third quarters. Furthermore, since many of the attractions at the parks involve outdoor activities, prolonged periods of inclement weather result in a substantial reduction of revenues during such periods. Accordingly, the Company believes that the results of operations for the nine months ended September 30, 2000 are not necessarily indicative of the Company's future results of operations. Results of Operations For the three months ended September 30, 2000, the Company had a net loss to common shareholders of $1.9 million ($0.03 per common share), compared to a net loss of $3.6 million ($0.07 per common share) for the comparable period last year. For the nine months ended September 30, 2000, the Company had net loss to common shareholders of $8.1 million ($0.14 per common share), compared to a net loss of $12.5 million ($0.26 per common share) for the comparable period last year. Entertainment revenue increased by $0.2 million (1%) and $1.3 million (4%) respectively, for the three and nine months ended September 30, 2000 from $12.9 million and $33.6 million for the three and nine months ended September 30, 1999 to $13.1 million and $34.9 million for the three and nine months ended September 30, 2000. The increase in revenue is primarily due to a fully staffed group sales force in 2000, price increases implemented in the first quarter of 2000 and increased revenues from the parks on which significant renovations were performed in the latter part of 1999. The increase was partially offset by the loss in revenues on the facilities that were sold in 2000. Entertainment expenses decreased by $1.1 million (11%) and $1.6 million (6%) respectively, for the three and nine months ended September 30, 2000 from $10.2 million and $27.4 million for the three and nine months ended September 30, 1999 to $9.1 million and $25.8 million for the comparable periods in 2000. The decrease is primarily due to reductions in payroll and operating costs. General and administrative expenses for the three and nine months ended September 30, 2000 were essentially unchanged from the comparable period in 1999. 6 7 Depreciation and amortization for the three and nine months ended September 30, 2000 decreased by $0.9 million and $2.6 million respectively, due principally to the writedown of assets during the fourth quarter of 1999 in compliance with Statement of Financial Accounting Standards No. 121. Interest expense decreased by $3.1 million for the nine months ended September 30, 2000, as compared to the comparable period in the prior year due to the recapitalization completed in 1999 described in the Company's 1999 Form 10-K. Stock Listing In June 2000, the Company withdrew its appeal of the American Stock Exchange's ("AMEX") decision to de-list the Company's stock. As previously reported, the Company did not meet the published guidelines for continued listing on the AMEX. The Company ceased trading on the AMEX on June 25, 2000. Currently, the Company's common shares are quoted on the National Association of Securities Dealers' ("NASDAQ) Electronic Bulletin Board (the "OCTBB"). The new trading symbol for the Company is "MBEW". ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK A portion of the Company's long-term debt as of September 30, 2000 bore interest at variable rates and the Company is exposed to market risk from changes in interest rates primarily through its borrowing activities, which are described in the "Notes Payable" section to the Financial Statements included in the Company's 1999 Form 10-K. At September 30, 2000, the Company did not hold any derivatives related to interest rate exposure for any of its debt facilities and it does not use financial instruments for trading or other speculative purposes. Based on the Company's borrowings at September 30, 2000, if the prime rate were to increase by 1%, the Company's cash flow and interest expense would increase by approximately $0.2 million. However, management has determined that this does not materially effect the Company's financial position or results of operations. In addition, because the Company does not use financial instruments, it does not expect the implementation of Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging Activities" to have a significant impact on its financial position or results of operations. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Due to the nature of the attractions at the Company's entertainment parks, the Company 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. The Company also is from time to time a party to other claims and legal proceedings, and is subject to environmental, zoning and other legal requirements. As of the date of this report, the Company does not believe that any such matter is reasonably likely to have a material adverse effect on the Company's financial position or results of operations. However, there can be no assurance in this regard or that the Company will not be subject to material claims or legal proceedings or requirements in the future. ITEM 5. OTHER INFORMATION Forward-Looking Statements This Report (including any documents incorporated by reference herein) contains certain forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) and information relating to the Company that is based on the beliefs of the Company's management, as well as assumptions made by and information currently available to the management of the Company. When used herein, words such as "anticipate," "believe," "estimate," "expect," "intend" and similar expressions, as they relate to the Company or the Company's management, identify forward-looking statements. Such statements reflect the current views of the Company's management with respect to future events and are subject to certain risks, uncertainties and assumptions relating to the Company's ability to obtain additional capital resources and/or working capital, the Company's operations and results of operations of the Company and the success of the Company's business and plan, competitive factors and pricing pressures; general economic conditions; the failure of market demand for the types of entertainment opportunities the Company provides or plans to provide in the future and for family entertainment in general to be commensurate with management's expectations or past experience; 7 8 impact of present and future laws; ongoing need for capital improvements; changes in operating expenses; adverse changes in governmental rules or policies; changes in demographics, economics and other factors. Should one or more of these assumptions prove incorrect, actual results or outcomes may vary materially from those described herein as anticipated, believed, estimated, expected or intended. Accordingly, shareholders are cautioned not to place undue reliance on such forward-looking statements. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibit No. Description 27 Financial Data Schedule (for SEC purposes only) 10.29 Amendment Number Twelve to Consolidated, Amended and Restated Loan and Security Agreement. 10.30 Subsidiary Joinder to Amendment Number Twelve (b) No reports of Form 8-K were filed during the period covered by this report. 8 9 SIGNATURES In accordance with the requirements of the Exchange Act, the Company caused this report to be signed on behalf by the undersigned, thereunto duly authorized. MALIBU ENTERTAINMENT WORLDWIDE, INC. By: /s/ R. SCOTT WHEELER ---------------------- R. Scott Wheeler Chief Financial Officer November 13, 2000 10 INDEX TO EXHIBITS

MALIBU ENTERTAINMENT WORLDWIDE INC 10-Q