10-Q 1 d89705e10-q.txt FORM 10-Q FOR QUARTER ENDED JUNE 30, 2001 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 June 30, 2001 --------------- 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~~

--------------- Securities registered pursuant to Section 12 (g) of the Securities Exchange Act: TITLE OF CLASS Common Stock, no par value --------------- Indicate by check mark whether the registrant (1) has filed all reports required to by filed by Section 13 or 15 (d) of the Securities Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] At August 9, 2001, 57,142,547 shares of the Company's Common Stock were outstanding. ================================================================================ 2 MALIBU ENTERTAINMENT WORLDWIDE, INC. CONSOLIDATED BALANCE SHEETS

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

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

5 MALIBU ENTERTAINMENT WORLDWIDE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2001 (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 Malibu Entertainment Worldwide, Inc. (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 six month period ended June 30, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. 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, 2000. Among other things, the auditor's opinion accompanying the Company's financial statements for the year ended December 31, 2000 includes a going-concern qualification. 2. ASSET SALES In January 2001, the Company sold a property in Columbus, Ohio being held for sale for net proceeds of approximately $1.0 million. The majority of the proceeds were used to pay down the note to the Company's primary lender in accordance with the amended loan agreement and the remaining proceeds were used to fund working capital. In June 2001, a parcel of land was sold at the Kingwood, Texas location for net proceeds of approximately $27,000. The proceeds of this sale were used to pay down the lender on the property. Also in June 2001, the Company entered into two land sale and leaseback transactions at their North Cobb and Gwinnett, Georgia parks for net proceeds of approximately $3.0 million. The majority of the proceeds from these sales were used to pay down the note to the Company's primary lender in accordance with the amended loan agreement and the remaining proceeds were used to fund working capital. 3. DEBT RENEWAL On June 29, 2001, the Company and its primary lender amended the Company's credit agreement to extend the maturity date to August 21, 2003 and significantly reduced the Company's principal repayment obligation. Under the amended credit agreement, the Company is obligated to make monthly principal amortization payments of $40,000 starting September 1, 2001, to make an additional payment of $1.62 million by December 31, 2001, and to use the majority of the net proceeds of any asset sale to further reduce the outstanding indebtedness under the credit agreement. 4. RECENT DEVELOPMENTS In June 2001, the Financial Accounting Standards Board approved Statement of Financial Accounting Standard (SFAS) No. 142, "Goodwill and Other Intangible Assets." The amortization of existing goodwill will cease on December 31, 2001. Any goodwill resulting from acquisitions completed after June 30, 2001 will not be amortized. SFAS 142 also establishes a new method of testing goodwill for impairment on an annual basis or on an interim basis if an event occurs or circumstances change that would reduce the fair value below its carrying value. The Company will be required to implement SFAS No. 142 on January 1, 2002. Management does not believe adoption of SFAS 142 will have a material impact on the Company's financial condition or results of operations. 2 6 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 requirements for the past several years. The Company historically funded its operations and capital expenditures principally through cash flow from operations, sales of non-core assets and external financing. On June 29, 2001, the Company and its primary lender amended the Company's credit agreement to extend the maturity date to August 21, 2003 and significantly reduced the Company's principal repayment obligations. Under the amended credit agreement, the Company is obligated to make monthly principal amortization payments of $40,000 starting September 1, 2001, to make an additional payment of $1.62 million by December 31, 2001, and to use the majority of the net proceeds of any asset sale to further reduce the outstanding indebtedness under the credit agreement. In June 2001, the Company completed a sale-leaseback transaction of two parks located in Georgia. The majority of the proceeds from the transactions were used to pay down the Company's primary lender in accordance with the amended credit agreement and the remaining proceeds were used to fund working capital. The Company presently expects that it will not have sufficient cash resources to fund its operations after March 2002 unless it is able to generate cash through asset sales or other financing transactions. Furthermore, the Company will not have sufficient cash resources to fund its debt obligations on December 31, 2001 without selling assets, obtaining other financing, or modifying the terms of its existing indebtedness. Therefore, the Company is continuing to attempt to sell certain assets and/or find alternative financing. If the Company is unsuccessful in selling these assets, in obtaining alternative financing, modifying the terms of its indebtedness, or if the proceeds of such sales are significantly less than their recorded value, the Company may 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 otherwise 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 if 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 June 30, 2001, the Company had $11.8 million of current assets (including $1.5 million of restricted cash and $5.0 million of assets held for sale) and $10.0 million of current liabilities (including $2.6 million of current debt), or working capital of $1.8 million (compared to negative working capital of $11.6 million at December 31, 2000, which included $1.3 million of restricted cash and $6.0 million of assets held for sale). The Company's principal uses of cash during the six months ended June 30, 2001 were to fund operations ($1.0 million), pay down debt ($3.8 million), and capital expenditures ($0.3 million). The Company has developed a conceptual model and pro forma for a new generation SpeedZone. Any new parks developed under the conceptual SpeedZone model would feature the key elements of existing SpeedZones, plus a family oriented racetrack targeting younger participants. The Company is seeking to raise the capital necessary to implement the new SpeedZone model. However, the Company has not been successful to date in raising the necessary funds to begin construction of this new SpeedZone model. There can be no assurance that the Company will be successful in raising the required funds to develop parks with the new model, or if so, as to the timing or terms thereof. 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 six months ended June 30, 2001 are not necessarily indicative of the Company's future results of operations. 3 7 Results of Operations For the three months ended June 30, 2001, the Company had a net loss to common shareholders of $2.5 million ($0.04 per common share), compared to a net loss to common shareholders of $1.7 million ($0.03 per common share) for the comparable period last year. For the six months ended June 30, 2001, the Company had a net loss to common shareholders of $7.2 million ($0.13 per common share), compared to a net loss to common shareholders of $6.2 million ($0.11 per common share) for the comparable period last year. Entertainment revenue decreased by $1.1 million (8%) and $2.6 million (12%) respectively, for the three and six months ended June 30, 2001 from $13.0 million and $21.9 million for the three and six months ended June 30, 2000 to $11.9 million and $19.3 million for the three and six months ended June 30, 2001. The decrease in revenue is primarily due to the sale or closing of parks in 2000 ($0.7 million and $1.7 million, respectively for the three and six months ending June 30, 2000) and to dramatically worse weather in the southeast and the south for the six months ending June 30, 2001 as compared to the same period last year. In addition, group business has been less than previous periods due to the slowing economy. Entertainment expenses decreased by $0.6 million (7%) and $1.2 million (7%) respectively, for the three and six months ended June 30, 2001 from $9.0 million and $16.7 million for the three and six months ended June 30, 2000 to $8.4 million and $15.5 million for the three and six months ended June 30, 2001. The decrease is primarily due to the sale or closing of parks in 2000 ($0.8 million and $1.5 million, respectively for the three and six months ending June 30, 2000). General and administrative expenses decreased $0.1 million and $0.2 million respectively, for the three and six months ended June 30, 2001 due primarily to a reduction in administrative expenses. Depreciation and amortization for the three and six months ended June 30, 2001 decreased by $0.2 million and $0.5 million respectively, due principally to the writedown of assets during the fourth quarter of 2000 in compliance with Statement of Financial Accounting Standards No. 121. Interest expense decreased by $0.7 million and $1.3 million for the three and six months ended June 30, 2001, as compared to the comparable periods in the prior year due to the Company selling properties and paying down the note to the Company's primary lender in accordance with the amended credit agreement. Other expense increased by $0.5 million for both the three and six months ended June 30, 2001 due primarily to incurring a loss on the June 2001 sale and leaseback transactions. Stock Listing The Company's Common Shares are quoted on the National Association of Securities Dealers' ("NASDAQ") Electronic Bulletin Board (the "OTCBB"). The trading symbol for the Company is "MBEW". ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK A majority of the Company's long-term debt as of June 30, 2001 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 2000 Form 10-K. At June 30, 2001, 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 June 30, 2001, if the prime rate were to increase by 1%, the Company's cash flow would decrease and interest expense would increase by approximately $0.1 million. Likewise, if rates were to decrease, the Company would realize a savings of a like amount. 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, the implementation of Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging Activities" did not have a significant impact on its financial position or results of operations. 4 8 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; 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 10.25 Amendment Number Fourteen to Consolidated, Amended and Restated Loan and Security Agreement dated June 29, 2001 (filed herewith). (b) No reports of Form 8-K were filed during the period covered by this report. 5 9 SIGNATURES In accordance with the requirements of the Exchange Act, the Company caused this report to be signed on it's behalf by the undersigned, thereunto duly authorized. MALIBU ENTERTAINMENT WORLDWIDE, INC. By: /s/ R. SCOTT WHEELER ------------------------------------ R. Scott Wheeler Chief Financial Officer August 10, 2001 6 10 INDEX TO EXHIBITS

MALIBU ENTERTAINMENT WORLDWIDE INC 10-Q