The accompanying notes are an integral part of these condensed financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
July 3, 2016
NOTE 1. ORGANIZATION
Parks! America, Inc. (Parks! or the Company) was originally incorporated on July 30, 1954 as Painted Desert Uranium & Oil Co., Inc. in Washington State. On October 1, 2002, Painted Desert Uranium & Oil Co., Inc. changed its name to Royal Pacific Resources, Inc. and its corporate domicile to the State of Nevada.
On December 19, 2003, Royal Pacific Resources, Inc. acquired the assets of Great Western Parks LLC pursuant to a Share Exchange Agreement that resulted in the Company assuming control and changing the corporate name to Great American Family Parks, Inc. The acquisition was accounted for as a reverse acquisition in which Great Western Parks was considered to be the acquirer of Royal Pacific Resources for reporting purposes. On June 11, 2008, the Company changed its name from Great American Family Parks, Inc. to Parks! America, Inc.
The Company owns and operates through wholly owned subsidiaries two regional theme parks and is in the business of acquiring, developing and operating local and regional theme parks and attractions in the United States. The Companys wholly owned subsidiaries are Wild Animal Safari, Inc., a Georgia corporation (Wild Animal Georgia) and Wild Animal, Inc., a Missouri corporation (Wild Animal Missouri). Wild Animal Georgia owns and operates the Wild Animal Safari theme park in Pine Mountain, Georgia (the Georgia Park). Wild Animal Missouri owns and operates the Wild Animal Safari theme park located in Strafford, Missouri (the Missouri Park). The Company acquired the Georgia Park on June 13, 2005, and the Missouri Park on March 5, 2008.
The Parks are open year round but experience increased seasonal attendance during the months of April through August. On a combined basis, net sales for the third and fourth quarter of the last two fiscal years represented approximately 72% of annual net sales.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:
The Companys unaudited consolidated financial statements for the three months and nine months ended July 3, 2016 and June 28, 2015 are presented in accordance with accounting principles generally accepted in the United States of America (GAAP). The Company believes that the disclosures made are adequate to make the information presented not misleading. The information reflects all adjustments that, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations for the periods set forth herein. In the opinion of management interim results reflect all normal and recurring adjustments, and are not necessarily indicative of the results for a full fiscal year.
These unaudited consolidated financial statements should be read in conjunction with audited consolidated financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the fiscal year ended September 27, 2015.
Principles of Consolidation:
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries (Wild Animal Georgia and Wild Animal Missouri). All material inter-company accounts and transactions have been eliminated in consolidation.
Accounting Method:
The Company recognizes income and expenses based on the accrual method of accounting.
Estimates and Assumptions:
Management uses estimates and assumptions in preparing financial statements in accordance with GAAP. Those estimates and assumptions affect the reported amounts of the assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were assumed in preparing these financial statements.
Fiscal Year End:
The Companys fiscal year-end is the Sunday closest to September 30, and its quarterly close dates are also determined by the Sunday closest to the end of each quarterly reporting period. For the 2016 fiscal year, October 2 will be the closest Sunday, and for the 2015 fiscal year, September 27 was the closest Sunday. This fiscal calendar aligns the Companys fiscal periods more closely with the seasonality of its business. The high season typically ends after the Labor Day holiday weekend. The period from October through early March is geared towards maintenance and preparation for the next busy season, which typically begins at Spring Break and runs through Labor Day.
7
PARKS! AMERICA, INC. and SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
July 3, 2016
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reclassifications:
Certain accounts and financial statement captions in the prior periods have been reclassified to conform to the current period financial statements.
Financial and Concentrations Risk:
The Company does not have any concentration or related financial credit risks. The Company maintains its cash in bank deposit accounts, which at times may exceed federally insured limits.
Trade Accounts Receivable:
The theme parks are a payment upfront business; therefore, the Company typically carries little or no accounts receivable. The Company had no accounts receivable as of July 3, 2016 and September 27, 2015, respectively.
Inventory:
Inventory consists of park supplies, and is stated at the lower of cost or market. Cost is determined on the first-in, first-out method. Inventories are reviewed and reconciled annually, because inventory levels turn over rapidly.
Property and Equipment:
Property and equipment is stated at cost. Depreciation is computed on the straight-line method over the estimated useful lives of the assets, which range from three to forty years. A summary is included below.
|
|
|
|
|
|
|
|
|
July 3,
2016
|
|
September 27,
2015
|
|
Depreciable
Lives
|
Land
|
$
|
2,507,180
|
|
$
|
2,507,180
|
|
not applicable
|
Buildings and structures
|
|
3,725,585
|
|
|
3,647,499
|
|
15 - 40 years
|
Facilities and equipment
|
|
530,482
|
|
|
452,707
|
|
5 - 15 years
|
Furniture and fixtures
|
|
76,646
|
|
|
76,646
|
|
7 years
|
Ground improvements
|
|
1,097,729
|
|
|
1,018,757
|
|
15 years
|
Park animals
|
|
641,025
|
|
|
633,134
|
|
5 - 10 years
|
Rides and entertainment
|
|
241,558
|
|
|
238,743
|
|
7 - 10 years
|
Vehicles
|
|
343,317
|
|
|
318,436
|
|
3 - 5 years
|
Total cost
|
|
9,163,522
|
|
|
8,893,102
|
|
|
Less accumulated depreciation
|
|
(2,785,312)
|
|
|
(2,530,312)
|
|
|
Property and equipment, net
|
$
|
6,378,210
|
|
$
|
6,362,790
|
|
|
Other Intangible assets:
Other intangible assets include loan fees, franchising fees, payroll software that are all reported at cost. Loan fees are amortized over the life of the respective loan, currently 20 years for the term loan and seven years for the line-of-credit. See NOTE 4. LONG-TERM DEBT for more information. Franchising fees are amortized over a period of 60 months and payroll software over a period of 36 months.
Impairment of Long-Lived Assets:
The Company reviews its major assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If an asset is considered impaired, then impairment will be recognized in an amount determined by the excess of the carrying amount of the asset over its fair value.
Other Current Liabilities:
The following is a breakdown of other current liabilities:
|
|
|
|
|
|
|
July 3, 2016
|
|
September 27, 2015
|
Accrued wages and payroll taxes
|
$
|
80,168
|
|
$
|
69,979
|
Accrued property taxes
|
|
31,215
|
|
|
41,646
|
Accrued income taxes
|
|
25,881
|
|
|
40,131
|
Accrued sales taxes
|
|
44,957
|
|
|
26,754
|
Deferred revenue
|
|
23,927
|
|
|
14,255
|
Other accrued liabilities
|
|
90,380
|
|
|
54,684
|
Other current liabilities
|
$
|
296,528
|
|
$
|
247,449
|
8
PARKS! AMERICA, INC. and SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
July 3, 2016
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial Instruments:
The carrying amounts of financial instruments are considered by management to be their estimated fair values due to their short-term maturities. Securities that are publicly traded are valued at their fair market value as of the balance sheet date presented.
Revenue Recognition:
The Companys major source of income is from theme park admissions. Theme park revenues from admission fees are generally recognized upon receipt of payment at the time of the customers visit to the parks. Theme park revenues from advance online ticket purchases are deferred until the customers visit to the parks. Short-term seasonal passes are sold primarily during the spring and summer seasons, are negligible to our results of operations and are not material. The Company periodically sells surplus animals created from the natural breeding process that occurs within the parks. All animal sales are reported as a separate revenue line item.
Advertising and Market Development:
The Company expenses advertising and marketing costs as incurred.
Stock Based Compensation:
The Company recognizes compensation costs on a straight-line basis over the requisite service period associated with the grant. No activity has occurred in relation to stock options during any period presented. The Company awards shares to its Board of Directors for service on the Board. The shares issued to the Board are restricted and are not to be re-sold unless an exemption is available, such as the exemption afforded by Rule 144 promulgated under the Securities Act of 1933, as amended (the Securities Act). The Company recognizes the expense based on the fair market value at time of the grant. Each director is typically granted 25,000 restricted shares annually, usually toward the end of the calendar year.
Income Taxes:
The Company utilizes the asset and liability method of accounting for income taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting basis and the tax basis of the assets and liabilities, and are measured using the enacted tax rates and laws. Management periodically reviews the Companys deferred tax assets to determine whether their value can be realized based on available evidence. A valuation allowance is established when management believes it is more likely than not, that such tax benefits will not be realized. Changes in valuation allowances from period to period are included in the Companys income tax provision in the period of change.
Basic and Diluted Net Income (Loss) Per Share:
Basic net income (loss) per share amounts are computed based on the weighted average number of shares actually outstanding. Diluted net income (loss) per share amounts are computed using the weighted average number of common shares and common equivalent shares outstanding as if shares had been issued on the exercise of any common share rights unless the exercise becomes anti-dilutive.
Basic and diluted net income (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding in each period.
Dividend Policy:
The Company has not yet adopted a policy regarding payment of dividends.
Recent Accounting Pronouncements:
The Company does not expect recently issued accounting standards or interpretations to have a material impact on the Companys financial position, results of operations, cash flows or financial statement disclosures.
NOTE 3. RESTRICTED CASH
As of February 5, 2015, the Company was required to post a security of $456,492 (the Security Amount) in connection with the Companys appeal of a summary judgment and award of costs more fully described in NOTE 9. COMMITMENTS AND CONTINGENCIES herein. The Company deposited the Security Amount, in cash, in a newly established account with Fifth Third Bank, an Ohio Banking Corporation (Fifth Third). On April 8, 2015, Fifth Third issued a Letter of Credit equal to the Security Amount to the Harper Defendants (as that term is defined in Note 9). The Company anticipates the Letter of Credit will be in place until the appeal of the summary judgment award is resolved. The Company is restricted from using the Security Amount in its Fifth Third Bank deposit account as long as the Letter of Credit remains outstanding.
9
PARKS! AMERICA, INC. and SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
July 3, 2016
NOTE 4. LONG-TERM DEBT
On January 9, 2013, the Company completed a refinancing transaction (the Refinancing Loan) with Commercial Bank & Trust Company of Troup County (CB&T) as lender. The Refinancing Loan was for a principal amount of $3,752,000 and has a 20-year term. The Refinancing Loan is secured by substantially all the assets of the Company and its wholly owned subsidiaries. The Refinancing Loan bears interest at the rate of Prime Rate plus 2.50%, resulting in a rate of 5.75% during the first five years of the loan term. Thereafter, the interest rate will be re-priced every five years based on the then-Prime Rate plus 2.50%. During the first four months following the closing of the Refinancing Loan the Company was required to make interest-only payments. The minimum required monthly payment is approximately $26,343 during the first five years of the Refinancing Loan term. The closing costs for the Refinancing Loan totaled $175,369 and are being amortized over the 20-year life of the loan.
|
|
|
|
|
|
|
July 3,
2016
|
|
September 27,
2015
|
On January 9, 2013, the Company completed a refinancing transaction with CB&T as lender. The Refinancing Loan was for a principal amount of $3,752,000 and has a 20-year term.
|
$
|
3,393,784
|
|
$
|
3,483,168
|
Less current portion of long-term debt
|
|
(113,588)
|
|
|
(108,762)
|
Long-term debt
|
$
|
3,280,196
|
|
$
|
3,374,406
|
As of July 3, 2016, the scheduled future principal maturities by fiscal year are as follows:
|
|
|
2016
|
$
|
20,211
|
2017
|
|
125,406
|
2018
|
|
132,810
|
2019
|
|
140,651
|
2020
|
|
148,955
|
thereafter
|
|
2,825,751
|
Total
|
$
|
3,393,784
|
NOTE 5. LINES OF CREDIT
The Company maintains a $350,000 line of credit (the LOC) loan from CB&T for working capital purposes. This LOC has an initial term of seven years, subject to the satisfactory performance by the Company. The LOC interest rate is tied to the prime rate and was 5.5% as of July 3, 2016, with a minimum rate of 5.25%. The closing costs for the LOC totaled $11,482 and are being amortized over the initial seven-year term of the loan. As of July 3, 2016 and September 27, 2015, respectively, there was no outstanding balance against the LOC.
During the Companys 2015 fiscal year, the Companys Board of Directors approved the offer of two of the Companys Directors to loan the Company additional funds to support its seasonal working capital requirements. These loans were made on the same terms and conditions as the LOC with CB&T. As of July 3, 2016 and September 27, 2015, respectively, there were no outstanding balances against the Director loans.
When applicable, all advances on the Companys LOC and Director loans are recorded as current liabilities.
10
PARKS! AMERICA, INC. and SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
July 3, 2016
NOTE 6. STOCKHOLDERS EQUITY
Common stock shares issued for service to the Company are valued based on market price on the date of issuance. On December 18, 2015, the Company awarded a total of 150,000 shares of its common stock to six Directors for their service on the Board of Directors at a fair market value of $0.055 per share or $8,250, which was reported as an expense in the first quarter of the 2016 fiscal year. On December 18, 2014, the Company awarded 150,000 shares of its common stock to six Directors for their service on the Board of Directors at a fair market value of $0.031 per share or $4,650, which was reported as an expense in the first quarter of the 2015 fiscal year.
Officers, Directors and their controlled entities own approximately 55.1% of the outstanding common stock of the Company as of July 3, 2016.
NOTE 7. SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES
Employment Agreements:
Effective June 1, 2009, the Company entered into an employment agreement with Dale Van Voorhis (the 2009 Van Voorhis Employment Agreement) to serve as the Companys Chief Operating Officer. Effective January 27, 2011, Mr. Van Voorhis was appointed as the Companys Chief Executive Officer. Effective June 1, 2016, the Company and Mr. Van Voorhis entered into the 2016 Van Voorhis Employment Agreement. Pursuant to the 2016 Van Voorhis Employment Agreement, Mr. Van Voorhis receives an initial base annual compensation in the amount of $90,000 per year, subject to annual review by the Board of Directors. The 2016 Van Voorhis Employment Agreement has a term of two years and entitles Mr. Van Voorhis to participate in any deferred compensation plan the Company may adopt during the term of his employment with the Company.
On April 1, 2008, the Company entered into an employment agreement with Jim Meikle (the 2008 Meikle Employment Agreement) pursuant to which Mr. Meikle was hired to serve as the President and Chief Executive Officer of each of the Companys wholly owned subsidiaries. Effective January 27, 2011, Mr. Meikle was appointed as the Companys Chief Operating Officer. Effective April 1, 2015, the Company and Mr. Meikle entered into the 2015 Meikle Employment Agreement. Pursuant to the 2015 Meikle Employment Agreement, Mr. Meikle receives an initial base annual compensation in the amount of $135,000 per year, subject to annual review by the Board of Directors. The 2015 Meikle Employment Agreement has a term of two years and entitles Mr. Meikle to participate in any deferred compensation plan the Company may adopt during the term of his employment with the Company.
Effective January 1, 2014, the Company entered into an employment agreement with Todd R. White (the White Employment Agreement) to serve as the Companys Chief Financial Officer. Pursuant to the White Employment Agreement, Mr. White received an initial base annual compensation of $50,000 per year, subject to annual review by the Board of Directors. Mr. White also received a $10,000 signing bonus. Effective January 1, 2015, Mr. Whites annual base compensation was increased to $60,000. The White Employment Agreement has a term of five years and entitles Mr. White to participate in any deferred compensation plan the Company may adopt during the term of his employment with the Company.
Each of the foregoing employment agreements contains provisions for severance compensation in the event an agreement is (i) terminated early by the Company without cause or (ii) in the event of a change in control of the Company. This additional severance compensation payable totals $455,000.
Lines of Credit:
During the Companys 2015 fiscal year, the Companys Board of Directors approved the offer of two of the Companys Directors to loan the Company additional funds to support its seasonal working capital requirements. These loans were made on the same terms and conditions as the LOC with CB&T. As of July 3, 2016 and September 27, 2015, respectively, there were no outstanding balances against the Director loans.
11
PARKS! AMERICA, INC. and SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
July 3, 2016
NOTE 8. INCOME TAXES
For the nine month period ended July 3, 2016, the Company reported a pre-tax income of $709,333. For the year ending October 2, 2016, the Company expects to generate pre-tax income and expects to utilize a portion of its Federal net tax operating loss carry-forwards to offset any Federal taxable income in its 2016 fiscal year. However, the Company will likely owe Federal alternative minimum tax for its 2016 fiscal year and has recorded a related tax provision of $7,000 for the nine month period ended July 3, 2016. The Company expects to generate 2016 fiscal year income that will be subject to State of Georgia income taxes at a rate of approximately 6%. Accordingly, the Company recorded a tax provision of $48,500 for estimated State of Georgia income taxes for the nine month period ended July 3, 2016.
The cumulative Federal net operating loss carry-forward was approximately $3,127,000 at September 27, 2015 and will expire beginning in the year 2026. The net deferred tax asset generated by the Federal net operating loss carry-forward has been fully reserved. Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards of approximately $3,127,000 for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, Federal net operating loss carry forwards may be limited as to use in future years.
NOTE 9. COMMITMENTS AND CONTINGENCIES
In September 2009, the Company filed an action against its former President and CEO in the Eighth Judicial District Court of the State of Nevada (Parks! America, Inc. vs. Eastland; et al., Case No. 09-A-599668). The Company brought this action in an attempt to obtain a Temporary Restraining Order and injunctive relief against the Eastland Defendants (the Companys former President and CEO Larry Eastland and his related companies) as to the Eastland Defendants attempt to install a new board of directors for the Company. The Temporary Restraining Order was granted, as was the Preliminary Injunction.
In June 2012, the Company amended its complaint against the Eastland Defendants to, among other things, add new claims for relief, as well as join as defendants, Stanley Harper and Computer Contact Service, Inc., an entity controlled by Mr. Harper (together the Harper Defendants) for breaches of contract and fiduciary duty with regard to the Companys purchase of TempSERV on September 30, 2007 and its subsequent re-conveyance of TempSERV to Computer Contact Service, Inc. as of January 1, 2009. The Company is seeking damages in excess of $1.8 million.
Discovery was conducted on the claims between the parties, after which the Harper Defendants filed for summary judgment asking that the claims against them be dismissed. After briefing and argument, the Court granted summary judgment in favor of the Harper Defendants. Because one of the contracts involved had a provision for legal fees, the Harper Defendants also filed a motion for legal fees and costs. On October 24, 2014, the Court ordered the Company to pay approximately $304,328 in costs and attorneys fees to the Harper Defendants. The Company recorded a liability for the initial award of $304,328 during the fourth quarter of its 2014 fiscal year. As detailed in NOTE 3. RESTRICTED CASH, as of February 5, 2015, the Company was required to post a security in the amount of 150% of the award, or $456,492.
The Company appealed the summary judgment orders and the award of costs and attorneys fees. On July 28, 2016, the Supreme Court of the State of Nevada issued an order affirming the Eighth Judicial District Courts summary judgment rulings in favor of the Harper Defendants and reducing the award of costs and attorneys fees in favor of the Harper Defendants to $291,269. The Company is in the process of evaluating its options with respect to this ruling, including whether to file a Petition for Rehearing.
The remainder of the District Court case against the Eastland Defendants has been stayed pending the result of the appeal. The Company intends to proceed with its case against the Eastland Defendants regardless of the result of the appeal. If the summary judgment decisions are reversed upon rehearing, the Company will proceed against both the Eastland Defendants and the Harper Defendants in the District Court action.
Except as described above, the Company is not a party to any pending legal proceeding, nor is its property the subject of a pending legal proceeding, that is not in the ordinary course of business or otherwise material to the financial condition of its business. None of the Companys directors, officers or affiliates is involved in a proceeding adverse to its business or has a material interest adverse to its business.
12
PARKS! AMERICA, INC. and SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
July 3, 2016
NOTE 10. BUSINESS SEGMENTS
The Company manages its operations on an individual location basis. Discrete financial information is maintained for each Park and provided to management for review and as a basis for decision-making. The primary performance measures used to allocate resources are Park earnings before interest and tax expense, and free cash flow.
The following tables present financial information regarding each of the Companys reportable segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
For the nine months ended
|
|
|
July 3, 2016
|
|
June 28, 2015
|
|
July 3, 2016
|
|
June 28, 2015
|
Total net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Georgia
|
$
|
1,481,336
|
|
$
|
1,328,765
|
|
$
|
2,888,325
|
|
$
|
2,356,000
|
|
Missouri
|
|
337,804
|
|
|
290,986
|
|
|
587,279
|
|
|
492,793
|
|
Consolidated
|
$
|
1,819,140
|
|
$
|
1,619,751
|
|
$
|
3,475,604
|
|
$
|
2,848,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Georgia
|
$
|
894,443
|
|
$
|
773,742
|
|
$
|
1,366,769
|
|
$
|
998,864
|
|
Missouri
|
|
65,610
|
|
|
34,108
|
|
|
(95,482)
|
|
|
(146,935)
|
|
Segment total
|
|
960,053
|
|
|
807,850
|
|
|
1,271,287
|
|
|
851,929
|
|
Corporate
|
|
(128,138)
|
|
|
(177,418)
|
|
|
(404,579)
|
|
|
(461,927)
|
|
Other income (expense), net
|
|
1,978
|
|
|
2,541
|
|
|
6,000
|
|
|
5,978
|
|
Interest expense
|
|
(49,542)
|
|
|
(56,096)
|
|
|
(155,569)
|
|
|
(166,083)
|
|
Amortization of loan fees
|
|
(2,602)
|
|
|
(2,602)
|
|
|
(7,806)
|
|
|
(7,806)
|
|
Consolidated
|
$
|
781,749
|
|
$
|
574,275
|
|
$
|
709,333
|
|
$
|
222,091
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
July 3, 2016
|
|
September 27, 2015
|
Total assets:
|
|
|
|
|
|
|
Georgia
|
$
|
5,193,617
|
|
$
|
4,658,282
|
|
Missouri
|
|
2,550,508
|
|
|
2,489,603
|
|
Corporate
|
|
622,055
|
|
|
628,611
|
|
Consolidated
|
$
|
8,366,180
|
|
$
|
7,776,496
|
NOTE 11. SUBSEQUENT EVENTS
In accordance with ASC 855-10, except as noted in NOTE 9. COMMITMENTS AND CONTINGENCIES, the Company has analyzed its operations subsequent to July 3, 2016 to the date these financial statements were issued and has determined that it does not have any material subsequent events to disclose in these unaudited consolidated financial statements.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Managements discussion and analysis of results of operations and financial condition (MD&A) is a supplement to the accompanying unaudited consolidated financial statements and provides additional information on the Companys businesses, current developments, financial condition, cash flows and results of operations. The following discussion should be read in conjunction with our unaudited consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q (this Quarterly Report) and with our Annual Report on Form 10-K for the fiscal year ended September 27, 2015.
Forward-Looking Statements
Except for the historical information contained herein, this Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements involve risks and uncertainties, including, among other things, statements concerning: our business strategy; liquidity and capital expenditures; future sources of revenues and anticipated costs and expenses; and trends in industry activity generally. Such forward-looking statements include, among others, those statements including the words such as "may," "will," "should," "expect," "plan," "could," "anticipate," "intend," "believe," "estimate," "predict," "potential," "goal," or "continue" or similar language
or by discussions of our outlook, plans, goals, strategy or intentions
.
Our actual results may differ significantly from those projected in the forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including, but not limited to, the risks outlined under "RISK FACTORS" in this Quarterly Report, that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. For example, assumptions that could cause actual results to vary materially from future results include, but are not limited to: competition from other parks, weather conditions during our primary tourist season, the price of animal feed and the price of gasoline. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, we cannot guarantee future results, levels of activity, performance or achievements.
The forward-looking statements we make in this Quarterly Report are based on managements current views and assumptions regarding future events and speak only as of the date of this report.
We assume no obligation to update any of these forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting these forward-looking statements, except as required by applicable law, including the securities laws of the United States and the rules and regulations of the Securities and Exchange Commission.
Overview
Through our wholly owned subsidiaries, we own and operate two regional theme parks and are in the business of acquiring, developing and operating local and regional theme parks and attractions in the United States. Our wholly owned subsidiaries are Wild Animal Safari, Inc., a Georgia corporation (Wild Animal Georgia) and Wild Animal, Inc., a Missouri corporation (Wild Animal Missouri). Wild Animal Georgia owns and operates the Wild Animal Safari theme park in Pine Mountain, Georgia (the Georgia Park). Wild Animal Missouri owns and operates the Wild Animal Safari theme park located in Strafford, Missouri (the Missouri Park).
Our Parks are open year round but experience increased seasonal attendance during the months of April through August. On a combined basis, net sales for the third and fourth quarter of our last two fiscal years represented approximately 72% of annual net sales.
Our goal is to build a family of theme parks primarily through acquisitions of small, local and regional, privately owned existing parks and to develop a series of compatible, themed attractions. When evaluating possible acquisitions, we rely on the following primary criteria:
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Properties that have an operating history;
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Properties that our management team believes have the potential to increase profits and operating efficiencies; and
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Properties where there is additional, underutilized land available for expansion of operations.
We believe that acquisitions, if any, should not unnecessarily encumber the Company with additional debt that cannot be justified by current operations. By using a combination of equity, debt and other financing options, we intend to carefully monitor stockholder value in conjunction with the pursuit of growth.
We may also pursue contract management opportunities for themed attractions owned by third parties.
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As we look at our operations as of July 3, 2016, one of our highest priorities is to continue to improve the operating profit at our Missouri Park. Since the acquisition of our Missouri Park in March 2008, we have worked to upgrade the Parks physical facilities and dramatically improve its concessions. During our 2015 fiscal year, we completed the installation of five amusement park kiddie rides at our Missouri Park that are targeted toward families with children between the ages of three and twelve years old. The addition of these rides is a continuation of our ongoing effort to improve the overall guest experience at, as well as public perception of, our Missouri Park. It is our belief that the addition of these rides will help increase attendance and average spending per guest visit. We believe that years of operation under the prior owners resulted in negative preconceptions about the condition of our Missouri Park. We will continue to focus our efforts to promote our Missouri Park and make additional improvements as our capital budget allows. We expect that over the course of several years these efforts will ultimately yield favorable results.
We are also committed to leveraging the strong operating model we have established at our Georgia Park, with a focus on increasing Park attendance, as well as increasing the revenue generated per visitor via concession and gift shop revenues.
On January 9, 2013, we completed a $3,752,000 loan transaction (the Refinancing Loan), the proceeds of which were used primarily to refinance the Companys then-outstanding debt and fund $230,000 of new construction and renovations at our Parks. The Refinancing Loan lowered our anticipated annual debt service payments. Prior to the Refinancing Loan, our then outstanding mortgages required annual debt service payments totaling $490,000 as compared to new estimated annual debt service payments totaling $316,000, a reduction of $174,000 compared with the previous year. We anticipate that this reduction of our annual cash requirements for debt service will free up cash flow to fund operations and capital improvements at our Parks.
While the Refinancing Loan provides us with incremental cash flow margin, our current size and operating model leave us little room for error. Any future capital raised by us is likely to result in dilution to existing stockholders. It is possible that cash generated by, or available to, us may not be sufficient to fund our capital and liquidity needs for the near-term.
We manage our operations on an individual location basis. Discrete financial information is maintained for each Park and provided to our corporate management for review and as a basis for decision-making. The primary performance measures used to allocate resources are Park earnings before interest and tax expense, and free cash flow. We use this measure of operating profit to gauge segment performance because we believe this measure is the most indicative of performance trends and the overall earnings potential of each reportable segment.
Results of Operations For the Three Month Period Ended July 3, 2016 as Compared to Three Month Period Ended
June 28, 2015
The three month periods ended July 3, 2016 and June 28, 2015 each comprised 13 weeks. However, the three month period ended July 3, 2016 included one week of the Spring Break season during our 2016 fiscal year, while the three month period ended June 28, 2015 included two weeks of this historically higher attendance period. Also note, the majority of the July 4
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holiday period occurred in the three month period ended July 3, 2016, while in fiscal 2015, the July 4
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holiday period occurred in the subsequent fiscal quarter. As such, we will discuss Park attendance based net sales on both a reported, as well as a comparable 13-week, basis for the three months ended July 3, 2016 as compared to the prior year.
The following table shows our consolidated and segment operating results for the three months ended July 3, 2016 and June 28, 2015: