At June 30, 2013, the scheduled principal maturities by fiscal year are as follows:
The Company maintains a $350,000 line of credit (the LOC) loan from CB&T for working capital purposes. This LOC was renewed on January 9, 2013 with an initial term of seven years, subject to the satisfactory performance by the Company. The LOC was not used as of September 30, 2012 and June 30, 2013. All advances are recorded as current liabilities. The LOC interest rate is tied to the Prime Rate plus 2.0%, with a minimum rate of 5.25%. The closing costs for the LOC totaled $11,482 and are being amortized over the seven-year term of the LOC.
The Board of Directors of the Company approved the offer of two of the Companys directors to loan the Company $170,000 ($85,000 from each director) on the same terms and conditions as the LOC with CB&T. As of June 30, 2013, $120,000 was outstanding against these loans.
As policy, capital stock shares issued for service to the Company are valued based on market price on the date of issuance. During October 2012, the Company awarded 150,000 shares to six directors for their service on the Board of Directors at a fair market value of $0.01 per share or $1,500. This amount was reported as an operating expense in fiscal 2013.
Officer, directors and their controlled entities own approximately 42% of the outstanding common stock of the Company as of June 30, 2013.
Effective June 1, 2009, the Company entered into an employment agreement with Dale Van Voorhis (the Van Voorhis Employment Agreement) to serve as the Companys Chief Operating Officer. As consideration for his services, Mr. Van Voorhis receives an initial base compensation of $75,000, which is reviewed annually by the Board of Directors. The Van
Voorhis Agreement has a term of five 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 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. The 2008 Meikle Employment Agreement expired on March 31, 2013 and was replaced by an employment agreement between the Company and Mr. Meikle dated as of April 1, 2013 (the 2013 Meikle Employment Agreement). Pursuant to the 2013 Meikle Employment Agreement, Mr. Meikle receives an initial base compensation in the amount of $135,000, which is reviewed annually by the Board of Directors. The 2013 Meikle 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.
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 $405,000.
The Company entered into an employment agreement as of June 1, 2009, as amended on March 20, 2013, with Jon Laria pursuant to which Mr. Laria served as the Companys Chief Financial Officer. Effective May 20, 2013, the Mr. Laria resigned as the Companys Chief Financial Officer and as a member of the Board of Directors of the Company. Mr. Laria received a one-time payment of $25,000 in connection with his resignation.
On January 27, 2011 following the departure of the Companys then President, the Company announced the following actions concerning the Companys executive officers, effective immediately: Dale Van Voorhis was appointed Chief Executive Officer of the Company; James R. Meikle was appointed Chief Operating Officer of the Company and Jeff Lococo was appointed Secretary of the Company.
Effective May 20, 2013, Jon Laria resigned from the Companys Board of Directors and as its Chief Financial Officer. On May 31, 2013, the Company appointed Todd R. White as its Chief Financial Officer.
In January 2013, the Board of Directors of the Company approved the offer of two of the Companys directors to loan the Company $170,000 ($85,000 from each director) on the same terms and conditions as the Companys LOC with CB&T. As of June 30, 2013, $120,000 was outstanding against these loans.
For the nine-month period ended June 30, 2013, the Company has reported loss before income taxes of $8,149. For the year ending September 29, 2013 the Company expects to generate pre-tax income and expects to utilize a portion of its net tax operating loss carry-forwards to offset any taxable income in fiscal 2013. The Companys cumulative net operating carry-forward was approximately $4,197,000 as of September 30, 2012 and will begin to expire in fiscal 2026.
The cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is $1,548,000; however, this entire potential asset is reserved as of June 30, 2013. Due to the change in ownership provisions of the Tax Reform Act of 1986, net tax operating loss carry-forwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating tax loss carry-forwards may be limited as to use in future years.
On July 16, 2013, the State of Georgia Department of Revenue notified the Company that it had not made the proper elections with respect to Wild Animal Georgia to allow for the filing of consolidated State of Georgia tax returns for the fiscal years 2009, 2010 and 2011. A preliminary State of Georgia income tax provision totaling $46,348 has been recorded for these periods. The Company is still in discussions with the State of Georgia regarding this matter, which is expected to be resolved prior to the filing of the Companys annual report on Form 10-K for the 2013 fiscal year.
The proper elections have been made to allow Parks! America and Wild Animal Georgia to file consolidated State of Georgia income tax returns in the 2012 fiscal year and thereafter.
On May 16, 2011, the U.S. Department of Agricultures Animal and Plant Health Inspection Service (USDA APHIS) issued a citation to the Company alleging violations of certain USDA APHIS regulations and assessed a penalty in the amount of $76,857. On July 8, 2011, the Company submitted a reply to the USDA APHIS citation, which contained, among other things, mitigating factors that the Company believed should be considered in determining the amount of the fine. As of July 1, 2012, USDA APHIS responded to the Company with a reduced assessment of $11,170. The Company reduced its reserve by $65,687 to reflect this revised assessment during the second quarter of fiscal 2012. The Company also addressed the compliance issues raised in the citation and is implementing new operational controls to address these matters going forward.
In accordance with ASC 855-10, the Company has analyzed its operations subsequent to June 30, 2013 to the date these financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these consolidated financial statements other than the events described herein.
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 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 consolidated financial statements and notes thereto included elsewhere in this report and with our annual report on Form 10-K for the period ended September 30, 2012.
Forward-Looking Statements
Except for historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements involve risks and uncertainties, including, among other things, statements regarding our business strategy, exploration strategy, future revenues and anticipated costs and expenses. Such forward-looking statements include, among others, those statements including the words expects, anticipates, intends, believes and 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. 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. In addition, factors that might cause or contribute to our results differing materially from forward looking statements include, but are not limited to, those discussed herein as well as in the RISK FACTORS section herein. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this report.
Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the SEC, 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.
Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements.
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 goal is to build a family of theme parks primarily through acquisitions of existing small, local and regional, privately owned parks and to develop a series of compatible, themed attractions. The Company also may pursue contract management opportunities for themed attractions owned by third parties.
Our philosophy is, if possible, to acquire existing attractions and/or properties. When evaluating possible acquisitions, we rely on the following primary criteria:
·
Properties that have an operating history;
·
Properties that our management team believes have the potential to increase profits and operating efficiencies; and
·
Properties where there is additional, underutilized land available for expansion of operations.
We believe that acquisitions 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 shareholder value in conjunction with the pursuit of growth.
As we look at our operations as of June 30, 2013, our principal goal is the continued growth of the Missouri Parks revenue.
Since the Companys acquisition of the Missouri Park in March 2008, we have worked to upgrade the Parks physical facilities and dramatically improve its concessions. We raised additional capital for Park improvements and new attractions with our January 9, 2013 refinancing.
14
Our current size and operating model leaves us little margin for error. Our highest priority is to continue to improve the Missouri Park operating profit.
On January 9, 2013, the Company completed a $3,752,000 loan transaction, the proceeds of which were used primarily to refinance the Companys outstanding debt. For more information regarding this refinancing see Note 3 - Long-Term Debt to the Companys financial statements.
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 the Company believes this measure is the most indicative of performance trends and the overall earnings potential of each segment.
Results of Operations For the Three Month Period Ended June 30, 2013 as Compared to Three Month Period Ended July 1, 2012
The following table shows the operating results for both of our Parks for the three-month periods ended June 30, 2013 and July 1, 2012.
|
|
|
|
|
|
|
|
|
For 3 Months Ended
|
|
|
|
June 30, 2013
|
|
July 1, 2012
|
Net sales
|
|
|
|
|
|
Georgia
|
$
|
1,026,946
|
$
|
1,060,468
|
|
Missouri
|
|
301,261
|
|
318,234
|
|
Total net sales
|
$
|
1,328,207
|
$
|
1,378,702
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
|
|
|
Georgia
|
$
|
496,118
|
$
|
518,914
|
|
Missouri
|
|
94,190
|
|
51,534
|
|
Segment total
|
|
590,308
|
|
570,448
|
|
Corporate
|
|
(173,734)
|
|
(126,402)
|
|
Other income (expense)
|
|
1,256
|
|
7,270
|
|
Interest expense
|
|
(69,743)
|
|
(71,043)
|
|
Income (loss) before income taxes
|
$
|
348,087
|
$
|
380,273
|
Total Net Sales and Segment Information
Our total net sales for the three-month period ended June 30, 2013 decreased by $50,495, or 4%, to $1,328,207 versus the three month period ended July 1, 2012. The Georgia Parks sales decreased by $33,522, or 3%, as a result of less favorable weather conditions during the three-month period ended June 30, 2013 versus the same period in 2012. Sales for the Missouri Park were similarly impacted by unfavorable relative weather conditions, resulting in a decrease of $16,973 or 5%, for the quarter.
Operating Margin
The combined operating margin for both Parks was $590,308, an increase of $19,860 for the three-month period ended June 30, 2013. The Georgia Park operating margin decreased by $22,796 to $496,118, primarily as a result of lower sales partially offset by lower spending. The operating margin for the Missouri Park increased by $42,656 to $94,190, as lower spending more than offset by lower sales, primarily as a result of better inventory management.
15
Corporate Expenses
Corporate spending increased by $47,332 to $173,734 during the three-month period ended June 30, 2013, primarily as a result of one-time compensation costs paid in connection with the resignation of a former officer and director, and higher legal fees. We commenced a lawsuit in September 2009 against a group led by Larry Eastland, a former officer and director of the Company. The litigation was inactive until June 11, 2012 at which time the Company amended its complaint against the Eastland group to, among other things, join as defendants Stanley Harper, LEA Capital Advisors, LLC (an entity controlled by Mr. Eastland) and Computer Contact Service, Inc. (an entity controlled by Mr. Harper) for breaches of contract and fiduciary duty with regards 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.
Other Income and Interest Expense
Other income decreased by $6,014 to $1,256 for the three months ended June 30, 2013.
Interest expense was $69,743, representing a decrease of $1,300 or 2%, for the three-month period ended June 30, 2013. Interest expense on our borrowings decreased by $14,194, primarily as a result of lower interest rates associated with the January 2013 refinancing of all our then outstanding debt. This decrease was offset by $12,894 of interest associated with State of Georgia income taxes for the 2009, 2010 and 2011 fiscal years.
Income Taxes
We do not expect to pay U.S. Federal income taxes for our 2013 fiscal year due to our cumulative net tax operating loss carry-forwards, for more information see Note 7 Income Taxes to the Companys financial statements.
On July 16, 2013, the State of Georgia Department of Revenue notified us that we had not made the proper elections with respect to Wild Animal Georgia to allow for the filing of consolidated State of Georgia tax returns for the fiscal years 2009, 2010 and 2011. We have recorded a preliminary State of Georgia income tax provision totaling $46,348 for these periods. We are still in discussions with the State of Georgia regarding this matter and expect it will be resolved by the filing of our annual report on form 10-K for the fiscal year 2013.
We believe the proper elections have been made to allow Parks! America and Wild Animal Georgia to file consolidated State of Georgia income tax returns in our 2012 fiscal year and thereafter.
Net Income and Income Per Share
The Companys net income decreased by $78,534 to $301,739, or $0.00 per basic share and per fully diluted share, for the three months ended June 30, 2013 as compared with net income of $380,273 or $0.00 per basic share and per fully diluted share, for the three months ended July 1, 2012. This decrease is attributable taxes and interest associated with the State of Georgia matter totaling $60,341, and lower sales and higher corporate spending, partially offset by lower interest on borrowings.
16
Results of Operations For the Nine Month Period Ended June 30, 2013 as Compared to Nine Month Period Ended July 1, 2012
The following table shows the operating results for both our Parks for the nine-month periods ended June 30, 2013 and July 1, 2012
|
|
|
|
|
|
|
|
|
For 9 Months Ended
|
|
|
|
June 30, 2013
|
|
July 1, 2012
|
Net sales
|
|
|
|
|
|
Georgia
|
$
|
1,972,414
|
$
|
1,929,509
|
|
Missouri
|
|
480,301
|
|
537,746
|
|
Total net sales
|
$
|
2,452,715
|
$
|
2,467,255
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
|
|
|
Georgia
|
$
|
621,289
|
$
|
711,008
|
|
Missouri
|
|
(126,710)
|
|
(89,293)
|
|
Segment total
|
|
494,579
|
|
621,715
|
|
Corporate
|
|
(416,349)
|
|
(356,647)
|
|
Other income (expense)
|
|
5,627
|
|
22,903
|
|
Gain on retirement of debt
|
|
105,656
|
|
-
|
|
Interest expense
|
|
(197,662)
|
|
(201,734)
|
|
Income (loss) before income taxes
|
$
|
(8,149)
|
$
|
86,237
|
Total Net Sales and Segment Information
The Companys total net sales for the nine-month period ended June 30, 2013 decreased by $14,540, or 1%, to $2,452,715 versus the nine-month period ended July 1, 2012. Georgia Park sales increased by $42,905, or 2%, as a result of an increase in average revenue per guest during the nine-month period ended June 30, 2013. Net sales for the Missouri Park were down $57,445, or 11%, compared to the first nine months of the 2012 fiscal year. The Missouri Parks attendance dramatically decreased due to the severe weather during January 2013 through March 2013, during which the Park was forced to close for several extended periods.
Operating Margin
The combined operating margin for both Parks was $494,579, a decrease of $127,136 for the nine-month period ended June 30, 2013. This decrease was primarily attributable to lower sales and higher advertising costs at both parks in 2013. Also note that results for the first nine months of the 2012 fiscal year included a $65,956 reduction of operating expenses related to USDA assessment at the Georgia Park, which was settled for an amount substantially lower than the original assessment.
Corporate Expenses and Other
Corporate spending increased by $59,702 to $416,349 during the first nine months of the 2013 fiscal year, primarily as a result of one-time compensation costs and higher legal fees as previously discussed.
Other Income and Interest Expense
Other income decreased by $17,276 to $5,627 for the nine months ended June 30, 2013.
Under the terms of the seller-financing note associated with the acquisition of the Missouri Park, the Company was entitled to a discount if this note was paid in full before March 5, 2013. The Company paid-off this note in full on January 9, 2013 and recorded the gain of $105,656.
17
Interest expense was $197,662, representing a decrease of $4,072 or 2%, for the nine-month period ended June 30, 2013. Interest expense on our borrowings decreased by $16,966, primarily as a result of lower interest rates associated with the January 2013 refinancing of all our then outstanding debt. This decrease was offset by $12,894 of interest associated with State of Georgia income taxes for the fiscal years 2009, 2010 and 2011.
Income Taxes
We do not expect to pay U.S. Federal income taxes for our 2013 fiscal year due to our cumulative net tax operating loss carry-forwards, for more information see Note 7 Income Taxes to the Companys financial statements.
As noted earlier, we learned that Parks! America and Wild Animal Georgia had not made the proper elections to permit the filing of consolidated State of Georgia tax returns for the 2009, 2010 and 2011 fiscal years. We are still in discussions with the State of Georgia regarding this matter and expect it will be resolved by the filing of our annual report on Form 10-K for the 2013 fiscal year. We have recorded a preliminary State of Georgia income tax provision for the fiscal years 2009, 2010 and 2011 totaling $46,348.
We believe the proper elections have been made to allow Parks! America and Wild Animal Georgia to file consolidated State of Georgia income tax returns in our 2012 fiscal year and thereafter.
Net Income and Income Per Share
The Companys net loss for the nine-month period ended June 30, 2013 was $54,497 or $0.00 per basic share and per fully diluted share, a decrease of $140,734, as compared with net income of $86,237, or $0.00 per basic share and per fully diluted share, for the nine months ended July 1, 2012.
Excluding the impact of the $105,656 gain from paying off debt related to the Missouri Park reported in the 2013 fiscal year and the $65,956 reduction of expenses from the settlement of the USDA in the 2012 fiscal year, the first nine months of the 2013 fiscal year resulted in a net loss of $160,153 compared with net income of $20,281 for the first nine months of the 2012 fiscal year. The unfavorable results for the first nine months of the 2013 fiscal year are primarily the result of the State of Georgia income taxes and interest expense (as discussed above), higher spending on advertising and compensation, and to a lesser extent, higher repair and maintenance spending, and higher legal fees compared to the same period last year.
Financial Condition, Liquidity and Capital Resources
Financial Condition and Liquidity
Our primary sources of liquidity are cash generated by operations and borrowings under our loan agreements. Our slow season starts after Labor Day in September and runs until Spring break, which is typically end of March. These two quarters have historically generated negative cash flow and require us to borrow to fund operations and prepare the Parks for the busy season during the third and fourth quarter of our fiscal year.
We believe that our operations have improved to the point that cash flow from operations will be sufficient to fund operations, make debt-service payments and spend modestly on capital improvements in the near-term. Our principal source of income is from cash sales, which is projected to provide sufficient cash flow to fund operations and service our current debt. During the next twelve months, management will focus on increasing net sales, particularly at Missouri Park, and completing several renovation projects currently underway at both Parks. Any slowdown in revenue or unusual capital outlays may require us to seek additional capital.
Our working capital was negative $0.2 million at June 30, 2013 compared to negative $1.7 million at September 30, 2012. This improvement in working capital is a result of completing our new term loan and retiring the $1.6 million Missouri Park seller-financing note, which was due in March 2013.
Our total debt, including current maturities, at June 30, 2013 was $3.8 million compared to $3.5 million at September 30, 2012. The increase in debt is primarily due to capital investments made by the Company during the nine months of the fiscal 2013 and a higher cash balance as of June 30, 2013. The LOC balance (together with outstanding related party notes) at June 30, 2013 and September 30, 2012 was $120,000 and $0, respectively.
As of June 30, 2013 the Company had equity of $2.7 million and total debt of $3.8 million, resulting in a debt to equity ratio of 1.39 to 1. The Companys debt to equity ratio was 1.26 to 1 as of September 30, 2012.
18
Operating Activities
Net cash provided by operating activities was $142,294 and $349,893, for the first nine months of the fiscal years 2013 and 2012, respectively. The decrease was primarily due to lower sales and increased spending on advertising, compensation, and repairs and maintenance for the first nine months of the fiscal 2013 compared to the same period in 2012.
Investing Activities
During the first nine months of the 2013 fiscal year, we spent $285,708 on capital improvements at the Parks, compared to $117,212 spent on capital improvements during the comparable period in the 2012 fiscal year.
Improvements at the Missouri Park included remodeling the Parks gift shop, upgrading the main bathrooms and repaving the Parks main entrance. In addition, we added a new reptile attraction and refurbished many of the animal exhibits. Improvements at the Georgia Park included renovating many of our animal exhibits, upgrading the rental fleet and building a new food preparation structure for animals on special diets. We also renovated the Parks main food service area and repainted all its main buildings.
Financing Activities
During the first nine months of the 2013 fiscal year, cash provided by financing activities totaled $200,326. On January 9, 2013, we completed the refinancing of all our then outstanding debt, retiring all mortgages and replacing them with a single 20-year term loan. In addition, this new financing provided $230,000 for construction and renovations at the Parks, of which approximately $163,550 has been used as of June 30, 2013. We have also received $120,000 in short-term financing from two members of the Companys Board of Directors, which we expect to fully repay before the end of the 2013 fiscal year. During the first nine months of the 2012 fiscal year, $193,314 of cash was used in financing activities to repay debt.
Borrowing Agreements
On January 9, 2013, we completed a refinancing transaction (the Refinancing Loan) with Commercial Bank & Trust Company of Troup County (CB&T). The Refinancing Loan was for a principal amount of $3,752,000 and has a 20-year term. The Refinancing Loan bears interest at the rate of Prime Rate plus 2.50% or 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%.
As a result of the Refinancing Loan, the Company lowered its anticipated annual debt service payments. During the past year, the Companys then outstanding mortgages required annual payments totaling $490,512 as compared to new estimated annual payments totaling $316,116, thereby reducing our annual debt service payments by $174,396 compared with the previous year.
Subsequent Events
None
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, results of operations, liquidity or capital expenditures.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of any contingent assets and liabilities. On an on-going basis, we evaluate our estimates. We base our estimates on various assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
19
A number of variables and assumptions could have an affect a valuation of our assets and liabilities. Our assumptions include the following:
·
Revenue and profit growth at our Parks will continue;
·
The existing Park infrastructure will accommodate the additional customers;
·
Cost of improvements and operations will remain a relatively stable budgeted allocation; and
·
Per capita spending by the customers will continue to rise in relation to the rise in capital expenditures;
If any one of these assumptions, or combination of assumptions, proves incorrect, then the values assigned to real estate, per capita revenues, attendance and other variables that have remained consistent over the past two years may not be realized. The same would be true if higher than expected revenue streams occurred.
PART II
ITEM 1. LEGAL PROCEEDINGS
On May 16, 2011, the U.S. Department of Agricultures Animal and Plant Health Inspection Service (USDA APHIS) issued a citation to the Company alleging violations of certain USDA APHIS regulations and assessed a penalty in the amount of $76,857. On July 8, 2011, the Company submitted a reply to the USDA APHIS citation, which contained, among other things, mitigating factors, which the Company believed, should be considered in determining the amount of the fine. As of April 1, 2012, USDA APHIS responded to the Company with a reduced assessment of $11,170. The Company reduced its reserve by $65,687 to reflect this revised assessment. The Company also addressed the compliance issues raised in the citation and is implementing new operational controls to address these matters going forward.
The Company commenced a lawsuit in September 2009 against a group led by Larry Eastland, a former officer and director of the Company. The litigation was inactive until June 11, 2012 at which time the Company amended its complaint against the Eastland group to, among other things, join as defendants Stanley Harper, LEA Capital Advisors, LLC (an entity controlled by Mr. Eastland) and Computer Contact Service, Inc. (an entity controlled by Mr. Harper) for breaches of contract and fiduciary duty with regards 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 an indefinite amount of damages. For more information regarding the original litigation, see our annual report on Form 10-K for the year ended December 26, 2010.
ITEM 1A. RISK FACTORS
Risk Factors Relating to Our Business:
The Theme Park Industry is Highly Competitive and We May Be Unable to Compete Effectively.
The theme park industry is highly competitive, highly fragmented, rapidly evolving, and subject to technological change and intense marketing by providers with similar products. One of our competitors for attracting general recreation dollars, Callaway Gardens, is located within five miles of our Georgia Park. Branson, Missouri is located just 45 minutes from our Missouri Park.
Many of our current competitors are significantly larger and have substantially greater market presence as well as greater financial, technical, operational, marketing and other resources and experience than we have. In the event that such a competitor expends significant sales and marketing resources in one or several markets we may not be able to compete successfully in such markets. The Company believes that competition will continue to increase, placing downward pressure on prices. Such pressure could adversely affect our gross margins if we are not able to reduce costs commensurate with such price reductions. In addition, the pace of technological change makes it impossible for us to predict whether we will face new competitors using different technologies to provide the same or similar products offered or proposed to be offered by us. If our competitors were to provide better and more cost effective products, our business could be materially and adversely affected.
We Face Strong Competition from Numerous Entertainment Alternatives.
In addition to competing with other themed and amusement parks, our venues compete with other types of recreational venues and entertainment alternatives, including but not limited to movies, sports attractions, vacation travel and video games. There can be no assurance that we will successfully differentiate ourselves from these entertainment alternatives or that consumers will consider our entertainment offerings to be more appealing than those of our competitors. The development of technology-based entertainment has provided families with a wider selection of entertainment alternatives close to or in their homes, including home entertainment units, online gaming, and video game parlors. In addition, traditional theme parks have been able to reduce the cost and increase the variety of their attractions by implementing technologies that cannot be readily incorporated by a wild animal park such as the Georgia Park or Missouri Park.
Our Insurance Coverage May Not Be Adequate To Cover All Possible Losses That We Could Suffer, and Our Insurance Costs May Increase.
Companies engaged in the theme park business may be sued for substantial damages in the event of an actual or alleged accident. An accident occurring at our parks or at competing parks may reduce attendance, increase insurance premiums, and negatively impact our operating results. The Georgia Park contains a drive-through, safari style animal park, and there are inherent risks associated with allowing the public to interact with animals. Although we carry liability insurance to cover this risk, there can be no assurance that our coverage will be adequate to cover liabilities, or that we will be able to afford or obtain adequate coverage should a catastrophic incident occur.
21
We currently have $6,000,000 of liability insurance. We will continue to use reasonable commercial efforts to maintain policies of liability, fire and casualty insurance sufficient to provide reasonable coverage for risks arising from accidents, fire, weather, other acts of God, and other potential casualties. There can be no assurance that we will be able to obtain adequate levels of insurance to protect against suits and judgments in connection with accidents or other disasters that may occur in our theme parks.
Our Ownership of Real Property Subjects Us to Environmental Regulation, Which Creates Uncertainty Regarding Future Environmental Expenditures and Liabilities.
We may be required to incur costs to comply with environmental requirements, such as those relating to discharges to air, water and land; the handling and disposal of solid and hazardous waste; and the cleanup of properties affected by hazardous substances. Under these and other environmental requirements we may be required to investigate and clean up hazardous or toxic substances or chemical releases at one of our properties. As an owner or operator, we could also be held responsible to a governmental entity or third party for property damage, personal injury and investigation and cleanup costs incurred by them in connection with any contamination. Environmental laws typically impose cleanup responsibility and liability without regard to whether the owner or operator knew of or caused the presence of the contaminants. The liability under those laws has been interpreted to be joint and several unless the harm is divisible and there is a reasonable basis for allocation of the responsibility. The costs of investigation, remediation or removal of those substances may be substantial, and the presence of those substances, or the failure to remediate a property properly, may impair our ability to use our property. We are not currently aware of any material environmental risks regarding our properties. However, we may be required to incur costs to remediate potential environmental hazards or to mitigate environmental risks in the future.
The Suspension or Termination of Any of our Business Licenses May Have a Negative Impact On Our Business
We maintain a variety of standard business licenses issued by federal, state and city government agencies that are renewable on a periodic basis. We cannot guarantee that we will be successful in renewing all of our licenses on a periodic basis. The suspension, termination or expiration of one or more of these licenses could have a significant adverse affect on our revenues and profits. In addition, any changes to the licensing requirements for any of our licenses could affect our ability to maintain the licenses.
We Are Dependent Upon the Services of Our Executive Officers and Consultants.
Our success is heavily dependent on the continued active participation of our executive officers. Loss of the services of one or more of these officers could have a material adverse effect upon our business, financial condition or results of operations. In particular, we place substantial reliance upon the efforts and abilities of Dale Van Voorhis, Chairman of the Board of Directors and the Companys Chief Executive Officer and Jim Meikle, the Companys Chief Operating Office, President of Wild Animal-Georgia and Wild Animal-Missouri, a member of the Companys Board of Directors. The loss of Mr. Van Voorhis or Mr. Meikle's services could have a serious adverse effect on our business, operations, revenues or prospects.
Further, our success and achievement of our growth plans depend on our ability to recruit, hire, train and retain other highly qualified technical and managerial personnel. Competition for qualified employees among companies in the theme park industry is intense, and the loss of any such persons, or an inability to attract, retain and motivate any additional highly skilled employees required for the expansion of the Companys activities, could have a materially adverse effect on the Company. The inability of the Company to attract and retain the necessary personnel and consultants and advisors could have a material adverse effect on the Companys business, financial condition or results of operations.
Our Common Stock is Subject to the Penny Stock Rules of the SEC and the Trading Market in Our Securities is Limited, Which Makes Transactions In Our Stock Cumbersome and May Reduce the Value of an Investment in Our Stock.
The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:
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that a broker or dealer approve a person's account for transactions in penny stocks; and
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the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
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In order to approve a person's account for transactions in penny stocks, the broker or dealer must:
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obtain financial information and investment experience objectives of the person; and
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make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form:
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sets forth the basis on which the broker or dealer made the suitability determination; and
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that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
We Do Not Expect to Pay Dividends for Some Time, if At All.
No cash dividends have been paid on our common stock. We expect that any income received from operations will be devoted to our future operations and growth. We do not expect to pay cash dividends in the near future. Payment of dividends would depend upon our profitability at the time, cash available for those dividends, and other factors.
Future Capital Needs Could Result in Dilution to Investors; Additional Financing Could be Unavailable or Have Unfavorable Terms.
Our future capital requirements will depend on many factors, including cash flow from operations, progress in our present operations, competing market developments, and our ability to market our products successfully. It may be necessary to raise additional funds through equity or debt financings. Any equity financings could result in dilution to our then-existing stockholders. Sources of debt financing may result in higher interest expense. Any financing, if available, may be on terms unfavorable to us.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
N/A
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
ITEM 5. OTHER INFORMATION.
None
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ITEM 6. EXHIBITS.
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Exhibit
Number
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Description of Exhibit
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31.1
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Certification by Chief Executive Officer as required by Rule 13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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32.1
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Certification by Chief Financial Officer as required by Rule 13a-14 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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32.1
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Certification of Chief Executive Officer pursuant to 18 U.S.C.§ 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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In addition, the following are incorporated by reference:
Current Report on Form 8-K Departure of Directors or Certain Officers, dated May 20, 2013
Current Report on Form 8-K Appointment of Certain Officers, dated May 31, 2013
Current Report on Form 8-K Other Events, dated June 12, 2013
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