UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q


                                   (Mark One)
             [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended December 31, 1996

                                       OR

            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                                       THE
                         SECURITIES EXCHANGE ACT OF 1934

       For the transition period from __________________ to ______________


                          Commission File Number 0-2380

                               SPORTS ARENAS, INC.
             (Exact name of registrant as specified in its charter)


                               Delaware 13-1944249
               (State of Incorporation) (I.R.S. Employer I.D. No.)


        5230 Carroll Canyon Road, Suite 310, San Diego, California 92121
               (Address of principal executive offices) (Zip Code)

        Registrant's telephone number, including area code (619) 587-1060




Indicate  by check  mark  whether  the  registrant:  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports);  and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _

The number of shares  outstanding  of the  issuer's  only class of common  stock
($.01 par value) as of January 31, 1997 was 27,250,000 shares.


<PAGE>


                               SPORTS ARENAS, INC.

                                    FORM 10-Q

                         QUARTER ENDED DECEMBER 31, 1996

                                      INDEX






Part I - Financial Information:


Item 1.- Consolidated Condensed Financial Statements:

      Balance Sheets as of December 31, 1996 and June 30, 1996             1-2

      Statements of Operations for the Three Months Ended December 31,      3
            1996 and 1995

      Statements of Operations for the Six Months Ended                     4
            December 31, 1996 and 1995

      Statements of Cash Flows for the Six Months Ended December 31,       5-6
            1996 and 1995

      Notes to Financial Statements                                        7-9


Item 2.- Management's Discussion and Analysis of Financial Condition
            and Results of Operations                                     10-13



Part II - Other Information                                                14


Signature                                                                  15



<PAGE>




                      SPORTS ARENAS, INC. AND SUBSIDIARIES
                      CONSOLIDATED CONDENSED BALANCE SHEETS

                                     ASSETS
<TABLE>
<CAPTION>
                                                                        December 31,      June 30,
                                                                            1996            1996 
                                                                        ------------    ------------
                                                                         (Unaudited)
<S>                                                                     <C>             <C>  
Current assets:
   Cash and equivalents .............................................   $  2,330,756    $  1,093,465
   Current portion of notes receivable ..............................         25,000          25,000
   Current portion of notes receivable-affiliate ....................        100,000         100,000
   Construction contract receivables ................................        419,484         623,877
   Other receivables ................................................         41,062         134,843
   Prepaid expenses .................................................        211,798         182,823
   Property and equipment sold on August 7, 1996 ....................           --         2,745,978         
                                                                        ------------    ------------
     Total current assets ...........................................      3,128,100       4,905,986
                                                                        ------------    ------------

Receivables due after one year:
   Note receivable ..................................................        728,838         731,993
     Less deferred gain .............................................       (716,025)       (716,025)
   Affiliate ........................................................        306,502         552,567
   Other ............................................................        110,627          81,696
                                                                        ------------    ------------
                                                                             429,942         650,231
     Less current portion ...........................................       (125,000)       (125,000)
                                                                        ------------    ------------
                                                                             304,942         525,231
                                                                        ------------    ------------
Property and equipment, at cost:
   Land .............................................................        678,000         678,000
   Buildings ........................................................      2,461,327       2,461,327
   Equipment and leasehold and tenant improvements ..................      1,124,523       1,234,170
                                                                        ------------    ------------
                                                                           4,263,850       4,373,497
   Less accumulated depreciation and amortization ...................     (1,187,659)     (1,175,332)
                                                                        ------------    ------------

     Net property and equipment .....................................      3,076,191       3,198,165
                                                                        ------------    ------------

Other assets:
   Undeveloped land, at cost ........................................      4,737,353       4,737,353
   Capitalized carrying costs on leased land ........................         84,621          85,569
   Goodwill, net ....................................................        403,606         538,144
   Deferred loan costs, net .........................................         75,423          97,161
   Investments ......................................................      2,154,735       2,232,119
   Other ............................................................         93,656         125,353
                                                                        ------------    ------------
                                                                           7,549,394       7,815,699
                                                                        ------------    ------------

                                                                        $ 14,058,627    $ 16,445,081
                                                                        ============    ============
</TABLE>
                                                                        




                                       1
<PAGE>




                      SPORTS ARENAS, INC. AND SUBSIDIARIES
                CONSOLIDATED CONDENSED BALANCE SHEETS (CONTINUED)

                  LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>

                                                                        December 31,      June 30,
                                                                            1996            1996 
                                                                        ------------    ------------
                                                                         (Unaudited)
<S>                                                                     <C>             <C> 
Current liabilities:
   Long-term debt subject to extinguishment .........................   $       --      $  1,808,282
   Assessment district obligation - in default ......................      2,169,566       2,061,090
   Long-term debt due within one year ...............................        912,000       1,061,000
   Long-term debt due within one year- related party ................           --           100,000
   Accounts payable .................................................        548,913         908,530
   Accrued payroll and related expenses .............................         72,807         308,619
   Accrued property taxes ...........................................        386,709         385,591
   Accrued interest .................................................         46,853          33,794
   Accrued frequent bowler program expense ..........................        210,211         250,506
   League bowler prize funds ........................................        110,686            --
   Other accrued liabilities ........................................        169,689         297,361
                                                                        ------------    ------------

     Total current liabilities ......................................      4,627,434       7,214,773
                                                                        ------------    ------------

Long-term debt, excluding current portion ...........................      3,946,526       4,167,515
                                                                        ------------    ------------

Long-term debt, related party .......................................           --           219,744
                                                                        ------------    ------------    

Distributions received in excess of basis investment  ...............     10,001,123       9,828,360
                                                                        ------------    ------------

Tenant security deposits                                                      26,238          25,894
                                                                        ------------    ------------

Minority interests in consolidated subsidiaries .....................      2,212,677       2,212,677
                                                                        ------------    ------------

Commitments and contingencies

Shareholders' equity (deficiency):
   Common stock, $.01 par value, 50,000,000 shares
     authorized, 27,250,000 shares issued and outstanding............        272,500         272,500
   Additional paid-in capital .......................................      1,730,049       1,730,049
   Accumulated deficit ..............................................     (6,889,448)     (7,448,409)
                                                                        ------------    ------------
                                                                          (4,886,899)     (5,445,860)
   Less note receivable from shareholder ............................     (1,868,472)     (1,778,022)
                                                                        ------------    ------------
     Total shareholders' equity (deficiency) ........................     (6,755,371)     (7,223,882)
                                                                        ------------    ------------

                                                                        $ 14,058,627    $ 16,445,081
                                                                        ============    ============
</TABLE>













        See accompanying notes to consolidated condensed financial statements.


                                       2
<PAGE>



                      SPORTS ARENAS, INC. AND SUBSIDIARIES

                   CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

                    THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                       1996           1995 
                                                                   -----------    -----------
<S>                                                                <C>            <C> 
Revenues:
   Bowling .....................................................   $   677,310    $ 1,946,814
   Rental ......................................................       127,733        134,939
   Construction ................................................     1,093,999        821,130
   Other .......................................................        20,970         15,377
   Other-related party .........................................        27,664         26,845
                                                                   -----------    -----------
                                                                     1,947,676      2,945,105
                                                                   -----------    -----------
Costs and expenses:
   Bowling .....................................................       450,862      1,237,981
   Rental ......................................................        64,267         61,851
   Construction ................................................       986,776        684,748
   Development .................................................        37,849         48,028
   Selling, general and administrative .........................       451,477        662,841
   Depreciation and amortization ...............................       160,401        260,709
                                                                   -----------    -----------
                                                                     2,151,632      2,956,158
                                                                   -----------    -----------

Loss from operations ...........................................      (203,956)       (11,053)
                                                                   -----------    -----------

Other income (charges):
   Investment income:
     Related party .............................................        56,557         54,093
     Other .....................................................        53,209         17,424
   Interest expense and amortization of finance ................      (116,867)      (219,889)
   costs
   Interest expense related to development .....................       (68,692)       (54,660)
   activities
   Recognize deferred gain .....................................          --            5,792
   Gain on sale ................................................        55,000           --
   Equity in income of investees ...............................        64,616         55,690
                                                                   -----------    -----------
                                                                        43,823       (141,550)
                                                                   -----------    -----------

Net loss .......................................................   $ ( 160,133)   $ ( 152,603)
                                                                   ===========    ===========



Per common share (based on weighted average shares outstanding):
     Net loss ..................................................   $      (.01)   $      (.01)
                                                                   ===========    ===========
</TABLE>













        See accompanying notes to consolidated condensed financial statements.


                                       3
<PAGE>



                      SPORTS ARENAS, INC. AND SUBSIDIARIES

                   CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

                     SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                       1996           1995 
                                                                   -----------    -----------
<S>                                                                <C>            <C>
Revenues:
   Bowling .....................................................   $ 1,667,808    $ 3,710,668
   Rental ......................................................       252,144        258,958
   Construction ................................................     1,760,704      1,349,834
   Other .......................................................        61,832         26,155
   Other-related party .........................................        55,430         53,286
                                                                   -----------    -----------
                                                                     3,797,918      5,398,901
                                                                   -----------    -----------
Costs and expenses:
   Bowling .....................................................     1,257,608      2,476,715
   Rental ......................................................       118,963        116,778
   Construction ................................................     1,559,825      1,146,139
   Development .................................................        67,459         94,404
   Selling, general and administrative .........................       972,653      1,388,092
   Depreciation and amortization ...............................       339,725        522,062
                                                                   -----------    -----------
                                                                     4,316,233      5,744,190
                                                                   -----------    -----------
Loss from operations ...........................................      (518,315)      (345,289)
                                                                   -----------    -----------

Other income (charges):
   Investment income:
     Related party .............................................       113,831        109,987
     Other .....................................................        65,815         34,992
   Interest expense and amortization of finance costs...........      (247,019)      (440,689)
   Interest expense related to development activities...........      (137,312)      (109,355)
   Recognize deferred gain .....................................          --           11,442
   Gain on sale of bowling centers .............................     1,099,514           --
   Gain on sale, other .........................................        55,000           --
   Equity in income of investees ...............................       127,447         96,465
                                                                   -----------    -----------
                                                                     1,077,276       (297,158)
                                                                   -----------    -----------

Net income (loss) ..............................................   $   558,961    $ ( 642,447)
                                                                   ===========    ===========



Per common share (based on weighted average shares outstanding):
     Net income (loss) .........................................   $       .02    $      (.02)
                                                                   ===========    ===========
</TABLE>












        See accompanying notes to consolidated condensed financial statements.


                                       4
<PAGE>



                      SPORTS ARENAS, INC. AND SUBSIDIARIES
                   CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                     SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
                                   (Unaudited)


<TABLE>
<CAPTION>

                                                               1996           1995
                                                           -----------    -----------
<S>                                                        <C>            <C>   
Cash flows from operating activities:
   Net income (loss) ...................................   $   558,961    $  (642,447)
   Adjustments to reconcile  net loss to net cash
    provided  (used) by operating activities:
     Amortization of deferred financing costs ..........        16,135         19,685
     Depreciation and amortization .....................       339,725        522,062
     Undistributed income of investees .................      (127,447)       (96,465)
     Gain on sale of bowling centers and other .........    (1,154,514)          --   
     Interest accrued on assessment district obligation        108,476        112,318
     Interest accrued on receivable from shareholder ...       (90,450)       (85,946)
     Recognize deferred gain ...........................          --          (11,442)
   Changes in assets and liabilities:
     (Increase) decrease in receivables ................       298,174        (92,654)
     Increase in prepaid expenses ......................       (48,975)      (131,077)
     Increase (decrease) in accounts payable and accrued      (710,473)       715,916
        expenses
     Increase (decrease) in billings in excess of costs         71,940        (72,329)
     Other .............................................        26,807         (6,473)
                                                           -----------    -----------
        Net cash provided (used) by operating activities      (711,641)       231,148
                                                           -----------    -----------

Cash flows from investing activities:
   (Increase) decrease in notes receivable .............       265,289         11,886
   Capital expenditures ................................       (31,185)        (8,978)
   Distributions from investees ........................       380,884        244,999
   Contributions to investees ..........................       (30,000)        (1,800)
   Proceeds from sale of bowling centers ...............     2,052,185           --
   Proceeds from sale of video games ...................        10,000           --
   Acquire additional interest in Redbird Properties ...          --           (5,246)
   Other ...............................................          (648)        12,109
                                                           -----------    -----------
     Net cash provided by investing activities .........     2,646,525        252,970
                                                           -----------    -----------

Cash flows from financing activities:
   Scheduled principal payments ........................      (696,843)      (336,924)
   Proceeds from line of credit ........................          --          210,000
   Payments on line of credit ..........................          --          (30,000)
   Other ...............................................          (750)          --   
                                                           -----------    -----------
        Net cash used by financing activities ..........      (697,593)      (156,924)
                                                           -----------    -----------

Net increase in cash and equivalents ...................     1,237,291        327,194

Cash and equivalents, beginning of period ..............     1,093,465        120,027
                                                           -----------    -----------

Cash and equivalents, end of period ....................   $ 2,330,756    $   447,221
                                                           ===========    ===========
</TABLE>




                                       5
<PAGE>



                      SPORTS ARENAS, INC. AND SUBSIDIARIES
           CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (CONTINUED)
                     SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
                                   (Unaudited)



SUPPLEMENTAL CASH FLOW INFORMATION:

Supplemental Schedule of Non-Cash Investing and Financing Activities:

   The sale of three bowling centers on August 7, 1996 resulted in the following
     increases (decreases) to the following assets and liabilities: property and
     equipment- ($6,741,237);  accumulated depreciation- ($4,013,747);  deferred
     loan  costs-($6,353);   prepaid  expenses  ($20,000);  and  notes  payable-
     ($1,801,172).

   The Company acquired an additional 29 percent interest in Redbird Properties,
     effective  July, 1, 1995,  in exchange for a $446,000  note  payable.  As a
     result  of  the  acquisition,  Redbird  Properties  became  a  consolidated
     subsidiary.  The acquisition and consolidation,  in addition to eliminating
     the  Company's  investment  of  $134,975,  resulted  in an  increase in the
     following   assets  and  liabilities  in  1995:   property  and  equipment-
     $1,537,984;  accumulated  depreciation-  $331,500;  note payable- $713,538;
     note payable, related party- $446,000.

   The sale of the video game business on December 15, 1996 for $10,000 cash and
     a $45,000  note  receivable  resulted  in a decrease of both  property  and
     equipment, and accumulated depreciation by $140,832.































        See accompanying notes to consolidated condensed financial statements.


                                       6
<PAGE>




                      SPORTS ARENAS, INC. AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

                           DECEMBER 31, 1996 AND 1995
                                   (Unaudited)

1.    The  information  furnished  reflects  all  adjustments  which  management
      believes are  necessary to a fair  statement  of the  Company's  financial
      position,  results of operations  and changes in cash flow for the interim
      periods.

2.    Due to the seasonal fluctuations of the bowling operations,  the financial
      results for the interim  periods ended December 31, 1996 and 1995, are not
      necessarily indicative of operations for the entire year.

3. Investments:

   (a) Investments consist of the following:
                                                    December 31,     June 30,
                                                       1996            1996
                                                   ------------    ------------
       Accounted for on the equity method:
        Investment in UCV, L.P. ................   $(10,001,123)   $ (9,828,360)
        Vail Ranch Limited Partnership .........      2,104,703       2,182,087
                                                   ------------    ------------
                                                     (7,896,420)     (7,646,273)
        Less Investment in UCV, L.P. classified
         as liability- Distributions received
         in excess of basis in investment ......     10,001,123       9,828,360
                                                   ------------    ------------
                                                      2,104,703       2,182,087
       Accounted for on the cost basis:
        All Seasons Inns, La Paz ...............         50,032          50,032
                                                   ------------    ------------

                                                   $  2,154,735    $  2,232,119
                                                   ============    ============

     The  following  is a  summary  of  the  equity  in  income  (loss)  of  the
     investments accounted for by the equity method:
                                           1996       1995 
                                         --------   --------
        UCV, L.P. ....................   $127,447   $ 96,465
        Vail Ranch Limited Partnership       --         --   
                                         --------   --------
                                         $127,447   $ 96,465
                                         ========   ========

     During the six months ended  December 31, 1996,  the Company  received cash
     distributions  of  $273,500  from UCV,  L.P.  and  $77,384  (net of $30,000
     contribution)  from Vail Ranch Limited Partners ($244,999 from UCV, L.P. in
     1995).

   (b) Investment in UCV, L.P.

     The operating  results of this investment are included in the  accompanying
     consolidated  statements of operations based upon the partnership's  fiscal
     year  (March  31).  Summarized   information  from  UCV,  L.P.'s  unaudited
     statements of income for the six-month periods ended September 30, 1996 and
     1995 are as follows:

                                        1996         1995 
                                     ----------   ----------
        Revenues .................   $2,160,000   $2,057,000
        Operating and general and       752,000      718,000
              administrative costs
        Depreciation .............       98,000       62,000
        Interest expense .........    1,054,000   1,0544,000
        Net income ...............      255,000      193,000




                                       7
<PAGE>


                      SPORTS ARENAS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

                           DECEMBER 31, 1996 AND 1995
                                   (Unaudited)



4. Contingencies:

   (a) Old Vail Partners  (OVP), a consolidated  subsidiary and 50 percent owned
     by the Company,  owns  approximately  40 acres of undeveloped land that are
     located  within a special  assessment  district of the County of Riverside,
     California  (the  County)  which was created to fund and develop  roadways,
     sewers,  and  other  required  infrastructure   improvements  in  the  area
     necessary for the owners to develop their  properties.  Property within the
     assessment  district is collateral  for an allocated  portion of the bonded
     debt that were issued by the assessment  district to fund the improvements.
     The  annual  payments  due  related to the  bonded  debt are  approximately
     $156,000 for the 40 acres. The payments  continue through the year 2014 and
     include interest at approximately  7-3/4 percent.  OVP is delinquent in the
     payment of property taxes and  assessments  for the last four years.  As of
     December 31, 1996, the County had obtained judgments for the defaults under
     the  assessment  district  obligations,  however,  the  County  has not yet
     commenced foreclosure proceedings on these judgments.

     The amount due to cure the judgments at December 31, 1996 was approximately
     $731,000  ($688,000  at  June  30,  1996).  The  principal  balance  of the
     allocated portion of the bonds  ($1,513,730),  and delinquent  interest and
     penalties  ($655,836  and  $547,360 at December 31, 1996 and June 30, 1996,
     respectively)  are  classified  as  "Assessment   district  obligation-  in
     default" in the consolidated  balance sheet. In addition,  accrued property
     taxes in the balance sheet includes $381,268 ($337,016 at June 30, 1996) of
     delinquent property taxes and late fees related to the 40 acre parcel.

     In November 1993, the City of Temecula  adopted a general  development plan
     that  designates  the 40 acres of  property  owned by OVP as  suitable  for
     "professional  office" use, which is contrary to its zoning as "commercial"
     use. As part of the adoption of its general  development  plan, the City of
     Temecula  adopted  a  provision  that,  until  the  zoning  is  changed  on
     properties  affected by the general  plan,  the general plan shall  prevail
     when a use  designated  by the general  plan  conflicts  with the  existing
     zoning  on the  property.  The  result  is that  the City of  Temecula  has
     effectively   down-zoned  the  40  acre  parcel  from  a  "commercial"   to
     "professional  office"  use. The parcel is subject to  Assessment  District
     liens  which were  allocated  in 1989 based on a higher  "commercial"  use.
     Since the Assessment District liens are not subject to reapportionment as a
     result  of  re-zoning,  a  "professional  office"  use is not  economically
     feasible  due to  the  disproportionately  high  allocation  of  Assessment
     District  costs.  OVP has filed suit against the City of Temecula  claiming
     that the  City's  adoption  of a  general  plan as a means  of  effectively
     re-zoning the property is invalid.  Additionally,  OVP is claiming that, if
     the  effective  re-zoning is valid,  the action is a taking and damaging of
     OVP's property without payment of just compensation. OVP is seeking to have
     the effective  re-zoning  invalidated and an unspecified amount of damages.
     The outcome of this  litigation  is  uncertain.  If the City of Temecula is
     successful  in its  attempt to  down-zone  the  property,  the value of the
     property may be significantly impaired.

   (b) The Company is involved in other various routine  litigation and disputes
     incident to its business. In the management's opinion, based in part on the
     advice of legal counsel, none of these matters will have a material adverse
     affect on the Company's financial position.



                                       8
<PAGE>

                      SPORTS ARENAS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

                           DECEMBER 31, 1996 AND 1995
                                   (Unaudited)


5. Significant Events:

   (a)The Company's  revolving line of credit limit was renewed and increased to
      from $300,000 to $500,000. The line of credit expires in September 1997.

   (b)On August 7, 1996 the Company  sold the  Village,  Marietta  and  American
      Bowling  Centers  (all  located in Georgia)  and  related  real estate for
      $3,950,000 cash, which resulted in a gain of $1,099,514.  The property and
      equipment and the long-term debt  extinguished from the sale proceeds were
      presented   as  current   assets  and   liabilities   at  June  30,  1996,
      respectively. The following are the results of operations of these bowling
      centers  included in the Company's  statements of operations for the three
      and six months ended December 31, 1996 and 1995:

                                 Three Months            Six Months
                             -------------------   ------------------------
                               1996        1995       1996          1995
                             -------    --------   ---------    -----------
      Revenues ...........   $   826    $883,426   $ 332,787    $ 1,698,723
      Bowl costs .........    (2,338)    548,084     253,846      1,096,827
      Selling, general and
       administrative:
        Direct ...........     3,751     155,560     101,323        367,385
        Allocated ........      --        54,400      20,100        104,700
      Depreciation .......      --        55,687      18,598        111,558
      Interest expense ...      --        45,281       7,401         91,966
      Income (loss) ......      (588)     24,414     (68,481)       (73,713)

   (c)On December 15, 1996, the Company sold the video game  operations  located
      at the two San Diego bowling centers for $55,000 ($10,000 cash and $45,000
      note receivable)  resulting in a $55,000 gain. The note 45,000 receivable
      is due in 24 monthly  installments  of  $2,076,  including  principal  and
      interest at 10 percent. The following are the results of operations of the
      video games which were included in the Company's  bowling  segment for the
      three and six months ended December 31, 1996 and 1995:

                         Three Months            Six Months
                      ------------------    ------------------
                         1996       1995       1996       1995
                      -------   --------    -------   --------
      Revenues ....   $10,000   $ 16,000    $26,000   $ 36,000
      Bowl costs ..     8,000     17,000     17,000     38,000
      Depreciation       --       19,000       --       37,000
      Income (loss)     2,000    (20,000)     9,000    (39,000)

   (c)Effective  January 22,  1997,  the Company  purchased  the assets of Power
      Sports Group,  Inc.,  which was a manufacturer of graphite golf shafts and
      ski poles. The purchase price was $40,000 plus the cost of inventory.





                                       9
<PAGE>
ITEM 2.  MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND 
          RESULTS OF OPERATIONS:

                  SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS:

Certain  statements in this Form 10-Q  constitute  "forward-looking  statements"
within the meaning of the Securities Act of 1933 and the Securities Exchange Act
of 1934.  Such statements are subject to certain risks and  uncertainties  which
could cause the actual results to be materially different from those forecasted.
Readers  are  cautioned  not to place undue  reliance  on these  forward-looking
statements  which speak only as of the date hereof.  The Company  undertakes  no
obligation to republish revised forward-looking  statements to reflect events or
circumstances   after  the  date  hereof  or  to  reflect  the   occurrence   of
unanticipated  events.  Readers are also urged to carefully  review and consider
the various  disclosures made by the Company which attempt to advise  interested
parties of the  factors  which  affect the  Company's  business,  including  the
disclosures  made under the caption  "Management's  Discussion  and  Analysis of
Financial  Condition and Results of Operations"  as well as the Company's  other
periodic  reports  on Forms  10-K,  10-Q and 8-K filed with the  Securities  and
Exchange Commission.

                              RESULTS OF OPERATIONS
                              ---------------------
The  following  is a  recap  of the  circumstances  related  to the  significant
differences  between  the net income for the three and six month  periods  ended
December  31,  1996 and the net loss for the same period in 1995  (decreases  in
items are in brackets  except for interest  expense,  for which increases are in
brackets):

         Three Month Period Ended December 31, 1996 versus December 31, 1995
         -------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                             Corporate &
                              Bowling       Rental  Construction Development Unallocated
                              -------       ------  ------------ ----------- -----------
<S>                         <C>           <C>       <C>          <C>         <C> 
   Revenues .............   (1,270,000)     (7,000)    273,000        --         7,000
                            ----------    --------    --------    --------    --------
   Costs ................     (787,000)      2,000     302,000     (10,000)       --
   SG&A:
    Direct ..............     (225,000)       --        (2,000)       --        16,000
    Allocated ...........      (74,000)       --         6,000        --        68,000
   Depreciation .........      (98,000)     (2,000)       --          --          --
                            ----------    --------    --------    --------    --------
                            (1,184,000)       --       306,000     (10,000)     84,000
                            ----------    --------    --------    --------    --------
   Operating income(loss)      (86,000)     (7,000)    (33,000)     10,000     (77,000)
                            ----------    --------    --------    --------    --------
   Other income(charges):
    Interest income .....         --          --          --          --        38,000
    Interest expense ....       72,000        --          --       (14,000)     18,000
    Gain ................         --          --          --          --        49,000
    Equity in investees .         --          --          --          --         9,000
                            ----------    --------    --------    --------    --------
                                72,000        --          --       (14,000)    114,000
                            ----------    --------    --------    --------    --------
   Net income (loss) ....      (14,000)     (7,000)    (33,000)     (4,000)     37,000
                            ==========    ========    ========    ========    ========
</TABLE>

                                       10
<PAGE>

             Six Month Period December 31, 1996 versus December 31, 1995
             -----------------------------------------------------------
<TABLE>
<CAPTION>
                                                                             Corporate &
                              Bowling       Rental  Construction Development Unallocated
                              -------       ------  ------------ ----------- -----------
<S>                         <C>           <C>       <C>          <C>         <C>    
   Revenues .............   (2,043,000)     (7,000)    411,000        --        38,000
                            ----------    --------    --------    --------   ---------
   Costs ................   (1,219,000)      2,000     414,000     (27,000)       --
   SG&A:
    Direct ..............     (464,000)       --          --          --        32,000
    Allocated ...........     (117,000)       --        17,000        --       117,000
   Depreciation .........     (178,000)     (4,000)       --          --          --
                            ----------    --------    --------    --------   ---------
                            (1,978,000)     (2,000)    431,000     (27,000)    149,000
                            ----------    --------    --------    --------   ---------
   Operating income(loss)      (65,000)     (5,000)    (20,000)     27,000    (111,000)
                            ----------    --------    --------    --------   ---------
   Other income(charges):
    Interest income .....         --          --          --          --        35,000
    Interest expense ....      164,000       --          --        (28,000)     30,000
    Gain ................         --          --          --          --     1,144,000
    Equity in investees .         --          --          --          --        31,000
                            ----------    --------    --------    --------   ---------
                               164,000        --          --       (28,000)  1,240,000
                            ----------    --------    --------    --------   ---------
   Net income (loss) ....       99,000      (5,000)    (20,000)     (1,000)  1,129,000
                            ==========    ========    ========    ========   =========
</TABLE>
                                       

BOWLING OPERATIONS:

On August 7, 1996, the Company sold its three bowling centers located in Georgia
for  $3,950,000,  which  resulted in a $1,099,514  gain. In May 1996 the Company
also sold the  Redbird  Lanes real estate and ceased  operations  of the bowling
center.  The Company has two bowling  centers  remaining that are located in San
Diego,  California.  On  December  15,  1996,  the  Company  sold the video game
operations  that  were  located  in the two San  Diego  bowling  centers,  which
resulted in a $55,000  gain.  The Company has no plans to sell the two remaining
bowling centers.

The  following  is a summary of the changes to the  components  of the loss from
operations of the bowling  segment  during the three and six month periods ended
December 31, 1996 compared to the same period in 1995:

       Three Month Period Ended December 31, 1996 versus December 31, 1995
       -------------------------------------------------------------------
                                 Georgia     Redbird     Other     Combined
                                  Bowls       Lanes     Changes   Incr.(Decr.)
                                --------    --------    -------    --------
    Revenues ................   (883,000)   (350,000)   (37,000) (1,270,000
    Bowl costs ..............   (550,000)   (198,000)   (39,000)   (787,000)
    Selling, general and
     administrative:
      Direct ................   (152,000)    (72,000)    (1,000)   (225,000)
      Allocated .............    (55,000)    (18,000)    (1,000)    (74,000)
    Depreciation ............    (56,000)    (24,000)   (18,000)    (98,000)
    Loss from operations ....     70,000      38,000    (22,000)     86,000
    Interest expense ........    (45,000)    (19,000)    (8,000)    (72,000)
    Net loss ................     25,000      19,000    (30,000)    (14,000)

       Six Month Period Ended December 31, 1996 versus December 31, 1995:
       ------------------------------------------------------------------
                                 Georgia     Redbird      Other    Combined
                                  Bowls       Lanes    Changes    Incr.(Decr.)
                                --------    --------    -------    --------
    Revenues ................ (1,366,000)   (638,000)   (39,000) (2,043,000)
    Bowl costs ..............   (843,000)   (391,000)    15,000  (1,219,000)
    Selling, general and
     administrative:
      Direct ................   (266,000)   (146,000)   (52,000)   (464,000)
      Allocated .............    (85,000)    (32,000)      --      (117,000)
    Depreciation ............    (93,000)    (50,000)   (35,000)   (178,000)
    Loss from operations ....     79,000      19,000    (33,000)     65,000
    Interest expense ........    (85,000)    (51,000)   (28,000)   (164,000)
    Net loss ................     (6,000)    (32,000)   (61,000)    (99,000)


                                       11
<PAGE>

The following is a comparison of operations of the two remaining bowling centers
which are located in San Diego:

Bowling  revenues  decreased  4.4 and 2.1  percent  in the  three  and six month
periods ended December 31, 1996, respectively.  The decrease is primarily due to
a decrease in the number of league bowlers (13%) at both bowling  centers.  This
decrease  has been  partially  offset by an increase in the  revenues  from open
bowling and shoe rentals.

Bowl costs  increased by $15,000  (2%) during the sixth month  period  primarily
related to the timing of bowling pin purchases and lane resurfacing in the first
quarter that either occurred in a different period in the prior year or had been
deferred.  This  increase was offset by  approximately  $39,000 of reductions in
bowl costs in the three month period related to decreases in payroll and related
costs (11%).

Selling,  general and  administrative  expense  directly  related to the bowling
segment  decreased  by  $52,000 in the sixth  month  period  primarily  due to a
decrease  in  promotions  expense  during the first  quarter.  The  decrease  in
promotions expense primarily related to discontinuing the awarding of points for
the  Company's  frequent  bowler  program.  Management  has  concluded  that the
frequent  bowler program was not achieving the goals of increasing the frequency
of bowling or the loyalty of our customers.  The $5,000 decrease (4%) in expense
in the three month period was primarily attributable to a continuing decrease in
promotions expense and also a decrease in insurance expense.

Depreciation expense decreased by $18,000 and $35,000 in the three and six month
periods,  respectively,  due to the costs  related  to the video  game  business
having become fully depreciated in the prior year.

Interest  expense  decreased  by $8,000  and  $28,000 in the three and six month
periods, respectively, due to the reduction in the balances of notes payable.


RENTAL OPERATIONS:

There were no significant  changes to the components of the consolidated  rental
segment in the three and six month periods ended  December 31, 1996 other than a
reduction  in  income in 1996  related  to $8,000  of  non-rent  related  income
recorded in December of 1995.

The equity in income of  investees  increased by $9,000 and $31,000 in the three
and six month  periods,  respectively,  due to improved  occupancy of University
City Village (UCV).  This "seniors"  apartment  project has been operating at 97
percent  occupancy or better since July 1995.  Rental  income of the  apartments
increased  by 2 percent and 5 percent in the three and six month  periods  ended
September 30, 1996 partially due to a 2 percent increase in rates implemented in
June of 1996 and also due to the high rate of occupancy since July 1995.  Rental
costs  increased  by 3 percent and 5 percent in the three and six month  periods
ended  September 30, 1996. A portion of the increase in the six month period was
due to an $18,000 increase in roof repairs that were performed in May of 1996.

OTHER ACTIVITIES:

Construction costs as a percentage of construction  revenues were 90 percent and
89  percent  in the  three  and six  month  periods  ended  December  31,  1996,
respectively,  versus 83 percent and 85 percent in the comparable periods of the
prior year.  The increase in the  percentage  is  attributable  to several large
contracts  completed  in the second  quarter that were bid at a lower profit and
overhead  percentage due to the size of the contract.  Selling,  general and
administrative costs related to the construction segment increased by $17,000 in
the sixth month period  primarily due to increased  incentive  compensation as a
result of the increased profitability in the second quarter.

Development  costs and expenses  primarily  consists of legal costs  incurred to
contest the City of Temecula's  attempts to down-zone the undeveloped land owned
by Old  Vail  Partners.  Interest  expense  related  to  development  activities
primarily  relates to interest  accrued on the past due and  current  assessment
district obligations of Old Vail Partners.

                                       12
<PAGE>

Other than  changes  associated  with the  bowling  and  construction  segments,
selling,  general and  administrative  expense did not change  significantly  in
1996. However, as a result of the disposition of the four bowling centers in May
and August 1996,  there was an increase in the unallocated  portion of corporate
overhead  of  $68,000  and  $117,000  in  the  three  and  six  month   periods,
respectively.   This  essentially  represents  the  inability  to  reduce  fixed
corporate  overhead equal to that amount which had previously  been allocated to
the administration of the disposed bowling centers.

Other  investment  income  increased by $20,000 and $31,000 in the three and six
month periods,  respectively, due to the increase in cash that was available for
short  term  investment  during  those  periods  as a result of the sales of the
bowling centers in May and August of 1996.

                         LIQUIDITY AND CAPITAL RESOURCES
                         -------------------------------

The working  capital  deficit at December 31, 1996 was $1,499,384 and $2,308,787
at     June     30,     1996.      Excluding      the     balance     of     the
assessment-district-obligation-in-default    and   delinquent   property   taxes
described  below,  which are  included  in current  liabilities,  the  Company's
adjusted  working  capital of  $1,051,500  as of December 31, 1996 is a $962,181
increase from the $89,319 of adjusted  working  capital as of June 30, 1996. The
$872,862 increase in working capital is primarily attributable to the $2,052,000
proceeds from the sale of three bowling centers on August 7, 1996.

On August 7, 1996,  the Company  sold its three  bowling  centers in Georgia for
$3,950,000 cash. The cash proceeds from the sale were $2,052,000 after deducting
selling expenses and  extinguishing  related  long-term debt. The Company has no
plans to sell the two remaining bowling centers.

As  described  in  Note 4 of  the  Notes  to  Consolidated  Condensed  Financial
Statements, Old Vail Partners is delinquent in the payment of special assessment
district  obligations  and property taxes on 40 acres of  undeveloped  land. The
County of  Riverside  has  obtained  judgments  for the  default  in  assessment
district  payments.  The amount due to cure the judgment as of December 31, 1996
is $731,000.  Other than a notice of levy received in November 1995 on a 33 acre
portion of the 40 acres of land,  the County has not yet  commenced  foreclosure
proceedings on the judgments.  If the County of Riverside  takes the property to
public sale and the  judgments  are not  satisfied  prior to the sale,  Old Vail
Partners  could lose title to the property and the property would not be subject
to  redemption.  Also  as  described  in  Note 4 of the  Notes  to  Consolidated
Condensed  Financial  Statements,  Old Vail Partners is contesting an attempt by
the City of Temeculah to effectively down-zone the property. As a results of the
judgments and the attempts to down-zone the property,  the recoverability of the
carrying value of this property is uncertain.

On January 22, 1997,  the Company,  purchased  the assets of Power Sports Group,
Inc. (PSG) for $40,000 cash. PSG  manufactured  premium graphite golf shafts and
ski poles and had averaged  approximately  $400,000 in sales in each of the past
two years. The Company plans to acquire approximately  $450,000 of new equipment
to automate the  manufacturing  process and develop a sales and marketing  staff
and program to expand the sales.  In addition to the equipment  purchase,  which
may be financed,  the Company expects to incur losses totaling $500,000 over the
next 18 months before  forecasting a profit.  The Company believes that, even if
no financing is available for the equipment purchase,  it has sufficient working
capital and cash to fund these costs.



                                       13
<PAGE>




                                     PART II
                                OTHER INFORMATION



ITEM 1. Legal Proceedings

        As of December 31, 1996, there were no changes in legal proceedings from
        those set forth in Item 3 of the Form 10-K filed for the year ended June
        30, 1996.



ITEM 2. Changes in Securities

          NONE



ITEM 3. Defaults upon Senior Securities

          N/A



ITEM 4. Submission of Matters to a Vote of Security Holder

          NONE

ITEM 5. Other Information

          NONE


ITEM 6. Exhibits & Reports on Form 8-K

     (a) Exhibits: NONE

     (b) Reports on Form 8-K:  NONE





                                       14
<PAGE>



                                   SIGNATURES


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.




     SPORTS ARENAS, INC.



     By:  /s/ Harold S. Elkan
          -------------------
                 Harold S. Elkan, President and Director


     Date:   February 14, 1997
             -----------------




     By: /s/ Steven R. Whitman
         --------------------
           Steven R. Whitman, Treasurer,
           Principal Accounting Officer and Director



     Date: February 14, 1997
           ------------------




                                       15
<PAGE>