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, 1998
                                       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) (IRS 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, 1999 was 27,250,000 shares.


<PAGE>


                               SPORTS ARENAS, INC.

                                    FORM 10-Q

                         QUARTER ENDED DECEMBER 31, 1998

                                      INDEX






Part I - Financial Information:


Item 1.- Consolidated Condensed Financial Statements:

      Balance Sheets as of December 31, 1998 and June 30, 1998 ..........  1-2

      Statements of Operations for the Three Months
            Ended December 31, 1998 and 1997 ............................    3

      Statements of Operations for the Six Months
            Ended December 31, 1998 and 1997 ............................    4

      Statements of Cash Flows for the Six Months
            Ended December 31, 1998 and 1997 ............................    5

      Notes to Consolidated Condensed Financial Statements ..............  6-8


Item 2.- Management's Discussion and Analysis of
            Financial Condition and Results of Operations ...............  9-12



Part II - Other Information .............................................   13


Signature ..................................................................14



<PAGE>


                      SPORTS ARENAS, INC. AND SUBSIDIARIES
                      CONSOLIDATED CONDENSED BALANCE SHEETS

                                     ASSETS

                                                       December       June 30,
                                                       31, 1998         1998
                                                     -----------    -----------
                                                     (Unaudited)

Current assets:
   Cash and cash equivalents .....................   $   342,287    $ 1,416,460
   Current portion of notes receivable ...........          --           12,105
   Current portion of notes receivable-affiliate .        50,000         50,000
   Other receivables .............................       148,291        166,427
   Inventories ...................................       386,481        302,595
   Prepaid expenses ..............................       201,666        246,135
                                                     -----------    -----------
      Total current assets .......................     1,128,725      2,193,722
                                                     -----------    -----------

Receivables due after one year:
   Note receivable- Affiliate ....................       525,436        523,408
   Note receivable- Other ........................          --           12,105
                                                     -----------    -----------
                                                         525,436        535,513
   Less current portion ..........................       (50,000)       (62,105)
                                                     -----------    -----------
                                                         475,436        473,408
                                                     -----------    -----------
Property and equipment, at cost:
   Land ..........................................       678,000        678,000
   Buildings .....................................     2,461,327      2,461,327
   Equipment and leasehold and tenant improvements     2,056,461      1,997,192
                                                     -----------    -----------
                                                       5,195,788      5,136,519
      Less accumulated depreciation and amortization  (1,808,497)    (1,654,521)
                                                     -----------    -----------
       Net property and equipment ................     3,387,291      3,481,998
                                                     -----------    -----------

Other assets:
   Undeveloped land, at cost .....................     1,665,643      1,665,643
   Intangible assets, net ........................       288,901        315,015
   Investments ...................................       543,773      1,209,944
   Other .........................................       109,528        108,923
                                                     -----------    -----------
                                                       2,607,845      3,299,525
                                                     -----------    -----------

                                                     $ 7,599,297    $ 9,448,653
                                                     ===========    ===========





                                       1
<PAGE>




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

                      LIABILITIES AND SHAREHOLDERS' DEFICIT


                                                       December       June 30,
                                                       31, 1998         1998
                                                     -----------    -----------
                                                     (Unaudited)
Current liabilities:
   Assessment district obligation-in default .....   $ 2,442,502    $ 2,319,826
   Current portion of long-term debt .............       260,000        347,000
   Accounts payable ..............................       449,948        577,847
   Accrued payroll and related expenses ..........        53,721        108,497
   Accrued property taxes-in default .............       535,293        487,728
   Accrued interest ..............................        22,831         28,581
   Other liabilities .............................       174,288        143,631
                                                     -----------    -----------
      Total current liabilities ..................     3,938,583      4,013,110
                                                     -----------    -----------

Long-term debt, excluding current portion ........     3,245,421      3,287,783
                                                     -----------    -----------

Distributions received in excess of basis
   in investment .................................    12,400,462     12,280,101
                                                     -----------    -----------

Tenant security deposits .........................        26,523         25,951
                                                     -----------    -----------

Minority interest in consolidated subsidiary .....     1,762,677      1,762,677
                                                     -----------    -----------

Commitments and contingencies (Note 4)

Shareholders' deficit:
   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 ...........................   (13,485,426)   (11,736,312)
                                                     -----------    -----------
                                                     (11,482,877)    (9,733,763)
   Less note receivable from shareholder .........    (2,291,492)    (2,187,206)
                                                     -----------    -----------
      Total shareholders' deficit ................   (13,774,369)   (11,920,969)
                                                     -----------    -----------

                                                     $ 7,599,297    $ 9,448,653
                                                     ===========    ===========









        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, 1998 AND 1997
                                  (Unaudited)

                                                       1998            1997
                                                   ------------    ------------
Revenues:
   Bowling .....................................   $    686,264    $    694,538
   Rental ......................................        139,040         122,164
   Golf ........................................         71,941          33,202
   Other .......................................         26,626          23,763
   Other-related party .........................         77,047          28,284
                                                   ------------    ------------
                                                      1,000,918         901,951
                                                   ------------    ------------
Costs and expenses:
   Bowling .....................................        478,297         499,834
   Rental ......................................         58,993          60,558
   Golf ........................................        219,612         162,835
   Development .................................         43,171          40,770
   Selling, general, and administrative ........        819,102         686,704
   Depreciation and amortization ...............         93,746          84,553
                                                   ------------    ------------
                                                      1,712,921       1,535,254
                                                   ------------    ------------

Loss from operations ...........................       (712,003)       (633,303)
                                                   ------------    ------------

Other income (charges):
   Investment income:
     Related party .............................         60,234          61,830
     Other .....................................          7,735             683
   Interest expense:
     Development activities ....................        (64,926)        (59,024)
     Other and amortization of finance costs ...        (76,549)       (120,517)
   Equity in income of investees ...............        112,161          86,029
                                                   ------------    ------------
                                                         38,655         (30,999)
                                                   ------------    ------------

Loss from continuing operations ................       (673,348)       (664,302)

Loss from discontinued operations ..............           --             5,472
                                                   ------------    ------------

Net loss .......................................   $   (673,348)   $   (658,830)
                                                   ============    ============

Basic and diluted net loss per common share from
   continuing operations (based on 27,250,000
   weighted average common shares outstanding) .     ($ 0.02)        ($ 0.02)
                                                     ========        ========









        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, 1998 AND 1997
                                  (Unaudited)

                                                        1998            1997
                                                   ------------    ------------
Revenues:
   Bowling .....................................    $ 1,327,334     $ 1,315,642
   Rental ......................................        276,269         247,843
   Golf ........................................        145,774          83,903
   Other .......................................         79,872          51,584
   Other-related party .........................        106,124          56,883
                                                   ------------    ------------
                                                      1,935,373       1,755,855
                                                   ------------    ------------
Costs and expenses:
   Bowling .....................................      1,004,522         998,294
   Rental ......................................        123,464         121,363
   Golf ........................................        494,632         326,008
   Development .................................         84,432          73,698
   Selling, general, and administrative ........      1,772,276       1,396,752
   Depreciation and amortization ...............        187,180         267,478
                                                   ------------    ------------
                                                      3,666,506       3,183,593
                                                   ------------    ------------

Loss from operations ...........................     (1,731,133)     (1,427,738)
                                                   ------------    ------------

Other income (charges):
   Investment income:
     Related party .............................        125,950         123,803
     Other .....................................         19,620          34,006
   Interest expense:
     Development activities ....................       (122,676)       (110,922)
     Other and amortization of finance costs ...       (167,224)       (241,372)
   Equity in income of investees ...............        126,349         178,500
                                                   ------------    ------------
                                                        (17,981)        (15,985)
                                                   ------------    ------------

Loss from continuing operations ................     (1,749,114)     (1,443,723)

Loss from discontinued operations ..............           --           (21,970)
                                                   ------------    ------------

Net loss .......................................    $(1,749,114)    $(1,465,693)
                                                   ============    ============

Basic and diluted net loss per common share from
   continuing operations (based on 27,250,000
   weighted average common shares outstanding ..     ($ 0.06)        ($ 0.05)
                                                     ========        ========










        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, 1998 AND 1997
                                  (Unaudited)

                                                           1998            1997
                                                   ------------    ------------
Cash flows from operating activities:
  Net loss .....................................    ($1,749,114)    ($1,465,693)
  Adjustments to reconcile net loss to the
    net cash used by operating activities:
      Amortization of deferred financing costs .          9,099          11,728
      Depreciation and amortization ............        187,180         271,671
      Equity in income of investees ............       (126,349)       (178,500)
      Interest income accrued on note receivable
         from shareholder ......................       (104,286)       (102,000)
      Interest accrued on assessment
         district obligations ..................        122,676         110,922
    Changes in assets and liabilities:
      Decrease in receivables ..................         18,136          35,721
      Increase in inventories ..................        (83,886)        (14,959)
      (Increase) decrease in prepaid expenses ..         44,469        (104,850)
      Decrease in assets of discontinued operation         --           130,607
      Increase (decrease) in accounts payable ..       (127,899)        164,340
      Increase (decrease) in accrued expenses
        and other liabilities ..................         17,696          (3,148)
      Decrease in liabilities of discontinued
       operation ...............................           --           (76,105)
      Other ....................................         10,488           5,962
                                                   ------------    ------------
       Net cash used by operating activities ...     (1,781,790)     (1,214,304)
                                                   ------------    ------------

Cash flows from investing activities:
   Decrease in notes receivable ................         10,077          66,601
   Capital expenditures ........................        (59,269)       (200,151)
   Proceeds from sale of other assets ..........           --            15,000
   Distributions from investees ................        886,171         494,228
                                                   ------------    ------------
       Net cash provided by investing activities        836,979         375,678
                                                   ------------    ------------

Cash flows from financing activities-
   Scheduled principal payments on long-term debt      (129,362)       (244,752)
   Proceeds from short term loan ...............           --           400,000
                                                   ------------    ------------
       Net cash provided (used) by financing 
         activities ............................       (129,362)        155,248
                                                   ------------    ------------

Net decrease in cash and cash equivalents ......     (1,074,173)       (683,378)
Cash and cash equivalents, beginning of year ...      1,416,460         821,513
                                                   ------------    ------------
Cash and cash equivalents, end of year .........   $    342,287    $    138,135
                                                   ============    ============


SUPPLEMENTAL CASH FLOW INFORMATION:
Supplemental Schedule of Non-Cash Investing and Financing Activities:

Long-term debt of $45,486  was  incurred  to  finance  capital  expenditures  of
   $79,572 in 1997.

In 1997 the Company sold miscellaneous  assets for cash proceeds of $15,000. The
   sale  resulted  in a  reduction  of  property  and  equipment  by $28,750 and
   accumulated depreciation by $14,854.


        See accompanying notes to consolidated condensed financial statements.



                                       5
<PAGE>



                      SPORTS ARENAS, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                      DECEMBER 31, 1998 AND 1997(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, 1998 and 1997, are not
      necessarily indicative of operations for the entire year.

3. Investments:

   (a) Investments consist of the following:
                                                    December     June 30,
                                                    31, 1998       1998
                                                   ----------   -----------
        Vail Ranch Limited Partnership      
         (equity method)                            $ 505,847   $ 1,172,018
        All Seasons Inns, La Paz (cost basis)          37,926        37,926
                                                   ----------   -----------
           Total                                    $ 543,773   $ 1,209,944
                                                   ==========   ===========

       Investment in UCV, L.P. classified as
         a liability- Distributions received
         in excess of basis in investment         $12,400,462   $12,280,101
                                                  ===========   ===========

     The  following  is a  summary  of  the  equity  in  income  (loss)  of  the
     investments accounted for by the equity method:

                                                 1998           1997  
                                               --------       -------
         UCV, L.P.                            $ 146,349      $ 178,500
         Vail Ranch Limited Partnership         (20,000)           -   
                                             ----------      ---------
                                              $ 126,349      $ 178,500
                                              =========      =========

     The following is a summary of distributions received from investees:
                                                 1998           1997 
                                              ---------      --------- 
         UCV, L.P.                            $ 240,000      $ 405,000
         Vail Ranch Limited Partnership         646,171         89,228
                                              ---------      ---------
                                              $ 886,171      $ 494,228
                                              =========      =========

   (b) Investment in UCV, L.P.

     The operating  results of this investment are included in the  accompanying
     consolidated   condensed   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, 1998 and 1997 are as follows:

                                                            1998         1997 
                                                         ----------   ----------
                   Revenues ..........................   $2,300,000   $2,250,000
                   Operating and general and
                      administrative costs ...........      734,000      744,000
                   Depreciation ......................       14,000       95,000
                   Interest expense ..................    1,062,000    1,054,000
                   Write off of unamortized loan costs      197,000         --
                   Net income ........................      293,000      357,000



                                       6
<PAGE>


4. Contingencies:

   (a) Old Vail Partners  (OVP), a consolidated  subsidiary and 50 percent owned
     by the Company,  owns  approximately  33 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 was issued by the assessment  district to fund the  improvements.
     The annual  payments (made in semiannual  installments)  due related to the
     bonded  debt are  approximately  $144,000  for the 33 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 six  years.  The  property  is  currently  subject  to default
     judgments to the County of  Riverside,  California  totaling  approximately
     $1,842,819 regarding delinquent  assessment district payments  ($1,307,526)
     and property taxes ($535,293).

     The principal balance of the allocated  portion of the assessment  district
     bonds  ($1,134,976  at December 31, 1998 and  $1,160,500 at June 30, 1998),
     and delinquent  principal,  interest and penalties  ($1,307,526 at December
     31, 1998 and  $1,159,326 at June 30, 1998) are  classified  as  "Assessment
     district  obligation-  in default" in the  consolidated  condensed  balance
     sheet. In addition,  accrued property taxes in the  consolidated  condensed
     balance  sheet  include  $535,293 at December 31, 1998 and $487,728 at June
     30, 1998 of delinquent  property taxes and late fees related to the 33-acre
     parcel.

     In November 1993, the City of Temecula  adopted a general  development plan
     that  designated  the 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 OVP's property from a "commercial" to "professional office" use.
     The property is subject to Assessment District liens that 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. A stipulation
     was entered that dismissed  this suit without  prejudice and agreed to toll
     all applicable  statute of  limitations  while OVP and the City of Temecula
     attempted  to  informally  resolve  this  litigation.  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.

5.   Comprehensive  Income- On July 1, 1998,  the company  adopted  Statement of
     Financial  Accounting  Standards ("SFAS") No. 130, Reporting  Comprehensive
     Income. SFAS No. 130 requires the reporting of comprehensive  income (loss)
     in addition to net income  (loss).  Comprehensive  income  (loss) is a more
     inclusive  financial  reporting  methodology  that  includes  disclosure of
     certain financial  information that historically has not been recognized in
     the  calculation on net income  (loss).  The adoption of this statement did
     not have an effect on the consolidated condensed financial statements.



                                       7
<PAGE>



6. Reclassifications-  Certain  reclassifications  have been made to the prior
   year financial statements to conform to the classifications used in 1998.

7. Significant Events:

   On January 11, 1999 the maturity  date on a $80,673 note payable that was due
   February  1999 was extended to February  2004.  The interest rate was reduced
   from 8-1/2 percent to 8 percent.

8. Liquidity

   The  accompanying  consolidated  condensed  financial  statements  have  been
   prepared  assuming the Company will continue as a going concern.  The Company
   has  suffered  recurring  losses  from  operations,  has  a  working  capital
   deficiency,  and is  forecasting  negative  cash  flows  for the next  twelve
   months.  These items raise  substantial  doubt about the Company's ability to
   continue as a going  concern.  The  Company's  ability to continue as a going
   concern is dependent  on either  refinancing  or selling  certain real estate
   assets or increases in the sales volume of its subsidiary, Penley Sports.





                                       8
<PAGE>




ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
     OF OPERATIONS:

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

Excluding  the  balance  of  the  assessment-district-obligation-in-default  and
property  taxes in default  related to the same  property  which are included in
current liabilities, the Company has working capital of $167,937 at December 31,
1998, which is a $820,229 decrease from the similarly calculated working capital
of $988,166 at June 30,  1998.  The  decrease  in working  capital is  primarily
attributable  to the cash used by operating  activities for the six months ended
December  31, 1998.  The  following  is a schedule of the cash  provided  (used)
before changes in assets and liabilities, segregated by business segments:

                                       1998           1997         Change
                                   -----------    -----------    ---------
     Bowling ...................   $  (186,000)   $  (205,000)   $  19,000
     Rental ....................       109,000         84,000       25,000
     Golf ......................    (1,345,000)    (1,008,000)    (337,000)
     Development ...............       (88,000)       (77,000)     (11,000)
     General corporate expense
      and other ................      (151,000)      (128,000)     (23,000)
                                   -----------    -----------    ---------
        Cash used by continuing
          operations ...........    (1,661,000)    (1,334,000)    (327,000)
     Discontinued operations ...          --          (18,000)      18,000
     Capital expenditures,
      net of financing .........       (59,000)      (200,000)     141,000
     Principal payments on
      long-term debt ...........      (129,000)      (245,000)     116,000
                                   -----------    -----------    ---------
        Cash used ..............   $(1,849,000)   $(1,797,000)   $ (52,000)
                                   ===========    ===========    =========

     Distributions received from
      investees ................   $   886,000    $   494,000    $ 392,000
                                   ===========    ===========    =========

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 33 acres of  undeveloped  land. The
County of  Riverside  has  obtained  judgments  for the  defaults in  assessment
district payments and property taxes. The amount due to cure the judgments as of
December 31, 1998 is $1,843,000.  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 Temecula to effectively  down-zone the property.  As a result of the
judgments and the attempts to down-zone the property,  the recoverability of the
carrying value of this property is uncertain.

UCV, L.P. (UCV) is currently  evaluating the  feasibility  of  redeveloping  the
apartment  project from 542 units to approximately  1,100 units. As part of this
process,  UCV  is  attempting  to  obtain  local  government  approval  for  the
redevelopment.  UCV  expects  a  decision  prior  to the end of  calendar  1999.
Management  does not expect  the  redevelopment  planning  process to affect the
distributions  to partners from  operating  activities  because  $500,000 of the
refinancing proceeds (May 1998) were allocated for the planning costs.

Old Vail Partners (OVP) received a $576,000 distribution from Vail Ranch Limited
Partnership  in  August  1998 as its  share  of the  distribution  from  the new
partnership  with an affiliate of New Plan Realty Trust (formerly Excel Realty).
OVP also  received  additional  distributions  of $70,554 in the  quarter  ended
December  31,  1998.  However,  it is  unlikely  that there will be  significant
distributions  in the future  until the  remaining  undeveloped  land in the new
partnership is developed and sold.

Management  estimates  negative cash flow of  $1,100,000  to $1,200,000  for the
remaining  quarters of the year ending June 30, 1999 from  operating  activities
after adding estimated  distributions  from UCV ($390,000) and deducting capital
expenditures and scheduled  principal payments on long-term debt.  Management is
currently  evaluating  other  sources of working  capital from  refinancing  its
office  building  or the  sale  of  undeveloped  land  in  Temecula  to  provide
sufficient funds for this cash flow deficit. If the Company is not successful in
obtaining  other sources of working  capital this could have a material  adverse
effect on the Company's ability to continue as a going concern.



                                       9
<PAGE>


                              YEAR 2000 COMPLIANCE
                              --------------------

The Company has a program to  identify,  evaluate and  implement  changes to its
computer  systems as  necessary  to address the Year 2000 issue.  The program is
broken  down  into  three  separate  categories:   computer  systems,   embedded
technologies, and third party relationships.

   Computer systems- This category consists  primarily of the Company's software
     and hardware for its  accounting  system.  The Company is in the process of
     evaluating its existing desktop computers and software systems.  Based upon
     an initial evaluation as well as representations  from some of the software
     suppliers,  the management's best estimate is that, other than software and
     equipment upgrades made in the normal course of business, it will not incur
     any significant expenses to become fully Year 2000 compliant.

   Embedded  Technologies-  This  category  includes  company  owned  or  leased
     equipment with microprocessors or microcontrollers.  This type of equipment
     principally  consists of phone equipment,  automatic  scorekeepers and cash
     registers at the bowling centers,  and manufacturing  equipment at the golf
     shaft   manufacturer.   Based  upon  an  initial   evaluation  as  well  as
     representations from some of the equipment suppliers, the management's best
     estimate is that, other than acquiring a software upgrade for the automatic
     scorekeeping equipment, the price of which has not yet been determined,  it
     will  not  incur  any  significant  expenses  to  become  fully  Year  2000
     compliant.

   Third Party Relationships- This category includes critical relationships with
     vendors  such as  graphite  manufacturers  in the golf shaft  segment,  and
     providers  of local  utilities  (water and  electricity).  The Company will
     implement a program conducting discussions with these types of suppliers in
     calendar  year 1999.  There can be no  guarantee  that the systems of other
     companies that support the Company's operations will be timely converted or
     that a failure by these companies to correct their Year 2000 problems would
     not have a material adverse effect on the Company. At the present time, the
     Company  does not have a  contingency  plan in place in the event of a Year
     2000 failure at one of the Company's  significant  suppliers.  However, the
     Company plans to create a contingency plan in the calendar year 1999.

If the steps taken by the Company and its vendors to be Year 2000  compliant are
not successful,  the Company could experience various operational  difficulties.
These could include, among other things, processing transactions to an incorrect
accounting  period,  difficulties in posting general ledger interfaces and lapse
of certain  services by vendors to the  Company's  operations.  If the Company's
plan to install new systems which effectively address the Year 2000 issue is not
successfully  or  timely  implemented,  the  Company  may  need to  devote  more
resources  to the  process and  additional  costs may be  incurred.  The Company
believes  that the Year  2000  issue is  being  appropriately  addressed  by the
Company and its critical vendors and does not expect the Year 2000 issue to have
a material  adverse impact on the financial  position,  results of operations or
cash  flows of the  Company in future  periods.  However,  should the  remaining
review  of the  Company's  Year  2000  risks  reveal  potentially  non-compliant
computer systems or material third parties,  contingency plans will be developed
at that time.

                   "SAFE HARBOR" STATEMENT UNDER THE PRIVATE
                    SECURITIES LITIGATION REFORM ACT OF 1995
                    ----------------------------------------

With the  exception  of  historical  information  (information  relating  to the
Company's  financial  condition and results of operations at historical dates or
for historical periods),  the matters discussed in this Management's  Discussion
and  Analysis of  Financial  Condition  and Results of  Operations  are forward-
looking  statements that  necessarily  are based on certain  assumptions and are
subject to certain risks and uncertainties. These forward-looking statements are
based on management's  expectations as of the date hereof,  and the Company does
not  undertake  any  responsibility  to update  any of these  statements  in the
future.  Actual future  performance and results could differ from that contained
in or suggested by these  forward-looking  statements as a result of the factors
set forth in this  Management's  Discussion and Analysis of Financial  Condition
and Results of  Operations  and  elsewhere  in the  Company's  filings  with the
Securities and Exchange Commission.



                                       10
<PAGE>


                              RESULTS OF OPERATIONS
                              ---------------------

The  following  are  summaries of the changes in the results of  operations  for
year-to-date and the current quarter:

                   
 <TABLE>
<CAPTION>
                   SIX MONTHS ENDED DECEMBER 31, 1998 VERSUS 1997:
                   -----------------------------------------------      
                                                                   Real              
                                                    Rental        Estate                 Unallocated
                                       Bowling     Operation    Development    Golf       And Other      Totals
                                       -------     ---------    -----------  ---------    ---------    ---------
<S>                                   <C>          <C>          <C>          <C>          <C>          <C>      
Revenues ..........................   $  11,692    $  29,599    $    --      $  61,871    $  77,529    $ 180,691
Costs .............................       6,228        2,101       10,734      168,624         --        187,687
SG&A-direct .......................       1,891         --           --        191,051      139,755      332,697
SG&A-allocated ....................      16,650        3,000         --         43,000      (18,650)      44,000
Depreciation and   
  amortization.....................     (91,290)       4,228         --          5,050        1,714      (80,298)
Interest expense ..................     (37,502)        (727)      11,556       (3,786)     (31,935)     (62,394)
Equity in investees ...............        --        (32,151)     (20,000)        --           --        (52,151)
Segment profit (loss) .............     115,715      (11,154)     (42,290)    (342,068)     (13,355)    (293,152)
Investment income .................                                                                      (12,239)
Net loss from continuing operations                                                                     (305,391)
</TABLE>
                  
 <TABLE>
<CAPTION>
                   THREE MONTHS ENDED DECEMBER 31, 1998 VERSUS 1997:
                  -------------------------------------------------     
                                                                   Real              
                                                    Rental        Estate                 Unallocated
                                       Bowling     Operation    Development    Golf       And Other      Totals
                                       -------     ---------    -----------  ---------    ---------    ---------
<S>                                   <C>          <C>          <C>          <C>          <C>          <C>      
Revenues ..........................   $  (8,274)   $ 17,473     $    --      $  38,739    $  51,626    $  99,564
Costs .............................     (21,537)     (1,565)       2,401        56,777         --         36,076
SG&A-direct .......................      (2,921)        --           --         (5,742)     124,658      115,995
SG&A-allocated ....................      11,480       2,000          --         27,000      (23,480)      17,000
Depreciation and   
  amortization.....................       4,391       3,601          --            531          670        9,193
Interest expense ..................     (21,144)       (368)       5,803        (1,919)     (20,438)     (38,066)
Equity in investees ...............        --        36,132      (10,000)          --           --        26,132
Segment profit (loss) .............      21,457      49,937      (18,204)      (37,908)     (29,784)     (14,502)
Investment income .................                                                                        5,456
Net loss from continuing operations                                                                       (9,046)
</TABLE>

   Note:  The change in rental  revenues  and SG&A  expenses  do not include the
   effect of the net change in  elimination of  intercompany  rent of $1,173 and
   $597 for the six and three month periods respectively.

BOWLING OPERATIONS:
-------------------
Bowling revenues remained relatively flat in the three and six month periods. In
each period the number of games  bowled  decreased  by 6%,  which was  primarily
attributable to a decline in league play.  These decreases were partially offset
by a 12% increase in the average  price of open-play in each period.  Management
feels that there will  continue  to be a decline in league  bowling  but this is
likely to continue to be offset by increases  in the number of  open-play  games
bowled and the price per game of open-play.

Bowl costs remained  relatively flat for the six month period and declined by 4%
for the three month period. The decrease in bowl costs in the three-month period
was  primarily due to the timing of annual pin purchases in the first quarter of
1998 ($16,000) that occurred during the second quarter of 1997.

Depreciation and amortization  expense  decreased in the six-month period due to
equipment and goodwill acquired in 1983 (when the bowls were purchased) becoming
fully depreciated and amortized in the year ended June 30, 1998.

Interest  expense  related  to the  bowling  segment  decreased  because  of the
extinguishment  of all bowl  related  financing  during  the year ended June 30,
1998.

                                       11
<PAGE>

RENTAL OPERATIONS:
------------------
Rental  revenues  increased  by 11% and 13% in the six and three month  periods,
respectively.  This is primarily  due to a 10% increase in the rental rates over
the previous year. There were no other significant  changes to the components of
the rental  segment in the three and six-month  periods except for the equity in
income of investees, which is primarily UCV.

The equity in income of UCV decreased in the six-month period primarily due to a
$197,000  write-off  of  unamortized  loan fees in the current year related to a
refinancing  of long-term  debt.  This  increase in UCV's  expense was partially
offset by an $81,000 reduction in UCV's depreciation  expense,  which relates to
the  acquisition  cost of the building  becoming fully  depreciated in the prior
year.  Depreciation  expense also  decreased by $40,000  during the  three-month
period for the same reason. Rental revenues of UCV increased by $49,000 (2%) and
$32,000 (3%) during the six and three month periods, respectively, primarily due
to increases in the average rental rate. Operating expenses remained essentially
the same as the prior periods.

REAL ESTATE DEVELOPMENT OPERATIONS:
-----------------------------------
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.

GOLF OPERATIONS:
----------------
Sales during the three and six month periods ended  December 31, 1998  continued
to be insignificant because the Company has not yet generated sales to golf club
manufacturers or distributors.  The Company expects that it will be at least six
to nine months before the Company is able to generate  sales with these types of
customers.  Sales  during the three and six month  periods were  principally  to
custom golf shops. The following is a breakdown of the costs associated with the
golf operation:

                                            Three Months         Six Months
                                            ------------         ----------
                                           1998      1997      1998      1997 
                                          -------   -------   -------   -------
   Costs of goods sold ................  $ 38,000   $ 8,000   $73,000   $18,000
   Underutilized manufacturing overhead   127,000   113,000   325,000   261,000
   Research & development .............    54,000    42,000    96,000    47,000
                                          -------   -------   -------   -------
        Total golf costs ..............   219,000   163,000   494,000   326,000
                                          -------   -------   -------   -------
   Marketing & promotion ..............   280,000   292,000   769,000   567,000
   Administrative-direct ..............    49,000    42,000    84,000    95,000
                                          -------   -------   -------   -------
        Total SG&A-direct .............   329,000   334,000   853,000   662,000
                                          -------   -------   -------   -------

   Allocated corporate costs ..........    83,000    56,000   131,000    88,000
                                          -------   -------   -------   -------
                                                              
 UNALLOCATED AND OTHER
 ---------------------
Other  revenues  increased in the three and six month  periods  primarily due to
development  planning  fees  collected  from  UCV  starting  in  July  1998  and
administrative  fees  collected  from  Ocean  West  Builders,   Inc.  which  had
previously been a wholly owned and consolidated subsidiary of the Company.

Selling, general and administrative expense increased in the three and six month
periods because of bonuses awarded in December 1998.

Interest expense decreased in the three and six month periods due to a reduction
in long-term debt in June of 1998.



                                       12
<PAGE>




                                     PART II
                                OTHER INFORMATION



ITEM 1. Legal Proceedings

        As of December 31, 1998, 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, 1998.


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

        On December 23, 1998 the Company held its annual shareholder  meeting in
        which the following item was voted upon:
                                                                
                                              Tabulation of Votes
                                              -------------------
                                         For        Against     Abstain
                                         ---        -------     -------
     Election of Directors:
        Harold S. Elkan ............   23,289,103        0      272,072
        Steven R. Whitman ..........   23,289,603        0      271,572
        Patrick D. Reiley ..........   23,290,103        0      271,072
        James E. Crowley ...........   23,290,603        0      270,572
        Robert A. MacNamara ........   23,290,703        0      270,572


ITEM 5. Other Information

          NONE


ITEM 6. Exhibits & Reports on Form 8-K

     (a) Exhibits: NONE

     (b) Reports on Form 8-K:  NONE





                                       13
<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 13, 1999
            ------------------



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



     Date: February 13, 1999
           ------------------




                                       14
<PAGE>