<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended 3/31/98
Commission file number 000-22775
NEWRIDERS, INC.
________________________________________________________________
(Exact name of small business issuer as specified in its charter)
Nevada 77-0390222
_______________________________ ____________________________
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
567 San Nicolas Drive, Suite 400
Newport Beach, California 92660
________________________________________
(Address of principal executive offices)
(714) 718-4630
________________________________________________
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
As of May 11, 1998, the issuer had outstanding 17,420,537 shares of its
Common Stock, $0.001 par value.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The unaudited consolidated balance sheet of Newriders, Inc., a Nevada
corporation (the "Company"), as of March 31, 1998 and the related audited
consolidated balance sheet of the Company as of December 31, 1997, the
unaudited related consolidated statements of operations, stockholders' equity
and cash flows for the three month periods ended March 31, 1998 and March 31,
1997, and the notes to the financial statements are attached hereto as
Appendix "A" and incorporated herein by reference.
The accompanying financial statements reflect all adjustments which are,
in the opinion of management, necessary to present fairly the financial
position of the Company consolidated with Newriders Limited, a California
corporation, the Company's wholly-owned subsidiary.
Newriders, Inc. was organized on July 13, 1995 under the name of American
Furniture Wholesale, Inc. Newriders Limited was formed on November 8, 1994 in
the State of California. Newriders, Inc. and Newriders Limited entered into a
Plan of Reorganization on June 28, 1996, whereby Newriders, Inc. acquired 100%
of the outstanding Common Stock of Newriders Limited in exchange for
13,250,000 shares of the common stock of Newriders, Inc. to the former
shareholders of Newriders Limited (the "Reorganization"). A total of
11,000,000 of the shares issued in the Reorganization were newly issued and
2,250,000 shares were concurrently reacquired from an existing stockholder and
reissued as part of the Reorganization. In connection with the
Reorganization, the Company amended its Articles of Incorporation effective
July 1, 1996 to change its name to Newriders, Inc. Throughout this document
the "Company" shall mean the combined entities of Newriders, Inc. and its
subsidiary, Newriders Limited.
The acquisition of Newriders Limited was recorded as a recapitalization
of Newriders Limited, whereby Newriders Limited is treated as the surviving
entity for accounting purposes.
Newriders Limited owns and operates an Easyriders Cafe Restaurant, an
Easyriders Apparel and Merchandise Store, and an Easyriders Motorcycle and
Accessory Shop in Fresno, California. The Company also owns and operates an
Easyriders Cafe Restaurant and Apparel Store in Myrtle Beach, South Carolina.
The Fresno, California location operated from approximately May, 1996 until
January 1998, when it closed for remodeling. It is expected to reopen in the
third quarter of 1998. The Myrtle Beach location has operated since its
opening in May 1997.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations.
During the three months ended March 31, 1998, the Company experienced a
net loss in the amount of $1,230,993, in contrast to the net loss of $307,530
for the three months ended March 31, 1997. Net loss per share was ($0.07) for
the three months ended March 31, 1998.
The Company attributes its net loss incurred during the three month
period ended March 31, 1998 to the increase in overhead for accounting, legal
and professional fees related to the pending acquisition of Paisano
Publications and El Paso Bar-B-Que. A significant portion of the loss for the
three month period ended March 31, 1998 was due to a non-cash interest expense
of $305,864 associated with raising funds through issuing convertible
debentures at a discount.
Total sales for the three months ended March 31, 1998 were $214,163, down
$241,062 (53%) from the $455,225 reported for the three months ended March 31,
1997. Total sales for all reported periods were comprised of revenue from
sales of restaurant items, Easyriders apparel and merchandise, and motorcycle
accessories. The decrease in sales results from the closure of the Company's
Fresno, California location for remodeling in January 1998.
Cost of sales for the three months ended March 31, 1998 was $64,792,
or approximately 30% of total sales. Cost of sales for the three months ended
March 31, 1997 was $239,476, or approximately 53% of total sales. Cost of
sales consists primarily of the cost of food, alcoholic and non-
alcoholic beverages, apparel, motorcycle parts and accessories and direct
labor costs.
Gross margin for the three months ended March 31, 1998 was $149,371, down
$66,378 from the $215,749 reported for the three months ended March 31, 1997.
These decreases reflect primarily the Company's decreased sales volume
associated with closing the Company's restaurant and store locations in
Fresno, California in January, 1998 for remodeling.
Restaurant and store operating expenses for the three months ended March
31, 1998 was $356,529, down $5,225 from the $361,754 reported for the three
months ended March 31, 1997. The lack of significant fluctuation reflects
primarily the Company's decreased operating expenses associated with closing
the Company's restaurant and store locations in Fresno, California in January,
1998 for remodeling partially offset by increased expenses associated with
opening the Company's second location in Myrtle Beach, South Carolina in May,
1997.
Selling, general and administrative expenses for the three months ended
March 31, 1998, were $660,456, up $501,756 from the $158,756 reported for the
three months ended March 31, 1997. The primary components of selling, general
and administrative expenses for the three months ended March 31, 1998 include
expenses associated with public relations, investor relations, corporate
accounting and legal services, travel, lodging and advertising.
General and administrative expenses should generally be viewed as likely
to recur in the normal course of business, although the amounts of such
expenditures will vary.
Liquidity and Capital Resources
The Company's stockholders' equity decreased $746,437 in the three months
ended March 31, 1998, from $302,842 as of December 31, 1997 to a deficit of
$443,595 as of March 31, 1998. The decrease is the result of a net loss of
approximately $1,230,993 for the three month period. The decrease was
partially offset by capital infusions during the three month period ended
March 31, 1998. An unrelated party converted approximately $433,333 of debt
to 186,705 shares of the Company's common stock representing an average
conversion price of $2.32 per share.
Cash and cash equivalents decreased $1,209,352 to $53,281 at March 31,
1998 from $20,047 at December 31, 1997 due primarily to net cash used in
operating activities of $1,338,922. Cash used in operating activities
included a net loss of $1,230,993 and a net decrease in operating liabilities
of $477,116. These uses of cash were partially offset by $305,864 of non-cash
interest expense and $63,323 related to the depreciation and amortization of
property and equipment. The remaining difference relates to net cash provided
by financing activities through the issuance of $600,000 of debt partially
offset by $261,203 of payments on debt, capital lease obligation and advances.
The Company additionally utilized $209,227 of cash for capital requirements
for the remodeling of the Company's Fresno facility.
The Company's most significant cash needs in 1998 include working capital
to improve current restaurant operations in Fresno, California and Myrtle
Beach, South Carolina, and to investigate and negotiate terms and conditions
for additional sites for Easyriders Cafes. The Company's present cash
resources may not be adequate to sustain operations through 1998. If the two
acquisitions the Company is pursuing are completed, the Company will have
adequate cash resources to sustain operations for the foreseeable future. If
the acquisitions are not completed during 1998, the Company will be required
to raise additional capital through borrowing or additional sale of equity.
Further, revenues from the Company's operating restaurants would not be
adequate to support the present headquarters executive staff, and the Company
would be required to substantially reduce its corporate overhead.
Balance Sheet Information
Assets
As of March 31, 1998, the Company reported total assets of $2,429,191,
down $1,033,164 from the $3,462,355 reported as of December 31, 1997. Total
current assets as of March 31, 1998 were $419,756, down $1,144,237 from the
$1,563,993 reported as of December 31, 1997. Property and equipment - net was
$1,643,713 as of March 31, 1998, up $156,115 from the $1,487,598 reported as
of December 31, 1997. Total other assets were $365,722 as of March 31, 1998,
down $45,042 from the $410,764 reported as of December 31, 1997. The change
in total assets reflects primarily an increase in property and equipment - net
associated with acquiring additional equipment and tenant improvements for the
reopening of the Company's restaurant and store locations in Fresno,
California and the decrease in cash balances from operating activities.
Liabilities
Total current liabilities decreased $43,540, from $1,343,639 as of
December 31, 1997, to $1,300,099 as of March 31, 1998. The decrease is
attributable to payments made on advances from stockholders and other advances
of $217,000 during January 1998 and decreases in accounts payable, $215,741,
and accrued compensation and benefits, $232,337 during the quarter. This
decrease was partially offset by short-term borrowing of $600,000 received in
March 1998.
Convertible Debentures decreased $218,516 from $785,183 as of December
31, 1997 to $556,667 as of March 31, 1998. The decrease in convertible
debentures was associated with the conversion of $433,333 of debentures into
common stock of the Company partially offset by the amortization of the
remaining discount during the three months ended March 31, 1998.
Long-term debt decreased $42,839 from $892,306 as of December 31,
1997 to $849,467 as of March 31, 1998. The decrease in long-term liabilities
was associated with the payments made during the three months ended March 31,
1998.
ANY FORWARD-LOOKING STATEMENTS INCLUDED IN THIS FORM 10-QSB REFLECT
MANAGEMENT'S BEST JUDGMENT BASED ON FACTORS CURRENTLY KNOWN AND INVOLVE RISKS
AND UNCERTAINTIES. ACTUAL RESULTS MAY VARY MATERIALLY.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) There are no exhibits included with this report.
(b) The Company has filed no reports on Form 8-K during the quarter
ended March 31, 1998.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NEWRIDERS, INC.
(Registrant)
Date: May 12, 1998 By: /s/ William R. Nordstrom
-------------------------------------
William R. Nordstrom
Principal Financial Officer and
Chief Accounting Officer
NEWRIDERS, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
<TABLE>
ASSETS
March 31, December 31,
1998 1997
------------- ------------
(Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 53,281 $1,262,633
Inventories 271,916 285,622
Prepaid expenses 94,559 15,738
--------- ---------
Total Current Assets 419,756 1,563,993
--------- ---------
PROPERTY AND EQUIPMENT - net 1,643,713 1,487,598
--------- ---------
ORGANIZATION COSTS, net 131,947 142,158
DEPOSITS AND OTHER ASSETS 112,496 107,503
DEFERRED FINANCING COSTS, net 121,279 161,103
--------- ---------
TOTAL ASSETS $2,429,191 $3,462,355
========= =========
</TABLE>
NEWRIDERS, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets (Continued)
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
March 31, December 31,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 302,163 $ 517,904
Accrued expenses 69,741 54,567
Accrued compensation and benefits 108,603 340,940
Advances from stockholders 34,350 201,350
Other advances 0 50,000
Current obligation under capital lease 22,171 21,184
Current portion of long-term debt 763,071 157,694
--------- --------
Total Current Liabilities 1,300,099 1,343,639
--------- --------
DEFERRED RENT 153,899 128,003
OBLIGATION UNDER CAPITAL LEASE,
Less Current Obligation 2,654 10,382
CONVERTIBLE DEBENTURES, net 566,667 785,183
LONG-TERM DEBT 849,467 892,306
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock; 25,000,000 shares
authorized of $0.001 par value;
17,368,130 and 17,181,425 shares
issued and outstanding at 1998
and 1997, respectively 17,368 17,181
Additional paid-in capital 7,369,046 6,884,677
Common stock subscription receivable (750,000) (750,000)
Accumulated deficit (7,080,009) (5,849,016)
---------- ----------
Total Stockholders' Equity (443,595) 302,842
(Deficit) ---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 2,429,191 $ 3,462,355
========== ==========
</TABLE>
NEWRIDERS, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
For the Three Months Ended
March 31,
--------------------------
1998 1997
------------ ----------
(Unaudited) (Unaudited)
<S>
<C> <C>
SALES $ 214,163 $ 455,225
COST OF SALES 64,792 239,476
---------- ---------
GROSS MARGIN 149,371 215,749
---------- ---------
EXPENSES
Restaurant and store
operating expenses 356,529 361,754
Selling, general
and administrative 660,456 158,756
--------- -------
Total Expenses 1,016,985 520,510
--------- -------
Loss from
Operations (867,614) (304,714)
--------- --------
OTHER EXPENSE
Interest expense (57,515) (2,769)
Interest expense -
noncash (305,864) -
---------- -------
Total Other Expense (363,379) (2,769)
---------- -------
NET LOSS $(1,230,993) $ (307,530)
========= ========
NET LOSS PER SHARE ($0.07) ($0.02)
========= ========
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING-BASIC 17,256,814 16,232,888
========== ==========
</TABLE>
NEWRIDERS, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Stockholders' Equity
<TABLE>
Common
Common Stock Additional Stock
-------------------- Paid-in Subscription Accumulated
Shares Amount Capital Receivable Deficit
--------- -------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance,
January 1, 1997 16,168,000 $16,168 $ 3,570,992 ($1,000,000)$(1,072,142)
Common stock issued
in conjunction
with convertible
debentures 293,825 294 610,523
Discount on con-
vertible debenture
issuance 481,667
Warrants issued in
connection with
convertible deben-
tures 105,130
Sale of common stock 384,600 384 499,616
Common stock issued
for services 335,000 335 572,165
Services rendered in
satisfaction of
common stock sub-
scription receivable 250,000
Compensatory options
issued to non-
employees 671,500
Capital contributed
by shareholders 373,084
Net loss for the
period ended December
31, 1997 (4,776,874)
--------- -------- --------- ------- ---------
Balance,
December 31,
1997 17,181,425 17,181 6,884,677 (750,000) (5,849,016)
Common stock issued
in conjunction
with convertible
debentures
(Unaudited) 186,705 187 433,146
Warrants issued in
connection with
issuance of debt
(Unaudited) 51,223
Net loss for the
three months ended
March 31, 1998
(Unaudited) (1,230,993)
--------- ------ --------- ------- ---------
Balance,
March 31, 1998
(Unaudited) 17,368,130 $17,368 $7,369,046 ($750,000)($7,080,009)
========== ====== ========= ======== ==========
</TABLE>
NEWRIDERS, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
For the Three Months Ended
March 31,
--------------------------
1998 1997
---------- ----------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss ($1,230,933) ($307,530)
Adjustments to
reconcile net loss to
net cash used by oper-
ating activities:
Common stock issued
for services - 140,993
Depreciation and
amortization 63,323 32,319
Non-cash interest
expense 305,864 -
Changes in operating
assets and liabilities:
(Increase) decrease
in inventories 13,706 (4,501)
(Increase) decrease in
prepaid expenses (78,821) 2,035
(Increase) decrease in
deposits and other
assets (4,993) -
Increase (decrease) in
accounts payable and
accrued expenses (432,904) 52,980
Increase (decrease) in
deferred rent 25,896 -
-------- -------
Net Cash Used by
Operating Activities (1,338,922) (83,704)
--------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property and
equipment (209,227) (432,372)
------- --------
Net Cash Used by
Investing Activities (209,227) (423,372)
------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES
Payments on capital lease
obligation (6,741) (2,696)
Issuance of Debt 600,000
Payment of long-term debt (37,462)
Cash contributions to
capital 523,656
Payment of stockholders'
and other advances (217,000)
------- -------
Net Cash Provided by
Financing Activities 338,797 520,960
------- -------
NET INCREASE (DECREASE)
IN CASH (1,209,352) 13,884
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 1,262,633 20,047
--------- -------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 53,281 $ 33,931
========= ========
SUPPLEMENTAL CASH FLOW
INFORMATION
Cash paid for interest $ 35,438 $ 2,825
NON CASH FINANCING ACTIVITIES:
Common stock issued
for services - $ 140,993
Common stock issued
in settlement of
debt $ 433,333 -
Issuance of Warrants
in connection with
debt issuance $ 51,223 -
</TABLE>
The accompany notes are an integral part of these consolidated financial
statements
NEWRIDERS, INC. AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
March 31, 1998 (Unaudited) and December 31, 1997
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared
by the Company without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of
operations and cash flows at March 31, 1998 and for all periods
presented have been made.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted. It is suggested that these condensed consolidated financial
statements be read in conjunction with the financial statements and
notes thereto included in the Company's December 31, 1997 audited
consolidated financial statements. The results of operations for the
periods ended March 31, 1998 and 1997 are not necessarily indicative
of the operating results for the full year.
NOTE 2 - DEBT
On March 2, 1998, the Company borrowed $100,000 under an unsecured
promissory note agreement. Borrowings under the agreement bear
interest at 8% per annum and are due on demand.
On March 17, 1998, the Company borrowed $500,000 under a securities
purchase agreement. Borrowings under the agreement bear interest at
12% per annum and are due on demand. Additionally, the agreement
requires the issuance of 10,000 (20,000 after April 17, 1998) warrants
to purchase common stock of the Company at $1.50 each week the debt is
outstanding. For the period ended March 31, 1998, 20,000 warrants
were issued and an additional 80,000 warrants to purchase common stock
of the Company at $1.50 per share were issued for the period from
April 1, 1998 to May 17, 1998. The fair value of the warrants for the
period ended March 31, 1998 has been recorded as debt issuance costs
and is amortized during the period the warrants were issued.
NOTE 3 - NET LOSS PER COMMON SHARE
The Company computes earnings per share in accordance with Statement
of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share.
Earnings per share is computed using the weighted average number of
common shares outstanding during the period. Earnings per share
assuming dilution is computed using the weighted average number of
shares outstanding and dilutive effect of potential shares
outstanding. Diluted earnings per share is not presented at March 31,
1998 due to the antidilutive effect on earnings per share.
NOTE 4 - CHANGE IN ACCOUNTING PRINCIPLES
Effective January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income. This statement requires that all items
recognized under accounting standards as components of comprehensive
earnings be reported in an annual financial statement that is
displayed with the same prominence as other annual financial
statements. This statement also requires that an entity classify
items of other comprehensive earnings by their nature in an annual
financial statement. For example, other comprehensive earnings may
include foreign currency translation adjustments and unrealized gains
and losses on marketable securities classified as available-for-sale.
Annual financial statements for prior periods will be reclassified, as
required. The Company's total comprehensive loss for the three months
ended March 31, 1998 and 1997 equaled the reported net loss on the
Company's statements of operations.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001023397
<NAME> NEWRIDERS, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 53,281
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 271,916
<CURRENT-ASSETS> 419,756
<PP&E> 1,840,117
<DEPRECIATION> 196,404
<TOTAL-ASSETS> 2,429,191
<CURRENT-LIABILITIES> 1,300,099
<BONDS> 0
0
0
<COMMON> 17,368
<OTHER-SE> (460,963)
<TOTAL-LIABILITY-AND-EQUITY> 2,429,191
<SALES> 214,163
<TOTAL-REVENUES> 214,163
<CGS> 64,792
<TOTAL-COSTS> 1,081,777
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 363,379
<INCOME-PRETAX> (1,230,993)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,230,993)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
