<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For quarterly period ended March 31, 2000
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 333-13413
Reading Entertainment, Inc.
(Exact name of registrant as specified in its charter)
Nevada 23-2859312
(State of incorporation) (I.R.S. Employer Identification No.)
30 South Fifteenth Street, Suite 1300
Philadelphia, Pennsylvania 19102-4813
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: 215-569-3344
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 [_]
There were 7,449,364 shares of Common Stock outstanding as of May 15, 2000.
<PAGE>
INDEX
READING ENTERTAINMENT, INC. AND SUBSIDIARIES
PART I. - FINANCIAL INFORMATION PAGE
- ------------------------------- ----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -- March 31, 2000
(Unaudited) and December 31, 1999.............................. 3-4
Condensed Consolidated Statements of Operations -- Three Months
Ended March 31, 2000 and 1999 (Unaudited)...................... 5
Condensed Consolidated Statements of Cash Flows -- Three Months
Ended March 31, 2000 and 1999 (Unaudited)...................... 6
Notes to Condensed Consolidated Financial Statements
(Unaudited).................................................... 7-15
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................. 16-21
PART II. - OTHER INFORMATION
- ----------------------------
Item 6. Exhibits and Reports on Form 8-K................................ 22-23
Signatures.............................................................. 24
2
<PAGE>
PART I - Financial Information
Item 1. Financial Statements
Reading Entertainment, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
(Unaudited)
March 31, December 31,
2000 1999
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 5,610 $ 13,277
Amounts receivable 345 409
Due from affiliate 1,000 -
Restricted cash 1,643 948
Inventories 247 316
Prepayments and other current assets 1,227 931
- -------------------------------------------------------------------------------------------------------
Total current assets 10,072 15,881
- -------------------------------------------------------------------------------------------------------
Due from affiliate - 1,000
Investments in unconsolidated affiliates 12,824 13,098
Property held for sale 5,384 5,740
Property held for development 29,825 31,624
Property and equipment - net 59,718 57,854
Notes receivable from joint venture partners 1,002 1,549
Other assets 3,197 1,775
Intangible assets:
Cost in excess of assets acquired - net of accumulated
amortization of $2,221 in 2000 and $2,062 in 1999 9,816 9,975
- -------------------------------------------------------------------------------------------------------
121,766 122,615
- -------------------------------------------------------------------------------------------------------
$131,838 $138,496
=======================================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
Reading Entertainment, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (continued)
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
March 31, December 31,
2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 2,221 $ 3,131
Accrued taxes 731 631
Accrued expenses 3,471 4,355
Film rent payable 1,486 1,718
Note payable 11,904 8,617
Other liabilities 527 497
Accrued restructuring costs 679 847
- -----------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 21,019 19,796
- -----------------------------------------------------------------------------------------------------------------------------------
Note payable 731 1,035
Other liabilities 6,185 5,918
- -----------------------------------------------------------------------------------------------------------------------------------
Total long term liabilities 6,916 6,953
- -----------------------------------------------------------------------------------------------------------------------------------
Minority interests 2,057 2,064
Reading Entertainment Convertible Redeemable Series A Preferred Stock, par value $.001 7,000 7,000
per share, stated value $7,000; Authorized, issued and outstanding - 70,000 shares
Shareholders' Equity
Reading Entertainment Series B Preferred Stock, par value $.001 per share,
stated value $55,000; Authorized, issued and outstanding - 550,000 shares 1 1
Reading Entertainment preferred stock, par value $.001 per share:
Authorized -9,380,000 shares: None issued - -
Reading Entertainment common stock, par value $.001 per share:
Authorized -25,000,000 shares: Issued and outstanding -7,449,364 shares 7 7
Other capital 138,637 138,637
Accumulated (deficit) retained earnings (34,229) (31,910)
Accumulated other comprehensive income (9,570) (4,052)
- -----------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 94,846 102,683
- -----------------------------------------------------------------------------------------------------------------------------------
$131,838 $138,496
===================================================================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
Reading Entertainment, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except shares and per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
- ----------------------------------------------------------------------------------------------
2000 1999
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES:
Theater:
Admissions $ 7,897 $ 5,529
Concessions 2,496 1,627
Advertising and other 639 313
Real estate 189 49
Interest and dividends 166 738
- ----------------------------------------------------------------------------------------------
11,387 8,256
- ----------------------------------------------------------------------------------------------
EXPENSES:
Theater costs 9,216 5,803
Theater concession costs 538 367
Depreciation and amortization 759 986
General and administrative 2,565 2,362
- ----------------------------------------------------------------------------------------------
13,078 9,518
- ----------------------------------------------------------------------------------------------
(Loss) income from operations (1,691) (1,262)
Equity in (loss) earnings of affiliates (99) 90
Other income, net 35 19
Interest expense 166 17
- ----------------------------------------------------------------------------------------------
Loss before minority interests and
income taxes (1,921) (1,170)
Minority interests 67 65
- ----------------------------------------------------------------------------------------------
Loss before income taxes (1,988) (1,235)
Income taxes 218 222
- ----------------------------------------------------------------------------------------------
Net loss (2,206) (1,457)
Less: Preferred stock dividends and amortization
of asset put option 1,086 1,083
- ----------------------------------------------------------------------------------------------
Net loss applicable to common
shareholders ($3,292) ($2,540)
==============================================================================================
Basic and diluted loss per share ($0.44) ($0.34)
==============================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
Reading Entertainment, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
- -------------------------------------------------------------------------------------------------------------------
2000 1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss ($2,206) ($1,457)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 759 986
Deferred rent expense 112 81
Write off of capitalized acquisition and development costs 5 142
Equity in loss (earnings) of affiliates 99 (90)
Minority interests 67 65
Changes in operating assets and liabilities:
Increase in current assets (498) (444)
Decrease in accounts payable and accrued expenses (1,567) (1,763)
Decrease in film rent payable (201) (38)
Increase in other liabilities 32 550
- -------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (3,398) (1,968)
- -------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property held for development (11) (117)
Purchase of property and equipment, net (5,616) (4,605)
Acquisition of the Royal George Theater - (37)
Increase in restricted cash (2,016) -
Decrease in purchase committments - 56
Distributions from (investments in) joint ventures 224 (94)
Decrease (increase) in Note receivable from joint venture 488 (55)
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (6,931) (4,852)
- -------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Payment of preferred stock dividends (114) (114)
Minority interest distributions (43) (107)
Payments of notes payable (274) (61)
Net proceeds from notes payable 3,569 -
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 3,138 (282)
- -------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (477) 35
- -------------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (7,667) (7,067)
Cash and cash equivalents at beginning of year 13,277 58,593
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 5,610 $51,526
===================================================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
Reading Entertainment, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
March 31, 2000
(amounts in tables in thousands)
NOTE 1 -- BASIS OF PRESENTATION
Reading Entertainment, Inc. ("REI" or "Reading Entertainment" and
collectively, with its subsidiaries and predecessors, "Reading" or the
"Company") is in the business of developing and operating multiplex cinemas and
developing and eventually operating entertainment centers in Australia and New
Zealand. The Company also operates cinemas in Puerto Rico and the United States.
The Company operates its cinemas through various subsidiaries under the Angelika
Film Centers and Reading Cinemas names in the mainland United States (the
"Domestic Cinemas"); through Reading Cinemas of Puerto Rico, Inc., a wholly-
owned subsidiary, under the CineVista name in Puerto Rico ("CineVista" or the
"Puerto Rico Circuit"); through Reading Entertainment Australia Pty., Limited
(collectively with its subsidiaries referred to herein as "Reading Australia")
under the Reading Cinemas name in Australia (the "Australia Circuit") and
through Reading New Zealand Limited's ("Reading New Zealand") participation in a
cinema joint venture operating under the Berkley Cinemas name in New Zealand.
The Company's entertainment center development activities in Australia are also
conducted through Reading Australia under the Reading Station name and in New
Zealand under the Reading New Zealand Limited name. The Company operates in two
business segments, cinema operations and real estate development. (See Note 10).
The Company is also a participant in two real estate joint ventures in
Philadelphia, Pennsylvania and holds certain property for sale located in
Pennsylvania and Australia and owns certain leased equipment which it leases to
third parties.
The financial statements have been prepared in accordance with generally
accepted accounting principles in the United States of America for interim
information and the rules of the Securities and Exchange Commission and
therefore do not include all information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments of a recurring nature considered
necessary for a fair presentation of the results for the interim periods
presented have been included. Operating results for the three months ended
March 31, 2000 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
Certain amounts in previously issued financial statements have been
reclassified to conform with the current period presentation.
NOTE 2 -- INVESTMENTS IN UNCONSOLIDATED AFFILIATES
The Company owns 31.7% of the capital stock (comprised of 1,690,938 shares
of Class A Common Stock and 422,734 shares of Class B Common Stock) of Citadel
Holding Corporation (together with its wholly-owned subsidiaries "Citadel").
The Company accounts for its investment in Citadel by the equity method.
Citadel's net earnings for the three months ended March 31, 2000 were $231,000
and the Company's share of such earnings was $25,000, which amount is included
in the Consolidated Statement of Operations for the three months ended March 31,
2000 as Equity in earnings of affiliates. Citadel's assets and liabilities
totaled $47,371,000 and $13,744,000, respectively, at March 31, 2000. The
carrying value of the Company's investment at March 31, 2000, $10,983,000,
approximates the Company's underlying equity in the net assets of Citadel plus a
$1,998,000 loan receivable from Craig Corporation ("Craig"), an affiliate of
Citadel and the Company, which loan is deducted from Citadel's shareholders
equity for financial reporting purposes. The closing prices of Citadel's Class
A Common Stock and Class B Common Stock on the American Stock Exchange at March
31, 2000 were $2.875 and $3.0625 per share, respectively.
7
<PAGE>
Reading Entertainment, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
March 31, 2000
(amounts in tables in thousands)
The Company owns 2,226,173 shares of common stock of Big 4 Ranch, Inc.
("BRI") representing an ownership interest of approximately 33.4%. BRI owns a
40% interest in three agricultural partnerships which own agricultural land
located in California. A company controlled and owned by the Chairman of the
Board of the Company and certain members of his family owns a 20% interest in
the partnerships and Citadel owns the remaining 40% interest in the
partnerships. The Company accounts for its investment in the BRI common stock
by the equity method. BRI's net loss for the three months ended March 31, 2000
totaled $172,000; the Company did not record its share of such loss as the
carrying value of its investment in BRI had previously been reduced to $0. The
Company has no obligation to fund BRI's operating losses. BRI's deficit equity
approximated $1,863,000 at March 31, 2000.
Reading New Zealand owns a 50% interest in a joint venture which owns two
cinemas and leases a third cinema (the "NZ JV"). Reading New Zealand's shares
of the NZ JV's earnings in the three months ended March 31, 2000 was $32,000,
which amount is included in Equity in earnings of affiliate in the consolidated
Statement of Operations.
The carrying value of each of the Company's equity investments is as
follows:
(Unaudited)
March 31, 2000 December 31, 1999
-------------- -----------------
Citadel $10,983 $10,958
BRI 0 0
NZ JV/1/ 1,841 2,141
-------------- -----------------
$12,824 $13,099
-------------- -----------------
The carrying value of Reading Australia's and Reading New Zealand's assets
will fluctuate due to changes in the exchange rate between the U.S. dollar and
Australian dollar ($.6062, $.6543, were the respective exchange rates of U.S.
dollars per Australian dollar at March 31, 2000 and December 31, 1999) and the
U.S. dollar and New Zealand dollar ($.4960 and $.5215, were the respective
exchange rates of U.S. dollars per New Zealand dollar at March 31, 2000 and
December 31, 1999).
______________________
/1/ Does not include a loan to the joint venture partner of approximately
$1,002,000 and $1,222,000 at March 31, 2000 and December 31, 1999, respectively.
8
<PAGE>
Reading Entertainment, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
March 31, 2000
(amounts in tables in thousands)
NOTE 3 -- PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
2000 1999
---------------------------
<S> <C> <C>
Land/1/ $ 2,865 $ 3,015
Buildings 12,611 13,258
Leasehold improvements 29,144 29,674
Equipment 23,771 24,225
Construction-in-progress and property development costs 15,205 11,137
------------- ------------
83,596 81,309
Less: Accumulated depreciation (6,718) (6,294)
Provision for Asset Impairment (17,160) (17,160)
------------- ------------
$ 59,718 $ 57,854
============= ============
</TABLE>
The carrying value of Reading Australia's and Reading New Zealand's assets
will fluctuate due to changes in the exchange rate between the U.S. dollar and
Australian dollar ($.6062 and $.6543, were the respective exchange rates of U.S.
dollars per Australian dollar at March 31, 2000 and December 31, 1999) and the
U.S. dollar and New Zealand dollar ($.4960 and $.5215, were the respective
exchange rates of U.S. dollars per New Zealand dollar at March 31, 2000 and
December 31, 1999).
NOTE 4 -- INCOME TAXES
The Company recorded $8,000 and $15,000 in state and local income tax
expense for the three months ended March 31, 2000 and 1999, respectively,
related to earnings from the Domestic Cinemas. The Company recorded tax
provisions of $210,000 and $207,000 for the three months ended March 31, 2000
and 1999, respectively, related to foreign withholding taxes which will be paid
if certain intercompany loans are repaid.
__________________
/1/ Includes land associated with owned cinema properties. Does not
include land held for development, which is included in "Property held for
development" in the Condensed Consolidated Balance Sheet.
9
<PAGE>
Reading Entertainment, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
March 31, 2000
(amounts in tables in thousands)
NOTE 5 -- PROPERTY FOR SALE
Reading Australia owns a 50% interest in the Whitehorse Property Group Unit
Trust ("WPG"). WPG owns a shopping center located near Melbourne, Australia.
In early 2000 Reading Australia and the joint venture partner agreed to attempt
to sell the property and commenced marketing the property. No assurances can be
made that such efforts will be successful.
WPG's net loss for the quarter ended March 31, 2000 totaled $156,000 and
the Company recognized 100% of such loss in the Condensed Consolidated Statement
of Operations for the three months ended March 31, 2000 as Equity in earnings of
affiliate. WPG's assets and liabilities totaled $10,174,000 and $7,632,000,
respectively, at March 31, 2000. The carrying amount of the Company's interest
is $2,483,000 (inclusive of a loan to the Company's joint venture partner) and
is classified as Property held for sale in the Condensed Consolidated Financial
Statements. Reading Australia has guaranteed 50% of WPG's bank debt and 100% of
certain ground lease payments, which amounts totaled approximately $3,962,000 at
March 31, 2000. The bank loan has been renewed by the lender on a month-to-
month basis during 2000.
In order to maximize capital available for Reading Australia's and Reading
New Zealand's development activities, the Company determined that it would sell
the Royal George Theatre (the "RGT"). Accordingly, $2,902,000, the Company's net
carrying value of the RGT, which the Company believes is less than the estimated
net realizable value (based upon an appraisal of the property), has been
classified as Property held for sale in the Condensed Consolidated Balance Sheet
at December 31, 1999 and March 31, 2000. The Company recognized revenues of
$236,000 and Income before taxes and interest of $53,000 from the RGT in the
three months ended March 31, 2000.
NOTE 6 -- COMMON STOCK TRANSFER RESTRICTIONS
REI common stock (par value $.001) ("Common Stock") is traded on the Nasdaq
National Market under the symbol RDGE. The Company's Articles of Incorporation
include restrictions on the transfer of Common Stock which are intended to
reduce the risk that an "ownership change" within the meaning of Section 382(g)
of the Internal Revenue Code of 1986, as amended, will occur, which change could
reduce the amount of federal tax net loss carry forwards available to offset
taxable income. The restrictions provide that any attempted sale, transfer,
assignment or other disposition of any shares of Common Stock to any person or
group who, after consideration of the proposed transfer, would own (within the
meaning of the Code and such regulations) shares of Common Stock or any other
securities of REI which are considered "stock" for purposes of Section 382,
having a fair market value equal to or greater than 4.75% of the value of all
outstanding shares of REI "stock" shall be void ab initio, unless the Board of
Directors of the Company shall have given its prior written approval. The
transfer restrictions will continue until January 1, 2003 (unless earlier
terminated by the Company's Board of Directors).
NOTE 7 -- LOSS PER SHARE
Net loss available to common shareholders includes provision for dividends
declared on the Company's Series A Voting Cumulative Convertible Redeemable
Preferred Stock (the "Series A Preferred Stock"), and for dividends that have
accumulated but have not been declared on the Series B Voting Cumulative
Convertible Preferred Stock (the "Series B Preferred Stock") (collectively, the
"Convertible Preferred Stock") and for amortization of the value of an estimate
of an asset put option.
10
<PAGE>
Reading Entertainment, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
March 31, 2000
(amounts in tables in thousands)
The weighted average number of shares used in the computation of basic loss
per share was 7,449,364 in both 2000 and 1999. Diluted loss per share is
calculated by dividing net loss by the weighted average common shares
outstanding for the period plus the dilutive effect of stock options,
convertible securities and an asset put option. The Company has been advised
that the asset put option will not be exercised. During the first quarter of
2000 and 1999 the Company recorded a net loss available to shareholders of
$3,292,000 and $2,540,000, respectively, therefore, the stock options, the
Convertible Preferred Stock and the Asset Put Option, were anti-dilutive.
NOTE 8 -- COMMITMENTS AND CONTINGENCIES
At March 31, 2000 the Company had deficit working capital of approximately
$10,900,000 (including bank debt due within one year of $8,046,000). Also, the
Company had commitments to build cinemas and entertainment centers aggregating
approximately $43,500,000, approximately $20,500,000 of which is anticipated to
be funded in 2000. In addition, the Company's affiliate, Citadel, holds all of
the outstanding shares of the Company's Series A Voting Convertible Preferred
Stock and has the option to require the Company to repurchase such shares at its
stated value of $7,000,000 at any time during a ninety day period commencing
October 16, 2001.
Reading Australia has obtained a bank loan which provides for initial
borrowings of up to $13,940,000 and, if additional bank participants are
secured, aggregate borrowings of up to $44,625,000 and an extension of the loan
maturity from December 31, 2000 to December 31, 2003. The existing line of
credit should provide Reading Australia with adequate funding to complete an
entertainment center presently under development in Sydney, and if additional
lenders are secured, with adequate funding for a second entertainment center
located in the Melbourne area in 2001. At March 31, 2000, $2,246,000 had been
borrowed under Reading Australia's line of credit.
At the present time, the Company has substantial assets invested in land,
in entertainment center projects which are currently under construction or which
have not been fully leased, and in cinemas which have been opened for less than
six months and which, as a result, have higher operating costs than matured
cinema operations. Accordingly, the Company is currently recording losses.
In order to improve its liquidity, the Company is in the process of selling
a number of assets, including a) certain property located in the Philadelphia
metropolitan area, b) the Royal George Theatre in Chicago, c) WPG and d) all or
substantially all of its domestic cinema assets. (See Note 11). In the event
that such sources prove insufficient for such purposes, the Company will
consider a) postponing or delaying development projects or b) bring in joint
venture partners and/or selling additional assets.
In April 2000, a bank lender to CineVista demanded immediate repayment of
the then outstanding line of credit loan balance, $4,350,000, after CineVista
failed to comply with certain financial covenants contained in their loan
agreement as a result of the impairment loss recorded by CineVista in the fourth
quarter of 1999. CineVista has repaid $550,000 of the outstanding bank debt and
is in discussions with the lender concerning repayment of the remaining
outstanding balance $3,800,000. However, the lender has not rescinded the
acceleration demand. The Company does not presently have adequate liquid
resources to repay such amounts, although management believes that asset sales,
including a $1,500,000 sale of certain Philadelphia properties, a sale of the
Royal George Theatre (See Note 5), and the possible sale of the Company's
Domestic Cinemas may provide the Company with sufficient funds to repay
CineVista's bank debt.
The Company also has $3,858,000 in seller provided financing which is due
in 2000. Of this amount $1,180,000 is due to the former owner of the RGT on May
15, 2000. The Company is presently in discussions with the former owner of the
RGT to defer repayment until the RGT is sold and does not presently have
adequate liquid resources to repay such amounts. The balance of the seller debt
$2,678,000, relates to a mortgage on property owned by Reading New Zealand,
which was also due in May 2000. In May 2000, the property owner agreed to extend
the
11
<PAGE>
Reading Entertainment, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
March 31, 2000
(amounts in tables in thousands)
mortgage until May 2001. The Company has received proposals from several banks
relating to refinancing the $1,389,000 of Reading New Zealand bank debt which is
due is December 2000.
Under the terms of the joint venture agreement with WPG (see Note 5), the
Company has guaranteed approximately $3,962,000 of WPG's debt and other
obligations. The bank debt matured in 1999 and has been extended on a month-to-
month basis subsequent to that time. WPG is currently endeavoring to sell the
property secured by this debt.
The City of Philadelphia (the "City") has asserted that the Company's North
Viaduct property requires environmental decontamination and that the Company's
share of any such remediation cost will aggregate approximately $3,500,000. The
Company presently is in discussions with the City involving a possible
conveyance of the property and believes that reserves related to the North
Viaduct are adequate.
The Company's 1996 tax return is under review by the Internal Revenue
Service (the "Service"). While the Company believes its reporting position in
such period to be reasonable and the Service has not alleged any deficiencies,
no assurances can be made that the Company's tax reporting position will be
upheld.
NOTE 9 -- COMPREHENSIVE INCOME
The following sets forth the Company's Comprehensive income or loss (Net
income (loss) plus or minus foreign currency translation adjustments) for the
periods shown:
Three Months
Ended March 31,
2000 1999
-------- --------
Net loss ($2,206) ($1,457)
Other comprehensive (loss) income (5,518) 1,083
-------- --------
Comprehensive loss income ($7,724) ($374)
======== ========
NOTE 10 -- SEGMENT INFORMATION
The following sets forth certain information concerning the Company's two
segments, real estate development and cinema operations, for the three months
ended March 31:
Real Estate Cinema Corporate and
Development Operations Eliminations Consolidated
-----------------------------------------------------------
2000
- ----
Revenues $ 139 $11,032 $ 216 $11,387
Operating (Loss) (637) 1 (1,055) (1,691)
1999
- ----
Revenues $ 0 $ 7,469 $ 787 $ 8,256
Operating (Loss) (748) (197) (317) (1,262)
12
<PAGE>
Reading Entertainment, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
March 31, 2000
(amounts in tables in thousands)
NOTE 11 -- SUBSEQUENT EVENTS
Sale of Angelika Interest
- -------------------------
On April 5, 2000, the Company sold a 50% interest in the Angelika Film
Centers LLC (the "AFC") to National Auto Credit, Inc. ("NAC"). AFC is the owner
of the NY Angelika. The 50% membership interest (the "Angelika Interest") was
conveyed in exchange for 8,999,900 shares of the common stock of NAC,
representing approximately 26% of the outstanding common stock of that company
(calculated after the issuance of such shares), and 100 shares of the Series A
Preferred Stock of NAC, representing 100% of such class. The Series A Preferred
Stock has a liquidation preference of $1.50 per share, is convertible into the
common stock of NAC on a share for shares basis, is entitled to a dividend
preference equal to any dividends declared on the NAC common stock (determined
on a per share basis), and enjoys certain special voting rights. As a
consequence of that transfer, (a) AFC is now owned 50% by NAC, 33.3% by the
Company and 16.7% by Sutton Hill (a company owned equally by the Chairman of the
Company's Board of Directors and a major shareholder of Craig Corporation, which
corporation owns 78% of the Company's capital stock) and (b) the Company and its
affiliates own approximately 29% of the outstanding common stock of NAC. NAC
Common Stock closed on May 11, 2000 at $.85 per share.
NAC is a publicly traded company whose shares are traded in the over-the-
counter market. Historically, NAC has been in the business of originating,
purchasing and servicing sub-prime loans secured by second hand automobiles.
However, in recent periods, NAC has sold substantially all of its inventory of
loans, substantially reduced its work force and, in essence, reduced its assets
to cash and real estate. The Company is advised by NAC that it is considering
investments in several industries, one of them being domestic cinema exhibition,
and that the acquisition of the AFC Interest constituted a possible first step
in what may be a substantially larger commitment to that industry. Accordingly,
the Company has also granted to NAC two separate and independent options to
acquire additional US cinema assets of the Company.
Under the first option (the "AFC Option"), NAC has the right to acquire the
remaining 33.3% membership interest in AFC owned by the Company in exchange for
an additional six million shares of NAC common stock, to the extent that
authorized but unissued shares of NAC common stock are available for such
purpose. To the extent that NAC has less than six million shares available for
such purpose, NAC has the right to substitute cash for such shares (at the rate
of $1.50 per share) to the extent necessary to make up for any such shortfall.
The AFC Option can be exercised through May 20, 2000. Following the exercise of
the AFC Option, the remaining 16.7% membership interest in AFC would continue to
be owned by Sutton Hill, and the cinema would continue to be managed as a part
of the City Cinemas Chain.
Under the second option (the "Domestic Cinemas Option"), NAC has the right
to acquire the remainder of Reading's domestic assets for cash (including the
Company's rights to the City Cinemas Transaction, and, if NAC has not previously
exercised the AFC Option, the Company's remaining interest in AFC). The
Domestic Cinemas Option can be exercised through June 5, 2000. The Company has
received $500,000 in consideration of the grant of the City Cinemas Option. NAC
has the right to extend the option for two thirty-day periods, by payment of an
additional $100,000 for each such thirty-day extension period.
If NAC exercises the Domestic Cinemas Option, it is required to give to
Citadel a right to participate in the transaction on a 50/50 basis. The
decision whether or not to proceed with either of the options described above
rests with NAC and not with the Company or Citadel. Such transactions are also
subject to Hart Scott Rodino review and clearance. Accordingly, no assurances
can be given that any further transactions will be effected between the
companies.
13
<PAGE>
Reading Entertainment, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
March 31, 2000
(amounts in tables in thousands)
On April 7, 2000, Sam J. Frankino, who prior to the issuance of shares to
the Company on April 5, 2000, had been the majority stockholder of NAC, filed a
written consent with NAC in which he purported, in effect, to undo all of the
actions taken by the Board of Directors subsequent to March 1, 2000, to
declassify the Board of Directors of NAC and to remove all of those directors
who had voted in favor of the issuance of shares of NAC to the Company. On April
12, 2000, Mr. Frankino filed an action in the Delaware Court of Chancery under
Section 225 of the Delaware Corporations Laws, seeking, among other things, a
determination by the Court that he had effectively undone the action taken by
the prior board and removed all of such directors. The Company is advised that
the management and the directors who are the subject of Mr. Frankino's removal
effort intend to vigorously oppose Mr. Frankino's lawsuit, and that the Court
has set a trial date for the end of June. The Company is further advised that
NAC has filed a lawsuit against Mr. Frankino seeking, among other things,
damages in the amount of $100 million for harm allegedly caused to NAC as a
result of Mr. Frankino's control and dominance of that company. While the
Company believes that its transaction with NAC was bona fide and should be
upheld by the Court, no assurances can be given as to the results of either Mr.
Frankino's lawsuit against NAC or NAC's lawsuit against Mr. Frankino.
City Cinemas Transaction
- ------------------------
On May 12, 2000, the Company reached agreement in principle with respect to
an assignment, assumption and modification agreement (the "AAM Agreement") with
Citadel and Messrs. James J. Cotter and Michael Forman (Messrs. Cotter and
Forman executing and delivering the AAM Agreement on behalf of themselves and
certain of their affiliates; Messrs. Cotter and Forman and such affiliates being
referred to herein collectively as "Sutton Hill") pursuant to which Citadel will
assume the rights and obligations of the Company under the agreement in
principle pursuant to which the Company could acquire the City Cinemas circuit
and Off Broadway Investments, Inc. (the "Agreement in Principle") as modified by
the AAM Agreement.
Under the terms of the AAM Agreement, the rights and obligations being
assumed by Citadel will be modified in certain respects from those which
previously existed between the Company and Sutton Hill under the Agreement in
Principle. In essence, the Company and Sutton Hill will be entering into an
agreement in principle (the "Amended Agreement in Principle") pursuant to which:
a) Citadel will acquire from Sutton Hill the 1/6th membership interest
held by Sutton Hill in Angelika Film Center LLC ("AFC") in
consideration of the issuance by Citadel of a two year promissory note
in the amount of $4.5 million, bearing interest at the rate of 8.25%
per year, payable quarterly. AFC is the owner of the Angelika Film
Center located in the Soho district of New York.
b) Citadel will lease from Sutton Hill, with option to purchase, the
Cinemas I, II and III, the Murray Hill Cinema, the Sutton Cinema and
the Village East Cinema. Rent is calculated to produce an initial
return of 8.25% per annum to Sutton Hill, with provision after the
second year for certain mandatory increases in rent, subject to an
annual cap of 4.3%. An option fee in the amount of $5 million to be
paid at the closing, which may be applied in full against the option
exercise price of $44 million.
c) Citadel will acquire from Sutton Hill certain rights to manage the
remainder of the Cinemas currently constituting the City Cinemas
Circuit, including the management agreement applicable to the Angelika
Film Center located in the Soho District of Manhattan. No separate
consideration is being paid with respect to these management rights.
d) In the merger with OBI, Sutton Hill will receive shares of the
Citadel's Class A Common Stock and Class B Common Stock valued, in the
aggregate, at $10 million. The Class A Common Stock and Class B
Common Stock will be issued in a ratio of eight shares of Class A
Common Stock for every
14
<PAGE>
Reading Entertainment, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
March 31, 2000
(amounts in tables in thousands)
two shares of Class B Common Stock. The shares will be valued by
reference to the average trading price of such securities over the ten
trading days immediately preceding the closing of the transaction.
e) Citadel will provide to Sutton Hill a credit facility in the amount of
$28 million. This credit facility may not be drawn upon by Sutton
Hill earlier than the seventh anniversary of the closing of the
transactions described in subparagraphs a) through c) immediately
above (the "Closing"). However, that Citadel will have the right to
fund the credit facility earlier, should it so elect. If Citadel
elects to fund the credit facility on or before the second anniversary
of the Closing, then Messrs. Cotter and Forman are obligated to
personally guarantee that portion of any borrowings made by Citadel to
fund the funding of the credit facility, up to the amount actually
disbursed by Citadel from such borrowings to Sutton Hill. The credit
facility accrue interest, payable monthly, at the rate of 8.25% for
the first two years following the Closing, with provision after the
second year for certain mandatory increases in interest rate, subject
to an annual cap of 6% of such interest rate as adjusted from time to
time. Interest is payable monthly in arrears, and all principal and
accrued interest is due on the tenth anniversary of the Closing.
In addition, the Company will grant to Citadel a right of first negotiation
to acquire the remainder of the Company's domestic cinema assets, and Sutton
Hill will release the Company from liability under the Agreement in Principle.
Citadel has reimbursed to the Company, in consideration of the assignment,
the $1 million deposit previously paid by the Company to Sutton Hill under the
Agreement in Principle. As a consequence of the AAM Agreement, Citadel will also
receive an assignment of the Company's rights with respect to that deposit.
The rights of Citadel with respect to the City Cinemas Assets and with
respect to its right of first negotiation to acquire the remainder of the
Company's domestic cinema assets are subject to the prior rights of NAC under
the AFC Option and the Domestic Cinemas Option. Under the terms of the Domestic
Cinemas Option, NAC is obligated to provide to Citadel the right to participate
in such transaction on a 50/50 basis with NAC. To date, NAC has not advised
the Company as to whether it intends to exercise the AFC Option and/or the
Domestic Cinemas Option. NAC has no rights with respect to the OBI Assets.
The closing of the Amended Agreement in Principle is subject to the receipt
of a fairness opinion from Citadel's financial advisor, the completion of
definitive documentation, and the satisfaction of other usual and customary
closing conditions. The merger with OBI is subject to approval of the
stockholders of Citadel. However, if that approval is not obtained by September
30, 2000, the Amended Agreement in Principle provides that Citadel will acquire
the stock of OBI for $10 million in cash. The definitive documentation
constituting the AAM Agreement is currently being finalized.
15
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Company is principally in the business of developing and operating
multiplex cinemas in Australia, New Zealand, the United States and Puerto Rico,
and in developing and eventually operating cinema based entertainment centers in
Australia and New Zealand.
Results of Operations
Due to the nature of the Company's development and acquisition
activities and the timing associated with the results of such activities and the
results of operations of ten new cinemas (eighty-six screens) opened since
January 1, 1999 (including four cinemas with forty-four screens which opened in
the fourth quarter of 1999 and an eight screen cinema which opened in March
2000), historical revenues and earnings have varied significantly. The Company's
entertainment center developments have not commenced operation, although the
cinema portion of one entertainment center commenced operation in December 1999.
Reading Australia anticipates completion of two entertainment centers, one of
which includes a ten screen cinema in 2000. Management believes that historical
financial results may not be indicative of future operating results.
Theater Revenues are comprised of Admissions, Concessions and
Advertising and other revenues. "Theater costs," "Theater concession costs"
collectively "Theater Operating Expense" reflect the direct theater costs of
CineVista, the Domestic Cinemas and Reading Australia's cinema operations.
General and Administrative expenses are presented without consideration of
intercompany management fees.
Theater Revenues, Theater Operating Expense, and General and
Administrative expense for each of the three month periods ended March 31, were
as follows:
<TABLE>
<CAPTION>
Domestic
2000 Cine Vista Cinemas/1/ Australia Corporate Total
- ---- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Theater Revenue $3,203,000 $3,474,000 $4,355,000 $ 0 $ 11,032,000
Theater Operating Expense 3,137,000 2,961,000 3,656,000 0 9,754,000
Depreciation and Amortization/2/ 33,000 347,000 337,000 42,000 759,000
General & Administrative 209,000 82,000 901,000 1,373,000/3/ 2,565,000
--------------------------------------------------------------------------
$ (176,000) $ 84,000 $ (539,000) $(1,415,000) $ (2,046,000)
==========================================================================
<CAPTION>
Domestic
1999 Cine Vista Cinemas Australia Corporate Total
- ---- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Theater Revenue $2,721,000 $2,954,000 $1,794,000 $ 0 $ 7,469,000
Theater Operating Expense 2,518,000 2,233,000 1,419,000 0 6,170,000
Depreciation and Amortization 520,000 271,000 182,000 13,000 986,000
General & Administrative 185,000 133,000 824,000 1,220,000/3/ 2,362,000
-------------------------------------------------------------------------
$ (502,000) $ 317,000 $ (631,000) $(1,233,000) $(2,049,000)
=========================================================================
</TABLE>
________________________
/1/ Domestic theater operations in 2000 include $235,000 in Theater Revenue's
and $205,000 of Theater Operating Expense from the Royal George Theatre.
/2/ In early 2000, the Company determined that it would exit the Puerto Rico
cinema market and wrote down the value of CineVista to its estimated net
realizable value. Accordingly, the fixed assets of CineVista are no longer being
depreciated for financial reporting purposes.
/3/ Corporate operations include the non-joint venture operations of Reading
New Zealand and corporate expenses. For the three month period ending March 31,
2000 and 1999, New Zealand expenses totaled $109,000 and $82,000, respectively.
16
<PAGE>
CineVista
- ---------
CineVista's Theater Revenues increased approximately 17.7% or $482,000
to $3,203,000 in the three months ended March 31, 2000 from $2,721,000 in the
corresponding prior year period. The increase was due to the contribution of a
twelve screen cinema which opened in December 1999. The new cinema contributed
$645,000 in Theater Revenues, offset by a reduction of approximately $163,000 in
Cinema Revenues from those cinemas which were in operation in both the 1999 and
2000 three month periods. At March 31, 2000 and 1999, CineVista operated 56
screens at eight locations and 44 screens at seven locations, respectively.
CineVista's Theater Operating Expenses increased approximately 24.6%
or $619,000 to $3,137,000 for the three months ended March 31, 2000 from
$2,518,000 in the corresponding prior year period. The increase is attributable
to a 1.36% increase in film and concession costs as a percentage of Theater
Revenues and an increase in occupancy costs associated with the additional
location and to expense items which vary directly with the increased Theater
Revenue.
CineVista's General and administrative expenses increased
approximately 12.9% or $24,000 to $209,000 for the three months ended March 31,
2000 from $185,000 in the corresponding prior year period due primarily to
increased professional fees.
Domestic Cinemas
- ----------------
Domestic Cinemas' Theater Revenues increased approximately 17.6% or
$520,000 to $3,474,000 for the three months ended March 31, 2000 from $2,954,000
in the corresponding prior year three month period. New screens accounted for
$1,237,000 in increased Theater Revenues and included the contribution of the
Reading Cinemas in Manville, the Angelika in Buffalo, and the Royal George
Theatre in Chicago, which commenced operations in May 1999, July 1999 and March
1999, respectively. The contribution of the new locations was offset in part by
decreased Theater Revenues at locations in operation throughout both three
months periods. At March 31, 2000 and March 31, 1999, the Domestic Cinemas
included forty-two screens and four stages at seven locations and twenty-two
screens at four locations respectively.
Theater Operating Expenses increased approximately 32.6% or $728,000
to $2,961,000 for the three months ended March 31, 2000 from $2,233,000 in the
corresponding prior year period, primarily as a result of the inclusion of the
increased costs associated with the new locations and a 1.6% increase in film
and concession costs as a percentage of Theater Revenues.
The Domestic Cinemas' General and Administrative expenses decreased
38.4% or $51,000 to $82,000 for the three months ended March 31, 2000 from
$133,000 in the corresponding prior year period due to reduced management fees
paid to City Cinemas as a result of the decreased Theater Revenue in managed
cinemas which were in operation in both 1999 and 2000.
Australia
- ---------
Theater Revenues for Australian operations increased approximately
142.8% or $2,561,000 to $4,355,000 for the three months ended March 31, 2000
from $1,794,000 in the three months ended March 31, 1999. Substantially all of
the increase is due to the contribution of five new cinemas with 42 screens
which were not in operation in the three months ended March 31, 1999. Reading
Australia commenced operation of one new eight screen cinema in the first
quarter of 2000 and is also constructing 10 screens at an entertainment center
location expected to commence operations in the third quarter of 2000. At March
31, 2000 and 1999, Reading Australia operated 63 screens at nine locations and
21 screens at four locations, respectively.
Theater Operating Expenses for Australian operations increased
approximately 157.7% or $2,237,000 to $3,656,000 for the three months ended
March 31, 2000 from $1,419,000 in the corresponding prior year period operating
margins (Theater Operating Expense as a percentage of Theater Revenues)
decreased from 21% to 16.1% due primarily to increased occupancy costs and
initial start-up costs of the new cinemas.
17
<PAGE>
General and Administrative expense increased approximately 9.3% or
$77,000 to $901,000 for the three months ended March 31, 2000 from $824,000 in
the corresponding prior year period. The increase primarily related to increased
payroll costs, office expenses and carrying costs of land held for development
associated with continued expansion of operations and development activities in
Australia.
Corporate
- ---------
General and Administrative costs (net of $109,000 associated with the
New Zealand operations) increased approximately 11.1% or $126,000 to $1,264,000
for the three months ended March 31, 2000 from $1,138,000 in the corresponding
prior year period primarily as a result of increased payroll costs, travel and
entertainment costs and office expenses associated with the Company's relocation
of its offices from Philadelphia to Los Angeles.
Real estate revenues include rental income and the net proceeds of
sales of the Company's real estate in the United States which the Company is
liquidating. Future real estate revenues may increase as larger properties are
sold. The Company has an agreement to sell one Philadelphia property for
$1,500,000 and anticipates concluding the transaction in the second quarter of
2000.
"Interest and dividend" revenues for the three months ended March 31,
2000 and 1999 were $166,000 and $738,000, respectively. The decrease in
"Interest and dividend" revenues is primarily a result of a reduction in average
investable fund balances for the three months ended March 31, 2000 as compared
to the corresponding prior year period due to increasing investment in the
Company's development projects.
Equity in Earnings of Affiliates
- --------------------------------
"Equity in earnings of affiliates" include earnings from the Company's
investment in Citadel, BRI, WPG and the NZ JV. "Equity in earnings of affiliate"
decreased $189,000 to a loss of $99,000 from income of $90,000 in the three
months ended March 31, 2000 versus the corresponding prior year period. In the
first quarter of 2000 "Equity in earnings of affiliate" included equity earnings
of $25,000 from the Company's investment in Citadel, $32,000 from the NZ JV, and
a loss of $156,000, from WPG. In the first quarter of 1999 "Equity in earnings
of affiliate" included equity earnings of $88,000 from the Company's investment
in Citadel and $2,000 from WPG.
Other Income
- ------------
"Other income" totaled $35,000 in the three months ended March 31,
2000 versus $19,000 in the corresponding prior year period. Other expense in the
prior year was comprised primarily of losses on foreign currency derivative
contracts. The Company does not presently have any foreign currency derivative
positions.
Minority Interests
- ------------------
"Minority interests" for the three months ended March 31, 2000 and
1999 includes $41,000 and $61,000, respectively from minority shares in a
Domestic Cinema, and $26,000 and $4,000, respectively, from minority interests
in Reading Australia cinemas net income.
Income Tax Provision
- --------------------
Income tax expense in the current three month period includes an
accrual for foreign withholding taxes of $210,000 which will be paid if certain
intercompany loans are repaid and state and local taxes of $8,000. Income tax
expense in the prior year's first quarter includes a $207,000 provision for
foreign withholding taxes and $15,000 for state and local taxes.
Net loss
- --------
As a result of the above described factors the Company recorded a "Net
loss" of $2,206,000 and $1,457,000 for the three months ending March 31, 2000
and 1999, respectively, an increase in the loss of approximately $749,000. The
increase is comprised primarily of an increase in Theater Operating Income of
$205,000 (Theater Revenues less
18
<PAGE>
Theater Operating Expenses and Depreciation and Amortization), and a $572,000
reduction in "Interest and dividend" revenue, a $203,000 increase in "General
and Administrative" expenses and an increase of $149,000 in "Interest Expense."
Net Income Applicable to Common Stockholders
- --------------------------------------------
In the three month periods ended March 31, 1999 and 2000, "Net loss
applicable to common stockholders" includes provision for the 6.5% per annum
dividend on the $62,000,000 stated value of the Company's Convertible Preferred
Stock and amortization of an asset put option issued to Citadel. The provision
for "Preferred stock dividends and amortization of an asset put option" includes
approximately $894,000 of accumulated dividends on the Company's Series B
Cumulative Convertible Preferred Stock (the "Series B Preferred Stock"). No
dividend with respect to the Series B Preferred Stock has been declared as of
this date for the quarters ended March 31, 1999 and 2000. No decision has been
made as to when such accumulated dividends will be paid. All of the Series B
Preferred Stock is held by Craig Corporation, which corporation owns
approximately 78% of the Company's voting stock.
Liquidity and Capital Resources
At March 31, 2000 the Company had deficit working capital of
approximately $10,900,000 (including bank debt due within one year of
$8,046,000). Also, the Company had commitments to build cinemas and
entertainment centers aggregating approximately $43,500,000, approximately
$20,500,000 of which is anticipated to be funded in 2000. In addition, the
Company's affiliate, Citadel, holds all of the outstanding shares of the
Company's Series A Voting Convertible Preferred Stock and has the option to
require the Company to repurchase such shares at its stated value of $7,000,000
at any time during a ninety day period commencing October 16, 2001.
Reading Australia has obtained a bank loan which provides for initial
borrowings of up to $13,940,000 and, if additional bank participants are
secured, aggregate borrowings of up to $44,625,000 and an extension of the loan
maturity from December 31, 2000 to December 31, 2003. The existing line of
credit should provide Reading Australia with adequate funding to complete an
entertainment center presently under development in Sydney, and if additional
lenders are secured, with adequate funding for a second entertainment center
located in the Melbourne area in 2001. At March 31, 2000, $2,246,000 had been
borrowed under Reading Australia's line of credit.
At the present time, the Company has substantial assets invested in
land, in entertainment center projects which are currently under construction or
which have not been fully leased, and in cinemas which have been opened for less
than six months and which, as a result, have higher operating costs than matured
cinema operations. Accordingly, the Company is currently recording losses.
In order to improve its liquidity, the Company is in the process of
selling a number of assets, including a) certain property located in the
Philadelphia metropolitan area, b) the Royal George Theatre in Chicago, c) WPG
and d) all or substantially all of its domestic cinema assets. (See Note 11). In
the event that such sources prove insufficient for such purposes, the Company
will consider a) postponing or delaying development projects or b) bring in
joint venture partners and/or selling additional assets.
In April 2000, a bank lender to CineVista demanded immediate repayment
of the then outstanding line of credit loan balance, $4,350,000, after CineVista
failed to comply with certain financial covenants contained in their loan
agreement as a result of the impairment loss recorded by CineVista in the fourth
quarter of 1999. CineVista has repaid $550,000 of the outstanding bank debt and
is in discussions with the lender concerning repayment of the remaining
outstanding balance $3,800,000. However, the lender has not rescinded the
acceleration demand. The Company does not presently have adequate liquid
resources to repay such amounts, although management believes that asset sales,
including a $1,500,000 sale of certain Philadelphia properties, a sale of the
Royal George Theatre (See Note 5), and the possible sale of the Company's
Domestic Cinemas may provide the Company with sufficient funds to repay
CineVista's bank debt.
The Company also has $3,858,000 in seller provided financing which is
due in 2000. Of this amount $1,180,000 is due to the former owner of the RGT on
May 15, 2000. The Company is presently in discussions with the former owner of
the RGT to defer repayment until the RGT is sold and does not presently have
adequate liquid resources to repay such amounts. The balance of the seller debt,
$2,678,000, relates to a mortgage on property owned by Reading New Zealand,
which was also due in May 2000. In May 2000, the property owner agreed to extend
the
19
<PAGE>
mortgage until May 2001. The Company has received proposals from several banks
relating to refinancing the $1,389,000 of Reading New Zealand bank debt which is
due is December 2000.
Under the terms of the joint venture agreement with WPG (see Note 5),
the Company has guaranteed approximately $3,962,000 of WPG's debt and other
obligations. The bank debt matured in 1999 and has been extended on a month-to-
month basis subsequent to that time. WPG is currently endeavoring to sell the
property secured by this debt.
The City of Philadelphia (the "City") has asserted that the Company's
North Viaduct property requires environmental decontamination and that the
Company's share of any such remediation cost will aggregate approximately
$3,500,000. The Company presently is in discussions with the City involving a
possible conveyance of the property and believes that reserves related to the
North Viaduct are adequate.
The Company's 1996 tax return is under review by the Internal Revenue
Service (the "Service"). While the Company believes its reporting position in
such period to be reasonable and the Service has not alleged any deficiencies,
no assurances can be made that the Company's tax reporting position will be
upheld.
The following summarizes the major sources and uses of cash funds in
the three months ended March 31:
2000:
- ----
"Unrestricted cash and cash equivalents" decreased $7,667,000 from
$13,277,000 at December 31, 1999 to $5,610,000 at March 31, 2000. Working
capital decreased $7,032,000 from a deficit of $3,915,000 at December 31, 1999
to a deficit of $10,947,000 at March 31, 2000.
While not necessarily indicative of its results of operations
determined under generally accepted accounting principles in the United States
of America, CineVista's, the Domestic Theaters, Reading Australia's (net of
minority interest of $67,000) and Reading New Zealand's operating cash flow
(income or loss before depreciation and amortization and consideration of
corporate general and administrative expenses) of $1,345,000 contributed to the
Company's liquid funds for the three months ended March 31, 2000. Other
principal sources of liquid funds in the three-month period were $166,000 in
"Interest and dividend" income, distributions received from joint ventures of
$712,000 and a net increase in notes payable of $3,295,000.
In addition to operating and general administrative expenses, other
uses of liquid funds in the three months ended March 31, 2000 included
$5,627,000 of property and equipment purchases, a net increase in prepayments
and other current assets of $612,000, a net increase of $2,016,000 in restricted
cash, a net decrease in "Accounts payable and accrued expenses" of $1,567,000
and payment of preferred stock dividends of $114,000.
1999:
- ----
"Unrestricted cash and cash equivalents" decreased $7,067,000 from
$58,593,000 at December 31, 1998 to $51,526,000 at March 31, 1999. Working
capital decreased $8,811,000 from $45,378,000 at December 31, 1998 to
$36,567,000 at March 31, 1999.
While not necessarily indicative of its results of operations
determined under generally accepted accounting principles in the United States
of America, CineVista's, the Domestic Theaters' and Reading Australia's (net of
minority interest of $65,000) operating cash flow (income or loss before
depreciation and amortization and consideration of corporate general and
administrative expenses) of $1,186,000 contributed to the Company's liquid funds
for the three months ended March 31, 1999. Other principal sources of liquid
funds in the current year quarter were $738,000 in "Interest and Dividend"
income and an increase in other liabilities of $550,000.
In addition to operating and general and administrative expenses,
other uses of liquid funds in the three months ended March 31, 1999 included
$4,605,000 in Property and equipment, $117,000 of carrying costs related to
Property held for development, a net decrease in "Accounts payable and accrued
expenses" of $1,763,000, payment of preferred stock dividends of $114,000 and a
net increase in "Prepaids and other current assets" of $386,000.
20
<PAGE>
Forward-Looking Statements
From time to time, the Company or its representatives have made or may
make forward-looking statements, orally or in writing, including those contained
herein. Such forward-looking statements may be included in, without limitation,
reports to stockholders, press releases, oral statements made with the approval
of an authorized executive officer of the Company and filings with the
Securities and Exchange Commission. The words or phrases "anticipates,"
"expects," "will continue," "estimates," "projects," or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995.
The results contemplated by the Company's forward-looking statements
are subject to certain risks, trends, and uncertainties that could cause actual
results to vary materially from anticipated results, including without
limitation, delays in obtaining leases and permits for new multiplex locations,
construction risks and delays, the lack of strong film product, the impact of
competition, market and other risks associated with the Company's investment
activities and other factors described herein.
21
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 Agreement and Plan of Merger Among Reading Company, Reading
Entertainment, Inc., and Reading Merger Co. (Incorporated by
reference to Exhibit A to the Proxy Statement/Prospectus included
in Reading Entertainment, Inc.'s Registration Statement on Form
S-4, File No. 333-13413.)
2.2 Agreement and Plan of Merger between Reading Entertainment, Inc.
(a Delaware corporation) and Reading Entertainment, Inc. (a
Nevada corporation) dated November 19, 1999. (Incorporated by
reference to Exhibit C to the Definitive Proxy Statement on
Schedule 14A of Reading Entertainment, Inc. dated November 22,
1999.)
3(i) Articles of Incorporation of Reading Entertainment, Inc.
(Incorporated by reference to Exhibit 3(i) to Reading
Entertainment, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1999.)
3(ii) By-laws of Reading Entertainment, Inc. (Incorporated by reference
to Exhibit 3(ii) to Reading Entertainment, Inc.'s Annual Report
on Form 10-K for the year ended December 31, 1999.)
4.1 Certificate of Designation of Reading Entertainment, Inc. setting
forth the voting powers, designations, preferences, limitations,
restrictions and relative rights of Series A Voting Cumulative
Convertible Preferred Stock and Series B Voting Cumulative
Preferred Stock. (Incorporated by reference to Exhibit A-2 to the
Definitive Proxy Statement on Schedule 14A of Reading
Entertainment, Inc. dated November 22, 1999.)
10.1* Reading Company 1992 Nonqualified Stock Option Plan, as amended.
(Incorporated by reference to Exhibit 10.1 to Reading
Entertainment, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998.)
10.2* Non-Qualified Stock Option Agreement dated April 18, 1997 by and
between Reading Entertainment, Inc. and James J. Cotter.
(Incorporated by reference to Exhibit 10.1 to Reading
Entertainment, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997.)
10.3* Reading Entertainment, Inc. 1997 Equity Incentive Plan.
(Incorporated by reference to Exhibit A to Reading Entertainment,
Inc.'s Definitive Proxy Statement on Schedule 14A as filed with
the Securities and Exchange Commission on August 21, 1997.)
10.4* Master Management Agreement between Angelika Holding, Inc. and
City Cinemas Corporation dated November 26, 1997. (Incorporated
by reference to Exhibit 10.29 to Reading Entertainment, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1997.)
10.5 Agreement by and among Public Transport Corporation, Reading
Properties Pty Ltd, and Mackie Group Pty Ltd for development at
the Frankston Railway Station dated May 28, 1998. (Incorporated
by reference to Exhibit 10.1 to Reading Entertainment, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998.)
10.6 Agreement in Principle between Reading Entertainment, Inc. and
City Cinemas dated December 2, 1998. (Incorporated by reference
to Exhibit 10.23 to Reading Entertainment, Inc.'s Annual Report
of Form 10-K for the year ended December 31, 1998.)
22
<PAGE>
10.7* Employment Agreement by and between Craig Corporation and Andrzej
Matyczynski. (Incorporated by reference to Exhibit 10.7 to
Reading Entertainment, Inc.'s Annual Report of Form 10-K for the
year ended December 31, 1999.)
10.8 Letter agreement dated April 5, 2000, by and between National
Auto Credit, Inc. and Reading Entertainment, Inc. and FA, Inc. to
acquire additional one-third membership interest in Angelika Film
Centers, LLC. (Incorporated by reference to Exhibit 10.8 to
Reading Entertainment, Inc.'s Annual Report of Form 10-K for the
year ended December 31, 1999.)
10.9 Letter agreement dated April 5, 2000, by and between National
Auto Credit, Inc. and Reading Entertainment, Inc. to acquire the
remaining domestic cinema assets of Reading Entertainment, Inc.,
as amended.
10.10 Purchase agreement dated as of April 5, 2000, among National Auto
Credit, Inc., National Cinemas, Inc., FA. Inc., and Reading
Entertainment, Inc. (Incorporated by reference to Exhibit 10.10
to Reading Entertainment, Inc.'s Annual Report of Form 10-K for
the year ended December 31, 1999.)
27.1 Financial Data Schedule for the year ended March 31, 2000.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the reporting period.
* These exhibits constitute the executive compensation plans and arrangements of
the Company.
23
<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.
READING ENTERTAINMENT, INC. REGISTRANT
Date: May 15, 2000 By: /s/ Robert F. Smerling
--------------- ------------------------------
Robert F. Smerling
President
(Duly Authorized Officer)
Date: May 15, 2000 By: /s/ James A. Wunderle
--------------- -------------------------------
James A. Wunderle
Executive Vice President, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
24
<PAGE>
EXHIBIT 10.9
NATIONAL AUTO CREDIT, INC.
LETTERHEAD
April 5, 2000
James J. Cotter, Chairman
Reading Entertainment, Inc.
One Penn Square West
30 South Fifteenth Street, Suite 1300
Philadelphia, PA 19103-4831
Re: Acquisition of Domestic Cinema Assets
Dear Mr. Cotter:
As we have discussed, National Auto Credit, Inc. ("National") is interested in
entering into the motion picture exhibition business in the United States
through it wholly-owned subsidiary National Cinemas, Inc. ("National Cinemas").
National and National Cinemas have entered into an agreement (the "Angelika
Agreement") with Reading Entertainment, Inc. ("RDG" and collectively with its
consolidated subsidiaries, "Reading") to acquire a 50% membership interest in
Angelika Film Centers, LLC ("AFC"). The purpose of this letter is to set out the
terms under which Reading has agreed to grant to National an option to acquire
the remainder of Reading's domestic cinema assets.
A. The Option Fee: Promptly following the execution and delivery of this
--------------
letter agreement, National will transfer to Reading the sum of $500,000, in
consideration of the rights granted by Reading to National pursuant to this
letter agreement.
B. The Assets Covered: In consideration of the payment of this fee, National
------------------
will have the option, as described hereinbelow, to acquire the following assets:
1. The City Cinemas Rights: These are the rights held by Reading under
-----------------------
that certain Agreement in Principle between RDG, James J. Cotter and Michael
Forman dated December 2, 1998, a copy of which is appended as Appendix A to this
letter (the "City Cinemas Agreement"), other than the right to acquire the 1/6th
interest in AFC and the right to acquire by merger Off Broadway, Inc. described
in that Agreement in Principle. The purchase price of this asset will be an
amount equal to Reading's transaction costs with respect to such transaction
(including reimbursement of the $1 million deposit previously made by Reading
and which counts as a credit against the option fee specified in the City
Cinemas Agreement).
2. The Domestic Cinema Assets: These include the following cinema assets:
--------------------------
<PAGE>
a) The remaining interest held by Reading in AFC (including the
interest being acquired pursuant to the City Cinemas Agreement);
b) The Angelika Film Center Houston (Houston, Texas);
c) The Reading Mansville 12 (Mansville, New Jersey);
d) The St. Anthony Main (Minneapolis, Minnesota);
e) The Tower Cinema (Sacramento, California)
f) The Angelika Film Center Buffalo (Buffalo, New York); and
g) The Angelika Film Center Dallas (under development in Dallas,
Texas).
Provided, that Reading is currently in negotiations with respect to
the Angelika Film Center Buffalo, and may terminate its rights and
obligations with respect to such cinema complex if it is not satisfied
with the results of such negotiation.
The purchase price of the Domestic Cinema Assets will be as follows:
a) With respect to the remaining interest in AFC, the million;
amount of $13.5
b) With respect to the cinemas at Houston, Mansville, Minneapolis,
Sacramento and Buffalo, the lesser of Reading's historic cost
basis in such assets and the fair market value of such cinemas
(such fair market value to be determined, in the event of dispute
between the parties, by binding arbitration under the rules of
the American Arbitration Association); and
c) With respect to the cinema under development in Dallas, Reading's
cost basis in such asset.
C. Exercise Option: National will have a period of sixty (60) days, through
---------------
and including June 5, 2000 in which to determine whether or not it wishes to
proceed with the acquisition of the City Cinema Rights and the Domestic Cinema
Assets. National shall have the right to extend the sixty (60) day period
provided in the immediately preceding sentence for up to two (2) additional
periods of thirty (30) days, by written notice to Reading given on or before the
expiration of such sixty (60) day period (or extension thereof) accompanied by
payment to Reading of $100,000 in immediately available funds for each such
thirty (30) day extension. If National determines that it wishes to exercise the
option, it will give written notice of that election to Reading within this
period. Thereafter, National and Reading will cooperate and work in good faith
to complete the definitive documentation necessary to complete the transaction,
with an intention to close such transactions within sixty (60) days of the date
of such election. Closing shall be subject to compliance with the Hart-Scott-
Rodino Antitrust Improvements Act.
D. Citadel Offer: In the event that National elects to exercise the Option
-------------
that is the subject of this letter agreement, National will offer to Citadel
Holding Corporation ("Citadel") the right to form a joint venture with National
or National Cinemas (as the case may be) to acquire the City Cinemas Rights and
the Domestic Cinema Assets. The joint venture would be structured as a
2
<PAGE>
Delaware limited liability company, and would be generally on the terms set out
in Appendix B to this letter. Citadel will have until the later of (i) thirty
(30) days following the date on which National offers Citadel such right and
(ii) two (2) business days following the date on which National notifies Citadel
(by coy of its notice to Reading) whether it elects to exercise the option
granted to National by RDG and FA, Inc. by letter of even date herewith to
purchase the additional 1/3 Membership Interest in AFC held by FA, Inc., in
which to elect in writing to accept such offer. Thereafter, if Citadel elects to
accept such offer, National and Citadel will cooperate and work in good faith to
complete the definitive documentation necessary to complete the transaction
within the time periods specified above. If Citadel has elected to participate
in the joint venture and then fails for any reason, other than default by
National or National Cinemas, to close, National will be entitled, at its
option, within ten (10) business days of such default, to revoke through written
notice to Reading, its exercise of the option to acquire the city Cinema Rights
and the Domestic Cinema Assets.
E. Exclusivity: Reading agrees to deal exclusively with National during the
-----------
term of this option; provided, however, that Reading will be entitled to
continue its negotiations with Citadel and to enter into agreements with Citadel
with respect to the City Cinema Rights and the Domestic Cinema Assets, so long
as any agreements entered into with Citadel are entered into subject to the
rights of National under this letter agreement. National also acknowledges and
agrees that Reading may elect to dispose of its interest in the Angelika Film
Center Buffalo separate from this agreement.
F. Return of Option Fee: In the event of failure to close the acquisition of
--------------------
the City Cinemas Rights and the Domestic Cinema Assets due to default on the
part of Reading, National will be entitled to a refund of the option fee. In all
other cases, such fee will be deemed fully earned by Reading upon the execution
and delivery of this letter agreement by Reading.
G. Form and Payment of the Purchase Price: The purchase price will be paid in
--------------------------------------
full at the Closing by wire transfer of currently available funds. In the event
of such a closing, the option fee will be credited to the purchase price
(including any fee paid for the extension thereof).
[THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK.]
3
<PAGE>
Should you have any questions, please feel free to contact me at (440) 349-1000.
Sincerely,
/s/ David L. Huber
David L. Huber
Chairman of the Board and
Chief Executive Officer
ACCEPTED AND AGREED
AS OF THIS 5th DAY
---
OF APRIL, 2000
READING ENTERTAINMENT, INC.
By: /s/ S. Craig Tompkins
--------------------------
Its: Vice Chairman
--------------------------
4
<PAGE>
Addendum
Reading Entertainment, Inc.
Date: April 3, 2000
To: David Huber
From: S. Craig Tompkins
Re: Revised Term Sheet
Set forth below is a term sheet for a possible acquisition by a joint venture
between an affiliates of CDL and an affiliate of NAC of the RDG Domestic Cinema
Business.
1. Definitions: CDL means Citadel Holding Corporation, a publicly
traded Nevada company, whose shares are listed for
trading on the American Stock Exchange.
CRG means Craig Corporation, a publicly traded Nevada
company, whose shares are listed for trading on the New
York Stock Exchange.
NAC means National Auto Credit, Inc., a Delaware
company whose share are traded in the Over the Counter
market.
RDG means Reading Entertainment, Inc., a publicly
traded Nevada company, whose shares are quoted on the
NASD Stock Market, and Reading means RDG together with
all of its consolidated subsidiaries.
2. Formation of LLC: CDL and NAC, through wholly owned affiliates, would
form 50/50 Delaware LLC, under the name City Cinemas
LLC (the "LLC") to engage in the business of
developing, owning and operating cinemas in the United
States. CDL and NAC would adopt a members agreement
having, in addition to the usual and customary
provisions typical for members agreement for LLC's
organized under the laws of Delaware, the following
provisions.
<PAGE>
a) Co-management:
The LLC would have self contained cinema management,
which will report to a four member management
committee. The initial president of the LLC would be
Robert Smerling The LLC may look to CDL to provide
certain accounting and financial consulting services,
such service to be provided on a cost basis. CDL and
NAC would each have two representatives to the
management committee. James J. Cotter, or his
designee, will serve as the Chairman of the management
committee. All decisions will be by majority vote. In
the event of deadlock, the Chairman will cast the
deciding vote.
b) Rights of first refusal upon any transfer of LLC
Interests
c) Preemptive Rights with respect to any new capital
d) NAC Conversion Right:
During the period April 1 2002 to June 30 2002, NAC
would have the right to convert its entire interest in
the LLC into CDL Class A Non-Voting Common Stock (the
"CDL Class A Stock"). The conversion price would be
fixed at the time the parties enter into a binding
agreement, by reference to the average closing price of
CDL Class A Stock over the 28 trading days immediately
preceding the announcement of the execution and
delivery of definitive documentation between the
parties with respect to the formation of the LLC. The
value of NAC's interest in the LLC for purposes of
exercising the conversion right would be the balance of
its capital account from time to time.
e) NAC Put Right:
In the event that NAC does not exercise its conversion
right, then during the period April 1, 2006 to June 30,
2006, NAC will have the right to put its interest in
the LLC to CDL at FMV as determined by a third party
appraisal process. CDL will have the right to either
pay either cash or CDL Class A Stock for the LLC
interest, such CDL Class A Stock to be
<PAGE>
valued at market by reference to the average closing
price of such securities during the 28 trading days
immediately preceding the exercise of such put option.
f) Registration Rights:
Subject to usual and customary terms and limitations,
NAC would have one demand and one piggy back
registration right with respect to any CDL Class A
Stock issued to it upon the exercise of its conversion
or put rights.
g) CDL Board Representation:
So long as NAC maintains its interest in the LLC or
holds equity securities representing not less than 20%
of the outstanding equity of CDL, RDG and CRG will use
their good faith best efforts, subject to their
respective fiduciary obligations, to nominate and elect
to the CDL Board two individuals nominated by NAC.
h) Distributions:
The members would use their good faith best efforts to
distribute each year (distributions to be made on a
quarterly basis) an amount equal to at least a 6%
return on investment to the members.
i) Reports:
Management would be responsible to prepare and
distribute timely quarterly and annual reports,
prepared on an accrual basis in accordance with
generally accepted accounting practices, applied on a
consistent basis. These reports will be provided in
sufficient time to allow incorporation of such
financial information in the public reports of CDL and
NAC. By not later than November 1 of each year,
management will deliver to the management committee a
budget for the following year.
<PAGE>
j) Accounting and Tax Matters:
The accountants for the LLC will be a Big 5
accounting firm, and so long as CDL makes use of
such a Big 5 accounting firm, such firm will be
the firm retained by the LLC as its independent
auditor. At the present time, CDL's independent
auditor is Deloitte & Touch. CDL will be the tax
matters partner for the LLC.
3. Capital: CDL and NAC will each initially contribute $20 million,
for a total of $40 million. The LLC will seek to achieve a
gearing ratio of not less than the lesser of 50% or 5
times EBITDA. Neither member will be required to guarantee
any such borrowings.
4. Use of Proceeds: The proceeds will be used for working capital, to acquire
the 50% interest in the Angelika Film Center LLC currently
being acquired by NAC (valued for purposes of this
transaction at $13.5 million) and to acquire the RDG
Domestic Cinema Business, currently consisting of the
following assets:
a) Angelika Film Centers LLC. CDL would acquire from RDG
and Sutton Hill and contribute to the LLC as a portion of
its capital contribution all of the membership interests
of Angelika Film Centers LLC, not owned by NAC (such
interest to be valued for purposes of this transaction at
$13.5 million).
b) City Cinemas Circuit: The LLC will lease from RDG, with
the option to purchase at an exercise price of $48
million, all of the assets comprising the City Cinemas
Circuit in Manhattan. The lease/option transaction will be
on substantially the same terms as set forth in the
Agreement in Principal between City Cinemas and RDG dated
December 2, 1998, and would include an assumption of the
obligations to fund the loans contemplated by that
agreement. The LLC will reimburse RDG for its out of
pocket costs in connection with the negotiation,
documentation and closing of the lease/option transaction
with Messrs. Cotter and Forman and their affiliates.
c) Reading Cinemas USA: The LLC will acquire RDG's
interest in the following cinemas, which cinemas
(excluding the Angelika Soho)
<PAGE>
constitute all of the cinemas owned or leased by RDG in
the United States:
The Angelika Film Center and Cafe, Houston
The Angelika Film Center and Cafe, Buffalo
The Reading Cinema, Manville
The St Anthony Main Theatre, Minneapolis
The Tower Cinema, Sacramento
The above cinemas will be acquired at the lesser of
historic cost, an amount approximating $15 million, or
fair market value. It is understood that the capital of
the LLC may not be sufficient to purchase of all of the
above assets. In such case, the parties will explore other
alternatives, including, by way of example, the sublease
of certain cinema facilities. It is to be noted that
Reading is currently in the process of renegotiating its
rights and obligations with respect to the Angelika Film
Complex in Buffalo. If that renegotiation is not
successful, Reading currently intends to exercise its
rights to terminate its obligations with respect to that
cinema complex.
d) New and Developmental Cinemas: The LLC will acquire
from RDG at cost its rights with respect to the lease and
development of the Angelika Film Center and Cafe, Dallas,
and with respect to any other acquisitions under
negotiation at the time of the formation and funding of
the LLC.
e) Puerto Rico Management Agreement: The LLC will acquire
the management agreement between RDG and Reading Cinemas
of Puerto Rico, which provides for RDG to provide
executive management services to that company on
commercially reasonable rates.
f) Covenant Not to Compete: NAC, CRG, RDG, CDL and their
respective subsidiary affiliate will agree not to compete
with the LLC for a period of ten years, provided, however,
that in the event the LLC declines to acquire or develop a
cinema opportunity, it will refer that cinema opportunity
to CDL and there after to RDG. If CDL or RDG elects to
take advantage of such opportunity, the LLC will agree, at
the election of CDL or RDG, as the case may be, to manage
the cinema on competitive commercial terms. Nothing in
this provision, however, will be interpreted to limit
RDG's rights as the landlord under the lease referred to
in Subclause b) above or to operate the
<PAGE>
cinemas subject to that lease in the event of default by the
LLC.
5. Costs: All costs related to the formation of the LLC and the
negotiation and documentation of the acquisition of the
initial assets of the LLC will be a cost of the LLC.
However, the LLC will not be responsible for the individual
costs of the members, including, without limitation, the
cost and expenses of their separate counsel, consultants and
financial advisors. Troy & Gould, of Los Angeles,.
California, counsel to CDL, will form the LLC, draft the
membership agreement, and thereafter represent the LLC with
respect to its legal affairs.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 5,610
<SECURITIES> 0
<RECEIVABLES> 345
<ALLOWANCES> 0
<INVENTORY> 247
<CURRENT-ASSETS> 10,072
<PP&E> 101,645
<DEPRECIATION> 6,718
<TOTAL-ASSETS> 131,838
<CURRENT-LIABILITIES> 21,019
<BONDS> 731
7,000
1<F1>
<COMMON> 7
<OTHER-SE> 94,838
<TOTAL-LIABILITY-AND-EQUITY> 131,838
<SALES> 2,496
<TOTAL-REVENUES> 11,387
<CGS> 538
<TOTAL-COSTS> 10,513
<OTHER-EXPENSES> 2,565
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 166
<INCOME-PRETAX> (1,988)
<INCOME-TAX> 218
<INCOME-CONTINUING> (2,206)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,206)
<EPS-BASIC> ($0.44)
<EPS-DILUTED> ($0.44)
<FN>
<F1>(1) Represents par value of Reading Entertainment Series B preferred stock
</FN>
</TABLE>
