SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-QSB
Quarterly report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
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For Quarter Ended: September 30, 2000
Commission File No. 0-23396
SKYLINE MULTIMEDIA ENTERTAINMENT, INC.
(Exact name of small business issuer as specified in its charter)
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New York 11-3182335
(State of Incorporation) (IRS Employer Identification No.)
350 Fifth Avenue
New York, New York
10118
(Address of principal executive office)
(Zip code)
(212) 564-2224
Issuer's telephone number, including area code
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Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
issuer was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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As of November 20, 2000, there were issued and outstanding 2,095,000
shares of Common Stock, $.001 par value share, 960,000 shares of Class A Common
Stock, $.001 par value per share, and 1,090,909 shares of Series A Convertible
Participating Preferred Stock, $.001 par value per share.
Transitional Small Business Disclosure Format
Yes No X
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<PAGE>
SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES
INDEX
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<TABLE>
<CAPTION>
PAGE
NUMBER
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PART I. FINANCIAL INFORMATION
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Item 1. Condensed consolidated financial statements
(unaudited)
<S> <C>
Balance sheet as of September 30, 2000 3
Statements of operations for the three months
ended September 30, 2000 and 1999 5
Statements of cash flows for the three months
ended September 30, 2000 and 1999 6
Notes to financial statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION 13
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INDEX TO EXHIBITS 14
SIGNATURES 15
</TABLE>
<PAGE>
SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS AT SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
ASSETS
(To the nearest $1,000)
Current assets:
<S> <C>
Cash ....................................................... $ 1,713,000
Inventory .................................................. 138,000
Prepaid expenses and other current assets .................. 190,000
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Total current assets .................................. 2,041,000
Property, equipment and leasehold improvements - net .......... 3,784,000
Security deposits ............................................. 174,000
Deferred financing costs ...................................... 202,000
Other assets - net ............................................ 10,000
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TOTAL ........................................................ $ 6,211,000
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LIABILITIES
Current liabilities:
Capital lease obligations - current portion ................ $ 126,000
Note payable - institutional lenders ....................... 3,285,000
Accounts payable ........................................... 555,000
Accrued expenses ........................................... 207,000
Interest payable - institutional lenders ................... 765,000
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Total current liabilities ............................. 4,938,000
Capital lease obligations - less current portion .............. 22,000
Notes payable - institutional lenders ......................... 4,450,000
Deferred rent payable ......................................... 1,201,000
Interest payable - institutional lenders ...................... 2,619,000
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13,230,000
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</TABLE>
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CAPITAL DEFICIENCY
<TABLE>
<CAPTION>
<S> <C>
Preferred stock, par value $.001 per share, 5,000,000
shares authorized, 1,090,909 shares of Series A convertible
participating preferred stock issued and outstanding
(liquidating value $2.75 per share) ............................... 1,000
Common stock - $.001 par value; authorized 19,000,000 shares;
one vote per share issued 2,095,000 shares ...................... 2,000
Class A common stock - $.001 par value; authorized 1,000,000 shares,
five votes per share, issued 960,000 shares ..................... 1,000
Treasury stock, 110,000 shares of common stock and 670,000 shares
of Class A common stock at cost ................................. (601,000)
Additional paid-in capital ......................................... 10,848,000
Accumulated deficit ................................................ (17,270,000)
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Total capital deficiency ................................. (7,019,000)
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TOTAL .............................................................. $ 6,211,000
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</TABLE>
The notes to financial statements are made a part hereof.
<PAGE>
SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(To the nearest $1,000)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
September 30,
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2000 1999
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Revenues:
<S> <C> <C>
Attraction sales ........................................ $ 2,418,000 $ 2,880,000
Concession sales ........................................ 288,000 348,000
Sponsorship income ...................................... 3,000 12,000
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2,709,000 3,240,000
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Operating expenses:
Cost of merchandise sold ................................ 118,000 138,000
Selling, general and administrative ..................... 1,895,000 2,756,000
Depreciation and amortization ........................... 182,000 527,000
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2,195,000 3,421,000
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Income (loss) from operations before interest
income and expense and extraordinary item ............... 514,000 (181,000)
Interest Income ............................................ 19,000 3,000
Interest Expense ........................................... (320,000) (288,000)
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Income (Loss) before extraordinary item .................... 213,000 (466,000)
Extraordinary gain from settlement of liabilities .......... 72,000 33,000
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NET INCOME (LOSS) .......................................... $ 285,000 $ (433,000)
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Income (loss) per share of common stock - basic and diluted:
Income (loss) before extraordinary item .............. $ .09 $ (.21)
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Net Income (loss) ................................... $ .13 $ (.19)
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Weighted average common shares outstanding ................. 2,275,000 2,275,000
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</TABLE>
The notes to financial statements are made a part hereof.
<PAGE>
SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(To the nearest $1,000)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
September 30
INCREASE (DECREASE) IN CASH 2000 1999
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) ........................................................... $ 285,000 $ (433,000)
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Adjustments to reconcile results of operations to net cash effect of
operating activities:
Gains on restructuring of liabilities - noncash ........................ (72,000) (33,000)
Depreciation and amortization .......................................... 181,000 575,000
Deferred rent payable .................................................. 40,000 112,000
Net Changes in assets and liabilities:
Inventory ............................................................ 8,000 (5,000)
Prepaid expenses and other assets .................................... 43,000 (111,000)
Security deposits .................................................... (3,000)
Accounts payable and accrued liabilities ............................. (246,000) 262,000
Due to Contractor ...................................................... (115,000)
Interest Payable - Institutional lenders ............................... 276,000 255,000
Deferred sponsorship income ............................................ (13,000)
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Total adjustments ................................................ 230,000 924,000
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Net cash provided by operating activities ........................ 515,000 491,000
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Cash flows from investing activities:
Purchase of fixed assets .................................................... (28,000) (44,000)
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Cash flows from financing activities:
Repayment of capital lease obligations ...................................... (83,000) (160,000)
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NET INCREASE IN CASH ........................................................... 404,000 287,000
Cash - July 1 .................................................................. 1,309,000 780,000
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CASH - SEPTEMBER 30 ............................................................ $ 1,713,000 $ 1,067,000
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Supplemental disclosures of cash flow information:
Cash paid for interest ...................................................... $ 44,000 $ 320,000
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</TABLE>
The notes to financial statements are made part hereof
<PAGE>
SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and the instructions to Form 10-QSB and rule
10-01 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended September 30, 2000
are not necessarily indicative of the results that may be expected for the full
fiscal year ended June 30, 2001. For further information, refer to the financial
statements and footnotes thereto included in the Company's annual report on Form
10-KSB for the year ended June 30, 2000.
2. Inventory
Inventory consists of clothing, souvenirs and food sold at the
Company's existing sites and is valued at the lower of cost (first-in,
first-out) or market.
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
The Company was formed in November 1993. In February 1994, the Company
consummated an initial public offering from which it received aggregate net
proceeds of approximately $6,200,000, which proceeds were used principally for
the development of New York Skyride.
On December 22, 1994, the Company commenced operations of New York
Skyride and began generating revenue from ticket sales to the attraction and the
sale of merchandise at its souvenir/concession area. New York Skyride was opened
on a preview basis until February 21, 1995, the date of its official Grand
Opening.
For the three months ended September 30, 2000, the Company's New York
Skyride facility was visited by approximately 176,000 customers, as compared to
189,000 customers for the three months ended September 30, 1999. However, the
Company experienced an increase in its capture rate of observatory visitorship
from approximately 19.4% for the three months ended September 30, 2000, compared
to approximately 16.9% for the months ended September 30, 1999.
Results of Operations - Three Months Ended September 30, 2000 Compared to Three
Months Ended September 30, 1999.
Revenues
Revenues generated during the three months ended September 30, 2000,
aggregated $2,709,000, as compared to $3,240,000 for the three months ended
September 30, 1999. The decrease in revenues from the prior year is primarily
due to a decrease in revenues at the Company's XS New York Facility, which
accounted for revenues of approximately $631,000 for the three months ended
September 30, 2000 as compared to $1,035,000 for the three years ended September
30, 1999.
Total Expenses
Total Expenses incurred for the three months ended September 30, 2000,
aggregated $2,195,000, as compared to $3,421,000 for the three months ended
September 30, 1999. The decrease for the three months ended September 30, 2000,
was primarily due to the reduction in depreciation expense relating to assets
located at the Company's XS New York Facility, which assets were fully
depreciated at June 30, 2000, as well as a reduction of corporate overhead
expenses.
<PAGE>
Extraordinary Gain
The Company, as a result of negotiations with certain creditors,
recorded an extraordinary gain from the settlement of liabilities of
approximately $72,000 for the three months ended September 30, 2000, as compared
with $33,000 for the three months ended September 30, 1999.
Net Income (Loss) and Income (Loss) Per Share
The basic and diluted net income (loss) and earnings (loss) per share
before extraordinary items was $213,000 and .09 for the three months ended
September 30, 2000, as compared to ($466,000) and (.21) for the three months
ended September 30, 1999, the basic and diluted net income (loss) and earnings
(loss) per share available to common shareholders was $285,000 and $.13 for the
three months ended September 30, 2000 as compared to ($433,000) and ($.19) for
the three months ended September 30, 1999.
Loss before extraordinary items, for the three months ended September
30, 2000, included a loss of approximately ($174,000) at XS New York and income
of approximately $381,000 at New York Skyride as compared to a loss of
approximately ($720,000) at XS New York and income of approximately ($254,000)
at New York Skyride for the three months ended September 30, 1999.
For the three months ended September 30, 2000, New York Skyride had
income from operations (before extraordinary item, net interest, depreciation
and amortization) of approximately $670,000 as compared to income from
operations (before extraordinary item, net interest, depreciation and
amortization of approximately $494,000 for the three months ended September 30,
1999. The increase for the three months ended September 30, 2000, was due to a
decrease in rent expense of approximately $153,000 relating to the surrender of
a lease for certain space in the Empire State Building and a decrease in legal
fees of approximately $40,000 which related to the settlement with the ESBCo.
for the three months ended September 30, 1999. Additionally, the Company reduced
its overhead expenses.
XS New York had income from operations (before net interest,
depreciation and amortization) of approximately $26,000 for the three months
ended September 30, 2000, as compared to a loss from operations (before net
interest, depreciation and amortization) of approximately ($148,000) for the
three months ended September 30, 1999. Income from operations at XS New York
increased from the previous year primarily as a result of a reduction of
corporate overhead expenses offset by a decrease in gaming revenues.
Working Capital Deficiency
Liquidity and Capital Resources
The working capital deficiency at September 30, 2000, was approximately
($2,897,000) compared to a working capital deficiency of approximately
($5,382,000) at September 30, 1999. The decrease in the working capital
deficiency is primarily the result of the settlement of the Company's litigation
with the ESBCo., which included a writeoff of accumulated outstanding payables
of approximately $1,143,000.
<PAGE>
The Company has historically sustained its operations from the sale of
debt and equity securities, through institutional debt financing and through
agreements or arrangements for financing with certain key suppliers.
As of September 30, 2000, the Company had the following financing arrangements
in place:
- In December 1996, the Company entered into a Senior Credit Agreement
with Prospect Street and Bank of New York, as Trustee for the Employees
Retirement Plan of the Brooklyn Union Gas Company. Pursuant to the
agreement (as amended), the Company borrowed an aggregate of
$4,450,000. The funds borrowed accrue interest at an annual rate of 14%
and require the payment of both principal and interest five years from
the date of issuance. In connection with the Senior Credit Agreement,
the lenders received warrants to purchase up to an aggregate of 434,146
shares of Common Stock, which warrants are exercisable until December
20, 2006 at an exercise price of $4.25 per share.
- In June 1997, the Company borrowed an additional $500,000 from Prospect
Street. The loan is payable on demand and bears interest at the rate of
14% per annum.
- In December 1997, the Company borrowed $500,000 from a bank bearing
interest at the rate of 6.25% per annum that is secured by a
Certificate of Deposit from Prospect Street. The loan from this bank,
however, was paid off in full by Prospect Street in December 1999 and
has been recorded by the company as a Senior Secured Promissory Note to
Prospect Street. Prospect Street has agreed to honor the same terms as
the Company previously had with the bank. The Company is currently
negotiating new terms and rate with Prospect Street.
- In May 1998, the Company and its subsidiaries entered into a Senior
Secured Credit Agreement with the Bank of New York, as Trustee for the
Employees Retirement Plan of Keyspan Energy Corp. and Prospect Street
pursuant to which the Company borrowed an aggregate of $935,000. The
funds borrowed accrue interest at an annual rate of 14% and are payable
on demand. The Notes are secured (with certain exceptions) by all the
assets of the Company and its subsidiaries. In connection with the
Credit Agreement, the lenders received warrants to purchase 94% of the
fully diluted Common Stock of the Company (after issuance) at an
exercise price of $.375 per share. The notes and the obligations under
the Credit Agreement and the warrants are also collateralized by a
pledge of the stock of the Company's subsidiaries. In addition, Keyspan
also received the right to appoint two members to the Company's Board
of Directors. Further, as a result of the issuance of warrants in
connection with the Financing, the conversion rate of the Series A
Preferred Stock held by Prospect Street was adjusted from a conversion
rate of one share of Common Stock for each share of Preferred Stock to
a conversion rate of 6.91 shares of Common Stock for each share of
Preferred Stock. On May 29, 1998, the Credit Agreement was amended to
increase the loan amount funded by Keyspan from an aggregate of
$500,000 to $1,850,000 which increased the total financing from
$935,000 to $2,285,000. In addition, the Credit Agreement was further
amended, subsequent to June 30, 1998, to include under its terms the
$500,000 demand loan to the Company from Prospect Street in June 1997.
<PAGE>
In addition to the foregoing, as of September 30, 2000, the Company had the
following agreements or arrangements with certain key suppliers in place:
- The Company has entered into an agreement with its major gaming
equipment supplier pursuant to which the Company has been provided with
certain equipment for use in its XS New York facility in exchange for
agreeing to (i) share a percentage of the revenues generated from the
XS New York facility with the supplier and (ii) sell the XS trademark
and related intellectual property rights to such vendor. In November
1997, an agreement was entered into with its major equipment supplier
whereby the Company's revenue-sharing obligation was reduced from 40%
to 14% in exchange for the Company selling the XS trademark and related
intellectual property rights to such supplier. The Company can continue
to use the XS trademark at its Times Square location pursuant to a
license agreement entered into in connection with the sale of the
trademark. Additionally, the supplier has the authority to establish
and set the gaming prices, and at its sole discretion, may elect to
terminate, with 60 days notice, the agreement and remove all of its
equipment and assets from the premises if gaming revenues from its
equipment did not reach a minimum of $3,500,000 for any consecutive 12
month period. In December 1998, the revenue-sharing agreement was
amended to increase the percentage of revenues payable to the supplier
to 16% of the net revenue, as defined, and 50% of the excess over such
amount. In December 1999, the agreement was again amended to adjust the
amounts payable to the supplier to 21% of net revenues through May 2000
and 22% thereafter. In August 2000, the parties signed a Third
Amendment to Revenue Sharing Agreement which added release language
from Skyline to the supplier, clarification of payment and pricing
terms and modification of the supplier's cancellation notice period
from 60 days to 30 days.
- In April 1996, the Company entered into a lease at 1457 Broadway for
its XS New York location. This lease contained a provision allowing the
landlord to terminate the lease upon six months notice. In the event
the landlord exercised this termination right during the first five
years of the lease, the Company was entitled to recover a portion of
its leasehold improvements in the form of a termination fee. The
maximum recovery was originally $974,000 and was to be reduced to zero,
on a straight-line basis, over 60 months. In April 1999, by mutual
agreement of the parties, this lease was terminated and in its place a
stipulation was executed. In general terms, the stipulation enabled the
Company to continue to occupy the premises under the same terms as
contained in the original lease, but with a shorter termination notice
period and a reduced rent. The notice period was reduced from six
months to four months and the rent was reduced by 25%. The Stipulation
further provided that the landlord was entitled to recover his 25% rent
reduction out of any termination fee which may be owed to the Company.
In May 2000, the stipulation was amended to provide a revised method of
calculating rent, forgiveness of past charges and a further shortening
of the termination notice period from 4 months to 2 months. Under this
revision, the Company was entitled to occupy the premises rent-free for
any week in which its gaming revenue did not exceed $32,500. The
<PAGE>
Company agreed to allow the landlord to recover any rent forgiven under
this arrangement against the Company's $93,000 security deposit, in
addition to the landlord's previous right to recover against any
termination fee which may be owed the Company. The Company and landlord
later modified this arrangement such that the Company is entitled to
occupy rent-free unless gaming revenue reaches $37,500 per week. For
gaming revenue in excess of $37,500 per week, the company must pay 50%
of the excess up to a maximum of $10,000 per week.
The Company has become aware of plans by the landlord to sell the
property to a developer. The Company is not certain of the timing of
the sale of such property or whether such developer will construct an
office building on the site. As of June 30, 1998, the Company recorded
an impairment loss and wrote-down the carrying value of its assets at
XS New York as a result of the published reports of a sale of the
property. No formal notification has been issued to date.
Except for the financing facilities described above, the Company has no
other current arrangements in place with respect to financing. As stated in the
report on the Company's Financial Statements for the year ended June 30, 2000,
the Company's ability to continue as a going concern is dependent upon continued
forbearance of the Company's institutional lenders because the Company currently
does not have available funds to repay these loans, which, if demanded, would
cause the Company to be in default under its other agreements with these
lenders. Accordingly, the Company is in need of either securing new financing
and/or attaining profitable operations.
In the event that the Company is unable to sustain positive cash flow,
the Company will need additional capital. However, the Company has no assurance
that additional capital will be available on acceptable terms, if at all. In
such an event, this would have a materially adverse effect on the Company's
business, operating results and financial condition.
Inflation
The Company believes that the impact of inflation on its operations
since its inception has not been material.
Seasonality
The Company's business is seasonal in nature, based in part, on higher
volumes of tourists in the New York City Metropolitan area during the spring and
summer months and during the December holiday season.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities And Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
a. Financial Data Schedule.
b. See Exhibit Index located at the end of this report.
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
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27 Financial Data Schedule
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SKYLINE MULTIMEDIA ENTERTAINMENT, INC.
By: /s/ Michael Leeb
Michael Leeb,
Chief Operating Officer and Acting President
By: /s/ Ronald H. Aghassi
Ronald H. Aghassi,
Vice President of Finance
