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: March 31, 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 May 15, 2000, there were issued and outstanding 2,095,000 shares
of Common Stock, $.001 par value per 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
CONDENSED CONSOLIDATED BALANCE SHEET
AS AT MARCH 31, 2000
(UNAUDITED)
<TABLE>
ASSETS
(To the nearest $1,000)
Current assets:
<S> <C>
Cash $ 1,143,000
Inventory 113,000
Prepaid expenses and other current assets 382,000
----------------
Total current assets 1,638,000
Property, equipment and leasehold improvements - net 4,275,000
Security deposits 321,000
Deferred financing costs 285,000
Other assets - net 21,000
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T O T A L $ 6,540,000
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LIABILITIES
Current liabilities:
Capital lease obligations - current portion $ 300,000
Note payable - institutional lenders 3,285,000
Accounts payable 1,125,000
Accrued expenses 291,000
Interest payable - institutional lenders 603,000
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Total current liabilities 5,604,000
Capital lease obligations - less current portion 42,000
Note payable - institutional lenders 4,450,000
Deferred rent payable 1,377,000
Interest payable - institutional lenders 2,226,000
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Total liabilities 13,699,000
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CAPITAL DEFICIENCY
Preferred stock, par value $.001, 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 (17,410,000)
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Total capital deficiency (7,159,000)
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T O T A L $ 6,540,000
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</TABLE>
The attached notes are made a part hereof.
<PAGE>
SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(To the nearest $1,000)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------------- -----------------------
2000 1999 2000 1999
--------------- -------------- --------------- ----------
Revenues:
<S> <C> <C> <C> <C>
Attraction sales $1,821,000 $ 1,655,000 $ 7,110,000 $ 6,182,000
Concessions sales 196,000 211,000 808,000 831,000
Sponsorship income 27,000 23,000 76,000
------------------ -------------- -------------- --------------
2,017,000 1,893,000 7,941,000 7,089,000
----------- ------------ ------------ ------------
Operating expenses:
Cost of merchandise sold 78,000 93,000 329,000 384,000
Selling, general and
administrative 1,907,000 2,095,000 7,196,000 6,972,000
Depreciation and amortization 527,000 500,000 1,590,000 1,518,000
------------ ------------- ----------- ------------
2,512,000 2,688,000 9,115,000 8,874,000
----------- ------------ ----------- ------------
(Loss) from operations before
interest income and expense (495,000) (795,000) (1,174,000) (1,785,000)
Interest income 2,000 7,000 18,000 40,000
Interest expense (274,000) (315,000) (849,000) (1,133,000)
------------ ------------ ------------ ------------
(Loss) before extraordinary item (767,000) (1,103,000) (2,005,000) (2,878,000)
Extraordinary gain from
settlement of liabilities 28,000 2,355,000 240,000
------------- -------------- ----------- -------------
NET INCOME (LOSS) $ (767,000) $(1,075,000) $ 350,000 $(2,638,000)
============= ============== =========== ===========
Income (loss) per share of common stock - basic and diluted:
(Loss) before extraordinary item $(.34) $(.48) $(.88) $(1.27)
===== ===== ===== ======
Net income (loss) $(.34) $(.47) $ .15 $(1.16)
===== ===== ===== ======
Weighted number of average
common shares outstanding 2,275,000 2,275,000 2,275,000 2,275,000
========= ========= ========= =========
</TABLE>
The attached notes are made a part hereof.
<PAGE>
SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(To the nearest $1,000)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
INCREASE (DECREASE) IN CASH 2000 1999
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Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ 350,000 $(2,638,000)
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Adjustments to reconcile results of operations to net cash effect of
operating activities:
Gains on restructuring of liabilities - noncash (2,355,000) (240,000)
Depreciation and amortization 1,590,000 1,518,000
Deferred rent payable 150,000 350,000
Fair value of common stock issued as payment
for services 169,000
Net changes in assets and liabilities:
Inventory 9,000 42,000
Prepaid expenses and other current assets (343,000) 126,000
Security deposits 97,000 497,000
Accounts payable and accrued liabilities 753,000 169,000
Due to contractors (115,000) (155,000)
Interest payable - institutional lenders 772,000 761,000
Deferred sponsorship income (23,000) (49,000)
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Total adjustments 535,000 3,188,000
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Net cash provided by operating activities 885,000 550,000
Cash flows from investing activities:
Purchase of fixed assets (60,000) (85,000)
Cash flows from financing activities:
Repayment of capital lease obligations (462,000) (1,127,000)
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NET INCREASE (DECREASE) IN CASH 363,000 (662,000)
Cash - July 1 780,000 1,496,000
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CASH - March 31 $ 1,143,000 $ 834,000
============= ===========
Supplemental disclosures of cash flow information: Cash paid for:
Interest $ 77,000 $ 175,000
============= ===========
Taxes $ -- $ 2,000
============= =============
</TABLE>
The attached notes are made a 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 nine months ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the
full fiscal year ended June 30, 2000. 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, 1999.
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.
3. Settlement of Litigation
In December 1999, the Company entered into a settlement agreement
with the Empire State Building Company ("ESBCo"), in connection
with a lawsuit originally filed by the Company against ESBCo and
other named defendants in the Supreme Court of the State of New
York, County of New York, on December 23, 1997. The Company's
action primarily sought injunctive relief to prohibit ESBCo from,
among other things, terminating the Company's Lease and a License
agreement relating to the New York Skyride, as well as monetary
damages from ESBCo and the other defendants. The basis for the
Company's claim was, among other things, a lack of cooperation from
ESBCo and its staff in violation of the Lease and License
agreements, as well as bad faith, fraud and self-dealing by ESBCo
and certain members of its management staff.
The settlement resulted in an extraordinary gain for the nine
months ended March 31, 2000, representing the reversal of amounts
due to ESBCo for unpaid rents and charges and the reversal of
deferred rents payable relating to the surrender of a lease which
was scheduled to expire in July 2016.
<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 and nine months ended March 31, 2000, the Company's New
York Skyride facility was visited by approximately 113,000 and 448,000
customers, respectively, as compared to 103,000 and 434,000 customers,
respectively, for the three and nine months ended March 31, 1999. The Company
also experienced an increase in its capture rate of observatory visitorship from
approximately 16.8% for the nine months ended March 31, 2000, compared to
approximately 15.9% for the nine months ended March 31, 1999.
Results of Operations - Three and Nine Months Ended March 31, 2000 Compared to
Three and Nine Months Ended March 31, 1999
Revenues
Revenues generated during the three and nine months ended March 31,
2000, aggregated $2,017,000 and $7,941,000, respectively, as compared to $
1,893,000 and $ 7,089,000 for the three and nine months ended March 31, 1999.
The increase in revenues from the prior year is primarily due to an increase in
the average ticket price collected for the New York Skyride, which accounted for
revenues of approximately $1,225,000 for the three months ended March 31, 2000,
as compared to $1,006,000 for the three months ended March 31, 1999. The
increase is also attributable to an increase in Empire State Building
Observatory Combination Ticket Sales at the Company's New York Skyride facility.
<PAGE>
Total Expenses
Total expenses incurred for the three and nine months ended March 31,
2000 aggregated $2,512,000 and $ 9,115,000, respectively, as compared to $
2,688,000 and $ 8,874,000 for the three and nine months ended March 31, 1999.
The increase, for the nine months ended March 31, 2000, was primarily due to the
Company's purchase of additional Empire State Building Observatory tickets for
resale as part of combination tickets with New York Skyride, resulting in higher
revenues as described above. In addition, the decrease, for the three months
ended March 31, 2000, has been the result of the Company's ability to reduce its
corporate overhead while sustaining an increased marketing effort for its
product.
Extraordinary Gain
The Company, as a result of negotiations with certain creditors and the
Settlement of its litigation with the ESBCo (as previously discussed in the
notes to the financial statements above), recorded an extraordinary gain from
the settlement of these liabilities (which included a writeoff of accumulated
outstanding payables of approximately $1,414,000 and a reversal of approximately
$908,000 of its deferred rent liability) of approximately $2,355,000 for the
nine months ended March 31, 2000, as compared with $ 240,000 for the nine months
ended March 31, 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 ($767,000) and ($.34) and ($2,005,000) and ($.88)
for the three and nine months ended March 31, 2000, respectively, as compared to
($1,103,000) and ($.48) and ($2,878,000) and ($ 1.27) for the three and nine
months ended March 31, 1999, respectively. The basic and diluted net income
(loss) and earnings (loss) per share available to common shareholders was $
(767,000) and ($.34 ) and $ 350,000 and $ .15 for the three and nine months
ended March 31, 2000, respectively, as compared to ($1,075,000) and ($.47) and
($2,638,000) and ($1.16) for the three and nine months ended March 31, 1999.
Loss before extraordinary items, for the three months ended March 31,
2000, included a loss of approximately ($735,000) at XS New York and a loss of
approximately ($32,000) at New York Skyride as compared to a loss of
approximately ($646,000) at XS New York and loss of approximately ($457,000) at
New York Skyride for the three months ended March 31, 1999.
For the three months ended March 31, 2000, New York Skyride had income
from operations (before interest expense, depreciation and amortization) of
approximately $174,000, as compared to income from operations (before interest
expense, depreciation and amortization) of approximately $ 70,000 for the three
months ended March 31, 1999. Income from operations at New York Skyride improved
from the previous year as a result of a reduction in corporate overhead as well
as an increase in both Empire State Building Observatory Combination Ticket
Sales and marketing efforts at the New York Skyride.
XS New York had income from operations (before interest expense,
depreciation and amortization) of approximately $ 22,000 for the three months
ended March 31, 2000 as compared to income from operations (before interest
expense, depreciation and amortization) of approximately $ 41,000 for the three
months ended March 31, 1999. Income from operations at XS New York decreased
from the previous year primarily as a result of a decrease in gaming revenues
offset by a reduction of overhead.
<PAGE>
Liquidity and Capital Resources
At March 31, 2000, the Company had a working capital deficiency of
approximately ($3,966,000) compared to a working capital deficiency of
approximately ($5,593,000) at June 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 $1,414,000 and a reversal of deferred rent liability of
approximately $908,000 as well as an increase in cash balances of approximately
$ 363,000 from the Company's operations during the nine months ended March 31,
2000.
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 March 31, 2000, the Company had the following financing arrangements in
place:
o 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;
o 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;
o 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, however, the Company is
currently negotiating new terms with Prospect Street and anticipates
them to be in place by June 30, 2000;
<PAGE>
o 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 from Keyspan from an
aggregate of $500,000 to $1,850,000 which increased the total
financing from $935,000 to $2,785,000. 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.
In addition to the foregoing, as of March 31, 2000, the Company had the
following agreements or arrangements with certain key suppliers in place:
o The Company has 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. With respect to the
revenue sharing obligation, the agreement (as amended) provides for the
Company to share 21 % of the net revenue, as defined, without any net
revenue amounts in excess over such amounts being subject to
revenue-sharing. The agreement (as amended) also provides that 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.
o 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
a maximum termination fee of approximately $974,000 to be reduced on a
straight-line basis over 60 months. In April 1999, however, this lease
was terminated and a stipulation was signed. In general terms, the
stipulation enabled the Company to continue to occupy the premises on
the same terms as in the original lease, but reduced the notice period
from six months to four months in exchange for a 25% reduction in
rent. The Stipulation further provided that the landlord was entitled
to recover this 25% rent reduction out of any termination fee which
may be owed to the Company. 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
<PAGE>
carrying value of its assets at XS New York as a result of the
published reports of a sale of the property. However, there can be no
assurance that the landlord will request that the Company vacate the
premises earlier. Should the Company vacate the premises earlier, this
will result in a charge to earnings equal to the unamortized portion
of its investment (adjusted for assets which are sold and reimbursed
construction costs) at the time of such event, if any, which could
have a material adverse effect on the Company's operations and
financial condition taken as a whole.
Except for the financing facilities described above, the Company has no
other current arrangements in place with respect to financing. As stated in the
auditors' report on the Company's Financial Statements for the year ended June
30, 1999, the Company's ability to continue as a going concern is dependent upon
continued forbearance of the Company's lenders because the Company currently
does not have available funds to repay its currently outstanding demand loans.
Accordingly, the Company is in need of either securing new financing and/or
attaining profitable operations or the continued forebearance of its creditors.
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.
Year 2000 Compliance
The Company did not experience any problems relating to Year 2000
compliance with its own computer systems or those of companies doing business
with it.
<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.
(b) Reports on Form 8-K
a. On February 2, 2000 the Company filed a report on Form 8-K
regarding settlement of its litigation with Empire State
Building Company, et al.
<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 on this 30th day of May, 2000.
SKYLINE MULTIMEDIA ENTERTAINMENT, INC.
By: /s/ Robert Brenner
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Robert Brenner,
Chief Executive Officer, President
By: /s/ Ronald H. Aghassi
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Ronald H. Aghassi,
Vice President of Finance
