<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
FORM 10-QSB
(MARK ONE)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to__________
Commission File Number 0-24592
---------
CINEMA RIDE, INC.
---------------------
(Exact name of registrant as specified in its charter)
DELAWARE 95-4417467
- ------------------------------- ------------------------
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification Number)
12001 VENTURA PLACE, STUDIO CITY, SUITE 340, CALIFORNIA 91604
(Address of principal executive offices) (Zip Code)
(818) 761-1002
(Registrant's telephone number, including area code)
...............................................................................
(Former name, former address and former fiscal year, if changed since last
report)
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 give 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
----- -----
As of August 7 1997, there were 5,734,999 outstanding shares of common stock,
par value $0.01 per share.
Transitional Small Business Disclosure Format: Yes No X
---- ----
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CINEMA RIDE, INC. AND SUBSIDIARIES
INDEX TO FORM 10-QSB
FOR THE QUARTER ENDED
JUNE 30, 1997
==================================
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
<TABLE>
<S> <C>
Balance Sheets as of June 30, 1997, and as of
December 31, 1996. 3
Statements of Operations for the three months and six 5
months ended June 30, 1997, and June 30, 1996
Statements of Cash Flows for the six months ended
June 30, 1997, and June 30, 1996. 6
Summary of Accounting Policies 8
Notes to Financial Statements. 10
Item 2. Management Discussion and Analysis of Financial 11
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 4. Submission to Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CINEMA RIDE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997, AND DECEMBER 31, 1996
====================================
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------- -------------
(unaudited) (audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 152,935 $1,395,978
Inventories 37,326 45,515
Prepaid expenses 68,825 93,330
Other Receivables 7,687 5,311
----------- ----------
Total current assets 266,773 1,540,134
----------- ----------
Property and equipment:
Office equipment and furniture 106,938 103,050
Equipment under capital lease 589,474 589,474
Leasehold improvements 2,236,817 2,222,967
Theater and film equipment 3,078,593 3,078,593
Theater and film equipment under construction 564,432 564,432
----------- ----------
6,576,254 6,558,516
Less accumulated depreciation and
amortization (1,187,302) (846,873)
Total property and equipment 5,388,952 5,711,643
----------- ----------
Film library:
Film projects under development 307,948 271,872
Film library, net 373,717 454,783
----------- ----------
Total film library, net 681,665 726,655
----------- ----------
Receivable from officers 94,822 97,865
Deferred lease costs and other assets (net) 492,595 783,217
----------- ----------
$ 6,924,807 $8,859,514
=========== ==========
</TABLE>
See Accompanying Notes to Unaudited Financial Statements
3
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
JUNE 30, 1997, AND DECEMBER 31, 1996
====================================
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------- ------------
(unaudited) (audited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 748,627 $ 1,342,855
Accrued interest - 50,547
Current portion of capital lease obligation 57,851 53,102
Notes payable to investors (Note 1) - 337,500
Notes payable to related party (Note 1) 50,000 -
Current portion of notes payable to lender (Note 1) 298,092 275,979
Notes payable to vendors (Note 1) 53,272 52,612
Note payable to bank (Note 1) 9,793 9,310
----------- -----------
Total current liabilities 1,217,635 2,121,905
----------- -----------
Obligation under capital lease 306,328 336,548
Note payable to bank (Note 1) 18,311 23,370
Note payable to lender (Note 1) 1,061,526 1,116,384
Deferred rent 145,939 154,261
----------- -----------
Total long term liabilities 1,532,104 1,630,563
Total liabilities 2,749,739 3,752,468
Commitments and contingency (Note 1)
Stockholders' equity
Preferred stock, $.01 par value, 500,000
shares authorized, none issued - -
Common stock, $.01 par value, 20,000,000
shares authorized, 5,734,999 and 5,731,785
shares issued and outstanding 57,350 57,318
Additional paid-in-capital 9,223,352 9,134,389
Accumulated deficit (5,105,634) (4,084,661)
----------- -----------
Total stockholders' equity 4,175,068 5,107,046
----------- -----------
Total liabilities and stockholders' equity $ 6,924,807 $ 8,859,514
=========== ===========
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements
4
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CINEMA RIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997, AND JUNE 30, 1996
===================================================================
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
1997 1996 1997 1996
-------------------------- -------------------------
<S> <C> <C> <C> <C>
Revenues $ 917,972 $ 712,223 $1,787,767 $1,321,968
---------- --------- ---------- ----------
Selling, general and administrative expenses 913,441 643,543 1,863,253 1,320,758
Depreciation and amortization 322,614 144,686 653,611 386,789
---------- --------- ----------- ----------
Total expenses 1,236,055 788,229 2,516,864 1,707,547
---------- --------- ----------- ----------
Loss from operations (318,083) (76,006) (729,097) (385,579)
Amortization of
Interest expense 76,282 14,676 302,768 21,537
Interest income 356 3,418 3,035 6,006
---------- --------- ----------- ----------
Net Loss $ (394,009) $ (87,264) $(1,028,830) $(401,110)
========== ========= =========== ==========
Net Loss per common share
$ (.07) $ (.02) $ (.18) $ (.09)
========== ========= =========== =========
Weighted Average common share
outstanding 5,745,242 4,570,000 5,755,885 4,570,000
========== ========= =========== =========
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements
5
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 & JUNE 30, 1996
==============================================
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, June 30,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,028,830) $(401,110)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 653,611 386,789
Stock issued for services rendered 20,900 -
Non cash compensation 10,800 -
Issuance of warrants for services rendered - 13,346
Amortization of deferred financing costs 146,107 -
Increase (decrease) from changes in:
Inventories 8,188 (17,824)
Prepaid expenses 24,505 19,853
Other receivables 667 (23,818)
Accounts payable and accrued expenses (639,570) 231,837
Deferred rent (8,322) 147,066
----------- ---------
Net cash (used in) provided by operating activities (811,944) (356,139)
----------- ---------
Cash flows from investing activities:
Acquisition of:
Capital expenditures (17,739) (206,960)
Film production costs (36,076) (41,814)
Proceeds from insurance for equipment - 39,228
Deferred lease costs and other assets 5,000 (136,560)
----------- ---------
Net cash used in investing activities (48,815) (346,106)
----------- ---------
Cash flows from financing activities:
Proceeds from notes payable 150,000 640,575
Payments made on notes payable (487,813) (2,913)
Repurchase of stock (19,000) -
Principal payments under capital lease obligation (25,471) (6,454)
----------- ---------
Net cash (used in) provided by financing activities (382,284) 631,208
----------- ---------
Net (decrease) increase in cash and cash equivalents (1,243,043) 641,241
Cash and cash equivalents at beginning of period 1,395,978 144,539
----------- ---------
Cash and cash equivalents at end of period $ 152,935 $ 785,780
=========== =========
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements
6
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 & JUNE 30, 1996
================================================
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, June 30,
1997 1996
----------- ----------
<S> <C> <C>
Supplemental Disclosure of Cash Flow Information
Cash paid for income taxes $ 800 $ 800
=========== ==========
Cash paid during the period for interest $ 156,661 $ 9,256
=========== ==========
Non cash financing activities:
Conversion of accounts payable to notes payable 12,354 -
Issue of warrants to public 92,603 -
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements
7
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
SIX MONTHS ENDED JUNE 30, 1997
==================================
Basis of presentation
- ---------------------
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the financial position of Cinema Ride,
Inc. (the "Company") as of June 30, 1997, and December 31, 1996, and the results
of its operations and statements of cash flows for the six months ended June 30,
1997, and June 30, 1996, in conformity with generally accepted accounting
principles applied on a consistent basis. Unless the context otherwise requires,
references to the "Company" in this report refer to Cinema Ride, Inc. and its
consolidated subsidiaries.
The results of operations for the three months and six months ended June 30,
1997, are not necessarily indicative of the results of operations to be expected
for the full year ending December 31, 1997.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting principles
have been condensed or omitted. The accompanying financial statements should be
read in conjunction with the Company's audited financial statements and notes
thereto incorporated in reference in the 1996 Annual Report on Form 10-KSB.
Certain reclassifications were made to the financial statements previously
reported to conform with current year presentation.
Organization
- ------------
The Company was incorporated in Delaware in April 1993. The Company is in the
business of developing and operating rides consisting of motion simulator
attractions which combine video-projected three-dimensional action films of
approximately four minutes duration with computer-controlled, hydraulically-
mobilized seating platforms that are programmed to move in concert with the on-
screen action. Each attraction is designed to provide the viewer with a
realistic feeling of being a participant in the action on the screen. To date,
the Company has completed construction and installation of three facilities.
The first facility (the "Las Vegas Facility") commenced operations in October
1994 and is located in the Forum Shops at Caesars (the "Forum Shops"), a high
traffic tourist mall which is located between Caesars Palace Hotel & Casino and
the Mirage Hotel in Las Vegas, Nevada. The second facility (the " West Edmonton
Mall Facility") commenced operations in August 1995 and is located in the West
Edmonton Mall, Alberta, Canada. The third facility (the " Times Square
Facility") commenced operations in September 1996 and is located in Times Square
in New York City, New York. The Company's executive offices are located in
Studio City, California.
Property and equipment
- -----------------------
Property and equipment are stated at cost. Depreciation is provided at the time
property and equipment is placed in service using the straight-line method over
the estimated useful lives of the assets which range from five to ten years.
Amortization of tenant improvements is provided using the straight-line method
over the lower of the estimated useful lives of the assets or the lease term
which range from five to ten years.
Film Production Costs
- ---------------------
Film production costs are stated at the lower of amortized cost or market. Upon
completion, film production costs are amortized on an individual production
basis in the proportion that current gross revenues bear to management's
estimate of total gross revenues with such estimates being reviewed at least
quarterly.
8
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
SIX MONTHS ENDED JUNE 30, 1997
==================================
(CONTINUED)
Deferred Lease Costs
- --------------------
Deferred lease costs represent amounts paid in connection with the successful
negotiation of the Company's leases. Costs are amortized on a straight-line
basis over the term of the leases.
Pre-opening Costs
- -----------------
The Company capitalizes pre-opening costs incurred in connection with potential
new locations. These costs are amortized over the twelve months following
commencement of operations, or charged to expense when the project is abandoned.
At June 30, 1997 and 1996 unamortized pre-opening costs of $83,586 and $244,421
are included in other assets primarily relating to the Times Square Facility.
Foreign Currency Translation
- ----------------------------
Foreign currency denominated assets and liabilities of subsidiaries with local
functional currencies are translated to United States dollars at the prevailing
exchange rates. The effects of translation are recorded in the cumulative
translation component of shareholder's equity.
Income Taxes
- ------------
The Company provides for income taxes in accordance with Statement of Financial
Accounting Standards 109 (SFAS109"), Accounting for Income Taxes. Deferred
income taxes are provided on the difference in earnings determined for tax and
financial reporting purposes and result primarily from differences in methods
used to amortize production costs.
Loss Per Share
- --------------
Loss per share is based on the weighted average number of shares of common stock
outstanding during the period.
Statement of Cash Flows
- -----------------------
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments with an original maturity of three months or less to be
cash equivalents.
Accounting Estimates
- --------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the reported amounts of assets and liabilities, disclosures of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
New Accounting Standards
- ------------------------
On March 3, 1997, the FASB issued Statement of Financial Accounting Standard No.
128. Earnings per share (SFAS 128). This pronouncement provides a different
method of calculating earnings per share than is currently used in accordance
with APB 15, Earning per Share. SFAS 128 provides for the calculation of Basic
and
9
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
SIX MONTHS ENDED JUNE 30, 1997
==================================
(CONTINUED)
Diluted earning per share. Basic earning per share includes no dilution and is
computed by dividing income available to common shareholders by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share reflects the potential dilution of securities that could share in the
earnings of the entity, similar to fully diluted earnings per share. This
pronouncement is effective for fiscal years and interim periods after December
15, 1997, early adoption is not permitted. The Company has not determined the
effect, if any, of adoption on its EPS computation(s).
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NOTE PAYABLE
NOTE PAYABLE TO BANK
On March 6, 1996, Cinema Ride Edmonton, Inc. obtained a $40,328 loan
($55,000 Canadian dollars) from a Canadian bank at prime plus two percent. The
loan has a term of four years requiring monthly payments of approximately $1,027
($1,400 Canadian dollars) and is guaranteed by the Company. The lender has
first security interest in the equipment and improvements located at the West
Edmonton Facility. The loan also restricts transfer of funds to the Company
other than amounts in excess of cash flow. The loan may be prepaid at any time
without any penalties.
NOTES PAYABLE TO INVESTORS
During the quarter ended September 30, 1996, the Company obtained loans
aggregating $437,500 bearing interest at 15% per annum paid monthly with the
principal balance due at the earlier of one year or at the time the Company
successfully obtains permanent financing. These loans were secured by certain
equipment owned by the Company and by the net cash flow of the Las Vegas
Facility. In connection with obtaining these loans, the Company issued 437,500
shares of the Company's common stock to the lenders. In connection with the
issuance of the shares to the lenders the Company recognized $250,469 in
financing costs which is deferred and is amortized as interest expense over the
life of these loans. During the fourth quarter, some of lenders elected to
convert $100,000 of the above notes to common stock at the than fair market
value of $.40 per share. Accordingly, the Company issued 250,000 additional
shares relating to the conversion of these notes. During January 1997, the
Company repaid the remaining $337,500 balance of the notes. As such, the
Company wrote off in January 1997 the remaining unamortized portion of the
deferred financing costs relating to these notes as interest expense.
NOTE PAYABLE TO LENDER
On December 31, 1996, the Company closed a financing agreement with Finova
Technology Finance, Inc. ( the "Lender") structured as a sale leaseback
transaction of certain equipment owed by the Company. Based on the substance of
this transaction, this financing agreement was accounted for as a note payable
for financial reporting purposes. The gross loan amount was for $1,575,027 to
be paid over a four year term at $40,903 per month with a balloon payment of
$157,503. The loan bears a variable interest rate based on the average weekly
interest rate of three-year U.S. Treasury Securities. The financing agreement
requires the Company to repurchase the equipment at the end of the lease for $1.
In connection with obtaining the financing, the Lender required the Company to
raise a minimum of $500,000 through a combination of equity, subordinated debt,
or conversion to equity of existing notes/liabilities. As of August 7, 1997,
the Company has issued 444,285 shares of the Company's common stock to various
vendors and 250,000 shares to existing note
10
<PAGE>
holders in lieu of amounts owed by the Company, enabling the Company to meet the
Lender's requirement. The Company also issued 100,000 warrants to the Lender at
an exercise price of $2.00 per share, and an aggregate of 265,643 warrants to
the brokers who arranged the financing at an exercise price of $.41 per share
representing approximately 110% of the market value at the closing date of the
financing. During the quarter ended March 31, 1997, the Company received the
remaining $100,000 of this loan which was held by the Lender pending the
Company's meeting all of the Lender's requirements.
NOTE PAYABLE TO VENDORS
As a part of the requirements to obtain the Financing Agreement referred to
above, the Company converted $64,965 of accounts payable to vendors into
unsecured subordinated notes payable bearing interest at 8%. Principal payments
on the notes are to be made at 20% increments on April 30, 1997 and July 31,
1997 with the remaining 60% and interest due on September 30, 1997.
NOTE PAYABLE TO RELATED PARTIES
During April 1997, the Company obtained a $50,000 loan from a related party
bearing interest at 18% per annum with both principal and interest due in six
months. In connection with obtaining this loan, the Company issued 25,000
warrants at an exercise price of $.28 per share.
NOTE 2. STOCK TRANSACTIONS
During April 1997, the Company repurchased 51,786 shares of the Company's
common stock previously issued to one of its vendors for $29,000 of which
$19,000 has been paid as of August 7, 1997.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
---------------------------------------------------------------------
OF OPERATIONS
- --------------
Although the Company was formed in April 1993, operations of the Company did
not commence until October 1994 when the Las Vegas Facility was opened. The
Company opened its other locations, the West Edmonton Mall Facility and the
Times Square Facility, in August 1995 and September 1996 respectively.
RESULTS OF OPERATIONS
- ---------------------
QUARTER ENDED JUNE 30, 1997 VS. QUARTER ENDED JUNE 30, 1996:
Revenues increased by 29% or $205,749 from $712,223 in 1996 to $917,972 in
1997. The increase is due to the opening of the Times Square Facility in
September 1996 which contributed $389,519 in revenues in 1997 which was
partially offset by 1) a decrease in revenues at the Las Vegas Facility by 26%
or $172,391 from $651,459 in 1996 to $479,068 in 1997 which management believes
is due to lower attendance at the Forum Shops resulting from the construction of
the new wing, and 2) a decrease in revenues at the West Edmonton Mall Facility
by 19% or approximately $11,500 from approximately $61,000 in 1996 to
approximately $49,500 in 1997. In addition, the Company raised the price of a
single ticket to eight dollars from seven dollars which partially offset the
decrease in revenues due to the lower attendance. The average ticket price
remained under four dollars due to discounts offered through multiple purchases
of tickets. Management believes that the trend at the Las Vegas Facility is
expected to continue but could be offset by the Company's installation of a
ticket booth at the main level of the Forum Shops which was completed during
July 1997 and has since had positive results on revenues, and by the opening of
the new expansion of the Forum Shops scheduled in September 1997.
Selling, general and administrative expenses increased by 42% or $269,898
from $643,543 in 1996 to $913,441 in 1997. This increase is mainly due to an
increase in overall expenses of approximately $291,311 relating to the new Times
Square Facility which was opened in September 1996 and was fully operational in
11
<PAGE>
1997. This increase was partially offset by decreases in expenses at the Las
Vegas and West Edmonton Mall Facilities.
Depreciation and amortization increased by 123% or approximately $178,000
from $144,686 in 1996 to $322,614 in 1997 due to the new Times Square Facility
which contributed to an increase of $181,548 in 1997.
Interest expense increased by $61,606 from $14,676 in 1996 to $76,282 in
1997 mostly due to the Company incurring approximately $55,000 in interest on
the loan from lender in 1997. In addition, in connection with the issuance of
the warrants relating to the Company's financing during December 1996, the
Company incurred, based on a valuation of these warrants which were issued to
the Lender and the brokers who arranged the financing, $47,498 as deferred
financing costs which is amortized over the life of the loan as interest
expense.
SIX MONTHS ENDED JUNE 30, 1997 VS. SIX MONTHS ENDED JUNE 30 1996:
Revenues increased by 35% or $465,799 from $1,321,968 in 1996 to $1,787,767
in 1997. The increase is due to the opening of the Times Square Facility in
September 1996 which contributed $736,901 in revenues in 1997 which was
partially offset by 1) a decrease in revenues at the Las Vegas Facility by 20%
or $246,446 from $1,205,250 in 1996 to $958,804 in 1997 which management
believes is due to lower attendance at the Forum Shops resulting from the
construction of the new wing, and 2) a decrease in revenues at the West Edmonton
Mall Facility by 21% or approximately $24,700 from approximately $117,105 in
1996 to approximately $92,368 in 1997. In addition, the Company raised the
price of a single ticket to eight dollars from seven dollars which partially
offset the decrease in revenues due to the lower attendance. The average ticket
price remained under four dollars due to discounts offered through multiple
purchases of tickets. Management believes that the trend at the Las Vegas
Facility is expected to continue but could be offset by the Company's
installation of a ticket booth at the main level of the Forum Shops which was
completed during July 1997 and has since had positive results on revenues, and
by the opening of the new expansion of the Forum Shops scheduled in September
1997.
Selling, general and administrative expenses increased by 41% or $542,495
from $1,320,758 in 1996 to $1,863,253 in 1997. This increase is mainly due to
an increase in overall expenses of approximately $578,818 relating to the new
Times Square Facility which was opened in September 1996 and was fully
operational in 1997. This increase was partially offset by decreases in
expenses at the Las Vegas and West Edmonton Mall Facilities.
Depreciation and amortization increased by 69% or $266,822 from $386,789 in
1996 to $653,611 in 1997 due to 1) the new Times Square Facility which
contributed to an increase of $362,880 in 1997, 2) an increase of approximately
$50,000 in amortization of lease commissions incurred in connection with
obtaining the loan and amortization of warrants costs issued to the public,
which was partially offset by a decrease of approximately $146,000 relating to
the write off of certain assets in 1996.
Interest expense increased by $281,231 from $21,537 in 1996 to $302,768 in
1997 mostly due to 1) the Company's write off of $146,103 in deferred interest
relating to the issuance of common stock to note holders and the subsequent
repayment of these notes in January 1997, and 2) the Company incurring
approximately $113,000 in interest on the loan from lender in 1997. In
addition, in connection with the issuance of the warrants relating to the
Company's financing during December 1996, the Company incurred, based on a
valuation of these warrants which were issued to the Lender and the brokers who
arranged the financing, $47,498 as deferred financing costs which is amortized
over the life of the loan as interest expense.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash used in operating activities was $811,944 during the six months
ended June 30, 1997, as compared to the cash provided by operating activities of
$356,139 for the same period during the prior year. The decrease of $1,168,083
was primarily due to 1) an increase in losses for the six months ended June 30,
1997 by $627,720, and 2) a decrease in accounts payable and accrued expenses of
$871,407, which was partially offset by an increase in depreciation and
amortization of $266,822 and an increase in amortization of deferred financing
costs of $146,107.
Net cash used in investing activities decreased by 86% or $297,291 from
$346,106 in 1996 to $48,815 in 1997. The decrease is primarily due to payments
made by the Company to complete the construction of its capsules during the
prior year, and to costs associated with the lease for the Times Square Facility
in 1996.
Net cash used in financing activities was $382,284 during the six months
ended June 30, 1997, as compared to cash provided by financing activities of $
631,208 for the same period during the prior year. The decrease of $1,013,492
was primarily due to 1) the Company's obtaining $600,000 in short term borrowing
in 1996 as described more fully in Note 1 to the unaudited consolidated
financial statements, 2) the Company's obtaining a loan from a Canadian bank
during the quarter ended March 31, 1996, and 3) payments made on notes payable
in 1997 of $487,813 which was partially offset by the receipt of $150,000 in
1997.
The Company has relied on the proceeds of sales of Common Stock, Redeemable
Warrants, loans and equipment leasing to provide it with the cash necessary to
develop its facilities and ride films and to operate its business.
As discussed in Note 1 to the unaudited consolidated financial statements,
during the quarter ended September 30, 1996, the Company obtained loans
aggregating $437,500 bearing interest at 15% per annum paid monthly with the
principal balance due at the earlier of one year or at the time the Company
successfully obtains permanent financing. During December 1996, some of the
lenders elected to convert $100,000 of the above notes to common stock at the
than fair market value of $.40 per share. Accordingly, the Company issued
250,000 additional shares relating to the conversion of these notes. During
January 1997, the Company repaid the remaining $337,500 balance of the notes.
As such, the Company wrote off in January 1997 the remaining unamortized portion
of the deferred financing costs relating to these notes as interest expense.
As discussed in Note 1 to the unaudited consolidated financial statements,
on December 31, 1996, the Company closed a financing agreement with Finova
Technology Finance, Inc. ( the "Lender") structured as a sale leaseback
transaction of certain equipment owed by the Company. In connection with
obtaining the financing, the Lender required the Company to raise a minimum of
$500,000 through a combination of equity, subordinated debt, or conversion to
equity of existing notes/liabilities. As of August 7, 1997, the Company has
issued 444,285 shares of the Company's common stock to various vendors and
250,000 shares to existing note holders in lieu of amounts owed by the Company,
enabling the Company to meet the Lender's requirement. The Company also issued
100,000 warrants to the Lender at an exercise price of $2.00 per share, and an
aggregate of 265,643 warrants to the brokers who arranged the financing at an
exercise price of $.41 per share representing approximately 110% of the market
value at the closing date of the financing. During the quarter ended March 31,
1997, the Company received the remaining $100,000 of this loan which was held by
the Lender pending the Company's meeting all of the Lender's requirements.
The Company is currently in production of two films, a ski and snowboard
film which is being produced by Warren Miller Entertainment, and a roller
coaster film both scheduled to be released in Winter 1997. The Company has been
performing additional work on its previously released films adding more special
effects and reworking some scenes. As of August 7, 1997, the Company
anticipates additional expenditures of approximately $20,000 relating to the
completion of these films. The Company also expects to incur approximately an
additional $50,000 in expenses relating to reprogramming the motion of its
existing capsules for the above films.
13
<PAGE>
As of June 30, 1997, the Company had a negative working capital of $940,862.
The Company's cash and cash equivalents as of June 30, 1997 were $152,935
compared to $1,395,978 at December 31, 1996. Accordingly, in order for the
Company to continue its operations as presently constituted and to fulfill its
business plan described below, the Company must obtain additional working
capital either in the form of debt, equity, or a combination thereof. In this
connection, the Company has engaged the investment banking firm of L.H. Friend,
Weinress, Frankson & Presson, Inc., to serve as the Company's exclusive
financial advisor and investment banker. No assurance can be given, however,
that the Company will be successful in raising capital. Additionally, the
Company has and is continuing to take steps to reduce its expenses without
materially impacting its operations.
Certain disputes have arisen with respect to the obligations of the landlord
under the lease for the Times Square Facility, and, commencing with the rent
payment due for the month of April 1997, the Company has withheld making
payments. The Company has recently received a default notice from the landlord
with respect to the nonpayment of rent. The Company believes that it has
meritorious defenses to the default notice. However, no assurance can be given
that the Company's position will be sustained or that the Landlord will not be
successful in enforcing its rights under the lease, including the possible
eviction of the Company from the Times Square Facility.
COMPANY OUTLOOK:
IDENTIFY AND DEVELOP NEW SITES FOR ATTRACTIONS
The Company is currently seeking additional locations for attractions. The
Company's goal is to open approximately three more facilities over the next two
years. In general, the Company will attempt to locate sites for its attractions
(i) which are in large metropolitan areas or which are at tourist destinations
which attract more than three million persons per year, (ii) at which the
Company can lease high-profile, high-traffic space at a reasonable cost, (iii)
which are in areas with a large number of permanent residents and which do not
have extreme seasonal attendance patterns, and (iv) which are at or near other
complementary tourist attractions.
The Company believes that each new attraction will take approximately four
to six months from lease execution to commencement of operations. Total cost of
developing new attractions, including construction, fixtures, equipment and
start-up costs after completion are estimated to be at least $1,250,000 per two-
capsule site. These costs will vary depending on the leased space, the scope of
any tenant improvements required to be performed by the Company in connection
with leasing a given location and the number of capsules installed, as well as
the size and location of the planned attraction. The Company anticipates that
three more locations will be added in the next two years. Accordingly, the
Company expects to spend approximately at least an additional $3,750,000 on the
acquisition and installation of three more locations in the next two years. In
addition to the costs of the equipment necessary to establish a new attraction
location, the Company expects to add approximately twenty employees per each
additional two-capsule location that it owns and operates.
In order to reduce the out-of-pocket costs in the development of
attractions, the Company may also explore joint venture arrangements with third
parties. The Company and its co-venturer would then split the profits, if any,
from the attraction based on their respective contributions to the venture.
SIMULATOR SALES, JOINT VENTURES AND RIDE FILM LEASING
The Company intends to pursue the sale or joint venturing of simulator
equipment to property owners and businesses that wish to operate attractions of
their own. The sale of simulators to third parties would provide the Company
with an additional source of revenues and profits with a lower degree of risk
than is associated with owning and operating systems. Additional revenues would
be generated from the leasing of the Company's library of ride films to
purchasers of the Company's simulators or to operators of already existing
simulators. The Company does not intend to sell simulators or ride films into
markets in which it expects to operate its own attractions.
14
<PAGE>
It is expected that the Company's management will continue to be responsible
for the marketing of the Company's simulators and ride films for sale and/or
leasing. However, the Company may retain the services of outside or in-house
sales representatives to locate potential purchasers of simulators and licensees
of ride films.
SEASONALITY OF BUSINESS
Because of the seasonal nature of tourist traffic, attendance patterns at
attractions may vary. The degree of this seasonality will vary among
attractions depending on the nature of tourist and local traffic patterns at a
given location as well as the nature of entertainment alternatives available to
audiences. The Company expects that attendance at its facilities will be the
highest in June through September (the height of the tourist season) and lowest
during January and February. The West Edmonton Mall Facility is more effected by
seasonality as compared to the Las Vegas Facility due to the extreme weather
conditions during the Winter months in Alberta, Canada. Similarly, the Times
Square Facility is effected by seasonality during the slower Winter months. As
a result, the Company's results of operations at its three facilities will
depend upon sales generated from the peak tourist periods and any significant
decrease in sales for such periods could have a material adverse effect upon the
Company's operations.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
The Company is not currently involved in any legal proceedings that it
believes could have, either individually or in the aggregate, a material adverse
effect on its business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
The annual meeting of stockholders of the Company was held on June 18, 1997
in Studio City, California, for the purpose of electing a board of directors,
approving the appointment of auditors, approving a One-for-Ten reverse stock
split. Proxies for the meeting were solicited pursuant to section 14(a) of the
Securities Exchange Act of 1934 and there was no solicitation in opposition to
management's solicitation.
1. All of management's nominees for directors as listed in the proxy statement
were elected with the following vote:
<TABLE>
<CAPTION>
NAME VOTES FOR WITHHELD
- ---- --------- --------
<S> <C> <C>
Mitch Francis 4,075,670 66,905
Benjamin Frankel 4,098,503 44,072
Norman Feirstein 4,097,903 44,672
</TABLE>
2. The appointment of BDO Seidman, LLP as independent auditors was approved
by the following vote:
<TABLE>
<S> <C>
Votes For: 4,103,837
---------
Votes Against: 12,205
---------
Abstentions: 26,533
---------
Shares Not Voted: 1,644,210
---------
</TABLE>
15
<PAGE>
3. Approval of the One-for-Ten Reverse Stock Split:
<TABLE>
<S> <C>
Votes For: 3,831,715
---------
Votes Against: 282,887
---------
Abstentions: 27,973
---------
Shares Not Voted 1,644,210
---------
</TABLE>
ITEM 6. EXHIBITS AND REPORTS IN FORM-8-K
(a) EXHIBITS
The following exhibits are submitted herewith:
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
(b) REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during the quarter ended June 30, 1997.
16
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CINEMA RIDE, INC.
By: /s/ Mitch Francis
----------------------------------
Mitch Francis, President
<TABLE>
<CAPTION>
Signature Date
- --------- ----
<S> <C>
/s/ Mitch Francis August 7, 1997
- ------------------------------------------- --------------
Mitch Francis
Chairman of the Board, President, Chief
Executive Officer and Director (principal
executive officer)
/s/ Toufic R. Bassil August 7, 1997
- --------------------------------------------- --------------
Toufic R. Bassil
Chief Financial Officer
(principal financial officer,
principal accounting officer),
Secretary and Treasurer.
</TABLE>
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 152,935
<SECURITIES> 0
<RECEIVABLES> 94,822
<ALLOWANCES> 0
<INVENTORY> 37,326
<CURRENT-ASSETS> 266,773
<PP&E> 6,576,254
<DEPRECIATION> 1,187,302
<TOTAL-ASSETS> 6,924,807
<CURRENT-LIABILITIES> 1,217,635
<BONDS> 0
0
0
<COMMON> 57,350
<OTHER-SE> 4,117,718
<TOTAL-LIABILITY-AND-EQUITY> 6,924,807
<SALES> 1,787,767
<TOTAL-REVENUES> 1,787,767
<CGS> 0
<TOTAL-COSTS> 2,516,864
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 302,768
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,028,830)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
