<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-QSB
(MARK ONE)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[ ] TRANSITION REPORT UNDER 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, SUITE 340, STUDIO CITY, CALIFORNIA 91604
(Address of principal executive offices)
(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 No X
--- ---
As of May 11, 1998, there were 5,854,572 outstanding shares of common stock, par
value $0.01 per share.
Transitional Small Business Disclosure Format: Yes No X
--- ---
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
INDEX TO FORM 10-QSB
FOR THE QUARTER ENDED
MARCH 31, 1998
==========================================
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Balance Sheets as of March 31, 1998 and as of December 31, 1997. 3
Statements of Operations for the three months ended March 31,
1998 and March 31, 1997. 5
Statements of Cash Flows for the three months ended March 31,
1998 and March 31, 1997. 6
Summary of Accounting Policies 8
Notes to Financial Statements. 10
Item 2. Management's Discussion and Analysis or Plan of Operation 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CINEMA RIDE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998, AND DECEMBER 31, 1997
========================================
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------------- -------------
(unaudited) (audited)
<S> <C> <C>
Current assets:
Cash $ 718,230 $ 705,630
Inventories 14,925 21,614
Prepaid Expenses 48,152 69,601
Receivable from Times Square Landlord (Note 1) - 500,000
Assets to be disposed - short-term (Note 1) - 1,490,915
Other Receivables 18,874 852
---------- ----------
Total current assets 800,181 2,788,612
---------- ----------
Property and equipment:
Office Equipment and furniture 105,131 106,938
Equipment under capital lease 139,474 139,474
Leasehold improvements 942,921 943,873
Theater and film equipment 1,642,391 2,953,259
Theater and film equipment available for use 1,767,480 564,432
---------- ----------
4,597,397 4,707,976
Less accumulated depreciation and
amortization (1,128,137) (1,226,811)
---------- ----------
Total property and equipment (net) 3,469,260 3,481,165
Film library:
Film projects under development - 316,387
Film library, net of accumulated amortization
of $502,246 and $460,714. 582,056 299,651
---------- ----------
Total film library, net 582,056 616,038
---------- ----------
Assets to be disposed - long-term (Note 1) - 161,629
Receivable from officers (Note 5) 84,418 47,962
Consulting agreement (Note 5) 46,819 49,420
Deferred lease costs and other assets (net) 184,390 283,713
---------- ----------
Total assets $5,167,124 $7,428,539
========== ==========
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements
3
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
MARCH 31, 1998, AND DECEMBER 31, 1997
==========================================
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ -------------
(unaudited) (audited)
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $ 320,933 $ 539,006
Current portion of capital lease obligation (Note 4) 16,698 58,641
Current portion of notes payable to lender (Note 2) 335,127 322,286
Deferred Lease Termination (Note 1) - 1,490,915
Note payable to bank (Note 2) 10,879 10,568
----------- -----------
Total current liabilities 683,637 2,421,416
----------- -----------
Obligation under capital lease (Note 4) 77,544 300,819
Note payable to bank (Note 2) 8,056 11,576
Note payable to lender (Note 2) 805,338 894,098
Deferred rent 126,520 137,617
----------- -----------
Total long term liabilities 1,017,458 1,344,110
Total liabilities 1,701,095 3,765,526
Commitments and contingency (Note 2)
Stockholders' equity
Preferred stock, $.01 par value, 500,000
shares authorized, none issued - -
Common stock, $.01 par value, 20,000,000
shares authorized, 5,854,572 and 5,802,785
shares issued and outstanding 58,546 58,028
Additional paid-in-capital 9,175,780 9,173,191
Treasury Stock, at cost, 51,786 and 51,786 shares at
March 31, 1998 and December 31, 1997 respectively (29,000) (29,000)
Accumulated deficit (5,739,297) (5,539,206)
----------- -----------
Total stockholders' equity 3,466,029 3,663,013
----------- -----------
Total liabilities and stockholders' equity $ 5,167,124 $ 7,428,539
=========== ===========
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements
4
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998, AND MARCH 31, 1997
=============================================================
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1998 1997
------------- -------------
<S> <C> <C>
Revenues $ 623,064 $ 869,795
Selling, general and administrative expenses 653,934 949,812
Depreciation and amortization 171,204 330,997
---------- ----------
Total expenses 825,138 1,280,809
---------- ----------
Loss from operations (202,074) (411,014)
---------- ----------
Other income (expense)
Other Income 56,413 -
Interest expense ( 67,054) (226,486)
Interest income 7,294 2,679
---------- ----------
Net loss $ (205,421) $ (634,821)
---------- ----------
Net loss per common share $(0.04) $(0.11)
========== ==========
Weighted Average common shares outstanding 5,837,310 5,786,785
========== ==========
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements
5
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 & MARCH 31, 1997
==================================================
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1998 1997
----------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(205,421) $(634,821)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 171,204 330,997
Stock issued for services rendered 3,107 20,900
Non cash compensation - 3,696
Issuance of warrants for services rendered - -
Amortization of deferred financing costs 10,730 153,868
Amortization of consulting agreement 2,601 -
Exchange Loss 20,246 -
Settlement with vendors (56,413) -
Increase (decrease) from changes in:
Inventory 6,689 1,263
Prepaid expenses 21,449 32,920
Other receivables (19,478) 409
Proceeds from Times Square landlord 500,000 -
Accounts payable and accrued expenses (209,339) (827,004)
Deferred rent (11,097) (4,161)
--------- ---------
Net cash provided by (used in) operating activities 234,278 (921,933)
--------- ---------
Cash flows from investing activities:
Acquisition of:
Capital expenditures - (2,428)
Film production costs (7,550) (31,876)
Deferred lease costs and other assets - (17,799)
--------- ---------
Net cash used in investing activities (7,550) (52,103)
--------- ---------
Cash flows from financing activities:
Loans made to officer (35,000) -
Proceeds from notes payable - 100,000
Payments made on notes payable (79,128) (404,673)
Principal payments under capital lease obligation (100,000) (12,477)
--------- ---------
Net cash used in financing activities (214,128) (317,150)
--------- ---------
Net increase (decrease) in cash 12,600 (1,291,186)
Cash at beginning of period 705,630 1,395,978
--------- ---------
Cash at end of period $ 718,230 $ 104,792
========= =========
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements
6
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 & MARCH 31, 1997
==================================================
(UNAUDITED)
Supplemental Disclosure of Cash Flow Information
Cash paid for income taxes $ 800 $ 800
======== ========
Cash paid during the period for interest $ 53,167 $ 77,744
======== ========
Non cash financing activities:
Conversion of accounts payable to notes payable - 12,354
As a result of the termination agreement, the Company recorded a loss of
$275,548 during the year ended December 31, 1997 related to the impairment of
signage and equipment and moving costs (Note 1). The Company received $500,000
upon the execution of the agreement and recorded a receivable of $500,000 for
the remaining amount due. A deferred liability of $1,490,915 was recorded in
connection with the agreement and $1,652,544 of net leasehold improvements and
equipment are included as assets to be disposed of. The Company informed the
Landlord on February 26, 1998 that the Company had vacated the premises.
Accordingly, the assets to be disposed off, deferred lease costs and related
capital lease obligation were netted against the deferred lease termination
liability.
See Accompanying Notes to Unaudited Consolidated Financial Statements
7
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
THREE MONTHS ENDED MARCH 31, 1998
==================================
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 March 31, 1998, and December 31, 1997, and the
results of its operations and statements of cash flows for each of the three
months ended March 31, 1998, and March 31, 1997, 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 ended March 31, 1998, are not
necessarily indicative of the results of operations to be expected for the full
year ending December 31, 1998.
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 1997 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 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 was located in Times
Square in New York City, New York. The Times Square Facility was closed during
January 1998. 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.
8
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
THREE MONTHS ENDED MARCH 31, 1998
==================================
(CONTINUED)
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.
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 March 31, 1998 and 1997 unamortized pre-opening costs of $ 0 and $171,144
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. For the quarter ended March 31, 1998, common
equivalents representing 1,333,500 outstanding stock options and 3,217,209
outstanding warrants are not included since their effect would be anti-dilutive.
For the quarter ended March 31, 1997, common stock equivalents representing
689,500 outstanding stock options and 3,793,728 outstanding warrants are not
included since their effect would be anti-dilutive.
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.
9
<PAGE>
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
- ------------------------
Statements of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS No. 130) issued by the FASB is effective for financial statements
with fiscal years beginning after December 15, 1997. Early application is
permitted. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The Company adopted this accounting standard on January
1, 1998 and its effects on the financial position, results of operations and
earnings per share were immaterial.
Statements of Financial Accounting Standards No. 131, "Disclosure about Segments
of an Enterprise and Related Information" (SFAS No. 131) issued by the FASB is
effective for financial statements beginning after December 15, 1997. The new
standard requires that public business enterprises report certain information
about operating segments in complete sets of financial statements of the
enterprise and in condensed financial statements of interim periods issued to
shareholders. It also requires that public business enterprises report certain
information about their products and services, the geographic areas in which
they operate and their major customers. The Company adopted this accounting
standard on January 1, 1998 and its effects on the financial position, results
of operations and earnings per share were immaterial.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. TIMES SQUARE LEASE TERMINATION
The Company entered into an agreement dated October 28, 1997 with the
landlord of the Times Square Facility to terminate the lease due to the intended
demolition of the existing building where the facility was located. The
agreement, among other things, required the Company to vacate the premises by
February 28, 1998 and waive the security deposit previously made to the
landlord. In consideration, the landlord 1) paid the Company $500,000 upon the
execution of the agreement, 2) agreed to a rent concession for the period from
April 1997 through October 1997, 3) waived its right for all future rents
following execution of the agreement to include the months of November 1997
through February 1998, and 4) paid the Company an additional $500,000 upon the
timely delivery of possession of the premises to the landlord on or before
February 28, 1998.
As a result of the termination agreement, the Company recorded a loss of
$275,548 during the year ended December 31, 1997 related to the impairment of
signage and equipment and moving costs. The Company received $500,000 upon the
execution of the agreement and recorded a receivable of $500,000 for the
remaining amount due. A deferred liability of $1,490,915 was recorded in
connection with the agreement and $1,652,544 of net leasehold improvements and
equipment are included as assets to be disposed of. The Company informed the
Landlord on February 26, 1998 that the Company had vacated the premises and the
remaining $500,000 payment was received on March 5, 1998.
10
<PAGE>
NOTE 2 - NOTES 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 (total
interest is 8.5% at March 31, 1998) . 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 a 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. As of March
31, 1998 $18,935 remains unpaid on this loan.
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 interest at an annual rate of 15.7%. 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
May 11, 1998, 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. As of March 31, 1998
$1,140,465 remains unpaid on this loan.
NOTE 3. STOCK TRANSACTIONS
During the quarter ended March 31, 1998, the Company issued 51,787 shares
to its Chief Financial Officer. The Company recorded the then fair market value
of the shares as additional compensation to the officer.
NOTE 4. CAPITAL LEASE OBLIGATION
Certain disputes have arisen with respect to the obligation to the lessor
of the sign at the Las Vegas Facility, and, commencing with the lease payment
for the month of April 1997, the Company has withheld making payments. During
March 1998, the Company reached an agreement with the lessor of the sign to
amend the lease agreement to extend the term of the lease by eleven months with
the first payment becoming due on March 1, 1998.
During the quarter ended June 30, 1996, the Company entered into a lease
agreement for a sign to be installed at the Times Square Facility. The lease
term was for sixty months commencing the first month following installation of
the sign. Certain disputes have arisen with respect to the obligation to the
lessor of the sign, and, commencing with the lease payment for the month of
April 1997, the Company has withheld
11
<PAGE>
making payments. During March 1998, the Company reached an agreement with the
lessor of the sign whereby both parties agreed to terminate the lease and for
the Company to purchase the sign for $100,000 in cash. In return, the lessor
agreed to return to the Company 93,482 shares of the Company's common stock,
which were previously issued to the lessor during December 1996.
NOTE 5. RECEIVABLE FROM OFFICERS AND CONSULTING AGREEMENT
During the year ended December 31, 1995, the Company made loans to two of
its officers in the amount of $50,000. The loans bear interest at a rate of 8%
per year and were due on the earlier of June 30, 1998 or six months after the
officer ceases to be an employee of the Company. Principal payments of $5,000
per loan were due on June 30, 1996 and June 30, 1997, with the balance due on
June 30, 1998. Each note was secured by the higher of 40,000 shares or the
number of shares equivalent to the unpaid value of the note.
On February 1, 1997, the Company's Chief Operating Officer resigned and
agreed to be available to the Company on a consulting basis for the period
between February 1, 1996 and September 30, 1997. Additionally, he agreed to be
available to the Company on a limited consulting basis for the five years
following September 30, 1997 in consideration for the release from one fifth
each year of his balance on his loan to the Company and the waiver of accrued
and future interest on the unpaid balance. The Company is amortizing the
balance of the consulting agreement over the period of the consulting contract.
As such, $51,021 was transferred from receivables from officers and is
classified as consulting agreement.
In January 1998, the Company made a loan of $35,000 to its Chief Executive
Officer. The loan bears interest at a rate of 8.5% per year and principal and
interest are due at the earlier of (1) June 30, 2001 or (2) six months after the
officer ceases to be an employee. This loan is secured by shares equivalent to
the unpaid value of the note. The balance of the remaining loan from officer at
March 31, 1998 is $49,418, which includes $9,418 of accrued interest
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
------------------------------------------------------------
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. The
Company closed the Times Square Facility in January 1998 and vacated the
Facility on February 26, 1998.
RESULTS OF OPERATIONS
- ---------------------
QUARTER ENDED MARCH 31, 1998 VS. QUARTER ENDED MARCH 31, 1997:
Revenues decreased by 28% or $246,731 from $869,795 in 1997 to $623,064 in
1998. The decrease is mainly due to a decrease of $277,666 in revenues from the
Times Square Facility which was closed in January 1998. This decrease was
partially offset by an increase in revenues at the West Edmonton Mall Facility
by 62% or approximately $25,000 from approximately $41,000 in 1997 to
approximately $66,000 in 1998.
Selling, general and administrative expenses decreased by 31% or $295,878
from $949,812 in 1997 to $653,934 in 1998. This decrease is mainly due to 1) a
decrease of approximately $254,000 in expenses from the Times Square Facility
which was closed in January 1998, and 2) a decrease in corporate expenses of
approximately $43,000 mainly due to decreases in salaries .
12
<PAGE>
Depreciation and amortization decreased by 48% or $159,793 from $330,997 in
1997 to $171,204 in 1998 mainly due to a decrease of approximately $150,074 in
depreciation and amortization from the Times Square Facility which was closed in
January 1998.
Other income increased by $56,413 in 1998 due to settlement with vendors on
disputed payables.
Interest expense decreased by 70% or $159,432 from $226,486 in 1997 to
$67,054 in 1998 mostly due to the Company's write off of $146,103 in deferred
interest in 1997 relating to the issuance of common stock to note holders in
1996 and the subsequent repayment of these notes in January 1997.
QUARTER ENDED MARCH 31, 1997 VS. QUARTER ENDED MARCH 31, 1996:
Revenues increased by 43% or $260,050 from $609,745 in 1996 to $869,795 in
1997. The increase is due to the opening of the Times Square Facility in
September 1996 which contributed $347,382 in revenues in 1997 which was
partially offset by 1) a decrease in revenues at the Las Vegas Facility by 13%
or $74,056 from $553,792 in 1996 to $479,736 in 1997 which management believes
is due to lower attendance at the Forum Shops and reduced advertising spending,
and 2) a decrease in revenues at the West Edmonton Mall Facility by 23% or
approximately $13,000 from approximately $56,000 in 1996 to approximately
$43,000 in 1997. In addition, the Company raised the price of a single ticket
to seven dollars from six dollars. 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 during the Summer and by the opening of the
new expansion of the Forum Shops scheduled in September 1997.
Selling, general and administrative expenses increased by 40% or $272,599
from $677,213 in 1996 to $949,812 in 1997. This increase is mainly due to an
increase in overall expenses of approximately $287,500 relating to the new Times
Square Facility which was opened in September 1996 and was fully operational in
the first quarter of 1997, which was partially offset by decreases in expenses
at the Las Vegas and West Edmonton Mall Facilities.
Depreciation and amortization increased by 37% or approximately $89,000
from $242,103 in 1996 to $330,997 in 1997 due to 1) the new Times Square
Facility which contributed to an increase of approximately $181,332 in 1997
which was partially offset by a decrease of $102,000 relating to the write off
of certain assets in 1996.
Interest expense increased by $219,625 from $6,861 in 1996 to $226,486 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 $57,700 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.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash provided by operating activities was $234,278 during the quarter
ended March 31, 1998, as compared to the cash used in operating activities of
$921,933 for the same period during the prior year. The increase of $1,156,211
was primarily due to 1) a decrease in losses for the quarter ended March 31,
1998 by $429,400, 2) a decrease in accounts payable and accrued expenses of
$617,665, and 3) an increase in proceeds from the Times Square landlord of
$500,000. This increase was partially offset by 1) a decrease in depreciation
and amortization
13
<PAGE>
of $159,793, 2) a decrease in amortization of deferred financing costs of
$143,138, and 3) an increase in settlement with vendors of $56,413.
Net cash used in investing activities decreased by 86% or $44,553, from
$52,103 in 1997 to $7,550 in 1998. The decrease is primarily due to
expenditures for film production costs incurred in 1997.
Net cash used in financing activities decreased by 32% or $103,022 from
$317,150 in 1997 to $214,128 in 1998. The decrease is primarily due to payments
made on notes payable in 1997 which was partially offset by the receipt of
$100,000 in 1997 that was held by the Lender.
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.
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 (total
interest is 8.5% at March 31, 1998). 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 a 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. As of March
31, 1998, $18,935 remains unpaid on this loan.
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 interest at an annual rate of 15.7%. 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. 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.
As of March 31, 1998, the Company had a positive working capital of
$116,544. The Company's cash and cash equivalents as of March 31, 1998 were
$718,230 as compared to $705,630 at December 31, 1997. 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. 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.
COMPANY OUTLOOK:
IDENTIFY AND DEVELOP NEW SITES FOR ATTRACTIONS
The Company is currently seeking additional locations for attractions. 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
14
<PAGE>
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 cost 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. However, the Company
currently has five capsules in its inventory which are available for
installation at future sites which should reduce the capital required to open at
least the next two facilities.
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 and with existing entertainment venues. The Company and its co-venturer
would then divide 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 less 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 license ride films into markets in
which it expects to operate its own attractions.
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 varies 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 to 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 was affected by seasonality during the slower Winter months. As
a result, the Company's results of operations at its facilities depends 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.
15
<PAGE>
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 5. OTHER INFORMATION
-----------------
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) EXHIBITS
The following exhibits are submitted herewith:
NUMBER DESCRIPTION
------- -----------
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
The Company filed no reports on From 8-K during the quarter ended March
31, 1998.
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
SIGNATURE DATE
- --------- ----
/s/ MITCH FRANCIS May 11, 1998
- -------------------- ------------
Mitch Francis
Chairman of the Board, President,
Chief Executive Officer and Director
(principal executive officer)
/s/ TOUFIC R. BASSIL May 11, 1998
- ---------------------- ------------
Toufic R. Bassil
Chief Financial Officer, Secretary
and Treasurer
(principal financial officer,
principal accounting officer).
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 718,230
<SECURITIES> 0
<RECEIVABLES> 18,874
<ALLOWANCES> 0
<INVENTORY> 14,925
<CURRENT-ASSETS> 800,181
<PP&E> 4,597,397
<DEPRECIATION> 1,128,137
<TOTAL-ASSETS> 5,167,124
<CURRENT-LIABILITIES> 683,637
<BONDS> 0
0
0
<COMMON> 58,546
<OTHER-SE> 3,407,483
<TOTAL-LIABILITY-AND-EQUITY> 5,167,124
<SALES> 623,064
<TOTAL-REVENUES> 623,064
<CGS> 825,138
<TOTAL-COSTS> 825,138
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 67,054
<INCOME-PRETAX> (205,421)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (634,821)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> 0
</TABLE>
