<PAGE>
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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, 1998
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 ______ No X
------
As of July 30, 1998, there were 731,885 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
JUNE 30, 1998
==================================
<TABLE>
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Balance Sheets as of June 30, 1998, and as of December 31, 1997. 3
Statements of Operations for the three months and six months ended
June 30, 1998, and June 30, 1997. 5
Statements of Cash Flows for the six months ended June 30, 1998, and
June 30, 1997. 6
Summary of Accounting Policies 8
Notes to Consolidated Financial Statements. 10
Item 2. Management Discussion and Analysis or Plan of Operation 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 4. Submission to Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CINEMA RIDE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998, AND DECEMBER 31, 1997
====================================
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------- ------------
(unaudited) (audited)
<S> <C> <C>
Current assets:
Cash $ 543,264 $ 705,630
Inventories 12,797 21,614
Prepaid Expenses 60,407 69,601
Receivable from Times Square Landlord (Note 1) - 500,000
Assets to be disposed - short-term (Note 1) - 1,490,915
Other Receivables 12,646 852
------------ ------------
Total current assets 629,114 2,788,612
------------ ------------
Property and equipment:
Office Equipment and furniture 105,000 106,938
Equipment under capital lease 139,474 139,474
Leasehold improvements 945,203 943,873
Theater and film equipment 1,637,303 2,953,259
Theater and film equipment available for use 1,767,480 564,432
------------ ------------
4,594,460 4,707,976
Less accumulated depreciation and
amortization (1,204,114) (1,226,811)
------------ ------------
Total property and equipment (net) 3,390,346 3,481,165
------------ ------------
Film library:
Film projects under development - 316,387
Film library, net of accumulated amortization
of $559,975 and $460,714. 530,662 299,651
------------ ------------
Total film library, net 530,662 616,038
------------ ------------
Assets to be disposed - long-term (Note 1) - 161,629
Receivable from officers (Note 5) 86,151 47,962
Consulting agreement (Note 5) 44,218 49,420
Deferred lease costs and other assets (net) 172,156 283,713
------------ ------------
Total assets $ 4,852,647 $ 7,428,539
============ ============
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements
3
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
JUNE 30, 1998, AND DECEMBER 31, 1997
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------- ------------
(unaudited) (audited)
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $ 311,446 $ 539,006
Current portion of capital lease obligation (Note 4) 17,429 58,641
Current portion of notes payable to lender (Note 2) 348,443 322,286
Deferred Lease Termination (Note 1) - 1,490,915
Note payable to bank (Note 2) 10,590 10,568
----------- -----------
Total current liabilities 687,908 2,421,416
----------- -----------
Obligation under capital lease (Note 4) 72,902 300,819
Note payable to bank (Note 2) 5,545 11,576
Note payable to lender (Note 2) 713,083 894,098
Deferred rent 121,139 137,617
----------- -----------
Total long term liabilities 912,669 1,344,110
Total liabilities 1,600,577 3,765,526
Commitments and contingency (Note 2 & 6)
Stockholders' equity (Note 3)
Preferred stock, $.01 par value, 500,000
shares authorized, none issued - -
Common stock, $.01 par value, 2,500,000
shares authorized, 731,885 and 725,349
shares issued and outstanding 58,546 58,028
Additional paid-in-capital 9,175,780 9,173,191
Treasury Stock, at cost, 6,474 and 6,474 shares at
June 30, 1998 and December 31, 1997 respectively (29,000) (29,000)
Accumulated deficit (5,953,256) (5,539,206)
----------- -----------
Total stockholders' equity 3,252,070 3,663,013
----------- -----------
Total liabilities and stockholders' equity $ 4,852,647 $ 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 AND SIX MONTHS ENDED JUNE 30, 1998, AND JUNE 30, 1997
===================================================================
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
1998 1997 1998 1997
-------------------------- ------------------------
<S> <C> <C> <C> <C>
Revenues $ 537,954 $ 917,972 $1,161,018 $ 1,787,767
--------- ---------- ---------- -----------
Selling, general and administrative 585,770 913,441 1,239,704 1,863,253
expenses
Depreciation and amortization 137,343 322,614 308,547 653,611
--------- ---------- ---------- -----------
Total expenses 723,113 1,236,055 1,548,251 2,516,864
--------- ---------- ---------- -----------
Loss from operations (185,159) (318,083) (387,233) (729,097)
Other income - - 56,413 -
Interest expense 58,124 76,282 125,178 302,768
Interest income 7,748 356 15,042 3,035
--------- ---------- ---------- -----------
Net Loss $(235,535) $ (394,009) $ (440,956) $(1,028,830)
========= ========== ========== ===========
Net Loss per common share $(.32) $(.55) $(.60) $(1.43)
========= ========== ========== ===========
Weighted Average common share
outstanding 731,885 718,155 730,713 719,486
========= ========== ========== ===========
</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, 1998 & JUNE 30, 1997
==============================================
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, June 30,
1998 1997
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(440,956) $(1,028,830)
Adjustments to reconcile net loss to net
cash used provided by (used in) operating activities:
Depreciation and amortization 308,547 653,611
Stock issued for services rendered 3,107 20,900
Non cash compensation - 10,800
Amortization of deferred financing costs 21,459 146,107
Amortization of consulting agreement 5,202 -
Exchange Loss 20,091 -
Settlement with vendors (56,413) -
Increase (decrease) from changes in:
Inventories 8,817 8,188
Prepaid expenses 9,194 24,505
Other receivables (14,983) 667
Proceeds from Times Square landlord 500,000 -
Accounts payable and accrued expenses (192,493) (639,570)
Deferred rent (16,478) (8,322)
--------- -----------
Net cash provided by (used in) operating activities 155,094 (811,944)
--------- -----------
Cash flows from investing activities:
Acquisition of:
Capital expenditures (17,739) (17,739)
Film production costs (2,643) (36,076)
Deferred lease costs and other assets - 5,000
--------- -----------
Net cash used in investing activities (20,382) (48,815)
--------- -----------
Cash flows from financing activities:
Loan made to officer (35,000) -
Proceeds from notes payable - 150,000
Principal payments made on notes payable (160,866) (487,813)
Repurchase of stock - (19,000)
Principal payments under capital lease obligation (101,212) (25,471)
--------- -----------
Net cash used in financing activities (297,078) (382,284)
--------- -----------
Net decrease in cash and cash equivalents (162,366) (1,243,043)
Cash and cash equivalents at beginning of period 705,630 1,395,978
--------- -----------
Cash and cash equivalents at end of period $ 543,264 $ 152,935
========= ===========
</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, 1998 & JUNE 30, 1997
==============================================
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, June 30,
1998 1997
---------- -----------
<S> <C> <C>
Supplemental Disclosure of Cash Flow Information
Cash paid for income taxes $ 800 $ 800
========= ===========
Cash paid during the period for interest $ 110,065 $ 156,661
========= ===========
Non cash financing activities:
Conversion of accounts payable to notes payable - 12,354
</TABLE>
As a result of the termination agreement with the landlord of the Times Square
Facility, 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, and $1,203,048 in equipment was
transferred to Theater and film equipment available for use.
During the six months ended June 30, 1998, the Company transferred $330,272 in
film projects under development to film library as these films were completed
and released during the period.
See Accompanying Notes to Unaudited Consolidated Financial Statements
7
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
SIX MONTHS ENDED JUNE 30, 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 June 30, 1998, and December 31, 1997, and the results
of its operations and statements of cash flows for the three months and six
months ended June 30, 1998, and June 30, 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 and six months ended June 30,
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
SIX MONTHS ENDED JUNE 30, 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 June 30, 1998 and 1997 unamortized pre-opening costs of $ 0 and $83,586 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 six months ended June 30, 1998, common
equivalents representing 1,377,500 outstanding stock options and 3,217,209
outstanding warrants are not included since their effect would be anti-dilutive.
For the six months ended June 30, 1997, common stock equivalents representing
1,333,500 outstanding stock options and 3,217,209 outstanding warrants are not
included since their effect would be anti-dilutive. The Company underwent a one
for eight reverse stock split of its common stock which became effective May 29,
1998. All per share amounts reflect such reverse split. The Company adjusted
the stock options and warrants outstanding whereby eight stock options or
warrants will be required to purchase one share of common stock at eight times
the original exercise price for such stock options or warrants.
9
<PAGE>
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
- ------------------------
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 CONSOLIDATED 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 June 30, 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 June
30, 1998 $16,135 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. The
Company has issued 55,536 shares of the Company's common stock to various
vendors and 31,250 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 $16.00 per
share for every eight warrants, and an aggregate of 265,643 warrants to the
brokers who arranged the financing at an exercise price of $3.28 per share for
every eight warrants 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
June 30, 1998 $1,061,526 remains unpaid on this loan.
NOTE 3. STOCK TRANSACTIONS
During the six months ended June 30, 1998, the Company issued 6,474 shares
to its Chief Financial Officer. The Company recorded the then fair market value
of the shares as additional compensation to the officer.
During the quarter ended June 30, 1998, the Company underwent a one for
eight reverse stock split of its common stock which became effective May 29,
1998. All per share amounts reflect such reverse split. The Company adjusted
the warrants and options outstanding whereby eight warrants or options will be
required to purchase one share of common stock at eight times the original
exercise price for such warrants and options.
During June 1998, the Company's Board of Directors agreed on repricing the
exercise price of stock options already issued to employees and to the non
employee directors to the then current market value.
NOTE 4. CAPITAL LEASE OBLIGATION
Certain disputes arose 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.
11
<PAGE>
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 arose 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 withheld 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 11,686 shares of the
Company's common stock, which were previously issued to the lessor during
December 1996. These shares were later sold to the Company's Chief Financial
Officer at the then current market price.
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 5,000 shares or the
number of shares equivalent to the unpaid value of the note. The balance of the
remaining loan from officer at June 30, 1998 is $51,151, which includes $11,151
of accrued interest. The due date on this note was extended by the Board of
Directors during June 1998 to the earlier of (1) June 30, 2002 or (2) six months
after the officer ceases to be an employee.
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 the number of shares
equivalent to the unpaid value of the note. However, based on the current bid
price of the Company's stock as of July 30, 1998, the loans to the Chief
Executive Officer are under collateralized by approximately $43,000.
NOTE 6. COMMITMENTS AND CONTINGENCIES
On June 15, 1998, the Company entered into a three-year joint venture
agreement with Dave & Buster's, Inc., to install its 3-D motion simulation
theater at Dave & Buster's, Inc. Atlanta facility. The Company will be
responsible for the transportation and installation of the theater. Management
estimates that the transportation and installation costs will not exceed
$100,000. Dave and Buster's, Inc., will be responsible for providing the space
in its Atlanta facility and preparing the premises for installation. The
venture agreement can be terminated earlier by either party if, among other
things, certain sales and cash flow goals are not met. Management believes that
the facility should be operational by Fall 1998, however, there can be no
assurance that delays will not arise which could preclude the facility to be
open by Fall 1998.
During the quarter ended June 30, 1998, the Company entered into severance
agreements with its Chief Executive Officer and its Chief Financial officer that
would protect each officer in the case of a change in control of the Company.
These agreements are intended to provide certain benefits to the officers upon a
change of control of the Company which is defined to mean (a) the acquisition by
any person of 20% or more of the Company's voting power, (b) a change in control
of the Board of Directors (c) a merger or consolidation of the Company with any
other entity other than a merger or consolidation whereby the shareholders of
the Company prior to the merger or consolidation continue to represent 80% of
the combined voting power of the merged entity.
12
<PAGE>
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 JUNE 30, 1998 VS. QUARTER ENDED JUNE 30, 1997:
Revenues decreased by 41% or $380,018 from $917,972 in 1997 to $537,954 in
1998. The decrease is mainly due to a decrease of $389,519 in revenues from the
Times Square Facility which was closed in January 1998, and a decrease in
revenues of $17,202 from the Las Vegas Facility. This decrease was partially
offset by an increase in revenues at the West Edmonton Mall Facility by 60% or
approximately $27,000 from approximately $47,000 in 1997 to approximately
$74,000 in 1998.
Selling, general and administrative expenses decreased by 36% or $327,671
from $913,441 in 1997 to $585,770 in 1998. This decrease is mainly due to 1) a
decrease of approximately $291,000 in expenses from the Times Square Facility
which was closed in January 1998, and 2) a decrease in corporate expenses of
approximately $101,000 mainly due to decreases in salaries and to decreases in
professional fees relating to costs incurred in the registration of additional
shares in 1997. This decrease was offset by increases in costs at the Las Vegas
Facility of approximately $38,000.
Depreciation and amortization decreased by 57% or $185,271 from $322,614 in
1997 to $137,343 in 1998 mainly due to a decrease of approximately $182,000 in
depreciation and amortization from the Times Square Facility which was closed in
January 1998.
Interest expense decreased by 24% or $18,158 from $76,282 in 1997 to
$58,124 in 1998 mostly due to a decrease of $11,213 in interest incurred
relating to the Times Square Facility which was closed in January 1998.
Interest income increased by $7,392 from $356 in 1997 to $7,748 in 1998
mainly due to utilization of cash available to the Company from the proceeds
received from the Time Square landlord.
SIX MONTHS ENDED JUNE 30, 1998 VS. SIX MONTHS ENDED JUNE 30, 1997:
Revenues decreased by 35% or $626,749 from $1,787,767 in 1997 to $1,161,018
in 1998. The decrease is mainly due to a decrease of $667,185 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 61% or approximately $54,000 from approximately $88,000 in 1997 to
approximately $142,000 in 1998.
Selling, general and administrative expenses decreased by 33% or $623,549
from $1,863,253 in 1997 to $1,239,704 in 1998. This decrease is mainly due to
1) a decrease of approximately $545,000 in expenses from the Times Square
Facility which was closed in January 1998, and 2) a decrease in corporate
expenses of approximately $164,000 mainly due to decreases in salaries and to
decreases in professional fees relating to costs incurred in the registration of
additional shares in 1997. This decrease was offset by increases in costs at
the Las Vegas Facility of approximately $37,000.
Depreciation and amortization decreased by 53% or $345,064 from $653,611 in
1997 to $308,547 in 1998 mainly due to a decrease of approximately $331,622 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.
13
<PAGE>
Interest expense decreased by 59% or $177,590 from $302,768 in 1997 to
$125,178 in 1998 due to 1) 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, and 2) a
decrease of $20,348 in interest incurred relating to the Times Square Facility
which was closed in January 1998.
Interest income increased by $12,007 from $3,035 in 1997 to $15,042 in 1998
mainly due to utilization of cash available to the Company from the proceeds
received from the Time Square landlord.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash provided by operating activities was $155,094 during the six
months ended June 30, 1998, as compared to the cash used in operating activities
of $811,944 for the same period during the prior year. The increase of $967,038
was primarily due to 1) a decrease in losses for the six months ended June 30,
1998 by $587,874, 2) a decrease in accounts payable and accrued expenses of
$447,077, 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 of $345,064, 2) a decrease in amortization of deferred
financing costs of $124,558, and 3) an increase in settlement with vendors of
$56,413.
Net cash used in investing activities decreased by 58% or $28,433, from
$48,815 in 1997 to $20,382 in 1998. The decrease is primarily due to
expenditures for film production costs incurred in 1997.
Net cash used in financing activities decreased by 22% or $85,206 from
$382,284 in 1997 to $297,078 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, and by principal payments under
capital lease obligations which were made in 1998.
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 June 30, 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 June
30, 1998, $16,135 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 55,536 shares of the Company's common stock to various
vendors and 31,250 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 $16.00 per
share for every eight warrants, and an aggregate of 265,643 warrants to the
brokers who arranged the financing at an exercise price of $3.28 per share for
every eight warrants 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 held by the Lender pending the Company's
meeting all of the Lender's requirements. As of June 30, 1998, $1,061,526
remains unpaid on this loan.
14
<PAGE>
As of June 30, 1998, the Company had a negative working capital of $58,794.
The Company's cash and cash equivalents as of June 30, 1998 were $543,264 as
compared to $705,630 at December 31, 1997. 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. 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 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 is exploring 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.
On May 29, 1998, the Company entered into a three-year joint venture
agreement with Dave & Buster's, Inc., to install its 3-D motion simulation
theater at Dave & Buster's, Inc. Atlanta facility. The Company will be
responsible for the transportation and installation of the theater. Management
estimates that transportation and installation costs will not exceed $100,000.
Dave and Buster's, Inc., will be responsible for providing the space in its
Atlanta facility and preparing the premises for installation. The venture
agreement can be terminated earlier by either party if, among other things,
certain sales and cash flow goals are not met. Management believes that the
facility should be operational by Fall 1998. However, there can be no assurance
that delays will not arise which could preclude the facility to be open by Fall
1998.
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.
15
<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 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.
YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. Computer programs
that have sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculation causing disruption of operations, including, among other things,
a temporary inability to process transaction, send invoices or engage in similar
normal business activities. The Company does not anticipate that the cost of
any needed modifications will have a material effect on results of 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, 1998
in Studio City, California, for the purpose of electing a board of directors and
approving the appointment of auditors. 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.
16
<PAGE>
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 520,649 11,368
Benjamin Frankel 520,649 11,368
Norman Feirstein 520,337 11,680
</TABLE>
2. The appointment of BDO Seidman, LLP as independent auditors was approved
by the following vote:
<TABLE>
<S> <C>
Votes For: 529,762
-------
Votes Against: 1,830
-------
Abstentions: 425
-------
Shares Not Voted: 191,332
-------
</TABLE>
ITEM 6. EXHIBITS AND REPORTS IN 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 Form 8-K during the quarter ended June 30, 1998.
17
<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 JULY 30, 1998
- ---------------------- -------------
Mitch Francis
Chairman of the Board, President, Chief Executive
Officer and Director (principal executive officer)
/s/ TOUFIC R. BASSIL JULY 30, 1998
- ---------------------- -------------
Toufic R. Bassil
Chief Financial Officer (principal financial officer,
principal accounting officer), Secretary and
Treasurer
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 543,264
<SECURITIES> 0
<RECEIVABLES> 143,015
<ALLOWANCES> 0
<INVENTORY> 12,797
<CURRENT-ASSETS> 629,114
<PP&E> 4,594,466
<DEPRECIATION> 1,204,114
<TOTAL-ASSETS> 4,852,647
<CURRENT-LIABILITIES> 687,908
<BONDS> 0
0
0
<COMMON> 58,546
<OTHER-SE> 3,193,524
<TOTAL-LIABILITY-AND-EQUITY> 4,852,647
<SALES> 1,161,018
<TOTAL-REVENUES> 1,161,018
<CGS> 0
<TOTAL-COSTS> 1,548,251
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 125,178
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (440,956)
<EPS-PRIMARY> (.60)
<EPS-DILUTED> (.60)
</TABLE>
