10QSB 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 2000 [ ] 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 small business issuer 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 -------------------------- (Issuer's telephone number) Not applicable --------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for 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 July 31, 2000, the Company had 779,823 shares of common stock issued and outstanding. Transitional Small Business Disclosure Format: Yes [ ] No [X] Documents incorporated by reference: None. 1 CINEMA RIDE, INC. AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets (Unaudited) - December 31, 1999 and June 30, 2000 Consolidated Statements of Operations (Unaudited) - Three Months and Six Months Ended June 30, 2000 and 1999 Consolidated Statements of Cash Flows (Unaudited) - Six Months Ended June 30, 2000 and 1999 Notes to Consolidated Financial Statements (Unaudited) - Six Months Ended June 30, 2000 and 1999 Item 2. Management's Discussion and Analysis or Plan of Operation PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K SIGNATURES 2 Cinema Ride, Inc. and Subsidiaries Consolidated Balance Sheets (Unaudited) June 30, December 31, 2000 1999 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 133,414 $ 320,189 Prepaid expenses and other current assets 47,026 25,804 ------------ ------------ Total current assets 180,440 345,993 ------------ ------------ Property and equipment: Office equipment and furniture 110,033 105,249 Equipment under capital lease 208,236 204,858 Lease improvements 1,062,582 1,051,723 Theater and film equipment 1,695,877 1,673,132 ------------ ------------ 3,076,728 3,034,962 Accumulated depreciation (1,842,248) (1,688,658) ------------ ------------ 1,234,480 1,346,304 ------------ ------------ Other assets: Film library, net of accumulated amortization of $905,063 and $869,930 at June 30, 2000 and December 31, 1999, respectively 187,707 222,840 Investment in joint venture 385,688 411,663 Receivables from officers 870 8,069 Consulting agreement 23,409 28,611 Deferred lease costs and other assets 109,377 123,967 ------------ ------------ 707,051 795,150 ------------ ------------ Total assets $ 2,121,971 $ 2,487,447 ============ ============ 3 (continued) Cinema Ride, Inc. and Subsidiaries Consolidated Balance Sheets (Unaudited) (continued) June 30, December 31, 2000 1999 ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 192,766 $ 219,125 Current portion of capital lease obligations 45,637 40,381 Current portion of note payable to lender 142,712 133,077 Current portion of note payable to bank 416 ------------ ------------ Total current liabilities 381,115 392,999 ------------ ------------ Non-current liabilities: Obligations under capital lease, less current portion 63,488 84,660 Note payable to lender, less current portion 623,578 697,072 Deferred rent 72,079 84,061 Loan payable to officer 120,000 120,000 ------------ ------------ 879,145 985,793 ------------ ------------ Total liabilities 1,260,260 1,378,792 ------------ ------------ Stockholders' equity (Note 2): Preferred stock, $.01 par value - Authorized - 500,000 shares Issued - None Common stock, $.08 par value - Authorized - 20,000,000 shares Issued and Outstanding - 779,823 shares and 731,823 shares at June 30, 2000 and December 31, 1999, respectively 62,386 58,546 Additional paid-in-capital 9,220,369 9,212,209 Accumulated deficit (8,421,044) (8,162,100) ------------ ------------ Total stockholders' equity 861,711 1,108,655 ------------ ------------ Total liabilities and stockholders' equity $ 2,121,971 $ 2,487,447 ============ ============ See accompanying notes to consolidated financial statements. 4 Cinema Ride, Inc. and Subsidiaries Consolidated Statements of Operations (Unaudited) Three Months Ended June 30, ----------------------------- 2000 1999 ------------ ------------ Revenues $ 766,192 $ 660,869 Selling, general and administrative expenses 688,321 645,659 Depreciation and amortization 97,684 135,596 ------------ ------------ Loss from operations (19,813) (120,386) Other income (expense): Equity in net income (loss) of joint venture (2,328) 27,524 Interest income 764 2,281 Interest expense (44,763) (61,212) ------------ ------------ Net loss ($ 66,140) ($ 151,793) ============ ============ Basic and diluted net loss per common share (Note 1) ($ 0.08) ($ 0.21) ============ ============ Weighted average common shares outstanding - basic and diluted 779,823 731,823 ============ ============ See accompanying notes to consolidated financial statements. 5 Cinema Ride, Inc. and Subsidiaries Consolidated Statements of Operations (Unaudited) Six Months Ended June 30, ----------------------------- 2000 1999 ------------ ------------ Revenues $ 1,424,677 $ 1,172,327 Selling, general and administrative expenses 1,331,852 1,183,828 Start-up costs for New Jersey Facility (Note 3) 74,421 Depreciation and amortization 194,104 271,959 ------------ ------------ Loss from operations (175,700) (283,460) Other income (expense): Equity in net income of joint venture 5,833 45,579 Interest income 2,100 5,283 Interest expense (91,177) (115,211) Fair value of warrants issued to officer as commitment fee for line of credit (Note 2) (64,620) ------------ ------------ Net loss ($ 258,944) ($ 412,429) ============ ============ Basic and diluted net loss per common share (Note 1) ($ 0.33) ($ 0.56) ============ ============ Weighted average common shares outstanding - basic and diluted 775,823 731,823 ============ ============ See accompanying notes to consolidated financial statements. 6 Cinema Ride, Inc. and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) Six Months Ended June 30, ----------------------------- 2000 1999 ------------ ------------ Cash flows from operating activities: Net loss ($ 258,944) ($ 412,429) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 194,104 271,959 Common stock issued for services rendered 12,000 809 Equity in net income of joint venture (5,832) (45,579) Amortization of consulting agreement 5,202 5,202 Amortization of deferred financing costs 6,209 6,209 Fair value of warrants issued to officer as commitment fee for line of credit 64,620 Changes in operating assets and liabilities: (Increase) decrease in: Inventories (3,194) Prepaid expenses and other current assets (21,222) 44,417 Deposits 3,000 12,532 Increase (decrease) in: Accounts payable and accrued expenses (26,359) (66,544) Deferred rent (11,982) (13,115) ------------ ------------ Net cash used in operating activities (103,824) (135,113) ------------ ------------ 7 (continued) Cinema Ride, Inc. and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) (continued) Six Months Ended June 30, ----------------------------- 2000 1999 ------------ ------------ Cash flows from investing activities: Purchase of property and equipment ($ 41,766) $ Investment in joint venture (1,724) Dividends received from joint venture 31,807 81,422 (Increase) decrease in receivables from officers 7,199 (3,717) ------------ ------------ Net cash provided by (used in) investing activities (2,760) 75,981 ------------ ------------ Cash flows from financing activities: Payments on notes payable (64,275) (10,297) Principal payments on capital lease obligations (15,916) (9,087) ------------ ------------ Net cash used in financing activities (80,191) (19,384) ------------ ------------ Cash and cash equivalents: Net decrease (186,775) (78,516) At beginning of period 320,189 240,341 ------------ ------------ At end of period $ 133,414 $ 161,825 ============ ============ See accompanying notes to consolidated financial statements. 8 Cinema Ride, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) Six Months Ended June 30, 2000 and 1999 1. Organization and Basis of Presentation Basis of Presentation - The accompanying consolidated financial statements include the operations of Cinema Ride, Inc. and its wholly-owned subsidiaries (the "Company"). All significant intercompany transactions and balances have been eliminated in consolidation. The Company's investment in joint venture is accounted for under the equity method of accounting, whereby the Company recognizes its share of the joint venture's net income or loss and accordingly, the carrying value of the Company's investment in joint venture in the accompanying consolidated balance sheets is adjusted. Business - The Company is in the business of developing and operating rides consisting of 3-D motion simulator attractions and filmed entertainment that combines projected three-dimensional action films of approximately four minutes in duration with computer-controlled, hydraulically-mobilized capsules that are programmed to move in concert with the on-screen action. With regard to the technology employed by the Company in its ride facilities, on January 12, 1999, the Company was granted Patent No. 5,857,917 by the United States Patent and Trademark Office for 3-D video projected motion simulator rides. The Company's ride facilities are located in Las Vegas, Nevada; Edmonton, Alberta, Canada; Atlanta, Georgia; and Elizabeth, New Jersey. Comments - The accompanying consolidated financial statements are unaudited, but in the opinion of management of the Company, contain all adjustments, which include normal recurring adjustments, necessary to present fairly the financial position at June 30, 2000, the results of operations for the three months and six months ended June 30, 2000 and 1999, and the cash flows for the six months ended June 30, 2000 and 1999. The consolidated balance sheet as of December 31, 1999 is derived from the Company's audited financial statements. 9 Certain information and footnote disclosures normally included in financial statements that have been presented in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, although management of the Company believes that the disclosures contained in these financial statements are adequate to make the information presented therein not misleading. For further information, refer to the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1999, as filed with the Securities and Exchange Commission. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure 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. The results of operations for the three months and six months ended June 30, 2000 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2000. Going Concern - The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the accompanying consolidated financial statements do not purport to represent the realizable or settlement values. The Company has suffered recurring operating losses and had a working capital deficit at December 31, 1999 and June 30, 2000 that may impair its ability to obtain additional financing. These factors raise substantial doubt about the Company's ability to continue as a going concern. As a result, the Company's independent certified public accountants have included a modification paragraph in their report on the Company's consolidated financial statements for the year ended December 31, 1999. Foreign Currency Translation - Foreign currency denominated assets and liabilities of the subsidiary where the United States dollar is the functional currency and which have certain transactions denominated in a local currency are remeasured as if the functional currency was the United States dollar. The remeasurement of local currency into United States dollars creates translation adjustments which are included in the statement of operations. 10 Loss Per Share - Basic earnings per share are calculated by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that would occur if stock options and warrants were exercised. These potentially dilutive securities were anti-dilutive for all periods presented, and accordingly, basic and diluted earnings per share are the same for all periods presented. As of June 30, 2000, potentially dilutive securities consisted of outstanding stock options and warrants to acquire 222,188 shares and 1,899,535 shares of common stock, respectively. 2. Stockholders' Equity During January 2000, the Company issued 48,000 shares of common stock to certain of its non-officer employees and consultants as a bonus, which were recorded at fair market value on the date of issuance of $0.25 per share. Accordingly, for the six months ended June 30, 2000, the Company recognized compensation expense of $12,000, which is included in selling, general and administrative expenses in the accompanying statement of operations. During January 2000, as a result of the opening of the Company's new ride facility in Elizabeth, New Jersey, the Company was obligated to grant its Chief Executive Officer a bonus in the form of a stock option to purchase 25,000 shares of common stock exercisable for a period of five years at $0.25 per share, which was fair market value at the date of grant. The Chief Executive Officer was granted this stock option pursuant to the terms of his employment agreement with the Company, which provides for the granting of stock options based on various occurrences, including the opening of new ride facilities. During February 1999, as consideration for providing a line of credit to the Company, the Company granted the Chief Executive Officer warrants to purchase 1,538,461 shares of common stock at an exercise price of $0.13 per share, the fair market value on the date of the agreement, expiring on February 2, 2002. The Company calculated the fair value of the warrants issued to the Chief Executive Officer using the Black-Scholes option pricing model, and charged the fair value of $64,620 to operations as a loan commitment fee during the six months ended June 30, 1999. 3. Start-up Costs for New Jersey Facility The Company began development of the New Jersey Facility during late 1999. The New Jersey Facility was completed and began operations in January 2000. In connection with the establishment of the New Jersey Facility, the Company incurred start-up costs of $74,421 during the six months ended June 30, 2000, which were charged to operations as incurred. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Cautionary Statement Pursuant to Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995: This Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2000 contains "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, including statements that include the words "believes", "expects", "anticipates", or similar expressions. These forward-looking statements include, among others, statements concerning the Company's expectations regarding its working capital requirements, its business, growth prospects, competition and results of operations, and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. The forward-looking statements in this Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2000 involve known and unknown risks, uncertainties and other factors that could cause the actual results, performance or achievements of the Company to differ materially from those expressed in or implied by the forward-looking statements contained herein. Overview: The Company was formed in April 1993, and operations of the Company commenced in October 1994 when the Las Vegas, Nevada Facility was opened. The Company opened its other locations, the West Edmonton Mall Facility, the Times Square Facility, the Atlanta, Georgia Facility, and the Elizabeth, New Jersey Facility in August 1995, September 1996, September 1998 and January 2000, respectively. The Company closed the Times Square Facility in January 1998. 12 Recent Development: During May 2000, the Company entered into an agreement with Dave & Buster's, Inc. to amend and update its existing joint venture agreement to include the installation of five additional ride facilities in new or existing Dave & Buster's, Inc. locations. The Company will be responsible for the installation of its newly-designed eight seat open pod simulator system. The Company will also be responsible for providing all hardware and software required to operate the ride facility. In order to fund its obligations under this agreement with Dave & Buster's, Inc., the Company anticipates that it will be required to raise additional working capital through one or more debt or equity financings. However, there can be no assurances that the Company will be successful in this regard. Seasonality: 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 will be the highest during June through August (the height of the tourist season) and lowest during January and February. As a result, the Company's results of operations at its facilities will depend upon revenues generated from the peak tourist periods and any significant decrease in revenues in such periods could have a material adverse effect upon the Company's results of operations. Results of Operations: Three Months Ended June 30, 2000 and 1999 - Revenues increased by $105,323 or 15.9% to $766,192 in 2000 from $660,869 in 1999. Approximately $103,735 or 98% of the increase in revenues was attributable to the New Jersey Facility, which opened in January 2000. Selling, general and administrative expenses increased by $42,662 or 6.6% to $688,321 in 2000 from $645,659 in 1999, primarily as a result of the opening of the New Jersey Facility in January 2000. During the six months ended June 30, 2000, the Company recorded start-up costs of $74,421 related to the opening of the New Jersey Facility in January 2000. Depreciation and amortization decreased by $37,912 or 28.0% to $97,684 in 2000 from $135,596 in 1999, primarily as a result of certain fixed assets having been fully depreciated at December 31, 1999. 13 Interest expense decreased by $16,449 or 26.9% to $44,763 in 2000 from $61,212 in 1999, primarily as a result of a reduction in the outstanding principal balance of interest-bearing debt. Equity in net income (loss) of joint venture decreased by $29,852, to a net loss of $2,328 in 2000 from net income of $27,524 in 1999, primarily as a result of reduced marketing of the Company's ride facility by Dave & Buster, Inc.'s on-site management. In response, the Company has hired its own on-site manager to promote the Company's ride facility. As a result of the aforementioned factors, the net loss was $66,140 for the three months ended June 30, 2000, as compared to a net loss of $151,793 for the three months ended June 30, 1999. Six Months Ended June 30, 2000 and 1999 - Revenues increased by $252,350 or 21.5% to $1,424,677 in 2000 from $1,172,327 in 1999. Approximately $195,549 or 77% of the increase in revenues was attributable to the New Jersey Facility, which opened in January 2000. Selling, general and administrative expenses increased by $148,024 or 12.5% to $1,331,852 in 2000 from $1,183,828 in 1999, primarily as a result of the opening of the New Jersey Facility in January 2000. Included in selling, general and administrative expenses in 1999 is a charge of $70,000 related to the Company's former Chief Financial Officer leaving the Company effective March 1, 1999. During the six months ended June 30, 2000, the Company recorded start-up costs of $74,421 related to the opening of the New Jersey Facility in January 2000. Depreciation and amortization decreased by $77,855 or 28.6% to $194,104 in 2000 from $271,959 in 1999, primarily as a result of certain fixed assets having been fully depreciated at December 31, 1999. Interest expense decreased by $24,034 or 20.9% to $91,177 in 2000 from $115,211 in 1999, primarily as a result of a reduction in the outstanding balance of interest-bearing debt. Equity in net income of joint venture decreased by $39,746 to $5,833 in 2000 from $45,579 in 1999, primarily as a result of reduced marketing of the Company's ride facility by Dave & Buster, Inc.'s on-site management. In response, the Company has hired its own on-site manager to promote the Company's ride facility. 14 During February 1999, as consideration for providing a line of credit to the Company, the Company granted the Chief Executive Officer warrants to purchase 1,538,461 shares of common stock at an exercise price of $0.13 per share, the fair market value on the date of the agreement, expiring on February 2, 2002. The Company calculated the fair value of the warrants issued to the Chief Executive Officer using the Black-Scholes option pricing model, and charged the fair value of $64,620 to operations as a loan commitment fee during the six months ended June 30, 1999. As a result of the aforementioned factors, the net loss was $258,944 for the six months ended June 30, 2000, as compared to a net loss of $412,429 for the six months ended June 30, 1999. Liquidity and Capital Resources - June 30, 2000: Operating Activities. The Company utilized cash of $103,824 in operating activities during the six months ended June 30, 2000, as compared to utilizing cash of $135,113 during the six months ended June 30, 1999. The reduction in cash utilized in operating activities in 2000 as compared to 1999 of $31,289 was primarily a result of a reduced loss from operations. At June 30, 2000, cash and cash equivalents had decreased by $186,775, to $133,414, as compared to $320,189 at December 31, 1999. As a result, the Company had a working capital deficit of $200,675 at June 30, 2000, as compared to a working capital deficit of $47,006 at December 31, 1999, resulting in current ratios of .47:1 and .88:1 at June 30, 2000 and December 31, 1999, respectively. Investing Activities. Net cash used in investing activities was $2,760 for the six months ended June 30, 2000, primarily as a result of the purchase of fixed assets of $41,766, offset in part by $31,807 of dividends received from the Company's joint venture with Dave & Buster's, Inc. Net cash provided by investing activities was $75,981 for the six months ended June 30, 1999, primarily as a result of $81,422 of dividends received from the Company's joint venture with Dave & Buster's, Inc. Financing Activities. Net cash used in financing activities was $80,191 and $19,384 for the six months ended June 30, 2000 and 1999, respectively, as a result of payments on notes payable and capital lease obligations. The Company has relied on the proceeds from the sale of its securities, loans from both unrelated and related parties, and equipment leases to provide the cash necessary to develop its facilities and ride films and to operate its business. 15 Pursuant to the Company's amended loan agreement with its Chief Executive Officer, during November 1999, the Chief Executive Officer repaid $85,000 of his notes receivable, consisting of principal of $75,000 and accrued interest of $10,000, and the Company also borrowed $120,000 from him under the line of credit. The aggregate proceeds of $205,000 were utilized to fund the costs associated with the installation of the Company's new ride facility in Elizabeth, New Jersey, which opened in January 2000. Going Concern: The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the accompanying consolidated financial statements do not purport to represent the realizable or settlement values. The Company has suffered recurring operating losses and had a working capital deficit at December 31, 1999 and June 30, 2000 that may impair its ability to obtain additional financing. These factors raise substantial doubt about the Company's ability to continue as a going concern. As a result, the Company's independent certified public accountants have included a modification paragraph in their report on the Company's consolidated financial statements for the year ended December 31, 1999. The Company believes that its previous efforts to reduce costs and operate more efficiently, combined with the modified financing arrangement with the Company's Lender, borrowings under the line of credit provided by the Chief Executive Officer, and the opening of the New Jersey Facility, will generate increased cash flows sufficient to fund operations. However, there can be no assurances that such efforts will actually result in increased operating cash flows. Furthermore, to the extent that the Company experiences a revenue shortfall during the June through August peak tourist season, the Company's liquidity and ability to conduct operations may be impaired. The Company anticipates that it will be required to raise additional capital to fund operations, expansion plans and possible acquisitions, mergers and joint ventures, including the amended joint venture agreement with Dave & Buster's, Inc. The Company is also considering a wide range of other business opportunities, some of which are unrelated to the Company's current business activities and could result in a change in control of the Company. There can be no assurances that the Company will be able to secure the capital necessary to fund its future business operations on a timely basis and/or under acceptable terms and conditions. 16 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 27 Financial Data Schedule (electronic filing only) (b) Reports on Form 8-K: Three Months Ended June 30, 2000 - None 17 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CINEMA RIDE, INC. ----------------- (Registrant) /s/ MITCHELL J. FRANCIS Date: August 8, 2000 By: __________________________ Mitchell J. Francis Chief Executive Officer, President, Chief Financial Officer and Chairman of the Board of Directors (Duly Authorized Officer and Chief Financial Officer)