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 SEPTEMBER
30, 1997
/ / TRANSITION REPORT UNDER SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO
------ -------
Commission file number 001-13187
---------
CLEARVIEW CINEMA GROUP, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 22-3338356
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
7 Waverly Place
Madison, New Jersey 07940
(Address of principal executive offices)
(201) 377-4646
(Issuer's telephone number, including area code)
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 No x
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 2,108,800 shares of common
stock were outstanding as of November 10, 1997
Transitional Small Business Disclosure Format (check one): Yes / / No / x /
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CLEARVIEW CINEMA GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
1996 1997
---- ----
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 751,345 $ 1,195,712
Inventories 45,102 78,236
Other current assets 34,866 321,365
----------- -----------
Total current assets 831,313 1,595,313
PROPERTY AND EQUIPMENT, LESS ACCUMULATED
DEPRECIATION 11,412,217 21,072,010
----------- -----------
OTHER ASSETS:
Intangible assets, less accumulated
amortization 2,711,518 3,360,478
Project acquisition costs 434,326 144,809
Escrow deposits 294,529 294,529
Security deposits and other assets 76,641 86,676
----------- -----------
3,517,014 3,886,492
=========== ===========
$15,760,544 $26,553,815
See accompanying notes to consolidated financial statements.
2
CLEARVIEW CINEMA GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONT'D)
DECEMBER 31, SEPTEMBER 30,
1996 1997
---- ----
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Current maturities of long-term debt $ 835,650 $ 1,317,696
Current maturities of subordinated notes
payable:
Related parties 479,986 491,046
Accounts payable and accrued expenses 1,226,502 1,936,235
------------ ------------
Total current liabilities 2,542,138 3,744,977
------------ ------------
LONG-TERM LIABILITIES:
Long-term debt, less current maturities 7,742,611 12,770,454
Subordinated notes payable, less current
maturities:
Related parties 593,882 599,530
Other 600,000 --
------------ ------------
8,936,493 13,369,984
------------ ------------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK AT
REDEMPTION PRICE 2,132,294 --
------------ ------------
REDEEMABLE COMMON STOCK AT
REDEMPTION PRICE
357,305 --
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIENCY):
Undesignated Preferred Stock:
Authorized 2,498,697 shares,
issued and outstanding - none -- --
Class A Preferred Stock, par value $.01,
authorized 1,303 shares;
outstanding 779 shares 8 8
Common Stock, par value $.01, authorized
10,000,000 shares; outstanding 832,800
and 2,108,800 shares, respectively 8,328 21,088
Additional paid-in capital 4,827,096 11,012,433
Accumulated deficit (553,519) (1,594,675)
Less: Redemption price of redeemable stock (2,489,599) --
------------ ------------
Total stockholders' equity (deficiency) 1,792,314 9,438,854
------------ ------------
$ 15,760,544 $ 26,553,815
============ ============
See accompanying notes to consolidated financial statements.
3
CLEARVIEW CINEMA GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
------------------
SEPTEMBER 30, SEPTEMBER 30,
------------- ------------
1996 1997 1997
---- ---- ----
PRO FORMA
(Note 4)
THEATER REVENUES:
Box office $ 2,199,327 $ 3,335,958 $ 4,213,950
Concession 692,755 976,966 1,225,631
Other 55,701 129,193 75,450
----------- ----------- -----------
2,947,783 4,442,117 5,515,031
----------- ----------- -----------
OPERATING EXPENSES:
Film rental and booking fees 1,075,741 1,669,935 2,060,312
Cost of concession sales 99,210 146,325 188,820
Theater operating expenses 1,207,784 1,706,986 2,090,247
General and administrative 181,136 242,071 385,438
expenses
Depreciation and amortization 233,514 569,027 660,858
----------- ----------- -----------
2,797,385 4,334,344 5,385,675
----------- ----------- -----------
OPERATING INCOME (LOSS) 150,398 107,773 129,356
INTEREST EXPENSE 202,288 525,230 503,838
----------- ----------- -----------
NET LOSS $ (51,890) $ (417,457) $ (374,482)
========== ========== ===========
WEIGHTED AVERAGE COMMON SHARES
SHARES AND EQUIVALENTS
OUTSTANDING
1,797,000 1,443,000 2,489,000
========= ========= =========
NET LOSS PER COMMON SHARE $ (.03) $ (.30) $ (.16)
====== ====== =======
See accompanying notes to consolidated financial statements.
4
CLEARVIEW CINEMA GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1997
---------- ------- ------
PRO FORMA
(NOTE 4)
THEATER REVENUES:
Box office $ 4,050,390 $ 8,044,812 $ 10,644,032
Concession 1,243,711 2,314,787 3,073,713
Other 75,026 270,328 314,431
------------ ------------ ------------
5,369,127 10,629,927 14,032,176
------------ ------------ ------------
OPERATING EXPENSES:
Film rental and booking fees 1,928,100 3,858,635 5,026,096
Cost of concession sales 186,429 367,603 493,655
Theater operating expenses 2,231,021 4,155,946 5,443,509
General and administrative
expenses 408,736 646,789 827,361
Depreciation and amortization 375,420 1,366,734 1,651,734
5,129,706 10,395,707 13,442,355
------------ ------------ ------------
OPERATING INCOME 239,421 234,220 589,821
INTEREST EXPENSE 372,352 1,249,376 1,368,101
------------ ------------ ------------
NET LOSS $ (132,931) $ (1,015,156) $ (778,280)
============ ============ ============
WEIGHTED AVERAGE COMMON SHARES
SHARES AND EQUIVALENTS
OUTSTANDING 1,797,000 1,668,000 2,650,000
========= ========= =========
NET LOSS PER COMMON SHARE $ (.07) $ (.62) $ (.30)
============ ============ ============
See accompanying notes to consolidated financial statements.
5
CLEARVIEW CINEMA GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
ADDITIONAL
PREFERRED STOCK COMMON STOCK PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
------ ------ ------ ------ ------- -------
BALANCES, JANUARY 1, 1997 779 $ 8 832,800 $ 8,328 $ 4,827,096 $ (553,519)
NINE MONTHS ENDED
SEPTEMBER 30, 1997:
Repurchase of
warrants held by
lender (1,000,000)
Purchase of
underwriter warrants 1,000
Issuance of common
stock:
At initial
public offering,
net of costs - - 1,150,000 11,500 7,055,597
Upon termination of
preferred stock
redemption right
considered a
preferred stock
dividend - - 60,000 600 25,400 (26,000)
In exchange for
warrants surrendered - - 66,000 660 103,340
Net loss - - - - - (1,015,156)
--- ---- --------- --------- ------------ ----------
BALANCES, SEPTEMBER 30, 1997 779 $ 8 2,108,800 $ 21,088 $ 11,012,433 (1,594,675)
=== ===== ========= ========= ============ ==========
See accompanying notes to consolidated financial statements.
6
CLEARVIEW CINEMA GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1997
----- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (132,931) $ (1,015,156)
Adjustments to reconcile net loss to net
cash flows from operating activities:
Depreciation and amortization 375,420 1,366,734
Amortization of debt discount 22,382 126,463
Common stock issued upon surrender of
warrants, recorded as interest expense -- 104,000
Changes in operating assets and liabilities:
Inventories (22,986) (33,134)
Other current assets (39,942) (286,499)
Security deposits and other assets (43,088) (10,035)
Accounts payable and accrued liabilities 516,186 709,733
Net cash flows from operating activities 675,041 962,106
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (144,823) (2,208,255)
Purchase of property and equipment upon
acquisition of theaters (6,290,000) (8,475,070)
Purchase of intangible assets (627,963) (229,679)
-------- --------
Net cash flows from investing activities (7,062,786) (10,913,004)
------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 4,293,775 4,824,738
Payments on long-term debt (11,543) (424,604)
Payments on subordinated notes payable, other -- (600,000)
Proceeds from issuance of preferred stock 2,500,000 --
Proceeds from issuance of common stock 70,000 --
Payments on option (120,000) --
Proceeds from initial public offering -- 9,200,000
Proceeds from sale of underwriter warrants -- 1,000
Costs related to issuance of preferred stock (154,911) --
Debt issuance costs (203,581) (472,966)
Costs related to initial public offering (2,132,903)
Dividends paid (10,000) --
------------ ------------
Net cash flows from financing
activities 6,363,740 10,395,265
------------ -----------
NET CHANGE IN CASH (24,005) 444,367
CASH, BEGINNING OF PERIOD 176,203 751,345
------------ ------------
CASH, END OF PERIOD $ 152,198 $ 1,195,712
============ ============
See accompanying notes to consolidated financial statements
7
CLEARVIEW CINEMA GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
1996 1997
---- ----
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 204,619 $ 968,373
========== ==========
Income taxes paid $ 1,871 $ 4,560
========== ==========
Non-cash investing and financing
activities:
Conversion of subordinated note
payable - related party
into common stock $ 80,000 $ --
---------- ----------
Common stock issued for purchase
of assets $ 1,110,00 $ --
---------- ----------
Warrants repurchased through
issuance of debt $ -- $1,000,000
---------- ----------
Common stock issued upon
termination of preferred stock
redemption right,considered
a preferred stock dividend $ -- $ 26,000
---------- ----------
See accompanying notes to consolidated financial statements.
8
CLEARVIEW CINEMA GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION:
The balance sheet at December 31, 1996 has been derived from the audited
balance sheet contained in the Registration Statement on Form SB-2 (File No.
333-27819), as amended (the "Form SB-2") of Clearview Cinema Group, Inc. (the
"Company"), which became effective on August 12, 1997, and is presented for
comparative purposes. All other financial statements are unaudited. In the
opinion of management, all adjustments, which include only normal recurring
adjustments necessary to present fairly the financial position, results of
operations and cash flows for all periods presented, have been made in the
interim statements. Results of operations for interim periods are not
necessarily indicative of the operating results for a full year.
Footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted in
accordance with the published rules and regulations of the Securities and
Exchange Commission. The financial statements in this report should be read in
conjunction with the financial statements and notes thereto included in the Form
SB-2.
NOTE 2--STOCKHOLDERS' EQUITY:
STOCK SPLIT - In May 1997, the Company's Board of Directors approved a 600
to 1 stock split which was subsequently effected in August 1997. Such stock
split has been retroactively reflected in the accompanying consolidated
financial statements.
INITIAL PUBLIC OFFERING - On August 22, 1997, the Company's initial public
offering (the "Offering") was consummated, pursuant to which the Company sold
1,000,000 shares of its common stock, $.01 par value (the "Common Stock"). Gross
proceeds totaled $8.0 million and net proceeds to the Company, after expenses of
the Offering totaled approximately $6.0 million. Subsequently, the Company's
underwriters exercised their over-allotment option to purchase 150,000
additional shares of Common Stock, resulting in additional gross and net
proceeds to the Company of $1.2 million and $1.074 million, respectively.
REDEMPTION RIGHTS - A certain common stockholder had the right to sell its
shares of Common Stock, to the Company for a 30-day period commencing in 2002 at
a redemption price based upon a formula. If such stockholder did not exercise
that right, the Company had the right to purchase those shares of Common Stock
from such stockholder for the 90-day period commencing after the expiration of
that 30-day period at a price based upon the same formula. Such stockholder and
the Company terminated those rights upon consummation of the Offering. In
addition, concurrently with the consummation of the Offering, holders of
warrants to purchase 97,500 shares of Common Stock (at exercise prices ranging
from $3.33 to $6.67 per share)
9
exchanged such warrants for 66,000 shares of Common stock and also amended the
terms of certain subordinated notes payable. The fair value of the Common Stock
issued, less the value of the warrants and rights surrendered, was recorded as
interest expense of $104,000 upon consummation of the Offering.
The holder of the outstanding shares of the Company's Class A Convertible
Preferred Stock, $.01 par value (the "Class A Preferred Stock"), had the right,
exercisable on or after June 1, 2001, to sell to the Company all of those shares
or the shares of Common Stock into which those shares had been converted at a
redemption price determined in accordance with a specified formula. Such holder
terminated that right upon consummation of the Offering in exchange for the
issuance of 60,000 shares of Common Stock. The fair value of the 60,000 shares
of Common Stock issued, less the estimated value of the redemption right
terminated, was recorded as a preferred stock dividend.
The Company had reported this redeemable stock at the current redemption
value separately between liabilities and stockholders' equity, since redemption
was outside of the Company's control. A corresponding reduction was made to
stockholders' equity, as the equivalent of treasury stock. The per share
redemption value of the Class A Preferred Stock was based on the greater of
gross revenues (as defined) or six times theater operating income (as defined)
before general and administrative expenses, interest and taxes for the preceding
twelve months divided by the number of shares of Common Stock issued and, as if
converted or exercised, all convertible securities, options, warrants and
similar instruments. The redemption value of the Common Stock was based on book
value per share computed on a fully diluted basis.
The termination of these two redemption rights upon consummation of the
Offering resulted in a reclassification of the respective redemption values to
stockholders' equity.
NOTE 3--CREDIT AGREEMENT:
The Company entered into the an amended and restated credit agreement (the
"Credit Facility") with The Provident Bank on September 12, 1997. The Credit
Facility consists of a $1.0 million revolving credit facility, a term loan
facility of $14.0 million used to refinance existing term loans of $10.4 million
and for $3.6 million of new term loans of which $2.15 million was used to
finance part of the purchase price for five theaters acquired from United
Artists Theatre Circuit, Inc. ("United Artists"), and a term loan facility of up
to $15.0 million to finance future capital expenditures and acquisitions. The
interest rate on all loans under the Credit Facility is 1/2% to 1% over that
lender's prime rate depending upon maintenance of certain financial ratios of
the Company. Principal is payable quarterly and interest is payable monthly in
arrears. The final maturity of all term loans will be on the fifth anniversary
of the Credit Facility. The loans under the Credit Facility are collateralized
by substantially all of the assets of the Company and its subsidiaries.
10
NOTE 4--ACQUIRED THEATERS
On September 12, 1997, the Company completed the acquisition of five
theaters from United Artists (the "UA Acquisition") for a purchase price of
$8.65 million in cash, which was provided by the proceeds of the Offering and by
borrowings under the Credit Facility. The completion of this transaction raised
the Company's total number of theaters to 22 and its screen count to 83.
The unaudited pro forma results of operations included in this report have
been prepared as if the Company's 1996 and 1997 acquisitions occurred as of the
beginning of the respective periods after giving effect to certain adjustments,
including increased depreciation expense and increased interest expense on
acquisition debt. The pro forma results have been prepared for informational
purposes only and do not purport to indicate the results of operations (i) that
actually would have occurred had the acquisitions been consummated on the dates
indicated or (ii) that may occur in the future. The pro forma results of
operations (unaudited) for the nine and three months ended September 30, 1997
are presented on the face of the Statements of Operations, together with the
respective historical results of operations.
Unaudited condensed pro forma results of operations for the nine months
ended September 30, 1996 are summarized below:
SEPTEMBER 30, 1996
(UNAUDITED)
Revenues $ 13,608,502
Net loss $ (680,554)
Net loss per share $ (.25)
NOTE 5--SUBSEQUENT EVENTS
The Company purchased the leasehold of the Roslyn Trio Theater in Roslyn,
New York, a three screen cinema theater, in November 1997. The Company is also
planning to acquire two multiplex theaters with 22 screens located in New
Jersey. The Company continues to pursue the acquisition of additional theaters
in the New York metropolitan area and other demographically suitable locations.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF THE COMPANY'S RESULTS OF
OPERATIONS AND FINANCIAL CONDITION SHOULD BE READ IN CONJUNCTION WITH THE
INFORMATION SET FORTH IN THE UNAUDITED FINANCIAL STATEMENTS AND NOTES THERETO
INCLUDED ELSEWHERE HEREIN AND THE AUDITED FINANCIAL STATEMENTS AND THE NOTES
THERETO INCLUDED IN THE SB-2, WHICH BECAME EFFECTIVE ON AUGUST 12, 1997.
OVERVIEW
The Company has achieved significant growth in theaters and screens since
its formation in December 1994. From inception, when the Company acquired the
right to operate four theaters with eight screens, through September 30, 1997,
the Company has acquired the right to operate 18 theaters with 69 screens and
has added six screens to two existing theaters. In November 1997, the Company
also acquired a three screen theater in Roslyn, New York. The Company expects
that its future revenue growth will be derived primarily from the operation of
additional theaters, the development of new theaters and adding screens to
existing theaters. The Company has had no theater closings since inception.
The Company's revenues are predominantly generated from box office
receipts, concession sales and on-screen advertising. Direct theater costs
include film rental and booking fees and the cost of concessions. Other theater
operating expenses consist primarily of theater labor and related fringe benefit
costs and occupancy costs (including rent and/or real estate taxes, utilities,
repairs and maintenance, cleaning costs and supplies). Film rental costs are
directly related to the popularity of a film and the length of time since that
film's release. Film rental costs generally decline as a percentage of box
office receipts the longer a film has been showing. As certain concession items,
such as fountain drinks and popcorn, are purchased in bulk and not prepackaged
for individual servings, the Company has significant gross profit margins on
those items.
General and administrative expenses consist primarily of corporate
overhead costs, such as management and office salaries and related fringe
benefits costs, professional fees, insurance costs and general office expenses.
The Company believes that its current internal controls and management
information system will allow the Company to expand its number of screens
without incurring proportionate increases in general and administrative
expenses.
In September 1995, the Company acquired the right to operate three
theaters with 11 screens in Nassau County, New York in an all-cash transaction.
In May 1996, the Company purchased the leaseholds of four theaters with 19
screens in New York and New Jersey for a combination of stock and cash. In July
1996, Clearview purchased the leaseholds of two theaters with seven screens in
Westchester County, New York for cash. In December 1996, Clearview acquired two
more theaters with the underlying real estate and the leasehold of another
theater with a total of 13 screens in Bergen County, New Jersey. In September
1997, Clearview completed the UA Acquisition and acquired three theaters with
the underlying real estate and the leaseholds of two additional theaters. These
five theaters (the "UA Theaters") have a total of 14 screens and are located in
Wayne, New Jersey and Bronxville, Larchmont, Mamaroneck and New City, New York.
The total purchase price of $8.65 million was paid using proceeds of $6.5
million from the Offering and financing of $2.15 million from the Credit
Facility.
12
COMPARATIVE QUARTERLY RESULTS
TOTAL REVENUES. Total revenues for the nine and three months ended
September 30, 1997 were $10,629,927 and $4,442,117 respectively, as compared to
$5,369,127 and $2,947,783 for the nine and three months ended September 30,
1996, respectively. The increases in revenues of 98.0% and 50.7%, respectively,
are principally attributable to an increase in attendance to 1,494,860 attendees
in the nine months ended September 30, 1997 from 776,815 attendees in the nine
months ended September 30, 1996, and an increase in attendance to 603,307
attendees in the three months ended September 30, 1997 from 429,194 attendees in
the three months ended September 30, 1996. The increase in attendance occurred
principally because of the addition of 39 screens during 1996.
FILM RENTAL AND BOOKING FEES. Film rental and booking fees increased by
100.1% and 55.2% to $3,858,635 and $1,669,935 for the nine and three months
ended September 30, 1997, respectively, from $1,928,100 and $1,075,741 for the
nine and three months ended September 30, 1996, respectively. As a percentage of
box office receipts, film rentals and booking fees were 48.0% for the nine
months ended September 30, 1997 as compared to 47.6% for the nine months ended
September 30, 1996. Such costs were 50.1% of box office receipts for the three
months ended September 30, 1997, as compared to 48.9% for the same 1996 period.
See "Operating Income" below for additional information.
COST OF CONCESSION SALES. Cost of concession sales increased by 97.2% and
47.5% to $367,603 and $146,325 for the nine and three months ended September 30,
1997, respectively, from $186,429 and $99,210 for the nine and three months
ended September 30, 1996, respectively. The increase in the cost of concession
sales occurred principally because of the addition of 39 screens in 1996. As a
percentage of concession revenues, the cost of concession sales were 15.9% and
15.0% for the nine and three months ended September 30, 1997, respectively,
compared to 15.0% and 14.3% for the nine and three months ended September 30,
1996, respectively.
THEATER OPERATING EXPENSES. Theater operating expenses increased by 86.3%
and 41.3% to $4,155,946 and $1,706,986 for the nine and three months ended
September 30, 1997, respectively, from $2,231,021 and $1,207,784 for the nine
and three months ended September 30, 1996, respectively. This increase is
attributable solely to the nine theaters acquired in 1996, which acquisitions
occurred during the second, third and fourth quarters of 1996. As a percentage
of total revenues, theater operating expenses decreased to 39.1% and 38.4% for
the nine and three months ended September 30, 1997, respectively, compared to
41.6% and 41.0% for the nine and three months ended September 30, 1996,
respectively. The decrease for the nine and three month periods, as a percentage
of total revenues, is primarily due to the Company's efficient management of its
variable costs and the lower average per-theater fixed costs, such as occupancy
costs, taxes and common area maintenance costs, of the theaters acquired in 1996
as compared to the Company's other theaters.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by 58.2% and 33.6% to $646,789 and $242,071 for the nine and three
months ended September 30,
13
1997, respectively, from $408,736 and $181,136 for the nine and three months
ended September 30, 1996, respectively. The increase is due principally to the
hiring of additional personnel and increases in salaries resulting from the
transition from seven locations and 21 screens at the beginning of 1996 to 16
locations and 60 screens at the beginning of 1997. As a percentage of total
revenues, however, general and administrative expenses decreased to 6.1% and
5.4% for the nine and three months ended September 30, 1997, respectively, from
7.6% and 6.1% for the nine and three months ended September 30, 1996,
respectively. The decrease, as a percentage of total revenues, is due primarily
to the Company's internal controls and management information system, which
allowed the Company to expand its number of screens without incurring
proportionate increases in general and administrative expenses.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased by 264.1% and 143.7% to $1,366,734 and $569,027 for the nine and three
months ended September 30, 1997, respectively, from $375,420 and $233,514 for
the nine and three months ended September 30, 1996, respectively. The increase
was primarily a result of the acquisition of the nine theaters acquired in the
second, third and fourth quarters of 1996, which significantly increased the
Company's depreciable and amortizable assets.
OPERATING INCOME. Operating income decreased by 2.2% and 28.3% to
$234,220 and $107,773 for the nine and three months ended September 30, 1997,
respectively, from $239,421 and $150,398 for the nine and three months ended
September 30, 1996, respectively. As a percentage of total revenues, operating
income was 2.2% and 2.4% for the nine and three months ended September 30, 1997
and 4.5% and 5.1% for the nine and three months ended September 30, 1996,
respectively. The fluctuations were primarily due to the increase in
depreciation and amortization expense discussed above, as well as a result of
the films available for exhibition during the three-month period and six-month
period ended September 30, 1997.
As discussed above, film rental and booking fees (as a percentage of box
office receipts) for the three months ended September 30, 1997 increased to
50.1% from 48.9% in the similar 1996 period. Such increase in costs and related
decrease in operating income is attributable to the selection of films released
during the third quarter of 1997. A number of films released during the third
quarter of 1997 experienced successful opening weekends but were unable to
sustain the popularity necessary to generate significant box office receipts
thereafter. As film exhibitors incur much greater film rental fees for the
opening weeks of a film's release when compared to the fees incurred for later
weeks, this trend resulted in the increase in film cost for the Company and the
entire motion picture exhibition industry. See also the discussion of "Quarterly
Results and Seasonality" below.
INTEREST EXPENSE. Interest expense increased by 235.5% and 159.6% to
$1,249,376 and $525,230 for the nine and three months ended September 30, 1997,
respectively, from $372,352 and $202,288 for the nine and three months ended
September 30, 1996, respectively. The increase was attributable to the
significant increase in the Company's total debt during the second, third and
fourth quarters of 1996, which was primarily incurred in connection with the
Company's acquisitions during that year. Interest expense also includes non-cash
charges for amortization of debt discount of $126,463 and $38,814 for the nine
and three months ended September 30, 1997
14
and $22,382 and $15,360 for the comparable 1996 periods, and $104,000 in
connection with the surrender of warrants during the quarter ended September 30,
1997.
NET LOSS. Net loss increased to $1,015,156 and $417,457 for the nine and
three months ended September 30, 1997, respectively, from net losses of $132,931
and $51,890 for the nine and three months ended September 30, 1996,
respectively. The increase in the net loss was primarily a result of the films
available for exhibition during the two periods, as discussed above, and the
increased 1997 depreciation, amortization and interest expenses due to the
effect of the inclusion of the 1996 acquisitions for a full year.
LIQUIDITY AND CAPITAL RESOURCES
The Company derives substantially all of its revenues from box office
receipts and concession sales and, therefore, benefits from the fact that it
has, in effect, no accounts receivable and minimal inventory requirements. The
Company's most significant operating expenses, film rental and booking fees, are
not typically paid to distributors until 30 to 45 days following the receipt of
the applicable cash ticket payments. In addition, most of the Company's other
operating expenses, such as theater payroll and theater rent, are paid bi-weekly
or monthly, respectively. The periods between the receipt of cash from
operations and use of that cash to pay the related expenses provide certain
operating capital to the Company.
Since the Company is in an industry which is capital intensive,
substantially all of its assets are non-current. The Company's primary current
asset is cash, while inventories are relatively insignificant throughout the
fiscal year. The Company had negative working capital of $2,149,664 at September
30, 1997. The Company has current maturities of long-term debt at September 30,
1997 of $1,317,696, which it expects to satisfy from its cash flow from
operations over the next twelve months.
The Company has historically financed its day-to-day operations
principally from the cash flow generated by its operating activities. Such cash
flow from operations totaled $962,106 for the nine months ended September 30,
1997, as compared to $675,041 for the similar 1996 period. The difference
between the Company's net loss and its cash flow from operating activities is
principally due to the Company's depreciation and amortization expenses of
$1,366,734 for the nine months ended September 30, 1997 and $375,420 for the
similar 1996 period, amortization of debt discount of $126,463 for the nine
months ended September 30, 1997 and $22,382 for the similar 1996 period and
interest expense recorded upon surrender of certain warrants in 1997 of
$104,000, all of which are non-cash expenses. The Company's cash flow generated
by its operating activities was $424,580 and $224,878 for the three months ended
September 30, 1997 and 1996, respectively. The difference between the Company's
net income or loss and its cash flow from operating activities for the three
months ended September 30, 1997 and 1996 is principally due to the Company's
depreciation and amortization expenses of $569,027 and $233,514 for the three
months ended September 30, 1997 and 1996, respectively, amortization of debt
discount of $38,814 and $15,360 for the same three month periods and the
interest expense of $104,000 referred to above, all of which are non-cash
expenses.
15
The Company's capital requirements during 1997 arose principally in
connection with the renovation of existing theaters, the development of new
theaters and the addition of screens to an existing theater. Such capital
expenditures were financed principally with bank borrowings and
internally-generated cash. Capital expenditures, exclusive of theater
acquisitions, totaled approximately $2.2 million during the first nine months of
1997. The Company financed its 1997 acquisition and capital expenditures
principally from the net proceeds of the Offering and additional bank
borrowings. During 1996, the Company funded its capital expenditures, including
theater acquisitions, through approximately $4.3 million of bank borrowings,
$5.0 million of seller-provided financing, $2.5 million of gross proceeds from
the sale of shares of Class A Preferred Stock and $1.1 million from the issuance
of shares of Common Stock to the seller of a theater. In January 1997, the
Company retired $4.4 million of that seller-provided financing with additional
bank borrowings and $100,000 in cash.
The Company seeks to lease theaters rather than to purchase theaters with
their underlying real estate or to purchase properties for development as
theaters due to the significantly lower capital requirements for leasing and
because it believes that its potential return on investment when leasing a
theater is higher than its potential return on investment if it owns that
theater and the underlying real estate.
The Company anticipates that its capital expenditures in 1997, including
acquisitions, will be approximately $25.0 million. Of this amount, $500,000 was
used to add four screens to the Company's theater in Chester, New Jersey,
$900,000 was used to convert a part of a building into a theater in Summit, New
Jersey, and $8.65 million was used to consummate the UA Acquisition.
INITIAL PUBLIC OFFERING. On August 22, 1997, the Offering was consummated
and the Company sold 1,000,000 shares of Common Stock. Gross proceeds totaled
$8.0 million and net proceeds to the Company, after expenses of the Offering,
totaled approximately $6.0 million. Subsequently, the Company's underwriters
exercised their over-allotment option to purchase 150,000 additional shares of
Common Stock, resulting in additional gross and net proceeds to the Company of
$1.2 million and $1.074 million, respectively.
CREDIT AGREEMENT. The Credit Facility consists of a $1.0 million revolving
credit facility, a term loan facility of $14.0 million used to refinance
existing term loans of $10.4 million and for $3.6 million of new term loans of
which $2.15 million was used to finance part of the purchase price for five
theaters acquired from United Artists, and a term loan facility of up to $15.0
million to finance future capital expenditures and acquisitions. The interest
rate on all loans under the Credit Facility is 1/2% to 1% over that lender's
prime rate depending upon the maintenance of certain financial ratios of the
Company. Principal is payable quarterly and interest is payable monthly in
arrears. The final maturity of all term loans will be on the fifth anniversary
of the Credit Facility. The loans under the Credit Facility are collateralized
by substantially all of the assets of the Company and its subsidiaries.
ACQUIRED THEATERS. The purchase price for the UA Acquisition was $8.65
million, which was paid with $6.5 million in proceeds from the Offering and
$2.15 in borrowings under the
16
Credit Facility. The completion of the UA Acquisition raised the Company's total
number of theaters to 22 and its screen count to 83.
QUARTERLY RESULTS AND SEASONALITY
Historically, the most successful films have been released during
the summer months (July and August) and Thanksgiving through the year-end
holiday season. Consequently, motion picture exhibitors generally have had
proportionality higher revenues during such periods, although seasonality of
motion picture exhibition revenues has become less pronounced in recent years as
studios have begun to release major motion pictures more evenly throughout the
year. The Company believes that its regular exhibition of art films has
contributed to a moderation in the seasonality of its own revenues as compared
to the seasonality of the revenues of some of its competitors. Nevertheless the
Company's revenues and income in any particular quarter will be substantially
the result of the commercial success of the particular films being exhibited
during such quarter.
EFFECTS OF INFLATION
Inflation has not had a significant impact on the Company's operations to
date.
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PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The registration statement on Form SB-2 (File No. 333-27819) relating to
the public offering of up to 1,150,000 shares of Common Stock was filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended, on May 27, 1997 and amended on July 18, 1997, August 4, 1997, August
11, 1997, and August 12, 1997 (the "Registration Statement"). The Registration
Statement was declared effective by the Securities and Exchange Commission on
August 12, 1997. The Offering commenced on August 19, 1997 and terminated on
September 15, 1997, after the sale of all 1,150,000 shares. One hundred and
fifty thousand shares were purchased from the Company by its underwriters, for
whom Prime Charter Ltd. ("Prime Charter") was acting as the representative,
solely for the purpose of covering over-allotments.
The gross proceeds of the Offering were $9,200,000. The expenses incurred
in connection with the Offering totaled $2,132,903. Of that amount, $736,000 for
discounts and commissions and another $276,940 for additional expenses was paid
to Prime Charter. Other Offering expenses, including but not limited to expenses
for professional fees, printing fees and filing fees, totaled $1,119,163.
The net proceeds of the Offering, after deducting the expenses of the
Offering were $7,067,097 (the "Net Offering Proceeds"). A portion of the Net
Offering Proceeds was used to retire a Senior Subordinated Note (principal
amount $600,000) issued by the Company to Magic Cinemas LLC on December 13,
1996. The remaining $6,467,097 was used to pay a substantial portion of the
$8.65 million purchase price for the UA Theaters.
The use of the proceeds of the Offering by the Company is in accordance
with the description of the use of proceeds appearing on page 13 of the
prospectus included in the Registration Statement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
The following exhibits are attached hereto or incorporated by reference as
part of this report.
Exhibit Description Method of Filing
11.01 Statement re: computation of per share earnings Filed herewith
27.01 Financial Data Schedule Filed herewith
No reports on Form 8-K were filed by the Company during this reporting
period.
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SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of
1934, as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
CLEARVIEW CINEMA GROUP, INC.
November 13, 1997 /s/ A. Dale Mayo
-------------------------------------
A. Dale Mayo
Chairman of the Board, President and
Chief Executive Officer
November 13, 1997 /s/ Joan M. Romine
-------------------------------------
Joan M. Romine
Treasurer and Chief Financial Officer
(Chief Accounting Officer)
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EXHIBIT INDEX
Exhibit Description Method of Filing
11.01 Statement re: computation of per share earnings Filed herewith
27.01 Financial Data Schedule Filed herewith
20