1
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 MARCH 31, 1998
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.)
97 Main Street
Chatham, New Jersey 07928
(Address of principal executive offices)
(973) 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 _X_ No ___
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: 2,227,879 shares of common
stock were outstanding as of April 27, 1998
Transitional Small Business Disclosure Format (check one): Yes ___ No _x_
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CLEARVIEW CINEMA GROUP, INC.
CONSOLIDATED BALANCE SHEETS
December 31, March 31,
1997 1998
------------ ---------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,647,176 $ 1,470,083
Inventories 116,655 163,163
Other current assets 341,273 433,257
------------ ------------
Total current assets 2,105,104 2,066,503
PROPERTY, EQUIPMENT AND LEASEHOLDS, NET 34,488,714 36,549,295
Intangible assets, net 19,931,555 23,877,269
Other non-current assets 827,019 915,198
------------ ------------
$ 57,352,392 $ 63,408,265
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 2,876,607 $ 5,205,205
Subordinate notes payable - short term -- 2,000,000
Accounts payable and accrued expenses 4,562,633 5,282,702
------------ ------------
Total current liabilities 7,439,240 12,487,907
Long-term debt, less current maturities 32,234,955 35,697,369
Subordinated notes payable - long term 6,000,000 4,000,000
COMMITMENTS AND CONTINGENCIES (NOTE 5 + 6)
CLASS B REDEEMABLE PREFERRED STOCK 1,350,000 1,350,000
STOCKHOLDERS' EQUITY:
Undesignated preferred stock:
2,478,697 shares authorized -- --
Class A Preferred Stock, par value $.01, 1,303 shares
authorized; 779 shares issued and outstanding 8 8
Common Stock, par value $.01, 10,000,000 shares authorized;
2,213,097 and 2,227,879 shares issued and outstanding 22,131 22,279
Additional paid-in capital 12,214,515 12,414,367
Accumulated deficit (1,908,457) (2,563,665)
------------ ------------
Total stockholders' equity 10,328,197 9,872,989
------------ ------------
$ 57,352,392 $ 63,408,265
============ ============
See accompanying notes to consolidated financial information.
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CLEARVIEW CINEMA GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
-------------------------------
March 31,
-------------------------------
1997 1998
---------- -----------
THEATER REVENUES:
Box office $2,712,210 $ 7,077,119
Concession 743,986 2,284,059
Other 49,255 319,631
---------- -----------
3,505,451 9,680,809
---------- -----------
OPERATING EXPENSES:
Film rental 1,196,126 3,060,197
Cost of concession sales 108,605 357,465
Theater operating expenses 1,226,799 3,455,314
General and administrative expenses 191,806 1,009,744
Depreciation and amortization 413,011 1,262,625
---------- -----------
3,136,347 9,145,345
---------- -----------
OPERATING INCOME 369,104 535,464
Interest expense, net 358,482 1,160,747
---------- -----------
NET INCOME (LOSS) $ 10,622 $ (625,283)
========== ===========
BASIC INCOME (LOSS) PER SHARE $ 0.01 $ (0.30)
========== ===========
DILUTED INCOME (LOSS) PER SHARE $ 0.01 $ (0.30)
========== ===========
See accompanying notes to consolidated financial information.
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CLEARVIEW CINEMA GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
Class A
Preferred Stock Common Stock Additional
------------------------------------- Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
------ ------ ------ ------ ------- ------- -----
BALANCE, DECEMBER 31, 1997: 779 $8 2,213,097 $22,131 $ 12,214,515 $(1,908,457) 10,328,197
Issuance of common stock
for assets acquired -- - 14,782 148 199,852 -- 200,000
Preferred stock dividend -- - -- -- -- (29,925) (29,925)
Net loss -- - -- -- -- (625,283) (625,283)
--- -- --------- ------- ------------ ----------- ------------
BALANCE, MARCH 31, 1998 779 $8 2,227,879 $22,279 $ 12,414,367 $(2,563,665) $ 9,872,989
=== == ========= ======= ============ =========== ============
See accompanying notes to consolidated financial information.
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CLEARVIEW CINEMA GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
---------------------------------
March 31,
---------------------------------
1997 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 10,622 $ (625,283)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization of property, equipment & leaseholds 339,415 842,486
Amortization of intangible assets 73,596 420,139
Amortization of debt discount and issuance costs 47,493 74,004
Changes in operating assets and liabilities:
Inventories (2,522) (46,508)
Other current assets (126,141) (91,984)
Other non-current assets (10,075) (88,179)
Accounts payable and accrued expenses 448,067 690,144
----------- -----------
Net cash provided by operating activities 780,455 1,174,819
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, equipment and leaseholds (305,347) (765,067)
Acquisitions of theaters -- (5,750,000)
Acquisition costs (93,181) (88,548)
----------- -----------
Net cash used in investing activities (398,528) (6,603,615)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long term debt 625,000 5,800,000
Payments on long term debt (261,311) (8,988)
Debt issuance costs -- (539,309)
Deferred offering costs (65,179) --
----------- -----------
Net cash provided by financing activities 298,510 5,251,703
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 680,437 (177,093)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 751,345 1,647,176
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,431,782 $ 1,470,083
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 235,371 $ 1,108,979
=========== ===========
Non-cash investing and financing activities:
Issuance of common stock as consideration for theater acquired $ -- $ 200,000
=========== ===========
See accompanying notes to consolidated financial information.
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CLEARVIEW CINEMA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL INFORMATION
Note 1--Basis of Presentation:
The balance sheet as of December 31, 1997 has been derived from the
audited balance sheet contained in the Form 10-KSB of Clearview Cinema Group,
Inc. (the "Company"), and is presented for comparative purposes. All other
financial information is 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. 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 information presented in this report should
be read in conjunction with the annual financial statements included in the
Annual Report on Form 10-KSB.
Income (Loss) Per Share - In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards 128, Earnings
Per Share ("SFAS 128") which is effective for financial statements for both
interim and annual periods ending after December 15, 1997. The Company adopted
SFAS 128 in the fourth quarter of 1997. SFAS 128 replaces the presentation of
primary and fully diluted earnings per share with basic and diluted earnings per
share. Basic earnings per share is calculated based on the weighted average
number of common shares outstanding during the period and excludes all dilution.
Diluted earnings per share is calculated by using the weighted average number of
common shares outstanding, while also giving effect to all dilutive potential
common shares that were outstanding during the period. Prior period amounts have
been restated to conform to the requirements of SFAS 128.
For the three months ended March 31, 1998, the net loss available to
common stockholders was $655,208, after giving effect to the preferred stock
dividend. For the three months ended March 31, 1997, the net income available to
common stockholders was $10,622. For the three months ended March 31, 1998 the
weighted average number of shares outstanding used in the computation of basic
and diluted loss per share was 2,220,816. For the three months ended March 31,
1997, the weighted average number of shares outstanding used in the computation
of basic income per share was 832,800 and for diluted income per share was
1,728,000 including all potentially dilutive common stock.
Reclassification - Certain amounts previously reported have been
reclassified to conform to current year presentation.
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Note 2--Stock Based Compensation:
During the three months ended March 31, 1998 the Company granted 61,000
incentive stock options, under the 1997 Stock Incentive Plan with exercise
prices equal to the quoted market price of the Company's Common Stock on the
date of grant.
Note 3--Long-Term Debt:
In February 1998, the Company amended and restated its Credit Facility
by obtaining a third term note ("Term Note C") totaling $5.8 million which was
used to acquire four additional theaters. The aggregate availability under the
Credit Facility was $41.8 million at March 31, 1998, of which $40.8 million is
outstanding at the date hereof. The Credit Facility expires in September 2002.
The Credit Facility includes a revolving credit line of $1 million which can be
used for refinancing existing debt, financing working capital, financing
acquisitions and for general corporate purposes. As of March 31, 1998, principal
payments under the term loans are due in April 1998, July 1998, October 1998
and January 1999 and totalled $5.28 million. There were no amounts outstanding
under the revolving credit line at March 31, 1998.
The Credit Facility is collateralized by substantially all of the
assets of the Company and contains various restrictive covenants, including
maintenance of specified levels of net worth and debt coverage ratios. In
February 1998, the senior debt coverage ratio under the Credit Facility was
amended from 3.7:1 to 4.5:1.
As a result of the February 1998 amendment, all loans under the Credit
Facility bear interest at a rate based on the prime rate plus (x) a margin based
upon the ratio of the Company's borrowings under the Credit Facility plus
capital leases to the Company's EBITDA, and (y) a "Margin Adjustment Rate". The
Margin Adjustment Rate is defined initially as 0%, increases to 2% on November
10, 1998, and increases by 0.5% every 180 days thereafter. The interest rate at
March 31, 1998 was 10%.
Note 4-- Theater Acquisitions:
During the first three months of 1998, the Company acquired a total of
four theaters and twenty one screens located in New Jersey and New York. The
acquisitions have been accounted for under the purchase method of accounting.
Under the purchase method of accounting, the purchase price for each transaction
has been allocated based on the estimated fair value of identifiable tangible
and intangible assets (principally property, equipment and leasehold interest)
of the respective theaters with the excess purchase price, together with
acquisition costs being allocated to goodwill. The results of operations of the
acquired theaters are included in the accompanying consolidated financial
statements from the respective acquisition dates.
Clairidge Acquisition - In February 1998 the Company acquired
substantially all the assets, including leasehold interest, equipment and
various operating contracts of one theater from Clairidge Cinemas, Inc. (the
"Clairidge Acquisition") for a total purchase price of $2.3 million. The Company
paid $2.1 million in cash from borrowings under the Credit Facility and issued
14,782 shares of common stock with an aggregate market value of $200,000 based
on the closing price of the Company's stock on the ten trading days preceding
the acquisition. Leasehold interests acquired are to be amortized over the
theater lease which has a remaining lease term through December 31, 2016. The
purchase price has been allocated as follows:
Leasehold interest $ 104,500
Equipment 345,000
Goodwill 1,850,500
------------
$ 2,300,000
============
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UA II Acquisition - In February 1998 the Company acquired substantially
all the assets, including land, building, equipment and various operating
contracts of two theaters from United Artists Theater Circuit, Inc. (the "UA II
Acquisition") for a total purchase price of $1.5 million paid in cash from
borrowings under the Credit Facility. The purchase price has been allocated as
follows:
Land $ 252,000
Building 1,008,000
Equipment 240,000
------------
$ 1,500,000
============
Cobble Hill Acquisition - In March 1998 the Company acquired
substantially all the assets, including equipment and various operating
contracts of one theater from Cobble Hill Cinemas, Inc. (the "Cobble Hill
Acquisition") for a total purchase price of $2.15 million, paid in cash from
borrowings under the Credit Facility. The purchase price has been allocated as
follows:
Equipment $ 188,500
Non-compete 14,000
Goodwill 1,947,500
------------
$ 2,150,000
============
Note 5--Commitments and Contingencies:
In February 1998, the Company entered into a lease agreement to operate
a theater facility in Montclair, N.J. for ten years with four 5- year renewal
options. The lease provides for base rent of $37,500 and is adjusted upward each
year based on a formula.
In January 1998, the Company entered into an agreement providing for
the lease of a theater in Millburn, N.J. with the option to purchase certain
assets of the theater for $1.15 million in cash. The lease period is three
months with an option to extend for an additional three months, at $9,000 per
month, during which time the Company can exercise its option to purchase the
theater. It is the Company's intention to exercise this option within the lease
period.
In connection with the CJM Acquisition consummated in 1997, the Company
agreed to provide to the seller additional consideration of 750 shares of Class
B redeemable preferred stock valued at $750,000 if another competing theater is
not opened in the operating vicinity of the purchased theaters within two years
of the date of the agreement or December 12, 1999. However, such consideration
is deemed to be contingent and, as such, will only be recorded on December 12,
1999 if no competing theater has opened.
During September 1995, the Company entered into an agreement providing
for the lease of three New York theater locations with annual rent of
approximately $300,000 and the option to purchase certain assets of the three
theaters through September 2000. Until exercise of the option, the Company is
required to make annual payments which are recorded as interest expense. It is
the Company's intention to exercise this option.
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Note 6--Subsequent Events:
Class C Preferred Stock - In April 1998 the Company designated a new
series, consisting of 3,000 shares of its preferred stock, $.01 par value, as
Class C Convertible Preferred Stock (the "Class C Preferred Stock").
Concurrently, the Company entered into a Securities Purchase Agreement and
issued the 3,000 shares of its Class C Preferred Stock for $3.0 million in cash.
The conversion feature grants the holder of the Class C Preferred Stock
the right to convert to common stock based on a formula any time after the
earlier to occur of (1) the 90th day following the issue date or (2) the date on
which the underlying security is registered. The Class C Preferred Stock will be
automatically converted two years following the issue date. The Securities
Purchase Agreement included a registration rights agreement, which requires the
Company to prepare and file with the Securities and Exchange Commission a
registration statement covering the resale of at least 150% of the number of
shares of common stock then issuable upon conversion of the Class C Preferred
Stock no later than July 15, 1998.
Theater Transaction- In November 1997, the Company entered into an
agreement to merge with Warren County Cinemas contingent upon Warren County
Cinemas obtaining a certain construction permit. During 1998, the construction
permit was approved and on April 30, 1998, the Company completed the merger,
through the issuance of 76,923 shares of common stock having a fair market value
of approximately $1.5 million in exchange for all the outstanding stock of
Warren County Cinemas. In addition, the shareholders of Warren County Cinemas
have the right to receive additional consideration, dependent upon future
earnings of the theater for the next two years, of up to $500,000. The shares of
common stock issued are unregistered shares and are subject to a Voting Trust
Agreement whereby the President and Chief Executive Officer of the Company has
the right to exercise all rights as an owner of the shares, including the right
to vote, until the shares are sold or registered. In May 1998, the Company
entered into an agreement and began to construct a 15-screen multiplex theater
in Mansfield, NJ with a total estimated cost of $3.15 million with a planned
opening in November 1998.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results 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 Annual Report on Form 10-KSB.
Overview
The Company has achieved significant growth in theaters and
screens since its formation in November 1994. Since the inception of its
business in December 1994, when the Company acquired the right to operate four
theaters with eight screens, the Company has acquired the right through March
31, 1998, to operate an additional 32 theaters with 150 screens, has added six
screens to two existing theaters and has constructed a new 5-screen theater in
an existing building, resulting in a total of 37 theaters and 169 screens
operated by the Company at March 31, 1998. The Company operated 16 theaters with
64 screens as of March 31, 1997. The Company expects that its future revenue
growth will be derived primarily from the acquisition of additional theaters,
the addition of screens to existing theaters and the development of new
theaters. In order to fund its plans for continued growth, the Company will
require additional debt financing, which it is currently seeking, and may need
to seek additional equity financing. Failure to obtain any such financing could
require the Company to significantly curtail its acquisition activities. 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 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 number of weeks the film has run.
Film rental costs generally decline as a percentage of box office receipts
the longer a film has been showing. Because 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. The management information system has on-line capabilities to collect
information concerning box office receipts, ticketing, concession sales,
inventory control and booking. This system allows the Company to closely track
and manage box office and concession revenues.
In the quarter ended March 31, 1998, the Company purchased the
Clairidge Cinemas in Montclair, New Jersey (6 screens) for $2.1 million in cash
and 14,782 shares of Common Stock; the Manhasset Cinemas in North Hempstead, NY
(3 screens) and the Babylon Cinemas in Babylon, NY (3 screens) collectively the
"UAII" Acquisition, for $1.5 million in cash; and the Cobble Hill Cinemas in
Brooklyn, NY (5 screens) for $2.2 million in cash. The Company leased two
additional theaters in the first quarter of 1998. The acquisition and leasing of
additional theaters increased the Company's total number of theaters to 37 and
its screen count to 169.
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Comparison of Three Months Ended March 31, 1998 and March 31, 1997
Total Revenues. Total revenues for the three months ended
March 31, 1998 increased 176.2% to $9,680,809 from $3,505,451 for the comparable
1997 period. Box office receipts for the three months ended March 31, 1998
increased 160.9% to $7,077,119 from $2,712,210 for the comparable 1997 period.
The increases in box office receipts resulted primarily from an increase in
attendance for the three months ended March 31, 1997 of 136.7% to approximately
1,278,000 from 540,000 attendees in the comparable 1997 period. This increase in
attendance was attributable primarily to the operation of the theaters acquired
in the third and fourth quarters of 1997 and in the first quarter of 1998. Total
concession sales for the three months ended March 31, 1998 increased 207.0% to
$2,284,059 from $743,986 for the comparable 1997 period, primarily due to the
increase in the number of theaters operated. Other revenue which consists
primarily of advertising revenue and rental income on fee-owned properties for
the three months ended March 31, 1998 increased 548.9% to $319,631 from $49,255
for the comparable 1997 period. The increase in other revenue is the result of
operating additional theaters during the period.
Film Rental Fees. Film rental fees for the three months ended
March 31, 1998 increased 155.8% to $3,060,197 from $1,196,126 for the three
months ended March 31, 1997, principally due to the operation of additional
theaters as previously discussed. Film rental fees as a percentage of box office
receipts decreased to 43.2% for the three months ended March 31, 1998 compared
to 44.1% for the comparable 1997 period.
Cost of Concession Sales. Cost of concession sales for the
three months ended March 31, 1998 increased 229.1% to $357,465 from $108,605 for
the comparable 1997 period. This increase was attributable primarily to the
operation of the theaters acquired in the third and fourth quarters of 1997 and
in the first quarter of 1998. As a percentage of concession revenues, the cost
of concession sales increased to 15.7% for the three months ended March 31, 1998
compared to 14.6% for the comparable 1997 period. This increase was attributable
to concession purchasing efficiencies made to theaters acquired which had
concession inventory mix different than the Company's during 1998.
Theater Operating Expenses. Theater operating expenses for the
three months ended March 31, 1998 increased 181.7% to $3,455,314 from $1,226,799
for the comparable 1997 period. This increase was attributable primarily to the
operation of the theaters acquired as previously discussed. Theater operating
expenses, as a percentage of total revenues, increased to 35.7% for the three
months ended March 31, 1998 from 35.0% for the comparable 1997 period. This
slight increase was attributable to the operation of the theaters acquired in
the first quarter of 1998 whose operating results did not reflect Clearview's
operating efficiencies for the entire period.
General and Administrative Expenses. General and
administrative expenses for the three months ended March 31, 1998 increased by
426.4% to $1,009,744 from $191,806 for the comparable 1997 period. The increase
was due principally to the hiring of personnel and related increases in salaries
to support the Company's transition from 16 theaters and 60 screens as of
January 1, 1997 to 37 theaters and 169 screens as of March 31, 1998. General and
administrative expenses, as a percentage of total revenues, increased to 10.4%
for the three months ended March 31, 1998 from 5.5% for the comparable 1997
period. The increase was due to
12
the incremental professional fees incurred during the period in connection with
increased external reporting requirements as a result of its recent Initial
Public Offering in August 1997. The Company expects general and administrative
expenses as a percentage of total revenues to decline over the annual period.
The increase was also attributable to the hiring of in-house film buying and
legal professionals to support the Company's growth and future expansion plans.
Depreciation and Amortization. Depreciation and amortization
expense for the three months ended March 31, 1998 increased by 205.7% to
$1,262,625 from $413,011 for the comparable 1997 period. The increase is a
direct result of the addition of 18 theaters through acquisition or build-out
in the first quarter of 1998 over the first quarter of 1997, which significantly
increased the Company's depreciable and amortizable assets.
Operating Income. Operating income for the three months ended
March 31, 1998 increased by 45.1% to $535,464 from $369,104 for the comparable
1997 period. Operating income as a percentage of total revenues decreased to
5.5 % for the three months ended March 31, 1998 from 10.53% in the comparable
1997 period. Operating income decreased as a percentage of total revenues
due to the increase in general and administrative expenses.
Interest Expense. Interest expense for the three months
ended March 31, 1998 increased by 223.8% to $1,160,747 from $358,482 for the
comparable 1997 period. The Company's borrowing rate on its Credit Facility
decreased from Prime +2% to Prime +1.5% in September 1997. This decrease was
offset by a significant increase in total debt outstanding during the first
quarter of 1998 as a result of the Company's 1997 and 1998 acquisitions as
compared with the first quarter of 1997.
Net Income (Loss). Net loss for the three months ended March
31, 1998 was $625,283 compared to net income of $10,622 in the comparable 1997
period. The net loss was attributable primarily to substantial increases in both
depreciation and amortization expense and interest expense, resulting from the
Company's growth through acquisitions and related borrowings.
Other Financial Data. Earnings before interest, taxes,
depreciation and amortization ("EBITDA") is a financial measure commonly used in
the Company's industry, although it is not a measure or performance calculated
in accordance with generally accepted accounting principles. It should not be
construed as an alternative to operating income (as determined in accordance
with generally accepted accounting principles) as an indicator of the Company's
operating performance or as an alternative to cash flows from operating
activities (as determined in accordance with generally accepted accounting
principles) as a measure of the Company's liquidity. EBITDA for the three months
ended March 31, 1998 increased 129.9% to $1,798,089 from $782,115 for the
comparable 1997 period. EBITDA as a percentage of total revenues for the three
months ended March 31, 1998 decreased to 18.6% from 22.3% in the comparable 1997
period due to increases in general and administrative expenses previously
discussed.
Liquidity and Capital Resources
The Company receives substantially all of its revenues in cash
from box office receipts and concession sales and, therefore, benefits from
minimal accounts receivable and inventory requirements. The Company's most
significant operating expense, film rental fees, continues to be paid to
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distributors 30 to 45 days following the receipt of the applicable cash ticket
payments. In addition, nearly all of the Company's other operating expenses,
such as concession purchases, theater payroll and theater rent, are paid
bi-weekly or monthly, respectively. The period between the receipt of cash from
operations and the use of that cash to pay the related expenses provides 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
$10,421,404 and $5,334,136 at March 31, 1998 and March 31, 1997, respectively.
The increase in negative working capital was attributable to the increase in the
current portion of long-term debt used to finance the Company's 1997 and 1998
theater acquisitions, and the increase in film rental fees payable due to the
increase in the number of screens.
The Company has financed its day-to-day operations principally
from the cash flow generated by its operating activities. Such cash flow totaled
$1,174,819 for the three months ended March 31, 1998, as compared to $780,455
for the comparable 1997 period. The difference between the Company's net loss
and its cash flow from operating activities was principally due to non-cash
depreciation and amortization expenses and increases in accounts payable and
accrued expenses.
The Company's primary capital requirements are to fund
additional theater acquisitions and for remodeling, expansion and maintenance of
existing theaters. While the Company has acquired fee-owned theaters from time
to time, the Company prefers to acquire theaters as leasehold properties in
order to preserve capital. Clearview also has historically developed, and plans
to continue developing, new theaters principally by entering into long-term
leases, which provide an opportunity to share construction and development costs
with the lessor.
Capital expenditures, exclusive of theater acquisitions,
totaled approximately $765,000 in the first three months of 1998 and $305,000 in
the first three months of 1997. During the first quarter of 1998, the Company
funded its capital expenditures, other than theater acquisitions, through cash
flow from operations.
In February 1998, the Company amended and restated its Credit
Facility by obtaining a third term note ("Term Note C") totaling $5.8 million
which was used to acquire four additional theaters. The aggregate availability
under the Credit Facility was $41.8 million at March 31, 1998, of which
$40.8 million is outstanding at the date hereof. The Credit Facility expires
in September 2002. The Credit Facility includes a revolving credit line of
$1 million which can be used for refinancing existing debt, financing
working capital, financing acquisitions and for general corporate purposes. As
of March 31, 1998, principal payments under the term loans due in April 1998,
July 1998, October 1998, and January 1999 totalled $5.28 million. There were no
amounts outstanding under the revolving credit line at March 31, 1998.
The Credit Facility is collateralized by substantially all of
the assets of the Company and contains various restrictive covenants, including
maintenance of specified levels of net worth and debt coverage ratios. In
February 1998, the senior debt coverage ratio under the Credit Facility was
amended from 3.7:1 to 4.5:1.
As a result of the February 1998 amendment, all loans under
the Credit Facility bear interest at a rate based on the prime rate plus
(x) a margin based upon the ratio of the Company's borrowings under the Credit
Facility, plus capital leases, to the Company's EBITDA, and (y) a "Margin
Adjustment Rate". The Margin Adjustment Rate is defined initially as 0%,
increases to 2% on November 10, 1998, and increases by 0.5% every 180 days
thereafter. The interest rate at March 31, 1998 was 10%.
14
The Company's future capital expenditures for planned
maintenance will be funded through cash flow from operations. In accordance
with the Company's strategic plan, Clearview intends to continue to acquire
theaters and is pursuing the acquisition of additional locations. However, in
order to fund its plan for continued growth, the Company will require additional
debt financing, which it is currently seeking, and may need to seek additional
equity financing. Failure to obtain any such financing would require the Company
to significantly curtail its acquisition activities and reduce its planned
capital expenditures and could have a material adverse effect on the Company's
ability to achieve its business strategy. In the absence of additional
financing, the Company believes that it is capable of funding its current
operations (including principal and interest payments as they come due) through
internally-generated cash flow from operations and existing debt financing.
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
15
of motion 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.
Year 2000
The Company is currently evaluating the potential impact of the year
2000 on the electronic data processing and other information systems relevant to
the Company's business and is developing a plan to resolve this issue. The year
2000 issue is the result of computer programs being written using two digits
(rather than four) to define the applicable year. Any of the Company's programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000, which could result in miscalculations or system
failures. This issue creates risk for the Company from unforeseen problems in
its own computer systems and from third parties with whom the Company deals on
transactions. Based on preliminary information, costs of addressing potential
problems are not currently expected to have a material adverse impact on the
Company's results of operations, financial position or cash flows.
16
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended March 31, 1998, the Company issued a total of
14,782 shares of its Common Stock and 750 shares of its Class B Nonvoting
Cumulative Redeemable Preferred Stock ("Class B Preferred Stock"). On February
13, 1998, the Company issued 14,782 shares of its Common Stock, which
represented the number of shares with an aggregate average market value of
$200,000 for the ten trading days prior to February 13, 1998, to Clairidge
Cinemas, Inc. ("Clairidge") as a portion of the purchase price under an Asset
Purchase Agreement dated as of February 13, 1998, by and among the Company, its
wholly-owned subsidiary CCC Clairidge Cinema Corp., and Clairidge, pursuant to
which the Company's subsidiary acquired a leasehold interest and certain
furniture, fixtures, equipment and personal property related to the operation of
six-screen theater in Montclair, New Jersey.
On March 31, 1998, the Company issued 540 shares of its Class B
Preferred Stock to Middlebrook Galleria Cinemas, Inc. ("Middlebrook"), as a
portion of the purchase price under an Asset Purchase Agreement dated November
14, 1997, by and among the Company, its wholly-owned subsidiary CCC Middlebrook
Cinema Corp., and Middlebrook and Mr. Sayegh, as amended by an Amendment No. 1
dated as of December 12, 1997 (the "Middlebrook Amendment No. 1"); pursuant to
which the Company's subsidiary acquired a leasehold interest and certain
furniture, fixtures, equipment and personal property related to the operation of
a ten-screen theater in Middlebrook, New Jersey. Under the Middlebrook Amendment
No. 1, the Company and Middlebrook agreed to issue the 540 shares of the
Company's Class B Preferred Stock to replace a promissory note made by the
Company in favor of Middlebrook in the amount of $540,000.
On March 31, 1998, the Company issued 210 shares of its Class B
Preferred Stock to C.J.M. Enterprises, Inc. ("CJM"), as a portion of the
purchase price under an Asset Purchase Agreement dated November 14, 1997, by and
among the Company, its wholly-owned subsidiary CCC Cedar Grove Cinema Corp., and
CJM and Mr. Sayegh, as amended by an Amendment No. 1 dated December 12, 1997
(the "Cedar Grove Amendment No. 1"); pursuant to which the Company's subsidiary
acquired a leasehold interest and certain furniture, fixtures, equipment and
personal property related to the operation of a five-screen theater in Cedar
Grove, New Jersey. Under the Cedar Grove Amendment No. 1, the Company and CJM
agreed to issue the 210 shares of the Company's Class B Preferred Stock to
replace a promissory note made by the Company in favor of CJM in the amount of
$210,000.
17
All of the shares of the Company's Common Stock and Class B Preferred
Stock were issued in reliance on the exemption under Section 4(2) of the
Securities Act.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders, by
means of solicitation of proxies or otherwise, during the quarter ended March
31, 1998.
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
- ------- ----------- ----------------
3.01(a) Amended and Restated Certificate of Incorporation Exhibit 3.01 to
of Clearview Cinema Group, Inc. the Quarter
Report on Form
10-QSB for the
Quarter ended
June 30, 1997
3.02(a) Certificate of Designation of Class C Convertible Exhibit 4.01 to
Preferred Stock of Clearview Cinema Group, Inc. the Current
Report on Form
8-K filed April
23, 1998.
The Company did not file any Current Reports on Form 8-K during the
quarter ended March 31, 1998.
18
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.
May 15, 1998 /s/ A. DALE MAYO
------------------------------------------
Name: A. Dale Mayo
Title: Chairman of the Board, President
and Chief Executive Officer
May 15, 1997 /s/ JOAN M. ROMINE
------------------------------------------
Name: Joan M. Romine
Title: Treasurer and Chief Financial
Officer (Chief Accounting Officer)
19
EXHIBIT INDEX
Exhibit Description Method of Filing
- ------- ----------- ----------------
27.01 Financial Data Schedule Filed herewith