Deposits on Simulator Sales:
During the three month period ending March
31, 2008, the Company recorded all or a portion of three simulator sales
transactions. This activity resulted in the increase of deposits on simulator
sales of $55,798 to $1,066,956 as compared to the balance at December 31, 2007.
Other Liabilities:
Accounts payable, accrued payroll and
payroll taxes, sales taxes payable, unearned revenue, and other accrued
expenses fluctuate with the volume of business, timing of payments, and the day
of the week on which the period ends.
Review of
Consolidated Results of Operations
THREE MONTHS ENDED MARCH 31, 2008 COMPARED TO
THREE MONTHS ENDED MARCH 31, 2007
Revenues:
Revenues are comprised primarily of Company store sales, revenue share sales,
and simulator leases and sales.
Revenues for the three months ended March 31, 2008, decreased by
$591,164 or 41.6% to $829,992 from $1,421,156 for the comparable period in
2007. This was the result of decreased store sales (Universal CityWalk store
closed in January of 2008) and simulator sales in the three month period ending
March 31, 2008.
Cost
of Sales:
Cost of sales as a percentage of total
revenues was 4% and 29% for the three months ended March 31, 2008 and 2007,
respectively. Cost of sales decreased $371,748 or 90.9% to $37,212 for the
three months ended March 31, 2008, from $408,960 for the comparable period in
2007. The primary reason for the decrease in cost of sales was due to the fact
that most of the simulator sales in 2007 were Reactor simulators that were
manufactured new for the sale, and three simulator sales in the period ending
March 31, 2008 were refurbished SMS simulators that required much less cost to
prepare for the installations..
Gross
Profit:
Gross profit as a percentage of total revenue
was 96% and 71% for the three months ended March 31, 2008 and 2007,
respectively. Gross profit decreased $219,416 or 21.7% to $792,780 for the
three months ended March 31, 2008, from $1,012,196 for the comparable period in
2007. The decrease in gross profit margin was primarily associated with the decrease
in sales in the first quarter of 2008.
General
and Administrative:
General and administrative
expenses decreased $135,050 or 14.2% to $817,412 for the three months ended
March 31, 2008, compared to $952,459 for the comparable period in 2007. The primary
reason for the decrease was a $92,094 decrease in other operating expenses.
Operating
Profit:
The Company’s loss from operations during the
three months ended March 31, 2008 was $24,632 compared to an operation profit
during the three months ended March 31, 2007 of $59,737.
Interest
Expense:
Interest expense was $160,009 and $148,650
for the three months ended March 31, 2008 and 2007, respectively.
Net
Profit:
The Company’s net loss for the three months
ended March 31, 2008, was $184,642 compared to a net loss of $88,914 for the
same period in 2007.
17
Liquidity and Capital Resources
The primary source of funds available to the Company are receipts from
customers for simulator and merchandise sales in its flagship owned and
operated racing center, percentage of gross revenues from simulator races and
minimum guarantees from revenue share and lease sites, the sale of simulators,
proceeds from equity offerings including the $2,610 million received in August
2002, proceeds from debt offerings including the $700,000 in Secured Bridge
Notes and warrants issued in March 2003, the $604,000 in net proceeds from
Notes and options issued between February and June, 2004, the additional loan
of a net $100,000 from one of the existing Bridge Loan note holders, $2.9
million borrowed in December 2004, $122,000 from the 2005 Note, net proceeds of
$855,000 borrowed in September of 2006, net proceeds of $427,500 borrowed in
September of 2007, loans from shareholders, credit extended by vendors, and
possible future financings.
The Company has a history of losses, and the report of our independent
accountants issued in connection with the audit of our financial statements
contained a qualification raising a doubt about our ability to continue as a
going concern. The Company currently is relying on prospective debt financing
arrangements, and on simulator sales revenue using its existing simulator
inventory to offset its operating costs and debt obligations over the next 12
months, or until enough revenue share simulators are in the market to provide
sufficient to cover these costs. As such, there is risk that the financing will
not be available, or available on terms acceptable to the Company, and there is
risk that the timing of the simulator sales will not coincide with the need for
cash to cover operating expenses and note payments. If no meaningful financing
is secured by the Company in the near term, it may jeopardize the Company’s
ability to maintain agreements with creditors to hold off taking actions
against the Company for payments due.
The Company is pursuing some form of debt or equity financing
sufficient to complete its development of the multi-site league play, to
install its current inventory of SMS simulators into the marketplace and to
satisfy the Company’s current and future liabilities and/or contingent
liabilities, but there is no assurance that such funding will be available, or
available on terms acceptable to the Company.
During the three months ending March 31, 2008, the operating activities
of the Company used net cash of $148,780 compared to net cash used of $71,954
for the comparable period in 2007. The drivers for the decrease in cash used
from operations can be attributed to the increase in prepaid expense, the
increase in accounts payable and the amortization of the Dolphin financing
agreement.
During the three months ending March 31, 2008, the Company used $32,221
of net cash in investing activities compared with $7,458 of net generated in
investing activities during the comparable period in 2007. The decrease in cash
from investing activities is primarily related to the purchase of simulators.
During the three months ending March 31, 2008, the Company generated a
net $121,746 of cash from financing activities compared with $47,204 of cash
used during the comparable period in 2007. The increase from financing
activities is primarily related to the issuance of $200,00 in notes less
payment of $78,254 in notes payable.
Cash flow from all sources (operations, investing activities and
financing activities) was insufficient to fund the company during the three
months ending March 31, 2008, and resulted in a $59,255 reduction in the
Company’s cash position. This compares with $111,701 in cash reduction for all
sources for the period ending March 31, 2007.
The Company has funded its retained losses through the initial
investment of $650,000 in May 2001, $400,000 of capital contributed in February
2002, approximately $2.610 million received in August 2002, loans from related
parties including net proceeds of $687,500 received in March, 2003, and net
proceeds received between February 2004 and June 2004 totaling $604,000,
$122,500 in loan proceeds from the sale of the 2005 Notes between October and
November, net proceeds of $845,000 in loan proceeds from the sale of the 2006
Notes in July, net proceeds of $855,000 borrowed in September of 2006, net
proceeds of $450,000 borrowed in September and October of 2007, net proceeds of
$200,000 borrowed in February of 2008, $1.237 million received in the form of
deposits for the placement of race car simulators in revenue share locations,
or for the future purchase by third parties of race car simulators, and credit
extended by vendors.
18
As of March 31, 2008, the Company had cash totaling $74,476 compared to
$133,731 at December 31, 2007. Current assets totaled $588,406 at March 31,
2008 compared to $672,202 on December 31, 2007. Current liabilities totaled
$4,808,199 on March 31, 2008 compared with $4,528,626 on December 31, 2007. As
such, these amounts represent an overall decrease in working capital of
$363,369 for the three months ending March 31, 2008.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
None, not
applicable.
Item 4. Internal Controls and Procedures
(a) Disclosure
Controls and Procedures.
We maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow for timely decisions regarding
required disclosure. In designing and evaluating the disclosure controls and
procedures, management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management is required to apply
its judgment in evaluating the cost-benefit relationship of possible controls
and procedures. Our disclosure controls and procedures were designed to provide
reasonable assurance that the controls and procedures would meet their
objectives.
As of March 31, 2008, we carried out the evaluation of the
effectiveness of our disclosure controls and procedures as defined by Rule
13a-15(e) under the Exchange Act under the supervision and with the
participation of our management, including our Chief Executive Officer and
Chief Financial Officer. Due to an identified material weakness as described in
Management’s Report on Internal Controls Over Financial Reporting in Item 9A(b)
of the Company’s 2007 10-K annual report, our Chief Executive Officer and Chief
Financial Officer concluded that, as of March 31, 2008, our disclosure controls
and procedures were not effective to provide reasonable assurance that
information we are required to disclose in reports that we file or submit under
the Exchange Act is: (i) recorded, processed, summarized and reported within
the time periods specified in the SEC’s rules and forms, and (ii) accumulated
and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure. Notwithstanding the existence the identified material
weaknesses in internal controls, we believe that the consolidated financial
statements fairly present, in all material respects, our consolidated balance
sheet as of March 31, 2008 and our consolidated statements of operations,
stockholders’ equity and cash flows for the period ending March 31, 2008 in
conformity with GAAP.
There has been no change in our internal control over financial
reporting during this first quarter of fiscal 2008 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
19
PART II
Item 1. Legal Proceedings
From time to time, the Company may be party to various legal actions
and complaints arising in the ordinary course of business. The Company’s
subsidiary Perfect Line, Inc. filed a complaint in the US District Court
Southern District of Indiana on December 6, 2006, against Checker Flag
Lightning, LLC and Mike Schuelke, seeking a Declaratory Judgment, Injunctive
Relief and Damages for failing to make the required payments (at least
$559,119) under certain lease agreements between Checker Flag Lightning and
Perfect Line. On April 18, 2007, the Company filed a Motion for Partial Summary
Judgment in the amount of $357,372 against CFL on Counts II and VI of the
Complaint (amounts that are owed since January 1, 2006). CFL filed its response
to the Summary Judgment and did not dispute the amounts due to Perfect Line,
however the case has been stayed pending the outcome of the Bankruptcy
Proceedings as described below.
A Petition for Involuntary Bankruptcy was filed by Perfect Line against
CFL on June 11, 2007. CFL filed a motion to dismiss the case based upon an
insufficient number of creditors. The Michigan Court allowed more time for
additional creditors to join the Petition, and the Involuntary Petition was
granted and a trustee has been appointed, and is proceeding to administer the
estate. Perfect Line has a first position security interest in 6 SMS simulators
at the Gurnee Mills location related to a $400,000 note with CFL, and has made
an offer to the bankruptcy trustee for 22 SMS simulators that were in CFL
sites. Another 8 SMS simulators that the Company owns are in the Jordan Creek
site, and will be installed in future revenue producing sites.
Checkered Flag Lightning was a lease assignee of Perfect Line for the
Riverchase Galleria racing center in Birmingham, Alabama. Since CFL vacated
this space in June of 2007, the landlord for this space informed Perfect Line
in July of 2006 of CFL’s failure to pay an amount due at the end of 2006 of
$204,380. Approximately half of this amount was a previous Perfect Line
obligation that was to be paid by CFL under the terms of the revenue share
agreement between the parties, and the other half were more recent CFL
defaults. In July of 2007, the landlord did release the 8 SMS simulators and
related assets that were in this mall site to the Company, and they were
removed and stored in the Company’s warehouse for future installations. The
landlord’s attorney asked the Company for proposed settlement terms at the time
the simulators were removed, and Company proposed a payment plan for $109,000
of the amount in question. The Company did not receive a response to the
proposal, and on March 11, 2008 (over 7 months after the proposal was
submitted), the Company received a complaint from the landlord asking for CFL
and Perfect Line to pay rents and other charges totaling $1,166,557. The
Company is in final stages of a settlement agreement with the Plaintiff whereby
the settlement amount will be $101,000, and will be paid over 12 months.
On December 31, 2004, March 31, 2005 and April 15, 2005, the Company
entered into three Asset Purchase Agreements with Race Car Simulation
Corp.(“RCSC”), a subsidiary of Dolphin Direct Equity Partners, LP (“Dolphin”),
pursuant to which it sold forty-four (44) of its race car simulators that were
located in existing revenue share locations, or had been installed in new
revenue share sites. The sale is accounted for as a borrowing in accordance
with the guidance provided in paragraphs 21-22 of SFAS 13. While this
transaction generated an aggregate purchase price of $2,856,600, it also
depleted monthly revenue share payments to the Company generated by the
simulators that were sold. In May of 2007, RCSC filed a complaint against
National Tour, Inc. and its chief executive officer, Johnny Capels, personally.
RCSC claimed that National Tour, backed by a personal guarantee by Johnny
Capels, owed the company at least $193,000 in lease payments plus interest and
other costs under the lease agreements between the parties. The lease
agreements involve twelve (12) of the Company’s simulators which were part of
the 44 considered a “borrowing” under GAAP guidelines, and may be a contingent
liability for the Company under the terms of its guarantee to RCSC under the
asset purchase agreement. The Company has an obligation under a Performance
Guarantee clause of their agreement with RCSC to guarantee certain contracted
revenue share or lease payments through 2007, and also has the obligation to
find new revenue share or lease partners for the RCSC simulators under a ‘Most
Favored Nations” clause in the agreement with RCSC In November of 2007, the
Company removed an additional 8 of RCSC’s SMS simulators from the Syracuse, NY
site to Incredible Pizza sites in Oklahoma City, OK and Dallas, TX (four in
each site). The Company and RCSC had been in discussions of how best to resolve
the guaranteed payments due under their agreement when on February 24, 2008,
the Company received a complaint from Dolphin and RCSC seeking $685,667 and
other damages from a breach of the Performance Guarantee, Most Favored Nations
and Non-Competition clauses of the agreements between the parties.
20
The Company filed its answer to the complaint on March 24, 2008,
refuting many of the claims. The Company plans to vigorously defend the claims,
and will argue that the payments guaranteed under the Performance Guarantee
will be paid to Dolphin on a delayed basis due to an unforeseen bankruptcy of
one of its customers, and unforeseen market conditions. The Company has
recently proposed a settlement agreement to Dolphin whereby their investment
and anticipated return is paid in fully by May of 2010. This is accomplished by
selling 12 of the RCSC simulators prior to that date.
On June 2, 2008, the Company received a complaint from Universal
Studios, LLC as a result of defaulting on a $25,000 payment due on March 1,
2008. The Plaintiff is seeking $194,000, which is the $150,000 due plus
penalties. They have called seeking a settlement agreement, but no settlement
offer has been drafted at this time.
As of the filing of this Quarterly Report on Form 10-Q/A, the Company
is not aware of any other material legal actions directed against the Company.
Item 1A. Risk Factors
Note
on Forward-Looking Information
This Form 10-Q/A and other statements issued or made from time to time
by the Company or its representatives contain statements, which may constitute
“forward-looking statements” within the meaning of the Securities Act of 1933
and the Securities Exchange Act of 1934, as amended by the Private Securities
Litigation Reform Act of 1995, 15 U.S.C.A Sections 77z-2 and 78u-5. Those
statements include statements regarding the intent, belief, or current
expectations of the Company and members of its management team as well as the
assumptions on which such statements are based. All statements, trend analyses,
and other information contained in this report relative to markets for the
Company’s products and/or trends in the Company’s operations or financial
results, as well as other statements which include words such as
“anticipate(s),” “could,” “feel(s),” “believes,” “plan,” “estimate(s),”
“expect(s),” “should,” “intend(s),” “will,” and other similar expressions,
constitute forward-looking statements and are subject to known and unknown
risks, uncertainties and other factors that may cause actual results to be
materially different from those contemplated by the forward-looking statements.
Such factors include, among other things: (i) general economic conditions that
may impact the disposable income and spending habits of consumers; (ii) the
availability of alternative entertainment for consumers; (iii) the ability of
the Company to obtain additional capital; (iv) the receipt of a going concern
opinion from the Company’s independent public accountants; and (v) the ability
of the Company to control costs and execute its business plan.
The reader is cautioned that any such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties, and
that actual results may differ materially from those contemplated by such
forward-looking statements. Important factors currently known to management
that could cause actual results to differ materially from those in
forward-looking statements are set forth herein. The Company undertakes no
obligation to update or revise forward-looking statements to reflect changed assumptions,
the occurrence of unanticipated events or changes to future operating results
over time.
The Company has a history of losses, and the report of our independent
accountants issued in connection with the audit of our financial statements
contained a qualification raising a doubt about our ability to continue as a
going concern. The Company currently is relying on prospective debt financing
arrangements, and on simulator sales revenue using its existing simulator
inventory to offset its operating costs and debt obligations over the next 12
months, or until enough revenue share simulators are in the market to provide
sufficient to cover these costs. As such, there is risk that the financing will
not be available, or available on terms acceptable to the Company, and there is
risk that the timing of the simulator sales will not coincide with the need for
cash to cover operating expenses and note payments. If no meaningful financing
is secured by the Company in the near term, it may jeopardize the Company’s
ability to maintain agreements with creditors to hold off taking actions
against the Company for payments due. See further discussion under “Liquidity
and Capital Resources” and “Risk Factors” below.
21
Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds
None, not applicable.
Item 3. Defaults upon Senior Securities
None, not applicable.
Item 4. Submission of Matters to a Vote of
Security Holders
None, not applicable.
Item 5. Other Information
None, not applicable.
22
Item 6. Exhibits
|
|
|
|
|
A.
|
Exhibits.
|
|
|
|
|
|
3(i)
|
Articles of
Incorporation
1
|
|
|
3(ii)
|
By-Laws
1
|
|
|
10.1
|
Form of
Secured Bridge Notes
2
|
|
|
10.2
|
Form of
Procurement Contract
3
|
|
|
10.3
|
Form of
Master Revenue Sharing Agreement
3
|
|
|
10.4
|
Asset
Purchase Agreement with Race Car Simulation Corporation, a portfolio company
of Dolphin Direct Equity Partners, LP
4
|
|
|
10.5
|
Asset
Purchase Agreement with Checker Flag Lightning, LLC (“CFL”), a Michigan
limited liability corporation
5
|
|
|
10.6
|
Form of 2007
Secured Promissory Note
6
|
|
|
10.7
|
Form of 2007
Common Stock Purchase Warrant
6
|
|
|
10.8
|
Form of 2008
Secured Promissory Note
6
|
|
|
10.9
|
Form of 2008
Common Stock Purchase Warrant
6
|
|
|
11.1
|
Computation
of Earnings (Loss) Per Share
|
|
|
21.1
|
Subsidiaries
|
|
|
31.1
|
Certification
of William R. Donaldson as Chief Executive Officer and Chief Financial
Officer pursuant to Rule 13a-14 of the Security Exchange Act of 1934.
|
|
|
32.1
|
Certification
of William R. Donaldson as Chief Executive Officer pursuant to 18 U.S.C.
Section 1350.
|
|
|
32.2
|
Certification
of William R. Donaldson as Chief Financial Officer and Treasurer pursuant to
18 U.S.C. Section 1350.
|
|
|
|
|
|
|
1)
Incorporated by reference from Form 10-QSB filed on November 16, 2002
|
|
|
2)
Incorporated by reference from Form 8-K filed on March 13, 2003
|
|
|
3)
Incorporated by reference from Form 10-QSB filed on May 17, 2004
|
|
|
4)
Incorporated by reference from Form 8-K filed on January 6, 2005
|
|
|
5)
Incorporated by reference from Form 8-K filed on January 6, 2007
|
|
|
6)
Incorporated by reference from Form 10-QSB filed on November 16, 2007
|
|
|
|
|
B.
|
Reports on
Form 8-K.
|
|
|
|
|
|
None
|
|
23
SIGNATURES
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
INTERACTIVE MOTORSPORTS
AND ENTERTAINMENT CORP.
|
|
|
|
Date:
November 17, 2008
|
/s/ William
R. Donaldson
|
|
|
|
|
|
William R.
Donaldson
Chairman of the Board and
Chief Executive Officer
|
Pursuant to the requirements of the
Securities Exchange of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated.
|
|
|
|
Date:
November 17, 2008
|
/s/ William
R. Donaldson
|
|
|
|
|
|
William R.
Donaldson
Chairman of the Board and
Chief
Executive Officer
(Principal Executive Officer)
|
|
|
|
|
Date:
November 17, 2008
|
/s/ William
R. Donaldson
|
|
|
|
|
|
William R.
Donaldson
Chairman of the
Board and
Chief
Executive Officer
(Principal Financial Officer)
|
24
EXHIBIT INDEX
25
Interactive Motorsports ... (GM) (USOTC:IMTS)
過去 株価チャート
から 5 2024 まで 6 2024
Interactive Motorsports ... (GM) (USOTC:IMTS)
過去 株価チャート
から 6 2023 まで 6 2024
