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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(MARK ONE)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from
________________ to_______________
Commission File Number 0-24592
CINEMA RIDE, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 95-4417467
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
12001 VENTURA PLACE, SUITE 340
STUDIO CITY, CALIFORNIA 91604
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 761-1002
Securities registered pursuant to Section 12 (b) of the Act: --------------
Name of exchange
Title of each class on which registered
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NONE NONE
Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK AND REDEEMABLE WARRANTS
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or 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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The issuer's revenues for the year ended December 31, 1996 were
$3,310,163.
As of March 21, 1997 there were 5,731,785 outstanding shares of common
stock, par value $0.01 per share. The aggregate market value of the voting stock
of the registrant held by non-affiliates of the registrant on March 21, 1997
based on the average bid and asked price on such date was $1,685,222.
DOCUMENTS INCORPORATED BY REFERENCE: The information required by Part
III of Form 10-KSB is incorporated herein by reference to the registrant's
definitive Proxy Statemet relating to its 1996 Annual Meeting of Stockholders
which will be filed with the Commission within 120 days after the end of the
registrant's fiscal year.
Transitional Small Business Disclosure Format: Yes X No
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
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Cinema Ride, Inc. (the "Company") was incorporated in Delaware in April
1993. Unless the context otherwise requires, references to the "Company" in
this report refer to Cinema Ride, Inc. and its consolidated subsidiaries. The
Company is in the business of developing and operating rides consisting of
motion simulator attractions which combine video-projected three-dimensional
action films of approximately four minutes duration with computer-controlled,
hydraulically-mobilized seating platforms that are programmed to move in concert
with the on-screen action. Each attraction is designed to provide the viewer
with a realistic feeling of being a participant in the action on the screen. To
date, the Company has completed construction and installation of three
facilities. The first facility (the "Las Vegas Facility") commenced operations
in October 1994 and is located in the Forum Shops at Caesars (the "Forum
Shops"), a high traffic tourist mall which is located between Caesars Palace
Hotel & Casino and the Mirage Hotel in Las Vegas, Nevada. The second facility
(the " West Edmonton Mall Facility") commenced operations in August 1995 and is
located in the West Edmonton Mall, Alberta, Canada. The third facility (the "
Times Square Facility") commenced operation in September 1996 and is located in
Times Square in New York City, New York. The Company's executive offices are
located in Studio City, California.
The current hours of operation for the Facilities are typically 11:00 a.m.
to 11:30 p.m. The average ticket prices have typically been less than four
dollars due to the Company's pricing of its multiple features, and due to the
use of coupons and other discounts.
EQUIPMENT AND TECHNOLOGY
Each of the Company's rides is comprised of two basic elements: (i) a motion
simulator which consists of an enclosed capsule and related equipment and
computer programming (the "simulator"), and (ii) the 3-D films viewed by
audiences in the simulator.
Simulators
The Company utilizes a simulator which it believes to be both space and cost
effective. Each simulator includes an enclosed 15-seat capsule in which
audiences are seated during a given ride. Inside the capsule, each seat faces a
screen at the front of the capsule, onto which the ride film is projected.
Company attractions consists of one or more capsules, the number of which will
vary depending on the size and desired seating capacity of a particular
location. The Las Vegas Facility consists of four capsules of 15 seats each, the
West Edmonton Facility consists of one capsule, and the Times Square Facility
consists of three capsules.
Capsules are mounted on top of a motion base consisting of six independent
hydraulic cylinders which control the movement of the attached capsule. The
motion bases allow an audience to experience a full six degrees of motion
(pitch, roll, heave, yaw, surge and sway). Through the use of the motion base,
capsules have a maximum range of motion of approximately six feet and can be
programmed to move in a wider and, as a result, more realistic range of motions
than is possible with the three degrees of motion (pitch, roll and heave)
utilized in many existing motion simulator rides. The motion bases used by the
Company are constructed by a manufacturer of military and commercial flight
simulators as well as motion simulators, such as the ones utilized by the
Company.
Each simulator combines the motion base and capsule with two video
projectors and audio systems which the Company believes provides a visual and
audio presentation without the degeneration of picture and sound that is common
to film formats under heavy usage. In addition, the use of laser disk players
enables the Company to avoid delays associated with rewinding traditional film
and enables the Company to quickly and simply change ride films with the push of
just one bottom. The projection equipment used by the Company is capable of
projecting both 3-D and standard ride films.
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All of the mechanical equipment comprising the simulator is coordinated by a
central computer system. A time code is added to each laser disk in order to
enable the film data to correspond with the movement of the motion bases. As
the projectors receive the film and sound data from the laser disk, the
simulator's computer receives the time code which enables the computer to
synchronize the filmed action with the movement of the motion bases and the
operation of the wind machine.
The equipment utilized by the Company contains relatively standard hydraulic
components which are readily available through the vendors that currently
service the simulators. The Company believes that, should the need arise, other
vendors are available that could manufacture and maintain its equipment.
Moreover, because each simulator is completely independent of the other
simulators in a given location, the Company is able to perform routine
maintenance and make any necessary repairs to simulator equipment without
hindering the operation of the entire attraction at facilities with more than
one capsule.
3-D Films
Each of the Company's attractions utilizes 3-D technology in the exhibition
of ride films. 3-D technology creates the illusion of three-dimensional images.
The technology involves the filming and simultaneous projection of images that
are slightly offset from each other which, when viewed with special polarized
glasses, create an illusion of depth that is not possible with traditional
filmed entertainment.
As of December 31, 1996, the Company had completed production of three ride
films for exhibition in its attractions. The Company produces the ride films by
contracting with independent film production companies. As of March 21, 1997,
the Company had two additional 3-D ride films under production. In addition to
the ride films discussed above, the Company has acquired two independently
produced and financed 3-D ride films.
The typical ride film lasts approximately four minutes. Each capsule is
able to feature approximately nine to twelve attractions per hour, depending on
the actual length of the film. The Company does not anticipate that any of its
attractions will operate at or near maximum capacity.
SALES OF RIDE TICKETS
The Company currently generates virtually all of its income from the sale of
ride tickets. Customers purchase the ride tickets at the ticket booth. Prior
to the showing, ticket-holders are led through an entry where their tickets are
taken and they are handed 3-D glasses and led into a Pre-Show area. While the
previous audience is inside the capsule viewing the ride film, ticket-holders in
the Pre-Show area watch a short film on a video monitor outlining safety
instructions and other information regarding the ride.
Once the previous showing has been completed, ticket-holders are led into
the capsule. Each seat in the capsule has a safety belt that audience members
are required to wear for the duration of the ride film. The audience and the
area surrounding the capsule are monitored via video cameras by the ride
operator during each showing for the safety of audience members. Upon
completion of the ride film, audiences exit back into the lobby area where the
3-D glasses are deposited into a return basket for cleaning.
SALE OF SYSTEMS TO THIRD PARTY OPERATORS AND JOINT VENTURE
The Company plans to pursue customers for the sale or joint venture of its
simulator systems. The Company also intends to lease its film library to buyers
of its simulator systems for an annual fee based on a percentage of gross
revenues generated by the sold capsules with a minimum rental fee due annually.
There can be no assurance that the Company will be successful in its efforts to
sell its capsules to third party operators, or to joint venture its simulator
systems.
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RETAIL SALES
In addition to revenues generated from attendance at its attractions and
sales and/or leasing of its simulators and ride films, the Company included a
small retail store within its Las Vegas and Times Square Facilities and intends
to include the same in some of its future attraction sites. The retail stores
sells T-shirts, souvenirs and 3-D products which provide an additional source of
potential revenue to the Company while providing a free source of publicity for
the Company's attractions. Retail sales at the Las Vegas and Times Square
Facilities for the year ended December 31, 1996 were minimal compared to the
Company's gross revenues. The Company is currently considering alternatives in
promoting and increasing its retail sales.
COMPETITION
The Company faces intense competition in the development and marketing of
attractions. Such competition extends to gaining access to desirable locations
for attractions as well as to selling or leasing simulators and ride films.
Each of Imax Corporation, Iwerks Entertainment, Inc., Showscan Corporation and
other companies develop and market simulators which compete with the simulators
and related filmed entertainment being developed and marketed by the Company.
Many of these corporations have greater financial and marketing resources than
the Company and have established reputations for success in the development and
marketing of products that are competitive with those of the Company. In
addition, there are no significant barriers to entry which would prevent
additional competitors from competing with the Company in the development and
operation of attractions on a site-by-site basis.
The Company also competes with existing motion simulators on a site-by-site
basis. The Company is aware of several competing motion simulator attractions
either currently existing or planned to be opened in the vicinity of its
Facilities, including a proposed motion simulator attraction to be developed by
the owner of the Forum Shops with Imax Corporation in a proposed expansion of
the Forum Shops. In addition, the Excalibur Hotel in Las Vegas has a simulator
ride facility which has been operational for approximately six years. The MGM
Grand Hotel & Casino Theme Park and the Luxor Hotel & Casino in Las Vegas offer
motion simulator attractions. Other hotels or theme parks in Las Vegas may also
acquire motion simulator attractions. The Company also competes for customers
to some extent with theme parks, traditional motion pictures and other forms of
filmed or computer entertainment. Similarly the West Edmonton Facility and the
Times Square Facility are competing with existing motion simulators within the
immediate geographical area. The Company's attractions compete with other
attractions and entertainment alternatives in a given region on the basis of
location, price and content of its ride films.
The Company believes that the real estate experience of its management will
assist it in effectively competing in locating and acquiring favorable locations
for its attractions. In addition, the Company believes that the compact size
and realistic motion capabilities of its simulators as well as the unique and
entertaining thematic elements and effects of its ride films will enable it to
effectively compete for customers for the sale and leasing of its simulators and
ride films.
TRADEMARKS, COPYRIGHTS AND PATENTS
The Company does not currently hold any patents, copyrights or similar
intellectual property protection for the technology or equipment used in its
attractions. Although the Company has a patent application pending under appeal
with the United States Patent Office for the combined use of 3-D ride films in
motion simulators, there can be no assurance that a patent will be granted or,
if granted, that it will be effective in preventing competitors from developing
similar simulator systems.
During 1996, the Company successfully obtained a trademark for "Cinema
Ride" and a trademark for "Ride Guy". In addition, the Company intends to
obtain copyright protection for each of the ride films produced by the Company.
While the Company believes that patent, copyright and other protection are
desirable, the
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Company believes that they are less significant to the Company's success than
factors such as the location and marketing of attractions and the production or
acquisition of entertaining ride films.
INSURANCE
The Company maintains comprehensive general liability and excess liability
coverage of $16,000,000, business personal property coverage including leasehold
improvements of $6,550,000, business income loss coverage of $5,700,000, and
comprehensive automobile insurance of $1,000,000. The Company believes such
insurance will adequately insure all of its current operations. Additional
insurance may be required in connection with the opening of additional
attractions by the Company.
The Company also maintains $1,000,000 "key-man" life insurance on the lives
of each of Mr. Mitch Francis, its President and Chief Executive Officer, and Mr.
Gary Packman, its Chief Operating Officer and Executive Vice President, as to
which the Company is the sole beneficiary. The Company also maintains
director's and officers' liability insurance insuring the directors and officers
of the Company for up to $2,000,000.
GOVERNMENTAL REGULATIONS
The Company is subject to certain governmental regulations which has
established standards for the design, construction, installation, alteration,
maintenance, operation and inspection of amusement rides such as the Company's
attractions. The Company successfully obtained all necessary permits and
approvals pursuant to such regulations.
EMPLOYEES
As of December 31, 1996, the Company had six full-time employees at its
corporate offices, thirty employees at its Las Vegas Facility, seven employees
at its West Edmonton Facility, and twenty employees at the Times Square
Facility. The addition of new attractions will necessitate the Company's hiring
of additional employees to manage and operate the new facilities. In addition,
the Company anticipates entering into contracts with independent sales
representatives to locate potential purchasers of simulators and licensees of
ride films. As the Company's operations and sales efforts expand, the Company
expects that it will hire additional management personnel to oversee and
coordinate the Company's development and sales efforts. The Company believes
that its relations with its employees are satisfactory.
ITEM 2. DESCRIPTION OF PROPERTY
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THE LAS VEGAS FACILITY
In October 1993, the Company entered into a lease agreement for a site in
the Forum Shops which houses the Company's Las Vegas Facility. The Las Vegas
Facility lease has a term of 10 years with an option to extend the term of the
lease for an additional five years at then current market rates.
The lease for the Las Vegas Facility granted the Company the exclusive right
to operate a motion simulator attraction within the Forum Shops. However,
pursuant to an amendment between the Company and the lessor of the Forum Shops,
the Company has agreed to permit a themed simulator attraction into the mall in
exchange for a number of concessions from the landlord (see Liquidity and
Capital Resources).
On April 6, 1995, the Company entered into a lease agreement for a sign to
be installed at the Las Vegas Facility in July 1995. The lease term is for
sixty months commencing the first month following the installation of the sign
(completed in July 1995). The Company paid $28,000 as a down payment upon
execution of the lease and is required to pay $4,835 per month over the lease
term, that includes insurance, taxes, and maintenance. The Company has the
option to purchase the sign at the end of the lease term for approximately
$14,000. Shortly after installation of the sign, the Forum Shops' management
informed the Company that the ground lessor of the Forum Shops had not approved
the sign and requested that the Company remove the sign. The sign was removed
during August 1995 and than reinstalled in December 1995 after an amendment of
the Las Vegas Facility lease. The commencement date of the sign lease has been
amended to January 1, 1996 when the first payment became due (see Liquidity and
Capital Resources).
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THE WEST EDMONTON MALL FACILITY
During July 1995, the Company entered into a five year lease agreement to
install and operate one capsule in the West Edmonton Mall, Alberta, Canada. The
rent is based on the greater of a minimum monthly payment of CA$5,000 (in
Canadian Dollars) or twenty percent of gross sales. The West Edmonton facility
is operated by Cinema Ride Edmonton, Inc., a wholly owned Canadian subsidiary of
the Company. This facility commenced full operations on August 1, 1995,
employing approximately seven employees.
The West Edmonton Mall consists of 5,200,000 square feet of rentable space,
combining recreation, entertainment and retail shops. The mall also includes a
360 room hotel, a gambling casino, several restaurants, an ice skating ring, a
dolphin show, a water park, 20 aquariums, a miniature golf course, a roller
coaster, and a motion simulator. The Company's facility is located within the
food court of the mall, thus capitalizing on the traffic that the food court
generates especially in the high tourist season.
THE TIMES SQUARE FACILITY
During August 1995, the Company entered into a lease agreement with Three
Times Square Center Partners, L.P., (the "Landlord") to install three capsules
in Times Square, New York City. The lease term is for approximately ten years
with two five year renewal options. In the event the Landlord initiates
development of a high rise office tower on the subject property, the Landlord
has the right to terminate the lease upon six months notice, and is obligated to
pay the Company $750,000 if the lease is canceled by the Landlord prior to the
second anniversary of the rent commencement date. The Company has the right to
cancel the lease upon twelve months notice at the fifth and seventh anniversary
of the rent commencement date. The Times Square Facility commenced operations
in September 1996. The total cost of design, construction and installation of
the Times Square Facility was approximately $3.2 million excluding signage (see
Liquidity and Capital Resources).
The Times Square Facility consists of a space in a building located on
Seventh Avenue, between Forty-Second street and Forty-Third street. The
facility is part of the New York City redevelopment project of Times Square
offering entertainment companies tax credits as an incentive for doing business
in Times Square. The Company will be joining other retailers and major
entertainment companies who have announced their schedule to open their
facilities over the next few years.
During the quarter ended June 30, 1996, the Company entered into a lease
agreement for a sign to be installed at the Times Square Facility. The lease
term is for sixty months commencing the first month following installation of
the sign. (See Liquidity and Capital Resources)
CORPORATE OFFICES
The Company is leasing office space for its corporate headquarters in Studio
City, California. The current lease of office space is for a period of five
years commencing in July 1995 with one option to renew for a three year period
at ninety five percent of the then fair market rental value. The base rent
requires monthly payments of $5,029 for the first thirty six months, payment of
$5,334 for the following eighteen months, and payments of $5,639 thereafter.
ITEM 3. LEGAL PROCEEDINGS
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The Company is not currently involved in any legal proceedings that it
believes could have, either individually or in the aggregate, a material adverse
effect on its business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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No matters were submitted to a vote of security holders during the fourth
quarter ended December 31, 1996.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
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The common stock of the Company began trading in September 1994 (subsequent
to the public offering) on the Nasdaq Small Cap Market under the symbol "MOVE".
The following table sets forth the high and low quotations from the National
Association of Securities Dealers Automated Quotation System "NASDAQ". The
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions. Prior to the offering in
September 1994, no established public trading market existed.
Common Stock Price
<TABLE>
<CAPTION>
HIGH LOW
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<S> <C> <C>
Third Quarter - 1994 6 1/4 5
Fourth Quarter - 1994 6 5/8 4 3/4
First Quarter - 1995 5 5/8 1 3/4
Second Quarter - 1995 3 19/32 1 5/8
Third Quarter - 1995 2 5/8 2
Fourth Quarter - 1995 1 17/32 13/16
First Quarter - 1996 1 3/16 9/16
Second Quarter - 1996 2 3/4
Third Quarter - 1996 31/32 9/16
Fourth Quarter - 1996 3/16 1/16
</TABLE>
The number of record holders of the Company's common stock as of March 21,
1997 was 84. The number of beneficial holders of the Company's common stock as
of March 21, 1997 was approximately 1,200.
The Company has not paid a dividend with respect to its common stock nor
does the Company anticipate paying dividends in the foreseeable future.
Under the current and proposed rules for maintenance of the continued
listing of the Company's common stock on the Nasdaq Small Cap Market, the
common stock is required to have a minimum bid price of $1 per share. As of
March 21, 1997, the Company is not in compliance with those requirements.
FORWARD LOOKING STATEMENTS
The following discussion contains forward-looking statements regarding the
Company, its business, prospects and results of operations that are subject to
certain risks and uncertainties posed by many factors and events that could
cause the Company's actual business, prospects and results of operations to
differ materially from those that may be anticipated by such forward-looking
statements. Factors that may effect such forward-looking statements include,
without limitation: the Company's ability to successfully operate its existing
facilities, the impact of competition on the Company's revenues, and
seasonality.
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When used in this discussion, words such as "believes", "anticipates",
"expects", "intends" and similar expressions are intended to identify forward-
looking statements, but are not the exclusive means of identifying forward-
looking statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of the report. The
Company undertakes no obligation to revise any forward-looking statements in
order to reflect events or circumstances that may subsequently arise. Readers
are urged to carefully review and consider the various disclosures made by the
Company in this report and other reports filed with the Securities and Exchange
Commission that attempt to advise interested parties of the risks and factors
that may affect the Company's business.
ITEM 6. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
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Although the Company was formed in April 1993, operations of the Company did
not commence until October 1994 when the Las Vegas Facility was opened. The
Company opened its other locations, the West Edmonton Mall Facility and the
Times Square Facility, in August 1995 and September 1996 respectively.
RESULTS OF OPERATIONS
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YEAR ENDED DECEMBER 31, 1996 VS. YEAR ENDED DECEMBER 31, 1995:
Revenues increased by 48% or $1,079,908 from $2,230,255 in 1995 to
$3,310,163 in 1996. The increase is due to 1) the opening of the Times Square
Facility in September 1996 which contributed $558,229 in revenues for the
partial year it was open, and 2) an increase in revenues at the Las Vegas
Facility by 22% or $448,324 from $2,053,188 in 1995 to $2,501,512 in 1996.
Revenues from the West Edmonton Mall Facility which opened in August 1995
increased by 41% or $73,355 from $177,655 in 1995 to $251,010 in 1996. In
addition, the Company raised the price of a single ticket to seven dollars from
five dollars. The average ticket price remained under four dollars due to
discounts offered through multiple purchases of tickets. The Company has been
successful in marketing the sale of multiple features tickets which had a
positive contribution to revenues.
Selling, general and administrative expenses decreased by 6% or
approximately $199,500, from $3,306,863 in 1995 to $3,107,375 in 1996. This
decrease is due to 1) a decrease in expenses at the Las Vegas Facility of 28% or
approximately $490,000 (from approximately $1,743,715 in 1995 to approximately
$1,254,257 in 1996) relating primarily to decreases in wages, advertising, and
administrative expenses, 2) a decrease in corporate expenses of 15% or
approximately $191,500 (from $1,328,278 in 1995 to $1,136,550 in 1996) relating
primarily to decreases in professional fees, insurance reimbursements,
advertising and other administrative expenses, 3) a decrease in expenses at the
West Edmonton Mall Facility of approximately $26,000 (from $232,200 in 1995 to
$206,195 in 1996) relating primarily to decreases in advertising, and
administrative expenses and 4) an increase in overall expenses of approximately
$508,000 relating to the opening of the Times Square Facility in September 1996.
Depreciation and amortization increased by 124% or approximately $461,000,
from $371,007 in 1995 to $831,927 in 1996 due to 1) the opening of the West
Edmonton Mall Facility in August 1995 which contributed to an increase of
approximately $78,000 in depreciation in 1996, 2) the opening of the Times
Square Facility in September 1996 which contributed to an increase of
approximately $205,000, 3) an increase of approximately $131,000 relating to
write off of certain assets at the Las Vegas Facility, and 4) and an overall
increase in depreciation and amortization of approximately $40,000 primarily
relating to amortization of film library and pre opening costs relating to the
Las Vegas and West Edmonton Mall facilities.
Interest expense increased by $244,195 from $2,605 in 1995 to $246,800 in
1996 mostly due to the Company's incurring of interest on loans in 1996 and the
amortization of $20,825 in financing costs relating to the Company's issuance of
stock and warrants to lenders in connection of obtaining some of these loans as
discussed in Note 5 to the consolidated financial statements. In addition, in
connection with the issuance of the warrants relating to the Company's financing
during December 1996, the Company incurred, based on a valuation of these
warrants which were issued to the Lender and the brokers who arranged the
financing, $47,498 as deferred financing costs which will be amortized over the
life of the loan.
Interest income decreased by 80% or $61,000, from $76,150 in 1995 to $15,150
in 1996 mainly due to utilization of cash previously available to the Company
from the proceeds of the Company's public offering.
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YEAR ENDED DECEMBER 31, 1995 VS. YEAR ENDED DECEMBER 31, 1994:
Revenues increased by 653% or $1,934,038, from $296,217 in 1994 to
$2,230,255 in 1995. The increase is mainly due to 1) the Company being in
operations for the full year in 1995 versus eighty two days in 1994 and 2) the
opening of the West Edmonton Facility in August 1995 which contributed
approximately $177,000 in revenues. In addition, the Company raised the price
of a single ticket to six dollars from four dollars. However, the average
ticket price remained under four dollars due to discounts offered through
multiple purchases of tickets. The Company has been successful in marketing the
sale of multiple features tickets which had a positive contribution to revenues.
Selling, general and administrative expenses increased by 140% or
$1,927,572, from $1,379,291 in 1994 to $3,306,863 in 1995. The increase is due
to 1) the opening of the West Edmonton Facility in August 1995 which contributed
approximately an additional $232,000 in expenses in 1995, 2) the Las Vegas
Facility being in full operation during 1995 which contributed to an increase of
approximately $945,000 in expenses (from approximately $800,000 in 1994 to
approximately $1,745,000 in 1995) relating mostly to increases in salaries,
advertising, and rent (accounting for approximately $818,000 of the $945,000
increase), and 3) an increase in corporate expenses due to the hiring of
additional accounting, administrative and sales personnel (contributing to an
increase in expenses of approximately $195,000 from approximately $307,000 in
1994 to approximately $502,000 in 1995), increase in professional fees of
approximately $152,000 (consisting mainly of accounting, legal, marketing,
public relation, and investor relations expenses), as well increases in
insurance expenses and other administrative expenses accounting for
approximately $328,000 in additional expenses in 1995.
Depreciation and amortization increased by 382% or $294,040, from $76,967 in
1994 to $371,007 in 1995 due to the opening of the West Edmonton Facility in
August 1995 and due to the Company being in operation for the full year in 1995.
Interest income increased by 96% or $37,310, from $38,840 in 1994 to $76,150
in 1995 mainly due to interest earned on the proceeds from the September 1994
public offering.
Interest expense decreased by 99% or $328,107, from $330,712 in 1994 to
$2,605 in 1995 mostly due to the Company's incurring a $300,000 finance charge
in 1994 relating to the payment of the capital lease.
LIQUIDITY AND CAPITAL RESOURCES
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Net cash provided in operating activities was $1,177,028 during the year
ended December 31, 1996, as compared to the cash used in operating activities of
$892,670 for the same period during the prior year. The increase of $2,069,698
was primarily due to an increase in accounts payable and accrued expenses of
$427,278, a decrease in losses of $513,281, an increase in depreciation and
amortization of $460,920, an increase in deferred rent of $154,261, a decrease
in customer deposits of $273,000, and a decrease in prepaid expenses of
$141,217.
Net cash used in investing activities decreased by $500,042 from $2,374,545
in 1995 to $1,874,503 in 1996. The decrease is primarily due to costs incurred
by the Company relating to film production in 1995.
Net cash provided by financing activities was $1,850,718 during the year
ended December 31, 1996, as compared to the cash used in financing activities of
$100,000 for the same period during the prior year. The increase of $1,950,718
was mainly due to a net increase in notes payable of $1,862,543 and to a
decrease in loans aggregating $100,000 made to officers in 1995.
The Company has relied on the proceeds of sales of Common Stock, Redeemable
Warrants, loans and equipment leasing to provide it with the cash necessary to
develop its facilities and ride films and to operate its business.
The amendment of the Las Vegas Facility lease in December 1995 allows the
Company to install a booth/kiosk on the main level of the Forum Shops, and also
reimburses the Company for the cost of the sign and out of pocket expenses not
to exceed in total $150,000. The reimbursement was deducted from the monthly
rent payment at a rate of $18,000 per month starting February 1, 1996. In
addition, the lease amendment requires
-9-
<PAGE>
the Landlord to install at the Landlord's cost, within six months, new signage
that is acceptable to the Company and to take possession of the original sign.
The Company will still be responsible for paying off the remaining obligation at
that time. The amendment also waived the Landlord's rights to any percentage
rent form the Las Vegas Facility or any other future facilities within a four
mile radius, as was required by the original lease. In return, the Company
waived its exclusivity right within the Forum Shops by allowing an IMAX
Simulator Theater to be installed within the center. However, the Company
obtained the right to terminate its lease if the Company's sales for any full
lease year after IMAX's opening do not equal or exceed $2,000,000 or $1,500,000
thereafter.
On March 6, 1996, Cinema Ride Edmonton, Inc. obtained a $40,328 loan
($55,000 Canadian dollars) from a Canadian bank at prime plus two percent. The
loan has a term of four years requiring monthly payments of approximately $1,027
($1,400 Canadian dollars) and is guaranteed by the Company. The lender has first
security interest in the equipment and improvements located at the West Edmonton
Facility. The loan also restricts transfer of funds to the Company other than
amounts in excess of cash flow. The loan may be prepaid at any time without any
penalties. As of December 31, 1996, $32,680 remains unpaid on this loan.
During the quarter ended June 30, 1996, the Company entered into a lease
agreement for a sign to be installed at the Times Square Facility. The lease
term is for sixty months commencing the first month following installation of
the sign. The Company is required to pay $150,000 as a down payment on the
sign, of which, $50,000 was paid during August 1996, $50,000 is due upon
installation, and $50,000 to be paid over the following ten months at a rate of
$5,000 per month. The lease requires monthly payments of $7,950 which includes
taxes and maintenance. The Company has the option to purchase the sign at the
end of the lease term for approximately $45,000. As of December 31, 1996,
$100,000 remains unpaid relating to the down payment on this lease.
As discussed in Note 5 to the consolidated financial statements, on June
17, 1996, the Company obtained a loan for $600,000 from an unaffiliated party.
The loan was due in sixty days bearing interest at 2% per month compounded
monthly. In connection with obtaining the loan, the Company agreed to pay the
lender a 2 point fee ($12,000), and issue 50,000 warrants to purchase the
Company's common stock at the then fair market value. The Company repaid this
loan during the quarter ended September 30, 1996. As of March 21, 1997, all
accrued interest relating to this note has been paid.
As discussed in Note 5 to the consolidated financial statements, during the
quarter ended September 30, 1996, the Company obtained loans aggregating
$437,500 bearing interest at 15% per annum paid monthly with the principal
balance due at the earlier of one year or at the time the Company successfully
obtains permanent financing. These loans are secured by certain equipment owned
by the Company and by the net cash flow of the Las Vegas Facility. In
connection with obtaining these loans, the Company issued 437,500 shares of the
Company's common stock to the lenders. In connection with the issuance of the
shares to the lenders the Company recognized $250,469 in financing costs which
is deferred and is amortized as interest expense over the life of these loans.
During the fourth quarter, some of lenders elected to convert $100,000 of the
above notes to common stock at the than fair market value of $.40 per share.
Accordingly, the Company issued 250,000 additional shares relating to the
conversion of these notes. As of March 21, 1997, all remaining notes and
accrued interest have been paid.
On December 31, 1996, the Company closed a financing agreement with Finova
Technology Finance, Inc. (the "Lender") structured as a sale leaseback
transaction of certain equipment owed by the Company. Based on the substance of
this transaction, this financing agreement was accounted for as a note payable
for financial reporting purposes. The gross loan amount was for $1,575,027 to
be paid over a four year term at $40,903 per month with a balloon payment of
$157,503. The loan bears a variable interest rate based on the average weekly
interest rate of three-year U.S. Treasury Securities. The financing agreement
requires the Company to repurchase the equipment at the end of the lease for $1.
In connection with obtaining the financing, the Lender required the Company to
raise a minimum of $500,000 through a combination of equity, subordinated debt,
or conversion to equity of existing notes/liabilities. As of March 21, 1997,
the Company has issued 444,285 shares of the Company's common stock to various
vendors and 250,000 shares to existing note holders in lieu of amounts owed by
the Company, enabling the Company to meet the Lender's requirement. The Company
also issued 100,000 warrants to the Lender at an exercise price of $2.00 per
share, and an aggregate of 265,643 warrants
-10-
<PAGE>
to the brokers who arranged the financing at an exercise price of $.41 per share
representing approximately 110% of the market value at the closing date of the
financing.
As of December 31, 1996, the Company had commitments to purchase two
capsules designated for the Company's own use to operate or for sales to third
party. As of December 31, 1996, approximately $44,000 remains to be incurred
relating to the construction of the remaining two capsules, which will become
due upon installation and acceptance.
The Company is currently in production of a ski and snowboard film which is
being produced by Warren Miller Entertainment. As of December 31, 1996, the
Company anticipates an additional $70,000 in expenses relating to the production
of this film, of which $60,000 has been accrued by the Company. The film is
scheduled to be released in 1997. The Company has been performing additional
work on its previously released films adding more special effects and reworking
some scenes. As of December 31, 1996, the Company anticipates additional
expenditures of approximately $70,000 relating to the completion of this rework,
of which the Company has accrued approximately $25,000. The Company also
expects to incur approximately additional $50,000 in expenses relating to
reprogramming the motion of its existing capsules for the above films.
As of December 31, 1996, the Company had a negative working capital of
$581,771. The Company has and is continuing to take steps to reduce its
expenses without impacting its operations. Management believes that the
existing funds, combined with the Company's ability to generate cash from its
operations and through lease or debt financing of the Company's existing
equipment, or through equity financing, should be adequate to finance current
levels of activity. The Company was able to secure financing which was
necessary to pay for expenses already incurred relating to the Times Square
Facility, as well as other current obligations. Additional funds will be
required to finance the opening of additional locations. There can be no
assurance that the Company will be successful in obtaining the necessary funds
to finance the opening of any additional locations.
COMPANY OUTLOOK:
IDENTIFY AND DEVELOP NEW SITES FOR ATTRACTIONS
The Company is currently seeking additional locations for attractions. The
Company's goal is to open approximately three more facilities over the next two
years. In general, the Company will attempt to locate sites for its attractions
(i) which are in large metropolitan areas or which are at tourist destinations
which attract more than three million persons per year, (ii) at which the
Company can lease high-profile, high-traffic space at a reasonable cost, (iii)
which are in areas with a large number of permanent residents and which do not
have extreme seasonal attendance patterns, and (iv) which are at or near other
complementary tourist attractions.
The Company believes that each new attraction will take approximately four
to six months from lease execution to commencement of operations. Total cost of
developing new attractions, including construction, fixtures, equipment and
start-up costs after completion are estimated to be at least $1,250,000 per two-
capsule site. These costs will vary depending on the leased space, the scope of
any tenant improvements required to be performed by the Company in connection
with leasing a given location and the number of capsules installed, as well as
the size and location of the planned attraction. The Company anticipates that
three more locations will be added in the next two years. Accordingly, the
Company expects to spend approximately at least an additional $3,750,000 on the
acquisition and installation of three more locations in the next two years. In
addition to the costs of the equipment necessary to establish a new attraction
location, the Company expects to add approximately twenty employees per each
additional two-capsule location that it owns and operates.
In order to reduce the out-of-pocket costs in the development of
attractions, the Company may also explore joint venture arrangements with third
parties. The Company and its co-venturer would then split the profits, if any,
from the attraction based on their respective contributions to the venture.
SIMULATOR SALES, JOINT VENTURES, AND RIDE FILM LEASING
The Company intends to pursue the sale or joint venturing of simulator
equipment to property owners and businesses that wish to operate attractions of
their own. The sale of simulators to third parties would provide the Company
with an additional source of revenues and profits with a lower degree of risk
than is associated with
-11-
<PAGE>
owning and operating systems. Additional revenues would be generated from the
leasing of the Company's library of ride films to purchasers of the Company's
simulators or to operators of already existing simulators. The Company does not
intend to sell simulators or ride films into markets in which it expects to
operate its own attractions.
It is expected that the Company's management will continue to be responsible
for the marketing of the Company's simulators and ride films for sale and/or
leasing. However, the Company may retain the services of outside or in-house
sales representatives to locate potential purchasers of simulators and licensees
of ride films.
SEASONALITY OF BUSINESS
Because of the seasonal nature of tourist traffic, attendance patterns at
attractions may vary. The degree of this seasonality will vary among
attractions depending on the nature of tourist and local traffic patterns at a
given location as well as the nature of entertainment alternatives available to
audiences. The Company expects that attendance at its facilities will be the
highest in June through September (the height of the tourist season) and lowest
during January and February. The West Edmonton Mall Facility is more effected by
seasonality as compared to the Las Vegas Facility due to the extreme weather
conditions during the Winter months in Alberta, Canada. Similarly, the Times
Square Facility is effected by seasonality during the slower Winter months. As
a result, the Company's results of operations at its three facilities will
depend upon sales generated from the peak tourist periods and any significant
decrease in sales for such periods could have a material adverse effect upon the
Company's operations.
NET OPERATING LOSS CARRYFORWARD
As of December 31, 1996, for federal income tax purposes, the Company has
approximately $4,085,000 in net operating loss carryforwards expiring through
2011. The net operating loss carryforwards result in deferred tax assets of
approximately $1,400,000. Due to management not being able to conclude that it
is more likely than not that the deferred tax asset will be realized, a 100%
valuation allowance has been recorded for the full amount. Under Federal Tax
Law IRC Section 382, certain significant changes in ownership that the Company
is currently undertaking may restrict the future utilization of the tax loss
carryforwards.
EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of"
(SFAS No. 121) issued by the Financial Accounting Standards Board (FASB) is
effective for financial statements for fiscal years beginning after December 15,
1995. The new standard establishes new guidelines regarding when impairment
losses on long-lived assets, which include plant and equipment, and certain
identifiable intangible assets, should be recognized and how impairment losses
should be measured. The Company adopted this accounting standard on January 1,
1996 and its effects on the financial position and results of operations were
immaterial.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation" (SFAS No. 123) establishes a fair value method of
accounting for stock-based compensation plans and for transactions in which an
entity acquires goods or services from nonemployees in exchange for equity
instruments. The Company adopted this accounting standard on January 1, 1996.
SFAS 123 also encourages, but does not require companies to record compensation
cost for stock-based employee compensation. The Company has chosen to continue
to account for stock-based compensation utilizing the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." Accordingly, compensation cost for stock options measured
as the excess, if any, of the fair market price of the Company's stock at the
date of the grant over the amount an employee must pay to acquire the stock.
Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
(SFAS No. 125) issued by the Financial Accounting Standards Board (FASB) is
effective for transfers and servicing of
-12-
<PAGE>
financial assets and Extinguishments of liabilities occurring after December 31,
1996, and to be applied prospectively. Earlier or retroactive applications is
not permitted. The new standard provides accounting and reporting standards for
transfers and servicing of financial assets and Extinguishments of liabilities.
The Company does not expect adoption to have a material effect on its financial
position or results of operations.
ITEM 7. FINANCIAL STATEMENTS
--------------------
For a list of financial statements filed as part of this report, see index
to financial statements at F-1.
-13-
<PAGE>
CINEMA RIDE, INC.
AND SUBSIDIARIES
===============================================
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
INDEX
================================================================================
Report of independent certified public accountants F-2
Consolidated balance sheets F-3 to F-4
Consolidated statements of operations F-5
Consolidated statements of stockholders' equity F-6
Consolidated statements of cash flows F-7 to F-8
Summary of accounting policies F-9 to F-13
Notes to consolidated financial statements F-14 to F-25
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Cinema Ride, Inc. and Subsidiaries
Studio City, California
We have audited the accompanying consolidated balance sheets of Cinema Ride,
Inc. and Subsidiaries as of December 31, 1996 and 1995 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended December 31, 1996 and 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in these financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cinema Ride, Inc.
and Subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and cash flows for the years ended December 31, 1996 and 1995, in
conformity with generally accepted accounting principles.
Los Angeles, California BDO SEIDMAN, LLP
February 21, 1997
F-2
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
================================================================================
December 31, 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $1,395,978 $ 144,539
Inventories 45,515 45,806
Prepaid expenses 93,330 141,367
Other receivables 5,311 21,154
- --------------------------------------------------------------------------------
Total current assets 1,540,134 352,866
- --------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT (Notes 4 and 5)
Office equipment and furniture 103,050 104,094
Equipment under capital lease 589,474 139,474
Leasehold improvements 2,222,967 1,076,097
Theater and film equipment 3,078,593 1,693,129
Theater and film equipment under construction 564,432 1,521,414
- --------------------------------------------------------------------------------
6,558,516 4,534,208
Accumulated depreciation (846,873) (291,679)
- --------------------------------------------------------------------------------
5,711,643 4,242,529
- --------------------------------------------------------------------------------
FILM LIBRARY
Film projects under development 271,872 259,411
Film library, net of accumulated
amortization of $297,582 and $147,775 454,783 542,787
- --------------------------------------------------------------------------------
726,655 802,198
- --------------------------------------------------------------------------------
RECEIVABLES FROM OFFICERS (Note 1) 97,865 100,000
DEFERRED LEASE COSTS AND OTHER ASSETS 783,217 317,112
- --------------------------------------------------------------------------------
TOTAL ASSETS $8,859,514 $5,814,705
================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-3
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
===================================================================================
December 31, 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,342,855 $ 517,765
Accrued interest 50,547 --
Current portion of capital lease obligations (Note 4) 53,102 13,485
Notes payable to investors (Note 5) 337,500 --
Current portion of note payable to lender (Note 5) 275,979 --
Notes payable to vendors (Note 5) 52,612 --
Note payable to bank (Note 5) 9,310 --
- -----------------------------------------------------------------------------------
Total current liabilities 2,121,905 531,250
- -----------------------------------------------------------------------------------
OBLIGATIONS UNDER CAPITAL LEASE (Note 4) 336,548 97,989
NOTE PAYABLE TO BANK (Note 5) 23,370 --
NOTE PAYABLE TO LENDER (Note 5) 1,116,384 --
DEFERRED RENT (Note 8) 154,261 --
- -----------------------------------------------------------------------------------
Total liabilities 3,752,468 629,239
- -----------------------------------------------------------------------------------
COMMITMENTS (Notes 2 and 7)
- -----------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY (Notes 5 and 6)
Preferred stock, $.01 par value, 500,000
shares authorized, none issued -- --
Common stock, $.01 par value, 20,000,000
shares authorized, 5,731,785 and 4,570,000
shares issued and outstanding 57,318 45,700
Additional paid-in capital 9,134,389 8,363,638
Accumulated deficit (4,084,661) (3,223,872)
- -----------------------------------------------------------------------------------
Total stockholders' equity 5,107,046 5,185,466
- -----------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,859,514 $ 5,814,705
===================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-4
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
================================================================================
Years ended December 31, 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
REVENUES $ 3,310,163 $ 2,230,255
- --------------------------------------------------------------------------------
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 3,107,375 3,306,863
DEPRECIATION AND AMORTIZATION 831,927 371,007
- --------------------------------------------------------------------------------
TOTAL EXPENSES 3,939,302 3,677,870
- --------------------------------------------------------------------------------
OPERATING LOSS (629,139) (1,447,615)
OTHER INCOME (EXPENSE)
Interest income 15,150 76,150
Interest expense (246,800) (2,605)
- --------------------------------------------------------------------------------
NET LOSS $ (860,789) $(1,374,070)
================================================================================
NET LOSS PER COMMON SHARE $ (.18) $ (.30)
================================================================================
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 4,765,444 4,524,055
================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-5
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
================================================================================================
Common Stock Additional Total
(Notes 5 and 6) Paid-in Stockholders'
Shares Amount Capital Deficit Equity
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1995 4,505,000 $45,050 $8,209,912 $(1,849,802) $ 6,405,160
Issuance of common stock
for services rendered 65,000 650 153,726 - 154,376
Net loss - - - (1,374,070) (1,374,070)
- ------------------------------------------------------------------------------------------------
BALANCE, December 31, 1995 4,570,000 45,700 8,363,638 (3,223,872) 5,185,466
Issuance of common stock
to officer 30,000 300 15,600 - 15,900
Issuance of common stock
to lenders 437,500 4,375 246,094 - 250,469
Conversion of note payable
to common stocks 250,000 2,500 97,500 - 100,000
Issuance of common stock
for services rendered 444,285 4,443 343,234 - 347,677
Issuance of warrants to
lenders and brokers (Note 5) - - 68,323 - 68,323
Net loss - - - (860,789) (860,789)
- ------------------------------------------------------------------------------------------------
BALANCE, December 31, 1996 5,731,785 $57,318 $9,134,389 $(4,084,661) $(5,107,046)
================================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-6
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
================================================================================
Increase (Decrease) in Cash
Years ended December 31, 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss from operations $ (860,789) $(1,374,070)
Adjustments to reconcile net loss to
cash used in operating activities:
Depreciation and amortization 831,927 371,007
Stock issued for services rendered 29,400 154,376
Amortization of deferred financing costs 125,187 --
Write-off of organization costs 9,863 --
Loss on sale of assets 7,846 --
Increase (decrease) in cash due to changes
in operating assets and liabilities:
Inventories 291 (1,849)
Prepaid expenses 48,037 (93,180)
Other receivables 7,980 (21,154)
Accounts payable and accrued expenses 870,674 345,200
Deferred rent 154,261 --
Accrued interest 50,547 --
Customer deposits -- (273,000)
- --------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 1,275,224 (892,670)
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of:
Film production costs (49,716) (394,697)
Capital expenditures (1,440,244) (1,692,023)
Equipment under capital lease (75,215) (28,000)
Proceeds from insurance for equipment 33,671 --
Deferred lease costs and other assets (342,999) (259,825)
- --------------------------------------------------------------------------------
Net cash used in investing activities (1,874,503) (2,374,545)
- --------------------------------------------------------------------------------
</TABLE>
F-7
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
===================================================================================
Increase (Decrease) in Cash
Years ended December 31, 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 2,471,295 --
Payments made on notes payable (608,752) --
Principal payments under capital lease obligation (21,825) --
(Loans) payments made (to) from officers 10,000 (100,000)
- -----------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 1,850,718 (100,000)
- -----------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,251,439 (3,367,215)
CASH AND CASH EQUIVALENTS, beginning of year 144,539 3,511,754
- -----------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year $1,395,978 $ 144,539
===================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid for interest $ 53,290 $ 2,605
===================================================================================
Non cash financing activities:
Common stock issued to vendors
in exchange for services rendered $ 13,500 $ 154,376
Issuance of stock to lenders 250,469 --
Issuance of common stock to officer 15,900 --
Increase in capital lease obligation and
accounts payable for equipment 300,000 111,474
Issuance of common stock for film expenditures 24,548 --
Issuance of common stock for financing costs 56,250 --
Issuance of common stock for capital obligation 74,785 --
Issuance of common stock for leasehold improvements 158,256 --
Issuance of common stock for equipment 20,338 --
Issuance of warrants to lender 4,652 --
Issuance of warrants to brokers 42,846 --
Conversion of notes payable to common stock 100,000 --
Conversion of accounts payable to notes payable 52,612 --
===================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-8
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
BUSINESS Cinema Ride, Inc. (the "Parent") and Subsidiaries (the
ACTIVITY "Company") was incorporated in Delaware in April 1993. The
Company is in the business of developing and operating rides
consisting of motion simulator attractions ("attractions" or
"rides") and filmed entertainment ("ride films") that
combines video-projected three-dimensional ("3-D") action
films of approximately four minutes duration with
computer-controlled, hydraulically-mobilized capsules that
are programmed to move in concert with the on-screen action.
The Company opened its first attraction in Las Vegas in
October, 1994. The Company's executive offices are located
in Studio City, California.
During 1995, the Company established a wholly owned
subsidiary, Cinema Ride Edmonton, Inc., a Canadian
corporation that operates one motion simulator ride Facility
located at the West Edmonton Mall in Alberta, Canada. During
the years ended December 31, 1996 and 1995, revenues, losses
and identifiable assets for Cinema Ride Edmonton, Inc. were
less than 10% of the consolidated amounts, therefore segment
information is not disclosed.
During 1995, the Company also established a wholly owned
subsidiary, Cinema Ride Times Square, Inc., that operates
one motion simulator ride Facility consisting of three
capsules, located at New York Times Square which commenced
operation in September 1996.
All significant intercompany transactions and balances have
been eliminated in consolidation.
CONCENTRATION OF The Company maintains cash balances at various financial
CREDIT institutions. Deposits not to exceed $100,000 for each
RISK institution are insured by the Federal Deposit Insurance
Corporation. At December 31, 1996 F-9 and 1995, the Company
had uninsured cash and cash equivalents in the amount of
$1,201,770 and $0.
F-9
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
PROPERTY AND Property and equipment are stated at cost. Depreciation
EQUIPMENT is provided at the time property and equipment is placed in
service using the straight-line method over the estimated
useful lives of the assets which range from five to ten
years.
FILM PRODUCTION Film production costs are stated at the lower of amortized
COSTS cost or market. Upon completion, film production costs are
amortized on an individual production basis in the
proportion that current gross revenues bear to management's
estimate of total gross revenues with such estimates being
reviewed at least quarterly.
DEFERRED LEASE Deferred lease costs represent amounts paid in connection
COSTS with the successful negotiation of the Company's leases.
Costs are amortized on a straight-line basis over the
term of the lease.
PRE-OPENING The Company capitalizes pre-opening costs (primarily rent,
COSTS salaries and insurance) incurred in connection with
potential new locations. These costs are amortized over the
twelve months following commencement of operations, or
charged to expense when the project is abandoned. At
December 31, 1996 and 1995, unamortized pre-opening costs of
$258,701 and $140,577 are included in other assets.
INCOME TAXES The Company provides for income taxes in accordance
with Statement of Financial Accounting Standards 109 ("SFAS
109"), Accounting for Income Taxes. Deferred income taxes
are provided on the difference in earnings determined for
tax and financial reporting purposes and result primarily
from differences in methods used to amortize production
costs.
FAIR VALUE OF The Financial Accounting Standards Board issued SFAS No.
FINANCIAL 107, Disclosures about Fair Value of Financial Statements,
INSTRUMENTS which is effective December 31, 1995. This statement
requires the disclosure of estimated fair values for all
financial instruments for which it is practicable to
estimate fair value.
The carrying amounts of financial instruments including cash
and cash equivalents, accounts receivable, inventory,
prepaid expenses, other receivables, current maturities of
long-term debt, accounts payable, accrued expenses and other
liabilities approximate fair value because of their short
maturity.
F-10
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
FAIR VALUE OF The carrying amount of long-term debt approximates fair
FINANCIAL value because the interest rates on these instruments
INSTRUMENTS approximate the rate the Company could borrow at December
(CONTINUED) 31, 1996.
FOREIGN CURRENCY Foreign currency denominated assets and liabilities of
TRANSLATION subsidiaries with local functional currencies are translated
to United States dollars at year-end exchange rates. The
effects of translation are recorded in the cumulative
translation component of shareholders' equity. Such
translations in 1996 and 1995 were minimal.
STOCK-BASED Statements of Financial Accounting Standards No. 123,
COMPENSATION "Accounting for Stock-Based Compensation" (SFAS No. 123)
establishes a fair value method of accounting for
stock-based compensation plans and for transactions in which
an entity acquires goods or services from nonemployees in
exchange for equity instruments. The Company adopted this
accounting standard on January 1, 1996. SFAS 123 also
encourages, but does not require companies to record
compensation cost for stock-based employee compensation. The
Company has chosen to continue to account for stock-based
compensation utilizing the intrinsic value method prescribed
in Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees." Accordingly, compensation
cost for stock options is measured as the excess, if any, of
the fair market price of the Company's stock at the date of
grant over the amount an employee must pay to acquire the
stock.
LOSS PER SHARE Loss per share is based on the weighted average number of
shares of common stock outstanding during the period. Net
loss per common share has been computed based on the
weighted average number of common and common equivalent
shares outstanding. Common equivalent shares representing
the common shares that would be issued on exercise of
convertible securities and outstanding stock options and
warrants reduced by the number of shares which could be
purchased from the related exercise proceeds are not
included since their effect would be anti-dilutive.
F-11
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
STATEMENT OF For purposes of the statement of cash flows, the Company
CASH FLOWS considers all highly liquid debt instruments with an
original maturity of three months or less to be cash
equivalents.
SEASONALITY OF Because of the seasonal nature of tourist traffic,
BUSINESS attendance patterns at attractions may vary. The nature and
degree of this seasonality will vary among attractions
depending on the nature of tourist and local traffic
patterns at a given location, as well as, the nature of
entertainment alternatives available to audiences. The
Company expects that attendance at its facilities will be
the highest in June through September (the height of the
tourist season) and lowest during January and February. The
West Edmonton Mall Facility is more affected by seasonality
as compared to the Las Vegas Facility due to the extreme
weather conditions during the winter months in Alberta,
Canada. As a result, the Company's results of operations at
its three facilities will depend upon sales generated from
the peak tourist periods and any significant decrease in
sales for such periods could have a material adverse effect
upon the Company's operations.
RECLASSIFICATIONS Certain items previously reported in specific financial
statement captions have been reclassified to conform with
the 1996 presentation.
ACCOUNTING The preparation of financial statements in conformity with
ESTIMATES generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
F-12
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
IMPAIRMENT OF Statement of Financial Accounting Standards No. 121,
LONG-LIVED ASSETS "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of" (SFAS No. 121)
establishes new guidelines regarding when impairment losses
on long-lived assets, which include plant and equipment, and
certain identifiable intangible assets, should be recognized
and how impairment losses should be measured. The Company
adopted this accounting standard on January 1, 1996 and its
effects on the financial position and results of operations
were immaterial.
NEW ACCOUNTING Statements of Financial Accounting Standards No. 125,
PRONOUNCEMENT "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" (SFAS No. 125) issued by
the Financial Accounting Standards Board (FSAB) is effective
for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31,
1996, and is to be applied prospectively. Earlier or
retroactive applications is not permitted. The new standard
provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishments of
liabilities. The Company does not expect adoption to have a
material effect on its financial position or results of
operations.
F-13
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
1. RECEIVABLES During the year ended December 31, 1995, the Company made
FROM OFFICERS loans to each of its two officers in the amount of $50,000.
The loans bear interest at a rate of 8% per year and are due
on the earlier of June 30, 1998 or six months after the
officer ceases to be an employee of the Company. Principal
payments of $5,000 per loan are due on June 30, 1996 and
June 30, 1997, with the balance due on June 30, 1998. Each
note is secured by the lower of 40,000 shares or the number
of shares equivalent to the unpaid value of the note. The
balance of the loans at December 31, 1996 is $97,865, which
includes $7,865 of accrued interest.
2. CUSTOMER During the year ended December 31, 1994, the Company entered
DEPOSITS into an equipment purchase and ride film rental agreement
with a southern California-based owner and operator of movie
theaters to purchase two stand-alone ride capsules from the
Company for a total purchase price of $910,000. An initial
cash payment of $273,000 was made. The agreement also
required that the purchaser lease the Company's library of
ride films. On March 27, 1995, the purchaser informed the
Company that it had been unsuccessful in obtaining landlord
approval for certain leasehold improvements. Accordingly,
the purchaser exercised its option to terminate the ride
agreement. The Company refunded the purchaser the full
initial deposit of $273,000 on May 3, 1995.
3. INCOME TAXES As of December 31, 1996, for federal income tax purposes,
the Company has approximately $4,085,000 in net operating
loss carryforwards expiring through 2011. The net operating
loss carryforwards result in deferred tax assets of
approximately $1,400,000. Due to management not being able
to conclude that it is more likely than not that the
deferred tax asset will be realized, a 100% valuation
allowance has been recorded for the full amount. Under
Federal Tax Law IRC Section 382, certain significant changes
in ownership that the Company is currently undertaking may
restrict the future utilization of the tax loss
carryforwards.
F-14
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
4. Obligation Minimum future lease payments under capital lease
Under Capital obligations are as follows:
Lease
<TABLE>
<CAPTION>
December 31, Amount
------------------------------------------------------------
<S> <C>
1997 $ 113,064
1998 113,064
1999 113,064
2000 113,064
2001 113,064
Thereafter 12,278
------------------------------------------------------------
577,598
Amount representing interest (187,948)
------------------------------------------------------------
Present value of minimum lease payments $ 389,650
============================================================
</TABLE>
5. NOTES PAYABLE NOTE PAYABLE TO BANK
On March 6, 1996, Cinema Ride Edmonton, Inc. obtained a
$40,328 loan ($55,000 Canadian dollars) from a Canadian bank
at prime plus two percent (total interest is 6.75% at
December 31, 1996). The loan has a term of four years
requiring monthly payments of approximately $1,027 ($1,400
Canadian dollars) and is guaranteed by the Parent. The
lender has first security interest in the equipment and
improvements located at the West Edmonton Facility. The loan
also restricts transfer of funds to the Parent other than
amounts in excess of cash flow. The loan may be prepaid at
any time without any penalties. As of December 31, 1996,
$32,680 remains unpaid on this loan.
F-15
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
5. NOTES PAYABLE LOAN PAYABLE TO UNAFFILIATED PARTY
(CONTINUED)
On June 17, 1996, the Company obtained a loan for $600,000
from an unaffiliated party. The loan was due in sixty days
bearing interest at 2% per month compounded monthly. In
connection with obtaining the loan, the Company agreed to
pay the lender a 2 point fee ($12,000), and issue 50,000
warrants to purchase the Company's common stock at the then
fair market value. The Company repaid this loan during the
quarter ended September 30, 1996. As of December 31, 1996,
all accrued interest relating to this note has been paid. In
connection with the Company's issuance of warrants to this
lender, the Company recognized, based on a valuation of
these warrants, $20,825 as an additional interest expense
during the year.
NOTES PAYABLE TO INVESTORS
During the quarter ended September 30, 1996, the Company
obtained loans aggregating $437,500 bearing interest at 15%
paid monthly with the principal balance due at the earlier
of one year or at the time the Company successfully obtains
permanent financing. These loans are secured by certain
equipment owned by the Company and by the net cash flow of
the Las Vegas Facility. In connection with obtaining these
loans, the Company issued 437,500 shares of the Company's
common stock to the lenders at the then fair value of $.58
per share. In connection with the issuance of the shares to
the lenders the Company recognized $250,469 in financing
costs which is deferred and is amortized as interest expense
over the life of these loans. During the fourth quarter,
some of the lenders elected to convert $100,000 of the above
notes to common stock at the then fair market value of $.40
per share. Accordingly, the Company issued 250,000
additional shares relating to the conversion of these notes.
All remaining notes plus accrued interest were paid
subsequent to year end.
F-16
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
5. NOTES PAYABLE NOTE PAYABLE TO LENDER
(CONTINUED)
On December 31, 1996, the Company closed a financing
agreement (the "Financing Agreement") with Finova Technology
Finance, Inc. (The "Lender") structured as a sale leaseback
transaction of certain equipment owned by the Company. Based
on the substance of this transaction, the Financing
Agreement was accounted for as a note payable for financial
reporting purposes. The gross loan amount was for $1,575,027
to be paid over a four year term at $40,903 per month with a
balloon payment of $157,503. The loan bears a variable
interest rate based on the average weekly interest rate of
three-year U.S. Treasury Securities. The financing agreement
requires the Company to repurchase the equipment at the end
of the lease for $1. In connection with obtaining the
financing, the Lender required the Company to raise a
minimum of $500,000 through a combination of equity,
subordinated debt, or conversion to equity of existing
notes/liabilities. The balance of the loan at December 31,
1996 was $1,392,363 as the Lender held back $100,000 of the
financing until January 1997 and $82,664 representing the
first and last payments of the financing agreement. The
Company issued 444,285 shares of the Company's common stock
to various vendors and 250,000 shares to existing note
holders in lieu of amounts owed by the Company, enabling the
Company to meet the lender's requirement. The Company also
issued 100,000 warrants to the lender at an exercise price
of $2.00 per share, and an aggregate of 265,643 warrants to
the brokers at an exercise price based on 110% of the market
value at the closing date of the financing. In connection
with the issuance of the warrants to the lender and brokers,
the Company recognized, based on a valuation of these
warrants, $47,498 as deferred financing costs which will be
amortized over the life of the loan.
NOTES PAYABLE TO VENDORS
As a part of the requirements to obtain the Financing
Agreement above, the Company converted $52,612 of accounts
to vendors into unsecured subordinated notes payable bearing
interest at 8%. Principal payments on the notes are to be
made at 20% increments on April 30, 1997 and July 31, 1997
with the remaining 60% due on September 30, 1997.
F-17
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
5. Notes Payable Minimum future payments under notes payable are as
(Continued) follows:
<TABLE>
<CAPTION>
December 31, Amount
---------------------------------------------------------
<S> <C>
1997 $ 675,401
1998 332,589
1999 388,127
2000 419,038
---------------------------------------------------------
$1,815,155
=========================================================
</TABLE>
6. CAPITAL STOCK Holders of the common stock purchased in previous private
TRANSACTIONS placements in 1993 and 1994 received certain demand and
piggyback registration rights as a result of the initial
public offering of the common stock (see below). The Company
has also granted certain "piggyback" registration rights for
a period of five years after the closing date of a public
offering of the Company's common stock, in the event of any
subsequent public offering of the Company's securities, with
respect to the common stock purchased in the private
placement.
In September 1994, the Company completed an initial public
stock offering of 1,200,000 shares of common stock, with a
par value of $.01 per share, at a price of $5 per share and
2,000,000 warrants, at a price of $.25 per warrant. Each
warrant entitles the holder thereof, upon exercise, to
purchase one share of common stock at a price of $6.00 per
share, subject to adjustments, exercisable for a period of
forty eight months, commencing twelve months from the date
of the offering. The warrants are subject to redemption by
the Company, at any time, commencing eighteen months
following the date of issuance, subject to earlier
redemption at a price of $.25 per warrant if the average
closing bid price for the common stock equals or exceeds
$7.00 per share for any 20 trading days ending on the fifth
day prior to the date of the notice of redemption. In
November 1994, the underwriter in the Company's initial
public offering exercised it option
F-18
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
6. CAPITAL STOCK to purchase 180,000 shares of Common Stock and 300,000
TRANSACTIONS Redeemable Warrants at the initial public offering prices of
(CONTINUED) such securities in order to meet over-allotments in
connection with the initial public offerings. Net proceeds
from the initial offering (and subsequent exercise of the
over-allotment option) were $6,113,021.
In conjunction with the public stock offering, the Company
sold separate warrants to the underwriter to purchase shares
of common stock and redeemable warrants of the Company in an
amount equal to 10% of the total shares of common stock and
redeemable warrants underwritten excluding any
over-allotment options granted to the underwriter. The
warrants were sold at a price of $.0001 per share and are
exercisable at 120% of the initial offering price per share
of the Company's common stock and $.30 per redeemable
warrant for a four year period commencing twelve months
after the closing date of the public offering. The holders
of the warrants sold to the underwriter will have certain
registration rights.
During the year ended December 31, 1996, the Company issued
its chief financial officer 30,000 shares of the Company's
common stock at the then fair market value of $.53 per
share. The Company recorded the then fair market value of
the shares as additional compensation to the officer.
During the years ended December 31, 1996 and 1995, the
Company issued 444,285 and 65,000 shares of common stock at
the then fair market values to vendors in exchange for
services in the amount of $347,677 and $154,375
respectively.
On June 14, 1996, the Company's stockholders approved an
amendment to the Company's Certificate of Incorporation to
increase the number of authorized shares of common stock
from 10,000,000 to 20,000,000.
F-19
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
7. STOCK OPTION EMPLOYEE STOCK OPTION PLAN
PLANS
The Company adopted a Stock Option Plan (the "Plan") for
officers, employees, directors and consultants of the
Company or its subsidiaries, if any, subject to ratification
by the Company's stockholders. The Plan authorizes the
granting of incentive stock options and non-qualified stock
options to purchase an aggregate of not more than 900,000
shares of the Company's common stock. The Plan provides that
options granted will generally be exercisable at any time
during a ten year period (five years for a stockholder
owning in excess of 10% of the Company's common stock). The
exercise price for non-qualified stock options shall not be
less than the par value of the Company's common stock. The
exercise price for incentive stock options shall not be less
than 100% of the fair market of the Company's common stock
on the date of grant (110% of the fair market value of the
Company's common stock on the date of grant for a
stockholder owning in excess of 10% of the Company's common
stock).
1995 DIRECTORS' STOCK OPTION PLAN
The Company adopted a Directors Stock Option Plan (the
"Directors' Plan") for non-employee directors of the
Company. The Directors Plan authorizes the granting of
non-qualified stock options to purchase an aggregate of not
more than 100,000 shares of the Company's common stock. The
Directors' Plan provides that options granted will be
exercisable during a ten year period and will vest on a
cumulative basis as to one third of the total number of
shares covered thereby at any time after one year from the
date the option is granted and an additional one-third of
such total number of shares at any time after the end of
each consecutive one year period thereafter until the option
has become exercisable as to all of such total number of
shares. The exercise price for non-qualified stock options
shall be the fair value of the Company's common stock at the
date of the grant.
F-20
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
7. STOCK OPTION 1995 Directors' Stock Option Plan (Continued)
PLAN
(CONTINUED)
On December 31, 1996, the Company's Board of Directors
agreed on repricing the exercise price of options already
issued under both the Company's Stock Option Plan and
Directors' Plan to the then current market value.
Option activity during the years ended December 31, 1996 and
1995 is as follows:
<TABLE>
<CAPTION>
Stock Option
Plan
----------------------------------------------------------
<S> <C>
Balance outstanding,
January 1, 1995 600,000
Options cancelled, $5.00 per share (600,000)
Options granted $0.875 per share 231,000
Options granted $1.625 per share 17,500
Options granted $2.125 per share 80,000
Options granted $2.338 per share 150,000
----------------------------------------------------------
Balance outstanding,
December 31, 1995 ($.875 - $2.338) 478,500
Options cancelled, $1.625 per share (500)
Options granted $0.875 per share 40,000
Options granted $0.530 per share 50,000
Options granted $1.034 per share 241,500
Options granted $0.940 per share 100,500
Options cancelled (910,000)
Options re-issued $0.375 per share 910,000
----------------------------------------------------------
Balance outstanding,
December 31, 1996 $0.375 per share 910,000
==========================================================
Options exercisable:
December 31, 1995 200,000
December 31, 1996 292,667
==========================================================
</TABLE>
F-21
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
7. STOCK OPTION 1995 DIRECTORS' STOCK OPTION PLAN (Continued)
PLAN
(CONTINUED) Information relating to stock options and warrants at
December 31, 1996 summarized by exercise price are as
follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
----------------- -----------------
Exercise Weighted Average Weighted Average
Price ----------------- -----------------
Per Share Shares Life (Year) Exercise Price Shares Exercise Price
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.375 910,000 8.9 $0.375 292,667 $0.375
</TABLE>
All stock options issued to employees have an exercise price
not less than the fair market value of the Company's common
stock on the date of grant, and in accordance with
accounting for such options utilizing the intrinsic value
method there is no related compensation expense recorded in
the Company's financial statements. Had compensation cost
for stock-based compensation been determined based on the
fair value at the grant dates consistent with the method of
SFAS 123, the Company's net income and earnings per share
for the years ended December 31, 1996 and 1995 would have
been reduced to the pro forma amounts presented below:
<TABLE>
<CAPTION>
1996 1995
--------------------------------------------------------
Net loss
<S> <C> <C>
As reported $ (860,789) $ (1,374,070)
Pro forma $ (924,564) $ (1,374,070)
Loss per share
As reported $ (0.18) $ (.30)
Pro forma $ (0.19) $ (.30)
</TABLE>
The fair value of option grants is estimated on the date of
grants utilizing the Black-Scholes option-pricing with the
following weighted average assumptions for 1996, expected
life of 8.9 years: expected volatility of 42%, risk-free
interest rates of 6.15%, and a 0% dividend yield. The
weighted average fair value at date of grant for options
granted during 1996 approximated $0.23 per option.
F-22
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
7. STOCK OPTION Due to the fact that the Company's stock option programs
PLAN vest over many years and additional awards are made each
(CONTINUED) year, the above proforma numbers are not indicative of the
financial impact had the disclosure provisions of FASB 123
been applicable to all years of previous option grants. The
above numbers do not include the effect of options granted
prior to 1995 that vested in 1995 and 1996.
8. COMMITMENTS The Company leases office space for its corporate
headquarters in Studio City, California. Additionally, the
Company leases retail space for its attractions in Las
Vegas, Nevada, Edmonton, Canada and New York, New York.
The amendment of the Las Vegas Facility lease in December
1995 allows the Company to install a booth/kiosk on the main
level of the Forum Shops, and also gives the Company a rent
reduction not to exceed in total $150,000. The rent
reduction was deducted from the monthly rent payment at a
rate of $18,000 per month starting February 1, 1996 until
the Company had recorded $150,000 as deferred rent and rent
is being recorded on a straight-line basis through the
expiration of lease which is July 2004. Deferred rent at
December 31, 1996 was $154,261 which also includes deferred
rent on the corporate office lease. In addition, the lease
amendment requires the Landlord to install at the Landlord's
cost, within six months, new signage that is acceptable to
the Company and to take possession of the original sign. The
Company will still be responsible for paying off the
remaining obligation at that time.
F-23
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
8. COMMITMENTS Minimum future rental payments for each of the next five
(CONTINUED) years and thereafter is as follows:
<TABLE>
<CAPTION>
Year ending Annual
December 31, Rent
---------------------------------------------------------
<S> <C>
1997 $ 858,460
1998 917,090
1999 918,920
2000 866,643
2001 806,988
Thereafter 3,242,019
---------------------------------------------------------
$7,610,120
=========================================================
</TABLE>
Rent expense for the years ended December 31, 1996 and 1995
was $632,726 and $484,861.
On September 14, 1994, the president and the chief operating
officer of the Company entered into three year employment
agreements that provide for base year salaries of $135,000
and $115,000, annual increases of 7.5% and annual bonuses of
4% and 3.5% of the Company's net income in excess of $2
million for each year.
As of December 31, 1996, the Company had commitments to
purchase two capsules designated for the Company's own use
to operate or for sales to third party. As of December 31,
1996, approximately $44,000 remains to be incurred relating
to the construction of the remaining two capsules, which
will become due upon installation and acceptance. As of
December 31, 1996, the Company has accrued $66,000 relating
to the completion and installation of the three capsules at
the Times Square Facility.
F-24
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
================================================================================
9. SUBSEQUENT ISSUANCE OF COMMON STOCK
EVENTS
During January 1997, the Company issued 55,000 shares of the
Company's common stock to employees, including 50,000 shares
to its chief financial officer at the fair market value of
$.38 per share. The Company recorded the then fair market
value of the shares as additional compensation to the
employees. Warrant Repricing
WARRANT REPRICING
During January 1997, and in accordance with the warrant
agreements, the Company, repriced the exercise price of the
warrants issued in connection with its Initial Public
Offering. The Company also issued additional warrants as
required by the warrant agreements as follows:
<TABLE>
<CAPTION>
Original Adjusted Original Additional
Exercise Exercise Warrants Warrants
Price Price Issued Issued
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Private Placement
Warrants $5.00 $4.16 500,000 101,519
Public Warrants $6.00 $4.97 2,000,000 415,656
Underwriters Warrants $5.00 $4.16 300,000 60,911
</TABLE>
10. MANAGEMENT As of December 31, 1996, the Company had a negative working
PLANS capital of $581,771. The Company has and is continuing to
take steps to reduce its expenses without impacting its
operations. Management believes that the existing funds,
combined with the Company's ability to generate cash from
its operations and through lease or debt financing of the
Company's existing equipment, or through equity financing,
will be adequate to finance current levels of activity. The
Company was able to secure financing which was necessary to
pay for expenses already incurred relating to the Times
Square Facility, as well as other current obligations.
Additional funds will be required to finance the opening of
additional locations. There can be no assurance that the
Company will be successful in obtaining the necessary funds
to finance the opening of any additional locations.
F-25
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
--------------------------------------------------------------
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
- -------------------------------------------------
Incorporated by reference to the Company's Proxy Statement for Annual Meeting
of Stockholders to be filed with the Securities and Exchange Commission within
120 days after the close of the fiscal year ended December 31, 1996.
ITEM 10. EXECUTIVE COMPENSATION
----------------------
Incorporated by reference to the Company's Proxy Statement for Annual Meeting
of Stockholders to be filed with the Securities and Exchange Commission within
120 days after the close of the fiscal year ended December 31, 1996.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
Incorporated by reference to the Company's Proxy Statement for Annual Meeting
of Stockholders to be filed with the Securities and Exchange Commission within
120 days after the close of the fiscal year ended December 31, 1996.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Incorporated by reference to the Company's Proxy Statement for Annual Meeting
of Stockholders to be filed with the Securities and Exchange Commission within
120 days after the close of the fiscal year ended December 31, 1996.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) EXHIBITS
The following exhibits are submitted herewith:
NUMBER DESCRIPTION
------ -----------
3.1 Certificate of Incorporation of the Company, as amended*
3.2 Bylaws of the Company*
3.3 Certificate of Incorporation of Cinema Ride Edmonton, Inc.***
3.4 Bylaws of Cinema Ride Edmonton, Inc.***
4.1 Specimen Stock Certificate of the Company*
4.2 Form of Redeemable Warrant Agreement (with form of certificate
attached)*
4.3 Form of Underwriter's Warrant Agreement (with form of certificate
attached)*
4.4 Lender's Warrant Certificate ****
4.5 Warrant Holder Rights agreement dates as of December 31, 1996 between
the Company and the Lender.****
-14-
<PAGE>
10.1 Form of Employment Agreement of Mitch Francis dated September 14,
1994.*
10.2 Form of Employment Agreement of Gary Packman dated September 14,
1994.*
10.3 Form of Indemnification Agreement*
10.4 Cinema Ride, Inc. Stock Option Plan*
10.5 Equipment Lease, dated June 1, 1994, between the Company and Rust
Leasing International*
10.6 Placement Agent Agreement, dated May 10, 1993, between the Company and
the Underwriter*
10.7 Placement Agent Agreement, dated September 3, 1993, between the
Company and the Underwriter*
10.8 Equipment lease, dated April 6, 1995, between the Company and Sign
Systems.**
10.10 Agreement, dated December 15, 1993, between the Company and Computer
3-D, Inc.*
10.11 Agreement, dated December 28, 1993, among the Company and Boyington
Film Productions, Inc. and Peter Shillingford*
10.12 Agreement, dated January 12, 1994, between the Company and Topix
Computer Graphics and Animation*
10.13 Agreement, dated December 21, 1993, between the Company and Multi-
Dimensional Media Services, Inc.*
10.14 Contract, dated January 3, 1994, between the Company and McFadden
Systems, Inc.*
10.15 Letter Agreement, dated April 30, 1993, between the Company and Jack
Hollander & Associates, Inc.*
10.16 Standard Office Lease -- Gross, dated as of March 29, 1993, between
the Company and Ventura Place Associates*
10.17 Lease, dated July 2, 1993, between Forum Developers Limited
Partnership and the Company*
10.18 Third Lease Amendment, dated July 27, 1994, between Forum Developers
Limited Partnership and the Company*
10.19 Equipment Purchase and Ride Film Rental Agreement, dated August 8,
1994, between the Company and Nickelodeon Theater Co., Inc.*
10.22 Form of Financial Advisory and Consulting Agreement between the
Company and the Underwriter*
10.23 Form of Indemnification Agreement between the Company and the
Underwriter*
10.24 Cancellation Agreement relating to certain shares of Common Stock*
10.25 Contract, dated December 10, 1994, between the Company and McFadden
Systems, Inc.*
10.26 Form of Promissory Note and Security Agreement (stock pledge)
of Mr. Mitch Francis dated July 5, 1995.***
10.27 Form of Promissory Note and Security Agreement (stock pledge)
of Mr. Gary Packman dated July 5, 1995.***
10.28 Standard Office Lease -- Gross, dated March 21, 1995, between the
Company and WFC Ventures L.P.***
10.29 First Lease Amendment, dated April 15, 1995, between the
Company and WFC Ventures L.P.***
10.30 Lease, dated July 17, 1995 between the Company and West Edmonton
Mall Property Inc.***
10.31 Lease, dated August 8, 1995 between the Company and Three Times
Square Center Partners, L.P.***
10.32 Fourth Lease Amendment, dated December 30, 1995, between Forum
Developers Limited Partnership and the Company.**
10.34 Master Equipment Lease Agreement dated as of December 12, 1996,
between the Lender and the Company.****
21 Subsidiaries: Cinema Ride Edmonton, Inc., Alberta, Canada.
Cinema Ride Times Square, Inc., New York, New York.
27 Financial Data Schedule
____________________
-15-
<PAGE>
* Incorporated by reference to Exhibits of Registrant's Registration
Statement on Form SB-2, Registration No. 33-80672.
** Incorporated by reference to Exhibits previously filed as part of the
Registrant's quarterly report on Form 10-QSB for the quarter ended March
31, 1995.
*** Incorporated by reference to Exhibits previously filed as part of the
Registrant's quarterly report on Form 10-QSB for the quarter ended June 30,
1995.
**** Incorporated by reference to Exhibits previously filed as part of the
Registrant's Form 8-K filed on January, 28, 1997.
b) REPORTS ON FORM 8-K
The Company filed a Form 8-K on January 28, 1997, reporting under item 5.
-16-
<PAGE>
SIGNATURES
In accordance with the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CINEMA RIDE, INC.
BY: /S/ MITCH FRANCIS
----------------------------------
MITCH FRANCIS, PRESIDENT
In accordance with the Securities Exchange Act 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.
SIGNATURE DATE
--------- ----
/S/ MITCH FRANCIS March 21, 1997
- -----------------------
Mitch Francis
Chairman of the Board, President, Chief Executive
Officer and Director (principal executive officer)
/S/ GARY H. PACKMAN March 21, 1997
- -----------------------
Gary H. Packman
Chief Operating Officer, Executive Vice President,
Secretary, Treasurer and Director
/S/ TOUFIC R. BASSIL March 21, 1997
- -----------------------
Toufic R. Bassil
Chief Financial Officer
(principal financial officer,
principal accounting officer).
/S/ BENJAMIN FRANKEL March 21, 1997
- -----------------------
Benjamin Frankel
Director
/S/ NORMAN FEIRSTEIN March 21, 1997
- -----------------------
Norman Feirstein
Director
-17-
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