<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
FORM 10-QSB
(MARK ONE)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to__________
Commission File Number 0-24592
---------
CINEMA RIDE, INC.
---------------------
(Exact name of registrant as specified in its charter)
DELAWARE 95-4417467
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
12001 VENTURA PLACE, STUDIO CITY, SUITE 340, CALIFORNIA 91604
(Address of principal executive offices)
(Zip Code)
(818) 761-1002
(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
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 give such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
As of November 12, 1997, there were 5,734,999 outstanding shares of common
stock, par value $0.01 per share.
Transitional Small Business Disclosure Format: Yes No X
--- ---
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
INDEX TO FORM 10-QSB
FOR THE QUARTER ENDED
SEPTEMBER 30, 1997
==================================
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Balance Sheets as of September 30, 1997 and
December 31, 1996. 3
Statements of Operations for the three months and
nine months ended September 30, 1997 and 1996. 5
Statements of Cash Flows for the nine months ended
September 30, 1997 and 1996. 6
Summary of Accounting Policies 8
Notes to Financial Statements. 10
Item 2. Management Discussion and Analysis of Financial Condition
and Results of Operations 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 4. Submission to Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
Exhibits Index 18
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CINEMA RIDE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
========================================
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(unaudited) (audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 252,804 $ 1,395,978
Inventories 29,229 45,515
Prepaid expenses 84,453 93,330
Other Receivables 731 5,311
----------- -----------
Total current assets 367,217 1,540,134
----------- -----------
Property and equipment:
Office equipment and furniture 106,938 103,050
Equipment under capital lease 589,474 589,474
Leasehold improvements 2,265,914 2,222,967
Theater and film equipment 3,078,593 3,078,593
Theater and film equipment under construction 564,432 564,432
----------- -----------
6,605,351 6,558,516
Less accumulated depreciation and
amortization (1,325,040) (846,873)
----------- -----------
Total property and equipment 5,280,311 5,711,643
----------- -----------
Film library:
Film projects under development 307,948 271,872
Film library, net 341,184 454,783
----------- -----------
Total film library, net 649,132 726,655
----------- -----------
Receivable from officers 99,170 97,865
Deferred lease costs and other assets (net) 379,635 783,217
----------- -----------
$ 6,775,465 $ 8,859,514
=========== ===========
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements
3
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
========================================
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
(unaudited) (audited)
Current liabilities:
Accounts payable and accrued expenses $ 811,700 $ 1,342,855
Accrued interest - 50,547
Current portion of capital lease obligation 57,604 53,102
Notes payable to investors (Note 1) - 337,500
Notes payable to related party (Note 1) 50,000 -
Current portion of notes payable to lender
(Note 1) 309,955 275,979
Notes payable to vendors (Note 1) 38,195 52,612
Note payable to bank (Note 1) 10,338 9,310
----------- -----------
Total current liabilities 1,277,792 2,121,905
----------- -----------
Obligation under capital lease 306,574 336,548
Note payable to bank (Note 1) 14,451 23,370
Note payable to lender (Note 1) 979,443 1,116,384
Deferred rent 141,778 154,261
----------- -----------
Total long term liabilities 1,442,246 1,630,563
Total liabilities 2,720,038 3,752,468
Commitments and contingency (Notes 1 and 3)
Stockholders' equity
Preferred stock, $.01 par value, 500,000
shares authorized, none issued - -
Common stock, $.01 par value, 20,000,000
shares authorized, 5,734,999 and 5,731,785
shares issued and outstanding 57,350 57,318
Additional paid-in-capital 9,237,208 9,134,389
Accumulated deficit (5,239,131) (4,084,661)
----------- -----------
Total stockholders' equity 4,055,427 5,107,046
----------- -----------
Total liabilities and stockholders' equity $ 6,775,465 $ 8,859,514
=========== ===========
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements
4
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
===============================================================
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------------------------ -------------------------
<S> <C> <C> <C> <C>
Revenues $1,203,879 $1,001,387 $ 2,991,646 $2,323,355
---------- ---------- ----------- ----------
Selling, general and administrative expenses 996,618 761,501 2,859,871 2,082,259
Depreciation and amortization 280,555 141,433 934,166 528,222
---------- ---------- ----------- ----------
Total expenses 1,277,173 902,934 3,794,037 2,610,481
---------- ---------- ----------- ----------
Income (Loss) from operations (73,294) 98,453 (802,391) (287,126)
Interest expense 57,940 103,100 360,708 124,637
Interest income 5,342 6,928 8,377 12,934
---------- ---------- ----------- ----------
Net Income (Loss) $ (125,892) $ 2,281 $(1,154,722) $ (398,829)
========== ========== =========== ==========
Net Income (Loss) per common share $ (.022) $ .0005 $ (.20) $ (.0862)
========== ========== =========== ==========
Weighted Average common share
outstanding 5,734,999 4,735,833 5,755,885 4,625,278
========== ========== =========== ==========
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
5
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
=============================================
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,154,722) $ (398,829)
Adjustments to reconcile net loss to net
cash (used in) provided by operating
activities:
Depreciation and amortization 934,166 528,222
Amortization of deferred interest - 41,744
Stock issued for services rendered 20,900 15,900
Non cash compensation 14,652 -
Write-off of organization costs 10,677 -
Amortization of deferred financing costs 146,107 -
Increase (decrease) from changes in:
Inventories 16,286 (14,768)
Prepaid expenses 8,877 24,419
Other receivables 4,580 (2,354)
Accounts payable and accrued expenses (531,582) 906,123
Deferred rent (12,483) 158,422
Accrued interest on note payable (48,824) 43,952
Loss on foreign currency translation - 9,801
----------- -----------
Net cash (used in) provided by operating
activities (591,366) 1,312,632
----------- -----------
Cash flows from investing activities:
Acquisition of:
Capital expenditures (46,836) (1,466,293)
Film production costs (44,076) (59,764)
Equipment under capital lease - (50,000)
Proceeds from insurance for equipment - 33,671
Deferred lease costs and other assets 5,000 (271,277)
----------- -----------
Net cash used in investing activities (85,912) (1,813,663)
----------- -----------
Cash flows from financing activities:
Proceeds from notes payable 150,000 1,077,828
Payments made on notes payable (576,424) (604,813)
Loan payments from officers 5,000 10,000
Repurchase of stock (19,000) -
Principal payments under capital lease
obligation (25,472) (9,894)
----------- -----------
Net cash (used in) provided by financing
activities (465,896) 473,121
----------- -----------
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
6
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
=============================================
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
Net decrease in cash and cash equivalents (1,143,174) (27,910)
Cash and cash equivalents at beginning of period 1,395,978 144,539
----------- -----------
Cash and cash equivalents at end of period $ 252,804 $ 116,629
=========== ===========
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for income taxes $ 800 $ 800
=========== ===========
Cash paid during the period for interest $ 196,180 $ 9,256
=========== ===========
Non cash financing activities:
Conversion of accounts payable to notes payable 12,354 -
Issue of warrants to public 92,603 -
Issue of warrants for leasehold improvements - 13,346
Issue of stock to lenders - 250,469
Increase in capital lease obligation - 300,000
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
7
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
NINE MONTHS ENDED SEPTEMBER 30, 1997
====================================
Basis of Presentation
- ---------------------
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the financial position of Cinema Ride,
Inc. (the "Company") as of September 30, 1997, and December 31, 1996, the
results of its operations for the three months and nine months ended September
30, 1997 and 1996, and statements of cash flows for the nine months ended
September 30, 1997 and 1996, in conformity with generally accepted accounting
principles applied on a consistent basis. Unless the context otherwise requires,
references to the "Company" in this report refer to Cinema Ride, Inc. and its
consolidated subsidiaries.
The results of operations for the three months and nine months ended September
30, 1997, are not necessarily indicative of the results of operations to be
expected for the full year ending December 31, 1997.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting principles
have been condensed or omitted. The accompanying financial statements should be
read in conjunction with the Company's audited financial statements and notes
thereto incorporated in reference in the 1996 Annual Report on Form 10-KSB.
Certain reclassifications were made to the financial statements previously
reported to conform with current year presentation.
Organization
- ------------
The Company was incorporated in Delaware in April 1993. 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 operations 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.
Property and Equipment
- ----------------------
Property and equipment are stated at cost. Depreciation 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.
Amortization of tenant improvements is provided using the straight-line method
over the lower of the estimated useful lives of the assets or the lease terms
which range from five to ten years.
Film Production Costs
- ---------------------
Film production costs are stated at the lower of amortized 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.
8
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
NINE MONTHS ENDED SEPTEMBER 30, 1997
====================================
(CONTINUED)
Deferred Lease Costs
- --------------------
Deferred lease costs represent amounts paid in connection with the successful
negotiation of the Company's leases. Costs are amortized on a straight-line
basis over the term of the leases.
Pre-opening Costs
- -----------------
The Company capitalizes pre-opening costs 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 September 30, 1996 unamortized pre-opening costs of $83,586 are included in
other assets primarily relating to the Times Square Facility.
Foreign Currency Translation
- ----------------------------
Foreign currency denominated assets and liabilities of subsidiaries with local
functional currencies are translated to United States dollars at the prevailing
exchange rates. The effects of translation are recorded in the cumulative
translation component of shareholder's equity.
Income Taxes
- ------------
The Company provides for income taxes in accordance with Statement of Financial
Accounting Standards 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.
Income (Loss) Per Share
- -----------------------
Income (Loss) per share is based on the weighted average number of shares of
common stock outstanding during the period.
Statement of Cash Flows
- -----------------------
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments with an original maturity of three months or less to be
cash equivalents.
Accounting Estimates
- --------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosures 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.
New Accounting Standards
- ------------------------
On March 3, 1997, the FASB issued Statement of Financial Accounting Standard No.
128. Earnings per share (SFAS 128). This pronouncement provides a different
method of calculating earnings per share than is currently used in accordance
with APB 15, Earnings per Share. SFAS 128 provides for the calculation
9
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
NINE MONTHS ENDED SEPTEMBER 30, 1997
====================================
(CONTINUED)
of Basic and Diluted earnings per share. Basic earnings per share includes no
dilution and is computed by dividing income available to common shareholders by
the weighted average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution of securities that
could share in the earnings of the entity, similar to fully diluted earnings per
share. This pronouncement is effective for fiscal years and interim periods
after December 15, 1997; early adoption is not permitted. The Company has not
determined the effect, if any, of adoption on its EPS computation(s).
Statements of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS No. 130) issued by the FASB is effective for
financial statements with fiscal years beginning after December 15, 1997. Early
application is permitted. SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. The Company has not determined the effect on its
financial position or results of operations, if any, from the adoption of this
statements.
Statements of Financial Accounting Standards No. 131, "Disclosure about
Segments of an Enterprise and Related Information" (SFAS No. 131) issued by the
FASB is effective for financial statements beginning after December 15, 1997.
The new standard requires that public business enterprises report certain
information about operating segments in complete sets of financial statements of
the enterprise and in condensed financial statements of interim periods issued
to shareholders. It also requires that public business enterprises report
certain information about their products and services, the geographic areas in
which they operate and their major customers. The Company does not expect the
adoption of SFAS No. 131 to have a material effect, if any, on its Results of
Operations.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NOTE 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. 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.
NOTE PAYABLE TO INVESTORS
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 were 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 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. During January 1997, the Company
repaid the remaining $337,500 balance of the notes. As such, the
10
<PAGE>
Company wrote off, in January 1997, the remaining unamortized portion of the
deferred financing costs relating to these notes as interest expense.
NOTE PAYABLE TO LENDER
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 owned 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 October 17, 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 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. During the quarter
ended March 31, 1997, the Company received the remaining $100,000 of this loan,
which was held by the Lender pending the Company's meeting all of the Lender's
requirements.
NOTE PAYABLE TO VENDORS
As part of the requirements to obtain the Financing Agreement referred to
above, the Company converted $64,965 of accounts payable 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% and interest due on September 30, 1997. As of
November 12, 1997, payments of $16,951 have been made relating to the remaining
60% and interest due to vendors.
NOTE PAYABLE TO RELATED PARTIES
During April 1997, the Company obtained a $50,000 loan from a related party
bearing interest at 18% per annum with both principal and interest due in six
months. In connection with obtaining this loan, the Company issued 25,000
warrants at an exercise price of $.28 per share.
NOTE 2. STOCK TRANSACTIONS
During April 1997, the Company repurchased 51,786 shares of the Company's
common stock previously issued to one of its vendors for $29,000 of which
$20,000 has been paid as of November 12, 1997.
NOTE 3. EMPLOYMENT AGREEMENT
During the quarter ended September 30, 1997, the Company entered into a
three year employment agreement with its chief executive officer, Mitch Francis.
The agreement provides for a base annual salary of $195,000, annual increases of
8%, annual bonuses based on 6% of the Company's annual earnings before interest,
taxes, depreciation and amortization in excess of $500,000, and issuance of
300,000 options exercisable at $0.25 per share vesting equally over the next
three years. The agreement also approves the granting of additional performance
options based on various occurrences such as the opening of new locations,
obtaining additional funds, and attaining and maintaining certain market price
for the Company's common stock.
11
<PAGE>
NOTE 4. SUBSEQUENT EVENT
The Company entered into an agreement dated October 28, 1997 with the
landlord of the Times Square Facility to terminate the lease due to the intended
demolition of the existing building where the facility is located. The
agreement, among other things, requires the Company to vacate the premises by
February 28, 1998 and waive the security deposit previously made to the
landlord. In consideration, the landlord will 1) pay the Company $500,000 upon
the execution of the agreement, 2) agree to a rent concession for the period
from April 97 through October 97 , 3) waives its right for all future rents
following execution of the agreement to include the months of November 97
through February 98, and 4) pay the Company an additional $500,000 upon the
timely delivery of possession of the premises to the landlord on or before
February 28, 1998. The Company is currently seeking a new location to replace
this existing facility. As of November 12, 1997, the Company can not reasonably
estimate the amount to be written off relating to expenditures incurred at this
facility due to this termination. However, the Company expects the loss would
not exceed $600,000 the exact amount of which will depend upon the Company's
ability to utilize all or portion of the tenant improvements from the facility.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
---------------------------------------------------------------------
OF OPERATIONS
--------------
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
- ---------------------
QUARTER ENDED SEPTEMBER 30, 1997 VS. QUARTER ENDED SEPTEMBER 30, 1996:
Revenues increased by 20% or $202,492 from $1,001,387 in 1996 to $1,203,879
in 1997. The increase is due to an increase in revenues at the Times Square
Facility by 325% or $355,867 from $109,259 in 1996 to $465,126 in 1997 due to
the facility being open for the full quarter in 1997 which was partially offset
by 1) a decrease in revenues at the Las Vegas Facility by 17% or $131,519 from
$787,665 in 1996 to $656,146 in 1997 which management believes is due to lower
attendance at the Forum Shops resulting from the construction of the new wing
and the opening of other casinos, and 2) a decrease in revenues at the West
Edmonton Mall Facility by 21% or approximately $22,000 from approximately
$105,000 in 1996 to approximately $83,000 in 1997. In addition, the Company
raised the price of a single ticket to eight dollars from seven dollars which
partially offset the decrease in revenues due to the lower attendance. The
average ticket price remained under four dollars due to discounts offered
through multiple purchases of tickets. Management believes that the trend at the
Las Vegas and West Edmonton Facilities is expected to continue.
Selling, general and administrative expenses increased by 31% or $235,117
from $761,501 in 1996 to $996,618 in 1997. This increase is mainly due to 1) an
increase in overall expenses of approximately $170,279 relating to the new Times
Square Facility which opened in September 1996 and was fully operational in
1997, and 2) an increase of approximately $38,000 at the Las Vegas Facility
mainly due to labor costs incurred in staffing the newly installed remote ticket
booth.
Depreciation and amortization increased by 98% or $139,122 from $141,433 in
1996 to $280,555 in 1997 mainly due to the new Times Square Facility, which
contributed to an increase of $118,499 in 1997.
Interest expense decreased by 44% or $45,160 from $103,100 in 1996 to
$57,940 in 1997 mostly due to the Company amortization of financing costs
relating to the Company's issuance of stock to lenders in 1996 as discussed in
Note 1 to the unaudited consolidated financial statements. Interest expense in
1997 is mainly due to approximately $53,000 in interest incurred relating to the
note payable to lender as discussed in Note 1 to the unaudited consolidated
financial statements.
12
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 VS. NINE MONTHS ENDED SEPTEMBER 30 1996:
Revenues increased by 29% or $668,291 from $2,323,355 in 1996 to $2,991,646
in 1997. The increase is due to an increase in revenues at the Times Square
Facility (which opened during September 1996) by 1000% or $1,092,768 from
$109,259 in 1996 to $1,202,027 in 1997 due to the facility being open for the
full year in 1997 which was partially offset by 1) a decrease in revenues at the
Las Vegas Facility by 19% or $377,965 from $1,992,915 in 1996 to $1,614,950 in
1997, which management believes is due to lower attendance at the Forum Shops
resulting from the construction of the new wing and the opening of other
casinos, and 2) a decrease in revenues at the West Edmonton Mall Facility by 21%
or approximately $46,500 from approximately $222,000 in 1996 to approximately
$175,500 in 1997. In addition, the Company raised the price of a single ticket
to eight dollars from seven dollars, which partially offset the decrease in
revenues due to the lower attendance. The average ticket price remained under
four dollars due to discounts offered through multiple purchases of tickets.
Management believes that the trend at the Las Vegas and West Edmonton Facilities
is expected to continue.
Selling, general and administrative expenses increased by 37% or $777,612
from $2,082,259 in 1996 to $2,859,871 in 1997. This increase is mainly due to
1) an increase in overall expenses of approximately $750,000 relating to the new
Times Square Facility, which was opened in September 1996 and was fully
operational in 1997, and 2) an increase in corporate expenses by approximately
$102,000 due to an increase of approximately $115,000 in professional fees
mainly due to costs incurred in connection with the Company's registration of
newly issued shares of common stock in 1997 and due to a decrease in insurance
reimbursements of approximately $75,000 in 1997 which was offset by a decrease
of approximately $86,000 in expenses relating to decreases in salaries and other
administrative expenses. Expenses at the Las Vegas Facility decreased by
approximately $28,000 mainly due to decreases in advertising expense of
approximately $106,000 which was offset by increases in labor costs incurred in
staffing the newly installed remote ticket booth and due to increases in repairs
and maintenance. Expenses at the West Edmonton Facility decreased by
approximately $46,000 mainly due to decreased in wages, advertising, and other
administrative expenses.
Depreciation and amortization increased by 77% or $405,944 from $528,222 in
1996 to $934,166 in 1997 due to 1) the new Times Square Facility which
contributed to an increase of $481,379 in 1997, 2) an increase of approximately
$79,000 in amortization of lease commissions incurred in connection with
obtaining the loan and amortization of warrants costs issued to the public,
which was partially offset by a decrease of approximately $154,000 relating to
the write off of certain assets in 1996.
Interest expense increased by $236,071 from $124,637 in 1996 to $360,708 in
1997 mostly due to 1) increase in the Company's write off by $104,363 of
deferred interest relating to the issuance of common stock to note holders and
the subsequent repayment of these notes in January 1997, and 2) the Company
incurring approximately $165,000 in interest on the loan from lender in 1997.
This increase was offset by the Company's incurring of interest in 1996 relating
to loans which has since been paid as discussed in the notes to the unaudited
consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash used in operating activities was $591,366 during the nine months
ended September 30, 1997, as compared to the cash provided by operating
activities of $1,312,632 for the same period during the prior year. The
decrease of $1,903,998 was primarily due to 1) an increase in losses for the
nine months ended September 30, 1997 by $755,893, 2) a decrease in accounts
payable and accrued expenses of $1,435,982, 3) a decrease in accrued interest on
notes payable of $92,776, and 4) a decrease in deferred rent of $170,905 which
was partially offset by an increase in depreciation and amortization of $405,944
and an increase in amortization of deferred financing costs of $146,107.
Net cash used in investing activities decreased by $1,727,751 from
$1,813,663 in 1996 to $85,912 in 1997. The decrease is primarily due to
payments made by the Company to complete the construction of its
13
<PAGE>
capsules during the prior year, and to costs associated with the lease for the
Times Square Facility in 1996.
Net cash used in financing activities was $465,896 during the nine months
ended September 30, 1997, as compared to cash provided by financing activities
of $473,121 for the same period during the prior year. The decrease of $939,017
was primarily due to 1) the Company obtaining $600,000 in short term borrowing
in 1996, 2) the Company obtaining $437,500 in short term borrowing from
investors in 1996 3) the Company's obtaining a loan from a Canadian bank during
the quarter ended March 31, 1996, and 4) decrease in payments made on notes
payable in 1997 by $28,389 as compared to payments made in 1996 which was
partially offset by the receipt of $150,000 in 1997.
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.
As discussed in Note 1 to the unaudited 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. During December 1996, 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. During
January 1997, the Company repaid the remaining $337,500 balance of the notes.
As such, the Company wrote off in January 1997 the remaining unamortized portion
of the deferred financing costs relating to these notes as interest expense.
As discussed in Note 1 to the unaudited consolidated financial statements,
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 owned by the Company. 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 November 12, 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 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. During the quarter ended March 31,
1997, the Company received the remaining $100,000 of this loan which was held by
the Lender pending the Company's meeting all of the Lender's requirements.
The Company is currently in production of two films, a ski and snowboard
film which is being produced by Warren Miller Entertainment, and a roller
coaster film, both scheduled to be released in Winter 1997. The Company has
been performing additional work on its previously released films adding more
special effects and reworking some scenes. As of November 12, 1997, the Company
anticipates additional expenditures of approximately $20,000 relating to the
completion of these films. The Company also expects to incur approximately an
additional $50,000 in expenses relating to reprogramming the motion of its
existing capsules for the above films.
As of September 30, 1997, the Company had a negative working capital of
$910,575. The Company's cash and cash equivalents as of September 30, 1997 were
$252,804 as compared to $1,395,978 at December 31, 1996. Accordingly, in order
for the Company to continue its operations as presently constituted and to
fulfill its business plan described below, the Company must obtain additional
working capital either in the form of debt, equity, or a combination thereof.
In this connection, the Company has engaged the investment banking firm of L.H.
Friend, Weinress, Frankson & Presson, Inc., to serve as the Company's exclusive
financial advisor and investment banker. No assurance can be given, however,
that the Company will be successful in raising capital. Additionally, the
Company has and is continuing to take steps to reduce its expenses without
materially impacting its operations.
14
<PAGE>
As discussed in Note 4 to the unaudited consolidated financial statements,
the Company entered into an agreement with the landlord of the Times Square
Facility to terminate the lease due to the intended demolition of the existing
building where the facility is located. The Company will attempt to replace the
facility with another location. There can be no assurance that the Company will
be successful in securing a location as favorable as the Times Square Facility,
or that enough funds would be available to complete the construction of a new
facility if secured. As of November 12, 1997, the Company can not reasonably
estimate the amount to be written off relating to expenditures incurred at this
facility due to this termination. However, the Company expects the loss would
not exceed $600,000 the exact amount of which will depend upon the Company's
ability to utilize all or portion of the tenant improvements from the facility.
As of September 30, 1997, the Company was not in compliance with the minimum
listing standards of the Nasdaq Small Cap Market. On November 3, 1997 the
Company received a notice from The Nasdaq Stock Market, Inc. ("Nasdaq")
providing the Company with 90 days to comply with these standards before the
Company's securities will be subject to delisting. The Company is in the
process of formulating a plan to meet its continued Nasdaq listing requirements.
However, there can be no assurance that the Company will be successful in
meeting all of the requirements. In addition, the Company was informed by
Nasdaq on October 1, 1997 that the Company's warrants were delisted from the
exchange due to the Company's no longer having any active market makers
registered to trade the securities.
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 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
15
<PAGE>
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 affected 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 affected 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.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
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
---------------------------------------------------
None
ITEM 6. EXHIBITS AND REPORTS IN FORM-8-K
(A) EXHIBITS
The following exhibits are submitted herewith:
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
10.35 Form of employment agreement with Mitch Francis
dated September 1, 1997.
10.36 Stipulation and consent judgement between the Company
and Three Times Square Center Partners, L.P., dated
October 28, 1997.
</TABLE>
(B) REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during the quarter ended September 30,
1997.
16
<PAGE>
SIGNATURES
In accordance with the requirements 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
<TABLE>
<CAPTION>
SIGNATURE DATE
--------- ----
<S> <C>
/S/ MITCH FRANCIS NOVEMBER 12, 1997
- --------------------------------------------- -----------------
Mitch Francis
Chairman of the Board, President, Chief
Executive Officer and Director (principal
executive officer)
/S/ TOUFIC R. BASSIL NOVEMBER 12, 1997
- --------------------------------------------- -----------------
Toufic R. Bassil
Chief Financial Officer,
(principal financial officer,
principal accounting officer),
Secretary and Treasurer.
</TABLE>
17
<PAGE>
EXHIBITS INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
10.35 Form of employment agreement with Mitch Francis
dated September 1, 1997.
10.36 Stipulation and consent judgement between the Company and
Three Times Square Center Partners, L.P., dated October 28,
1997.
27 Financial Data Schedule for Quarterly Period Ended
September 30, 1997.
</TABLE>
18
<PAGE>
EXHIBIT 10.35
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of the 1st day of
September, 1997, by and between Cinema Ride, Inc., a Delaware corporation
(hereinafter the "Company"), and MITCH FRANCIS, an individual (hereinafter
"Employee").
WITNESSETH
WHEREAS, the Company desire to retain the services of Employee, and Employee is
willing to be an employee of the Company, on the terms and subject to the
conditions hereinafter set forth.
NOW, THEREFORE, for and in consideration of the mutual promises herein
contained, the parties hereto hereby agree as follows;
1. ENGAGEMENT; NATURE OF DUTIES. The Company hereby engages
Employee, for the period hereinafter set forth, to serve as and hold the offices
of Chairman of the Board, President and Chief Executive Officer, and to perform
the duties of such offices as provided in the Bylaws of the Company and as
directed by the Board of Directors of the Company. Employee agrees to serve in
such capacity and to do and perform the service, acts, or things necessary to
carry out the duties of such offices, and such other duties, not inconsistent
with such offices and Employee's position as an executive officer of the
Company. Employee shall report only to the Board of Directors of the Company. It
is expressly agreed and acknowledged that employment in the capacity of the
aforementioned offices was a material inducement to Employee to enter into this
Agreement. The Company further agrees and acknowledges that election, and being
retained in office, as a director was a material inducement to Employee to enter
into this Agreement. The Company agrees to cause Employee to be nominated as a
director at any and all meetings, or any actions of the stockholders of the
Company for the purpose of electing directors, and to use the Company's best
efforts to cause Employee to be elected and retained in office as a director
throughout the term of this Agreement.
2. TERM. The term of employment pursuant to this Agreement shall
be for a period of three (3) years, commencing on September 1,
1
<PAGE>
1997 (the "Commencement Date"), unless sooner terminated in accordance with the
provisions hereof (the "Term").
3. PERFORMANCE OF DUTIES. Employee shall devote such time and
attention to Employee's duties as may be reasonably necessary to perform and
carry out such duties. Nothing herein contained shall be deemed to preclude
Employee from performing services to other businesses or entities not affiliated
with the Company or having personal investments and from devoting a reasonable
amount of time to the care and attention thereof, provided that the same shall
in no manner interfere with or derogate from Employee's work for the Company or
conflict with the Company's business. Without limiting the generality of the
foregoing, the Company, under separate agreement of the Board of Directors, has
assigned its ownership and all rights of "California Wave" to Employee, (with
certain compensation to the Company), and Employee shall be free to develop the
"California Wave" concept independently of the Company.
Employee shall perform his duties hereunder primarily in the Los
Angeles, California area, and shall not be required to perform such duties on a
regular basis at any other location except for site visits. Employee shall not
be required to relocate without his consent.
4. COMPENSATION.
(A) BASE SALARY. The Company shall pay to Employee a base salary
in the amount of One Hundred Ninety-five Thousand Dollars ($195,000) per year
(the "Base Salary"), retroactive to August 1, 1997, payable in periodic
installments in accordance with the Company's prevailing policy for compensating
personnel, but not less often than semi monthly. On each yearly anniversary of
the Commencement Date (September 1, 1997), the Base Salary shall be increased by
eight percent (8%).
(B) EARNINGS BONUS. In addition to the Base Salary, and any and
all other compensation, profit-sharing participating, benefits, bonuses or other
amounts due to or receivable by Employee pursuant to this Agreement, Employee
shall receive an annual bonus (the "Earnings Bonus") equal to six (6%) percent
of the Company's annual earnings before interest, taxes, depreciation and
amortization (ebitda) in excess of $500,000. A pro rata portion of the Earnings
Bonus (calculated by annualizing the year to date ebitda and taking into account
any Earnings Bonus paid for any prior periods) shall be due and payable within
forty-five (45) days of each calendar quarter and shall be adjusted within
ninety (90) days after the calendar (or the Company's fiscal) year end. In the
event that this Agreement terminates prior to a final accounting of the Earnings
Bonus, if any, for the applicable year, Employee shall repay any overpayment
within 45 days of the final accounting.
2
<PAGE>
(C) GRANT OF COMMON STOCK. Upon the funding of new capital or new
debt for borrowed money to the Company, the Company shall grant Employee a
number of shares of the Company's Common Stock equal to one (1%) percent of the
Company's outstanding common and preferred shares, (after such new capital or
debt and on a non-dilutive basis), for each One Million ($1,000,000) dollars of
such funding, or fraction thereof on a pro rata basis.
(D) OPTIONS. Effective on the Commencement Date, the Company
shall grant to Employee 300,000 options to purchase shares of the Company's
Common Stock at an exercise price of $.25 per share. Such options shall be
vested equally over three (3) years (100,000 options on 9/1/98, 100,000 options
on 9/1/99 and 100,000 options on (9/1/00) and shall be for a term of five years
from the Commencement Date. If Employee voluntarily leaves or is terminated by
the Company with cause, all unvested options shall automatically terminate. If
Employee is terminated without cause, the options shall not terminate. The
Company shall use its best efforts to register the resale of the underlying
shares of Common Stock on Form S-8.
(E) PERFORMANCE WARRANTS. During the Term hereof, the Company
shall grant to Employee options to purchase shares of the Company's Common Stock
upon the following occurrences and terms:
(1) Stock price for 20 consecutive trading days at $.75 per
share: 100,000 options exercisable @ $.75
(2) Stock price for 20 consecutive trading days at $1.00 per
share: 150,000 options exercisable @ $1.00
(3) Stock price for 20 consecutive trading days at $1.50 per
share: 200,000 options exercisable @ $1.50
(4) Stock price for 20 consecutive trading days at $2.00 per
share: 200,000 options exercisable @ $2.00
(5) Stock price for twenty consecutive trading days at $3.00
per share: 300,000 options exercisable @ $3.00
(6) Stock price for twenty consecutive trading days at $4.00
per share: 300,000 options exercisable @ $4.00
(7) Upon opening each new Company owned, or joint ventured
new facility, or Mobile system put into operation:
200,000 options exercisable at the price of the common
stock on the day of opening.
As used herein, the stock price shall be the closing bid price and
shall be appropriately adjusted for any stock splits, stock dividends,
recapitalizations etc. occurring after the Commencement Date.
3
<PAGE>
5. EXPENSES REIMBURSEMENT; AUTOMOBILE. The services required of
Employee by this Agreement shall include the responsibility and duty of
entertaining business associates and others with whom the Company is, desires to
be, or may become engaged in business or with whom it seeks, now or in the
future, to develop or expand business relationships, or with whom it is
otherwise to the benefit of the Company to establish or maintain communications.
It may also be necessary for Employee to travel from time to time on behalf of
and for the benefit of the Company, or in furtherance of the Company's business.
It is the Company's belief that the performance of Employee's duties in such
travel and entertainment activities will produce the maximum benefits which the
Company expects to derive from Employee's services. Accordingly, the Company
shall pay, or if Employee shall have paid, shall reimburse to Employee, any and
all expenses incurred by him or for his account in the performance of his duties
hereunder, including all expenses for business, entertainment, promotion and
travel by Employee, subject only to Employee providing appropriate documentation
for such expenses. It is expressly agreed, in connection therewith, that
Employee shall be provided or reimbursed for reasonable travel and
accommodations, but no first-class air travel will be deemed reasonable, (unless
under special price offering). The Company shall provide Employee with an
automobile, reasonably commensurate with Employee's office and position, for use
by Employee in performing Employee's, duties hereunder and the Company shall be
responsible for all expenses associated with ownership of such automobile,
including, but not limited to, costs of licensing or registration, maintenance
and gasoline; provided, however, that in no event shall the Company's total cost
in providing such automobile (excluding the cost of automobile insurance,
registration, maintenance, and gasoline) exceed $800 per month. The Company and
Employee may provide, by mutual agreement, that Employee may use an automobile
owned by Employee in connection with performing his duties hereunder, in which
case Employee shall be reimbursed by the Company for all costs associated with
ownership of such automobile (excluding the cost of automobile insurance,
registration, maintenance, and gasoline), subject to the $800 per month
limitation described above. In addition to the foregoing expenses, the Company
shall provide, or reimburse Employee for the cost of, automobile insurance,
registration, maintenance and gasoline and shall provide cellular telephone
service for such automobile. Employee shall maintain such records with respect
to the use of such automobile as the Company may reasonably request.
In the event that Employee shall be deemed to have received income,
for state or federal income tax purposes, by reason of Employee's receipt of or
reimbursement for any of the benefits or expenses set forth in this Paragraph 5,
the Company shall pay or reimburse Employee for all taxes required to be paid by
Employee with respect to such income.
4
<PAGE>
6. MEDICAL AND LIFE INSURANCE; PENSION BENEFITS. The Company
shall provide or reimburse Employee for health, life (premiums up to $3,000 per
year), and disability income (up to $12,000 per month coverage) insurance.
Coverage under any group health insurance shall also cover Employee's spouse.
Employee shall also have the right to participate in any and all employee
retirement benefits plan or profit-sharing plan which the Company maintains for
its personnel, and in effect at any time during the period of Employee's
employment hereunder, subject only to any eligibility restrictions of such
plans.
7. VACATION. During each year of the Term, Employee shall be
entitled to a vacation of four (4) weeks, without deduction of salary. Such
vacation shall be taken at such time or times during the applicable year as may
be mutually determined by Employee and the Company. Any additional vacation
period shall be determined by the Company consistent with the general customs
and practices of the Company applicable to its personnel.
8. TERMINATION. This Agreement may be terminated by the Company
only for cause. As used herein, "cause" shall mean:
(A) Employee's willful breach of Employee's duties hereunder
which breach remains uncured for (30) days after written notice of such breach
to Employee; or
(B) Employee's conviction of a felony involving moral turpitude.
In addition, this Agreement shall automatically be terminated upon
Employee's death or permanent disability. As used herein, "permanent disability"
shall mean Employee's complete inability to perform Employee's duties hereunder,
as determined by Employee's physician, which inability continues for more than
one-hundred eighty (180) consecutive days.
In the event that this Agreement is terminated by the Company for
any reason other than for cause or for death or permanent disability as defined
above, the Company expressly agrees and acknowledges that Employee shall be
entitled to receive the base salary, bonuses and benefits described in Section 5
of this Agreement for the remainder of the term and shall have no duty or
obligation to and/or accept other employment, or otherwise mitigate Employee's
damage resulting from such termination. The Company further agrees and
acknowledges that, in the event Employee does obtain other employment following
the Company's termination of this Agreement other than for cause, the Company
shall not be entitled to any set off or reduction in the amounts payable to
Employee hereunder
5
<PAGE>
as a result of any compensation paid to Employee with respect to such new
employment.
9. INDEMNIFICATION. The Company shall indemnify, defend and hold
Employee harmless from and against and all claims, demands, suits, obligations,
liabilities, actions, losses, cost, expenses, fines or penalties which may now
or hereafter be pending, threatened or commenced against or incurred by Employee
relating to or in any way resulting from Employee's performance of his duties
hereunder, or any action or failure to act to Employee in connection with such
duties. Employee's rights under this Section 9 shall be in addition to, and not
in lieu of or, any and all other rights of Employee under applicable law or any
agreement with the Company regarding indemnification.
10. CONFIDENTIAL INFORMATION.
(A) As used in this Agreement "Confidential Information" means
any and all information disclosed to Employee or which Employee gains knowledge
of as a consequence or through Employee's employment by the Company (including
information conceived, originated, discovered or developed by Employee) about
the Company's products, processes, and services, including information relating
to research, development, inventions, manufacture, purchasing, accounting,
engineering, marketing, merchandising, selling trade secrets, or customer lists,
which information the Company maintains as confidential.
(B) Except as required in Employee's duties to the Company and
then only with the Company's prior written consent, Employee will not, directly
or indirectly, use for Employee's own benefit or the benefit of others, or
disseminate, disclose, comment upon or publish articles concerning, any
Confidential Information either during or at any time after the term of this
Agreement without the Company's consent.
(C) All documents, papers, notes, notebooks, memoranda, computer
files, and other written electronic records of the Company of any kind in the
possession or under the control of Employee, shall remain in the property of the
Company at all times. Upon the termination of Employee's employment with the
Company, all documents, papers, notes, notebooks, memoranda, computer files and
other written or electronic records in Employee's possession, whether prepared
by Employee or others will be left with Company.
11. NOTICES. Any and all notices which are required or permitted
to be given by any party to any other party hereunder shall be given in writing,
sent by registered or certified mail, electronic communications (including
telegram or facsimile) followed by a confirmation letter sent by registered or
certified
6
<PAGE>
mail, postage prepaid, return receipt requested, or delivered by hand or
messenger service with the charges therefor prepaid, addressed to such party as
follows:
(A) Notice to the Employee:
Mitch Francis
12001 Ventura Place
Suite 340
Studio City, CA 91604
Telecopy No. (818) 761-1072
(B) Notice to the Company:
Cinema Ride, Inc.
12001 Ventura Place
Suite 340
Studio City, CA 91604
Telecopy No. (818) 761-1072
or to such other address as the parties shall from time to time give notice of
in accordance with this Section. Notices sent in accordance with this Section
shall be deemed effective on the date of dispatch, and an affidavit of mailing
or dispatch, executed under penalty of perjury, shall be deemed presumptive
evidence of the date of dispatch.
12. ENTIRE AGREEMENT AND MODIFICATION. This Agreement, including
the exhibits hereto and the agreements expressly referred to herein, constitutes
the entire understanding between the parties pertaining to the subject matter
hereof and supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written. There are no warranties, representations
or other agreements between the parties, in connection with the subject matter
hereof, except as specifically set forth herein. No supplement, modification,
waiver or termination of this Agreement shall be binding unless made in writing
and executed by the party thereto to be bound.
13. WAIVERS. No term, condition or provision of this Agreement
may be waived except by an express written instrument to such effect signed by
the party to whom the benefit of such term condition or provision runs. No such
waiver of any term condition or provision of this Agreement shall be deemed a
waiver of any other term, condition or provision, irrespective of similarity, or
shall constitute a continuing waiver of the same term, condition or provision,
unless otherwise expressly provided. No failure or delay on the part of any
party in exercising any right, power or privilege under any term, condition or
provision of this agreement shall operate as a waiver thereof, nor shall a
single or partial
7
<PAGE>
exercise thereof preclude any other or further exercise of any other right,
power or privilege.
14. SEVERABILITY. In the event any one or more of the terms,
conditions or provisions contained in this Agreement should be found in a final
award or judgment rendered by any court or arbitrator or panel of arbitrators of
competent jurisdiction to be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining terms, conditions and
provisions contained herein shall not in any way be affected or impaired
thereby, and this Agreement shall be interpreted and construed as if such term
condition or provision, to the extent the same shall have been held invalid,
illegal or unenforceable, had never been contained herein, provided that such
interpretation and construction is consistent with the intent of the parties as
expressed in this Agreement.
15. HEADINGS. The headings of the Articles and Sections contained
in this Agreement are included herein for reference purposes only, solely for
the convenience of the parties hereto, and shall not in any way be deemed to
affect the meaning, interpretation or applicability of this Agreement or any
term, condition or provision hereof.
16. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California,
notwithstanding the fact that one or more counterparts hereof may be executed
outside of the State, or one or more of the obligations of the parties hereunder
are to be performed outside of the state.
17. ATTORNEY'S FEES. In the event that any party to this
Agreement shall commence any suit, action, arbitration or other proceeding to
interpret this Agreement, or determine or enforce any right or obligation
created hereby, including but not limited to any action for rescission of this
Agreement or for a determination that this Agreement is void or ineffective
abinitio, the prevailing party in such action shall recover such party's costs
- --------
and expenses incurred in connection therewith, including attorney's fees and
costs of appeal, if any. Any court, arbitrator or panel of arbitrators shall, in
entering any judgment or making any award in any such suit, action, arbitration
or other proceeding, in addition to any and all other relief awarded to such
prevailing party, include in such judgment or award such party's costs and
expenses as provided in this Section 17.
18. EXECUTION AND COUNTERPARTS. This Agreement may be executed in
any number of counterparts, each of which when so executed and delivered shall
be deemed an original, and such counterparts together shall constitute only one
instrument. Any or all of such counterparts may be executed within or outside
the State of California. Any one of such counterparts shall be sufficient for
the purpose of proving the existence and terms of this Agreement, and
8
<PAGE>
no party shall be required to produce an original or all of such counterparts in
making such proof.
19. COVENANT OF FURTHER ASSURANCES. All parties to this Agreement
shall, upon request, perform any and all acts and execute and deliver any and
all certificates, instruments and other documents that may be necessary or
appropriate to carry out any of the terms, conditions and provisions hereof or
to carry out the intent of this Agreement.
20. REMEDIES CUMULATIVE. Each and all of the several right and
remedies provided for in this Agreement shall be construed as being cumulative
and no one of them shall be deemed to be exclusive of the others or of any right
or remedy allowed b law or equity, and pursuit of any one remedy, or a waiver of
any other remedy.
21. BINDING EFFECT. Subject to the restrictions in Section 25
hereof respecting assignments, this Agreement shall inure to the benefit of and
be binding upon all of the parties hereto and their respective executors,
administrators, successors and permitted assigns.
22. COMPLIANCE WITH LAWS. Nothing contained in this Agreement
shall be construed to require the commission of any act contrary to law and
whenever there is a conflict between any term, condition or provision of this
Agreement and any present or future statute, law, ordinance or regulation
contrary to which the parties have no legal right to contract, the latter shall
prevail, but in such event the term, condition or provision of this Agreement
affected shall be curtailed and limited only to the extent necessary to bring it
within the requirement of the law, provided that such construction is consistent
with the intent of the parties as expressed in this Agreement.
23. GENDER. As used in this Agreement, the masculine, feminine or
neuter gender, and the singular or plural number, shall be deemed to include the
others whenever the context so indicates.
24. NO THIRD PARTY BENEFIT. Nothing contained in this Agreement
shall be deemed to confer any right or benefit on any person who is not a party
to this Agreement.
25. ASSIGNMENT. Neither party may assign this Agreement, or any
rights hereunder, without the prior express consent of the other party.
26. ARBITRATION. Any claim arising out of or relating to this
Agreement, or the breach thereof, or Employee's employment by the Company, or
the termination of Employee's employment by the Company, shall be settled by
9
<PAGE>
binding arbitration in Los Angeles, California, in accordance with the
commercial Arbitration Rules of the American Arbitration Association then in
effect, and judgment upon the award entered by the arbitrator(s) may be entered
in any court having jurisdiction thereof.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the day and year first above written.
"COMPANY"
CINEMA RIDE, INC.
A Delaware Corporation
By:____________________________________
Toufic Roger Basil, Vice President
"EMPLOYEE"
---------------------------------------
MITCH FRANCIS
10
<PAGE>
COMPENSATION COMMITTEE APPROVAL
The Cinema Ride, Inc. Compensation Committee hereby confirms and approves the
EMPLOYMENT AGREEMENT for Mitch Francis dated September 1, 1997.
__________________________________ _______________________
Ben Frankel Date
__________________________________ ________________________
Ben Frankel Date
11
<PAGE>
EXHIBIT 10.36
CIVIL COURT OF THE CITY OF NEW YORK
COUNTY OF NEW YORK
- -------------------------------------------x
THREE TIMES SQUARE CENTER PARTNERS, L.P., :
Index No.
Petitioner, :
Non-Housing Part 52
-against- :
CINEMA RIDE TIMES SQUARE, INC. :
Respondent. :
: STIPULATION
Premises: Site 3A-7 AND CONSENT
1481-1483 Broadway : JUDGMENT
-----------
New York, New York 10036
- -------------------------------------------x
WHEREAS, Respondent, Cinema Ride Times Square, Inc. ("Respondent") is
the tenant of the premises known as Site 3A-7 in the building known as and
located at 1481-1483 Broadway, New York, New York ("Premises"), as more
particularly described on Exhibit B to a written Agreement of Lease ("Lease")
dated as of August 14, 1995 between Three Times Square Center Partners, L.P.
("Petitioner"), as landlord, and Cinema Ride, Inc. as tenant, and assigned to
Respondent; and
WHEREAS, Petitioner and Respondent acknowledge and admit that a
dispute has arisen regarding their respective obligations under Section 38 and
other Sections of the Lease; and
<PAGE>
WHEREAS, Petitioner and Respondent have agreed to amicably resolve
their dispute, on the terms and conditions set forth below,
IT IS THEREFORE STIPULATED AND AGREED, by and among the undersigned,
Petitioner, Respondent and their legal counsel, as follows:
1. Upon the date of execution of the within Stipulation, the Lease
shall terminate as if such date were the Expiration Date under the Lease, with
all of the rights and obligations provided therein remaining in full force and
effect, except that Respondent will not be entitled to any payments of monies
resulting from said termination due it under the Lease, including payment of the
Termination Amount as set forth in Section 38B of the Lease, except as set forth
in this Stipulation.
2. Simultaneously with the execution of the within Stipulation, or
as soon thereafter as possible, Petitioner will commence a summary holdover
proceeding ("Holdover Proceeding") to recover possession of the Premises by the
filing and service of a Notice of Petition and Petition in the forms annexed
hereto, collectively, as Exhibit A.
<PAGE>
3. Respondent designates its counsel, Loeb & Loeb LLP, 345 Park
Avenue, New York, New York, as its agent for service of process in the Holdover
Proceeding.
4. Respondent stipulates that it will not seek to interpose any
defense or counterclaim (to the extent it may otherwise have had a right to
interpose a counterclaim) in connection with the Holdover Proceeding.
5. Respondent (a) consents to the entry of judgment of possession
forthwith, which judgment may be amended by Petitioner to provide for any actual
reasonable costs and/or reasonable attorneys' fees incurred by Petitioner as a
result of Respondents' non-compliance with this Stipulation, as provided in
paragraph 8 below, and the immediate issuance of a warrant of eviction, and (b)
waives any right it may have to appeal therefrom and/or to seek a stay thereof
to the extent provided by applicable law.
6. Petitioner agrees to a stay of execution of the warrant of
eviction until February 28, 1998, on condition that Respondent:
A. On or before February 28, 1998, time being of the essence,
vacates the Premises and delivers, or causes to be delivered, to Petitioner
physical possession of the Premises;
<PAGE>
B. Waives any right to receive the security deposited with
Petitioner pursuant to Section 42 of the Lease; and
C. Is not in default beyond the applicable notice and grace periods
provided for under the Lease with respect to any of the material terms,
covenants and conditions of the Lease (other than for the payment of Rental,
including Percentage Rent and other than Articles 21 and 37 of the Lease) as if
the Lease were still in effect. Notwithstanding anything to the contrary
contained in Article 21 and 37 of the Lease or elsewhere in the Lease or in this
Stipulation and in substitution thereof, Respondent shall have the right in its
sole and absolute discretion to remove from or leave at the Premises, all
Equipment and any Alterations made under the Lease without payment or liability
to Petitioner and without any responsibility to restore the Premises to any
condition after any removal of such items therefrom.
7. Upon Respondent's failure to timely comply with any one or more
of the terms or conditions set forth herein, Petitioner shall be entitled to
apply, ex parte, to the Civil Court of the City of New York, County of New York,
-- -----
for an order vacating the stay, and, upon such vacatur, to
<PAGE>
execute forthwith upon the warrant of eviction, without the need to provide the
statutory 72 hours notice, which notice is expressly waived by Respondent.
However, Petitioner, through counsel, will notify Respondent, through counsel,
by telecopier at least 72 hours before executing upon the warrant of eviction.
8. Moreover, upon Respondent's default beyond the applicable notice
and grace periods provided for under the Lease with respect to any of the
material terms, covenants and conditions of the Lease (other than for the
payment of Rental, including Percentage Rent and other than Articles 21 and 37
of the Lease) as if the Lease were still in effect, Respondent shall (1) return
any monies paid to it upon the execution of the herein Stipulation, (2) forfeit
any future payments due it under the within Stipulation, and (3) be liable for
all unpaid past, present and future Rent obligations which were waived in the
herein Stipulation.
9. It is understood that, in the event Respondent defaults in any of
its obligations under this Stipulation, then Petitioner shall be entitled to
recover of Respondent all reasonable and actual costs, including reasonable
attorneys' fees incurred in connection with the preparation of the within
Stipulation and all related
<PAGE>
documents, and the obtaining and executing a judgment and/or warrant of eviction
as against Respondent. Except as provided in paragraphs 8, 9 and 10 of the
within Stipulation, upon Respondent's vacating the Premises, neither Petitioner
nor Respondent nor any guarantor of the Lease shall have any further obligations
or liabilities under or with respect to the Lease, including any liability for
the payment of Rental.
10. Upon the execution of the within Stipulation and the entry of
judgment of possession by the Court, which Petitioner agrees to make best
efforts to enter as quickly as possible, Petitioner will pay Respondent the sum
of $500,000.00 by wire transfer to Respondent's account designated to Petitioner
in writing. Furthermore, Petitioner agrees within one (1) month of such
execution to deposit in escrow with its attorneys ("Escrowee") the cash amount
of $500,000.00, and upon Respondent's timely compliance with all the terms and
conditions set forth herein and upon Respondent's timely delivery of possession
of the Premises on or before February 28, 1998, Petitioner will pay Respondent,
within 72 hours of such delivery, an additional $500,000.00 by wire transfer to
Respondent's account designated to Petitioner in writing. In performing
<PAGE>
its obligations as Escrowee under paragraph 10 above, Escrowee shall have no
liability to any party hereunder except by reason of its gross negligence or
willful misconduct.
11. In consideration of Respondent's deliverance of possession of the
Premises to Petitioner on or before February 28, 1998, Petitioner will
additionally waive any and all payments of Rental, including Percentage Rent,
accruing from the date of execution of the within Stipulation through February
28, 1998. Petitioner will further relieve Respondent of any and all liability
for Rental arrears as of the date of such execution.
12. The execution of the within Stipulation shall not constitute a
reinstatement of the landlord-tenant relationship between Petitioner and
Respondent, provide Respondent with any occupancy rights other than those set
forth in this Stipulation and the Lease to the extent referenced herein, create
a month-to-month tenancy, or constitute a waiver by Petitioner of its right to
execute upon the warrant of eviction.
13. This Stipulation may be executed in counterparts. Any signature
reproduced by telefacsimile or any other mechanical process shall be deemed to
be an
<PAGE>
original signature, with the same force and effect thereof.
14. This Stipulation may be SO ORDERED by a Judge of the Civil Court
or a presiding Judicial Hearing Officer without either further notice or the
necessity of an appearance by either party. The failure to do so shall not
effect any of the parties' rights, remedies and obligations hereunder.
15. Disclosures; Confidentiality. Respondent and its past, present
----------------------------
and future attorneys, accountants, representatives, agents and employees agree
that the terms and provisions of the within Stipulation are and shall be deemed
confidential and shall not be disclosed to any other person or entity and agree
that they will maintain in confidence the terms and conditions hereof, except
(i) by written agreement of Petitioner; (ii) to its legal, business and
financial advisors, but only to the extent such disclosure is necessary for such
persons to render services in connection therewith and only after such persons
have agreed in writing to maintain confidentiality pursuant to this paragraph;
(iii) to governmental or regulatory authorities, including the Securities and
Exchange Commission (SEC), NASDAQ, or similar authorities, to the extent that
such disclosure is required by law and after
<PAGE>
reasonable written notice has been given to Petitioner; (iv) to a court,
arbitrator, mediator, or other tribunal to the extent necessary to enforce any
of the terms of this Stipulation; and (v) except as provided in (iii) above, if
required in order to comply with any lawful process, provided that, upon the
receipt thereof and before complying with such process, Respondent and/or its
attorneys, accountants, representatives, agents and employees, past, present and
future (a) promptly notifies Petitioner of the existence, terms and
circumstances surrounding such process, (b) provides Petitioner with a
reasonable period of time, from the date notice is given, in which to petition
to quash such process; and (c) at Petitioner's reasonable request and expense,
seeks to maintain the confidentiality of this Stipulation through protective
order or similar arrangement. Petitioner acknowledges and agrees that Respondent
is required to disclose the transaction contemplated by this Stipulation to the
SEC including the amount of payments to be made to Respondent hereunder, and to
issue a press release regarding this transaction and Respondent's vacating of
the Premises. Petitioner hereby consents to the issuance of a press release
substantially in the form and substance annexed hereto as Exhibit B.
<PAGE>
16. As a material inducement to Respondent's entering into this
Stipulation and Consent Judgment, Petitioner hereby represents, warrants and
convents to Respondent that:
a. the Building in which the Premises is located is intended to
be demolished; and
b. Landlord does not intend to relet or otherwise allow the
occupancy of the Premises by any other tenant, concessionaire or other occupant
after Respondent vacates the Premises.
17. The terms and provisions of this Stipulation and Consent Judgment
shall enure to the benefit of all successors and/or assigns of the undersigned.
Dated: October 28, 1997
<PAGE>
Signature page to Stipulation and Consent Judgment between Three Times Square
Center Partners, L.P. and Cinema Ride Times Square, Inc.
THREE TIMES SQUARE CENTER PARTNERS, L.P.
By: Prudential Times Square Center Associates,
General Partner
By:___________________________
Name: Sharon Barnes
Its: Managing Vice President
WARSHAW BURSTEIN COHEN SCHLESINGER & KUH, LLP
Attorneys for Petitioner
Three Times Square Center Partners, L.P.
By:___________________________
JAY A. KRANIS, ESQ.
CINEMA RIDE TIMES SQUARE, INC.
By:___________________________
Name:
Its:
LOEB & LOEB LLP
Attorneys for Respondent
Cinema Ride, Inc. and Escrowee
By:___________________________
ANDREW E. LIPPMANN, ESQ.
SO ORDERED:
- -----------------------
J.C.C.
<PAGE>
Audrey Rubin, Esq.
Skadden, Arps, Slate, et al.
919 Third Avenue
44th Floor
New York, New York 10022
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 252,804
<SECURITIES> 0
<RECEIVABLES> 99,901
<ALLOWANCES> 0
<INVENTORY> 29,229
<CURRENT-ASSETS> 367,217
<PP&E> 5,605,351
<DEPRECIATION> 1,325,040
<TOTAL-ASSETS> 6,775,465
<CURRENT-LIABILITIES> 1,277,792
<BONDS> 0
0
0
<COMMON> 57,350
<OTHER-SE> 3,998,077
<TOTAL-LIABILITY-AND-EQUITY> 6,775,465
<SALES> 2,991,646
<TOTAL-REVENUES> 2,991,646
<CGS> 0
<TOTAL-COSTS> 3,785,660
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 360,708
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,154,722)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)
</TABLE>
