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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the Fiscal Year Ended December 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _____________ to ______________
Commission File Number: 0-24592
CINEMA RIDE, INC.
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(Name of small business issuer 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, including zip code)
Issuer's telephone number, including area code: (818) 761-1002
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
Redeemable Warrants
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(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the
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registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will 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. [x]
The issuer's revenues for the fiscal year ended December 31, 1998 were
$2,377,674.
The aggregate market value of the issuer's common stock held by
non-affiliates of the Company as of March 19, 1999, was approximately $38,000.
As of March 19, 1999, the issuer had 731,823 shares of common stock
issued and outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [x]
Documents incorporated by reference: None.
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Cautionary Statement Pursuant to Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995:
This Annual Report on Form 10-KSB for the fiscal year ended December
31, 1998 contains "forward-looking" statements within the meaning of the Federal
securities laws. These forward-looking statements include, among others,
statements concerning the Company's expectations regarding its working capital
requirements, its business, growth prospects, competition and results of
operations, and other statements of expectations, beliefs, future plans and
strategies, anticipated events or trends, and similar expressions concerning
matters that are not historical facts. The forward-looking statements in the
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1998 are
subject to risks and uncertainties that could cause actual results to differ
materially from those results expressed in or implied by the statements
contained herein.
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PART I.
ITEM 1. DESCRIPTION OF BUSINESS
Overview
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 subsidiaries. The Company is in the
business of developing and operating rides consisting of motion simulator
attractions which combine 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 four
facilities. The first facility (the "Las Vegas Facility") commenced operations
in October 1994 and is located in the Forum Shops at Caesar's Palace Hotel and
Casino (the "Forum Shops"), a high traffic tourist mall located between Caesar's
Palace Hotel and 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 was
located in Times Square in New York City, New York. The Times Square Facility
was closed during January 1998 (see "ITEM 2. DESCRIPTION OF PROPERTY - Times
Square Facility"). The fourth facility (the "Atlanta Facility") commenced
operations in September 1998 as a joint venture with Dave & Buster's, Inc. and
is located in Atlanta, Georgia. The Company's executive offices are located in
Studio City, California.
Equipment and Technology
Each of the Company's rides is comprised of two basic elements, a
motion simulator, which consists of an enclosed capsule and related equipment
and computer programming, and the 3-D films viewed by audiences in the
simulator.
Simulators
The Company utilizes a simulator that it believes is 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 and
the West Edmonton Mall Facility and the Atlanta Facility each consist of one
capsule.
Capsules are mounted on top of a motion base consisting of six
independent hydraulic cylinders that 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
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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.
Each simulator combines the motion base and capsule with two video
projectors and audio systems which 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 change ride films with the push of a single button. The
projection equipment used by the Company is capable of projecting both 3-D and
standard ride films.
All of the mechanical equipment comprising the simulator is coordinated
by a 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 disks, 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 that are readily available through various vendors and
suppliers. Should the need arise, the Company believes that other vendors are
available that could manufacture and maintain its equipment. In addition,
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 a facility that has more than one capsule.
3-D Films
Each of the Company's attractions utilizes 3-D technology in the
exhibition of ride films. This 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 and off-screen
effects which are not possible with traditional 2-D filmed entertainment.
As of December 31, 1998, the Company had completed production of six
ride films for exhibition in its attractions. The Company produces the ride
films by contracting with independent film production companies. During March
1998, the Company released a new ski and snowboard film that was produced by
Warren Miller Entertainment, and a roller coaster film that was produced by the
Company.
The typical ride film lasts approximately four minutes. Each capsule is
able to feature approximately nine to twelve attractions per hour. The Company
does not anticipate that any of its attractions will operate at or near maximum
capacity.
Facility Operations
The Company currently generates virtually all of its income from the
sale of ride tickets. Customers purchase ride tickets at the ticket booth. Prior
to the showing, ticket holders are led
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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.
The hours of operation for all of the Company's facilities are
generally from 11:00 a.m. to 11:30 p.m. The average ticket price is generally
less than $4.00 due to the Company's practice of selling multiple features per
ticket and the use of coupons and other promotional discounts.
Joint Venture
On May 29, 1998, the Company entered into a three-year joint venture
agreement with Dave & Buster's, Inc., to install its 3-D motion simulation
theater at Dave & Buster's, Inc. facility in Atlanta, Georgia. Dave & Buster's,
Inc. was responsible for providing the space in its Atlanta, Georgia facility
and prepared the premises for installation. The Company was responsible for the
transportation and installation of the theater. During the year ended December
31, 1998, the Company incurred $95,924 in transportation and installation costs
and $367,683 in equipment costs. Management does not expect any additional
expenditures relating to the installation of this facility. The theater
installation was completed and operational on September 14, 1998. The joint
venture agreement can be terminated by either party prior to the end of the
three year period if, among other things, certain revenue and cash flow goals
are not achieved.
Sale of Systems to Third Party Operators
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.
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. IMAX Corporation, Iwerks Entertainment, Inc., Showscan Corporation and
other companies develop and market simulators that 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
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are competitive with those of the Company. In addition, there are no significant
barriers to entry that 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 motion simulator attraction developed by Caesar's
Palace Hotel and Casino with IMAX Corporation which was opened during December
1997 in the new expansion of the Forum Shops. In addition, the Excalibur Hotel
in Las Vegas has a simulator ride facility that has been operational for many
years. The MGM Grand Hotel and Casino Theme Park, the Hilton Hotel Casino, and
the Luxor Hotel and Casino in Las Vegas offer motion simulator attractions.
Other hotels or theme parks in Las Vegas may also acquire or develop motion
simulator attractions, including such major new hotels such as the Bellagio, the
Mandalay Bay, the Paris and the Venetian. 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 Mall
Facility competes with existing motion simulators within the West Edmonton Mall.
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.
Seasonality
Because of the seasonal nature of tourist traffic, attendance patterns
at attractions may vary. The degree of this seasonality varies 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 to be 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. The revenues generated
during peak tourist periods have a significant impact on the Company's results
of operations.
Trademarks, Copyrights and Patents
On January 12, 1999, the Company was granted Patent No. 5,857,917 by
the United States Patent and Trademark Office for 3-D video projected motion
simulator rides. However, there can be no assurance that the Company will be
able to utilize this patent to prevent competitors from developing similar
simulator systems.
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During 1996, the Company obtained a trademark for "Cinema Ride" and a
trademark for "Ride Guy". In addition, the Company holds copyright protection
for each of the ride films owned by the Company. While the Company believes that
patent, copyright and other protection is desirable, the 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 $5,000,000, business income loss coverage of
$2,500,000, 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 should the Company open any additional
attractions.
The Company also maintains $1,000,000 "key-man" life insurance on the
life of Mitch Francis, its President and Chief Executive Officer, as to which
the Company is the sole beneficiary.
Governmental Regulations
The Company is subject to certain governmental regulations that
establish standards for the design, construction, installation, alteration,
maintenance, operation and inspection of amusement rides such as the Company's
attractions. The Company has obtained all necessary permits and approvals.
Employees
As of March 19, 1999, the Company had two full-time employees at its
corporate offices (including its officers), 20 employees at its Las Vegas
Facility and four employees at its West Edmonton Mall Facility. Should the
Company add new facilities, the Company expects to hire additional employees to
manage and operate the new facilities. The Company's employees are not
represented by any unions. The Company believes that its relations with its
employees are satisfactory.
ITEM 2. DESCRIPTION OF PROPERTY
Las Vegas Facility
In October 1993, the Company entered into a lease agreement for a site
in the Forum Shops adjacent to Caesar's Palace Hotel and Casino that 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
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between the Company and the lessor of the Forum Shops, the Company agreed to
permit a themed simulator attraction into the mall in exchange for several
concessions from the landlord.
During the three months ended September 30, 1998, the landlord at the
Las Vegas Facility announced its intention to expand the Forum Shop mall where
the Company's Las Vegas Facility is located. Construction is scheduled to
commence during 1999 within a close proximity to the Company's facility, which
could interfere with or interrupt the Company's business. Management is unable
to estimate the effect, if any, that such construction will have on its Las
Vegas Facility's operations.
West Edmonton Mall Facility
During July 1995, the Company, through its wholly-owned Alberta, Canada
subsidiary, Cinema Ride Edmonton, Inc., 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 CN$5,000 or 20%
of gross sales in excess of CN$300,000 per year. During 1998, the lease
agreement was amended to increase the minimum monthly payment to CN$5,250 and to
adjust the percentage rent payable under the lease to 20% for all gross sales in
excess of CN$400,000 per year.
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 West Edmonton Mall is involved in an expansion project that
includes an entertainment center and an IMAX Theater. Construction is expected
to be completed during 1999. Management is unable to estimate the effect, if
any, that such additional entertainment facilities will have on its West
Edmonton Mall Facility's operations.
Times Square Facility
During August 1995, the Company, through its wholly-owned New York
subsidiary, Cinema Ride Times Square, Inc., 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 was for approximately
ten years with two five year renewal options. The Times Square Facility
commenced operations in September 1996. The total cost of design, construction
and installation of the Times Square Facility was approximately $3,200,000,
excluding signage.
The Company entered into an agreement dated October 28, 1997 with the
Landlord to terminate the lease due to the intended demolition of the building
where the Facility was located. The agreement, among other things, required the
Company to vacate the premises by February 28, 1998 and to waive the security
deposit previously made to the Landlord of approximately $30,000. In
consideration, the landlord paid the Company $500,000 upon the execution of the
agreement, agreed to a rent concession for the period from April 1997 through
October 1997, waived its right for all future rents following execution of the
agreement to include the months of
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November 1997 through February 1998, and paid 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 informed the landlord on February 26, 1998
that the Company had vacated the premises, and the remaining $500,000 payment
was received on March 5, 1998. The Company is currently seeking a new location
to replace this Facility. During the year ended December 31, 1997, the Company
recorded $275,548 in impairment losses due to the write-down of signage and
equipment and moving costs related to the Times Square Facility.
During the three months 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 was for 60 months commencing the first month following installation
of the sign. Certain disputes arose with respect to the obligation to the lessor
of the sign, and, commencing with the lease payment for the month of April 1997,
the Company withheld making payments. During March 1998, the Company reached an
agreement with the lessor of the sign whereby both parties agreed to terminate
the lease. The Company agreed to purchase the sign for $100,000 in cash, and the
lessor agreed to return to the Company 93,482 shares of the Company's common
stock, which were previously issued to the lessor in December 1996.
Corporate Offices
The Company leases office space in Studio City, California as its
corporate headquarters. The lease is for a period of five years commencing July
1995, with one three-year renewal option at 95% of the then fair market rental
value. The base rent requires monthly payments of $5,029 for the first
thirty-six months, monthly payments of $5,334 for the following eighteen months,
and monthly payments of $5,639 thereafter.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year ended December 31, 1998.
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PART II.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since March 12, 1998, the common stock of the Company has traded on the
OTC Bulletin Board under the symbol "MOVE". From September 1994 through March
11, 1998, the Company's common stock was traded on the Nasdaq SmallCap Market.
The Company's common stock was delisted from the Nasdaq SmallCap Market on March
11, 1998 for failure to maintain compliance with the minimum bid price and
market value of public float requirements. The following table sets forth the
range of reported closing bid prices of the Company's common stock during the
periods indicated. Such quotations reflect prices between dealers in securities
and do not include any retail mark-up, mark-down or commission, and may not
necessarily represent actual transactions. The information set forth below
reflects the one for eight reverse stock split effective May 29, 1998. The
information set forth below was obtained from America Online, Inc.
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HIGH LOW
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FISCAL YEAR ENDED DECEMBER 31, 1997:
Three months ended -
March 31, 1997 $3.50 $2.50
June 30, 1997 2.50 1.50
September 30, 1997 2.00 1.75
December 31, 1997 1.00 0.25
FISCAL YEAR ENDED DECEMBER 31, 1998:
March 31, 1998 1.20 0.50
June 30, 1998 1.00 0.50
September 30, 1998 0.69 0.19
December 31, 1998 0.14 0.13
January 1, 1999 through March 19, 1999 0.25 0.06
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As of March 19, 1999, the Company had 196 shareholders of record with
respect to the Company's common stock, excluding shares held in street name by
brokerage firms and other
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nominees who hold shares for multiple investors. The Company estimates that it
had approximately 850 beneficial shareholders of its common stock as of March
19, 1999.
Holders of common stock are entitled to receive dividends if, as and
when declared by the Board of Directors out of funds legally available therefor,
subject to the dividend and liquidation rights of any preferred stock that my be
issued and outstanding. The Company has not paid cash dividends on its common
stock and has no present intention of paying cash dividends in the foreseeable
future. It is the present policy of the Board of Directors to retain all
earnings to provide for the future growth and development of the Company.
During the year ended December 31, 1997, the Company issued 2,000
shares of common stock to vendors with an aggregate fair market value of $960 in
exchange for services rendered.
During January 1997, the Company issued 6,875 shares of common stock to
employees, including 6,250 shares to the Company's Chief Financial Officer, with
an aggregate fair market value of $20,900.
During April 1997, in conjunction with obtaining a $50,000 loan from a
related party, the Company issued warrants to purchase 3,125 shares of common
stock with an exercise price of $2.24 per warrant. The warrants had an aggregate
fair value of $3,000.
During the year ended December 31, 1997, the Company issued stock
options to purchase an aggregate of 2,500 shares of common stock to its
non-employee directors with an aggregate fair value of $14,652.
During the year ended December 31, 1997, the Company issued stock
options to various employees to purchase an aggregate of 78,750 shares of common
stock with exercise prices ranging from $0.19 to $0.25 per share.
During January 1998, the Company issued 6,474 shares of common stock to
its Chief Financial Officer with an aggregate fair value of $3,107.
During the year ended December 31, 1998, the Company issued stock
options to various employees and directors to purchase an aggregate of 169,688
shares of common stock with exercise prices ranging from $0.39 to $0.42 per
share.
During the year ended December 31, 1998, the Company issued 25,000
shares of common stock with an exercise price of $0.25 per share to its
President and Chief Executive Officer.
The shares of common stock, stock options and warrants were issued
based on an exemption from registration pursuant to Section 4(2) of the
Securities Act of 1933, as amended, based on the representations of the
recipients.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview
The Company was formed in April 1993, and operations of the Company
commenced in October 1994 when the Las Vegas Facility was opened. The Company
opened its other locations, the West Edmonton Mall Facility, the Times Square
Facility, and the Atlanta Facility in August 1995, September 1996 and
September 1998, respectively. The Company closed the Times Square Facility in
January 1998.
Results of Operations
Years Ended December 31, 1998 and 1997
Revenues decreased by 39% or $1,497,621 to $2,377,674 in 1998 from
$3,875,295 in 1997, primarily as a result of a decrease in revenues from the
Times Square Facility, which was closed in January 1998.
Equity in net income of joint venture was $5,578 for 1998. The joint
venture with Dave & Buster's, Inc. commenced operations in September 1998 (see
"ITEM 1. DESCRIPTION OF BUSINESS - Joint Venture"), and the Company anticipates
that equity in net income of joint venture will increase in the years subsequent
to 1998.
Selling, general and administrative expenses decreased by 35% or
$1,240,813, to $2,308,453 in 1998 from $3,549,266 in 1997, primarily as a result
of a decrease of approximately $1,109,849 in expenses related to the Times
Square Facility. Although general and administrative expenses decreased by
approximately $290,703, primarily as a result of reduced personnel related costs
and professional fees, increased operating costs at the Las Vegas Facility and
at the West Edmonton Mall Facility offset a substantial portion of such
decreases.
During 1997, the Company recorded an impairment loss of $275,548
relating to the closure of the Times Square Facility, due to the write-down of
signage and equipment and moving costs.
Depreciation and amortization decreased by 42% or $444,978, to $606,956
in 1998 from $1,051,934 in 1997, primarily as a result of a decrease of
approximately $554,713 in depreciation and amortization related to the Times
Square Facility. This decrease in depreciation and amortization was offset in
part by an increase in amortization of films that were released in 1998.
Interest expense decreased by 51% or $237,353, to $228,004 in 1998 from
$465,357 in 1997, primarily as a result of the Company's write off of $146,103
in deferred interest in 1997, a reduction in the principal balance on the note
payable to lender, and a reduction in the outstanding balance of capital lease
obligations.
During 1998, the Company recorded a reserve for impairment of theater
and film equipment available for use and disposal of $1,399,797, to provide a
reserve for excess
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equipment that the Company determined will not be used in its operations in the
foreseeable future.
The Company recorded a net loss of $2,062,953 in 1998, as compared to a
loss of $1,454,545 in 1997.
As of December 31, 1998, the Company had Federal and California net
operating loss carryforwards of approximately $6,364,638 and $3,182,319,
respectively, available to offset future Federal and California taxable income.
The unused net operating loss carryforwards expire in various amounts through
2018 for Federal and through 2013 for California state purposes.
Net deferred tax assets of approximately $2,354,906 at December 31,
1998 resulting from net operating losses, tax credits and other temporary
differences have been offset by a valuation allowance since management cannot
determine whether it is more likely than not that such assets will be realized.
Years Ended December 31, 1997 and 1996
Revenues increased by 17% or $565,132 to $3,875,295 in 1997 from
$3,310,163 in 1996. Revenues increased in 1997 as compared to 1996 primarily as
a result of an increase in revenues of $1,028,211 or 184% from the Times Square
Facility, which opened during September 1996 and was open for the full year in
1997, to $1,586,439 in 1997 from $558,229 in 1996. The increase in revenues from
the Times Square Facility was partially offset by a decrease in revenues at the
Las Vegas Facility of 17% or $432,289, to $2,069,223 in 1997 from $2,501,512 in
1996, which management believes was due to lower attendance at the Forum Shops,
which resulted from the construction of the new wing at Caesar's Palace Hotel
and Casino and the opening of other casinos, and a decrease in revenues at the
West Edmonton Mall Facility of 12% or $30,900, to $220,400 in 1997 from $251,300
in 1996. The Company raised the price of a single ticket at the Las Vegas and
Times Square Facilities to $8.00 from $7.00, which partially offset the decrease
in revenues due to the lower attendance. However, the average ticket price
remained under $4.00 due to discounts offered through multiple purchases of
tickets.
Selling, general and administrative expenses increased by 14% or
$441,891, to $3,549,266 in 1997 from $3,107,375 in 1996, primarily as a result
of an increase in expenses of approximately $637,000 relating to the new Times
Square Facility, which opened in September 1996 and was open for the full year
in 1997.
During 1997 the Company recorded an impairment loss of $275,548
relating to the closure of the Times Square Facility, due to the write-down of
signage and equipment and moving costs.
Depreciation and amortization increased by 26% or $220,007, to
$1,051,934 in 1997 from $831,927 in 1996, primarily as a result of the new Times
Square Facility, which contributed to an increase of $381,291 in 1997, and which
was partially offset by a decrease of approximately $125,000 relating to the
write off of certain assets in 1996.
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Interest expense increased by 89% or $218,557, to $465,357 in 1997 from
$246,800 in 1996, primarily as result of the Company interest expense incurred
on the note payable to the lender in 1997.
Liquidity and Capital Resources
Net cash provided by operating activities increased by $78,218, to
$130,431 in 1998 from $52,213 in 1997, primarily as a result of the decrease in
cash utilized to pay accounts payable and accrued expenses. However, at December
31, 1998, the Company's cash and cash equivalents had decreased by $465,289, to
$240,341, as compared to $705,630 at December 31, 1997. As a result, the Company
had a working capital deficit of ($72,319) at December 31, 1998, as compared to
working capital of $367,196 at December 31, 1997, resulting in current ratios of
.81:1 and 1.15:1 at December 31, 1998 and 1997, respectively.
The Company has suffered recurring operating losses and had a working
capital deficit at December 31, 1998 that impairs its ability to obtain
additional financing. As a result of these factors, the Company's independent
certified public accountants have expressed substantial doubt about the
Company's ability to continue as a going concern. The Company intends to manage
its short-term liquidity concerns through renegotiation of the terms of the note
payable to the Lender and a line of credit provided by its Chief Executive
Officer, as described below. The Company is also continuing its efforts to
improve operating efficiencies and reduce operating expenses, as well as to
secure working capital for operations, expansion and possible acquisitions,
mergers, joint ventures, and/or other business opportunities. However, there can
be no assurances that the Company will be able to secure additional capital, or
that if such capital is available, whether the terms and conditions would be
acceptable to the Company.
Net cash used in investing activities increased by $55,008, to $154,358
in 1998 from $99,350 in 1997, primarily as a result of the Company's investment
in joint venture and a loan made to an officer. This increase was partially
offset by a decrease in capital expenditures and film production costs.
Net cash used in financing activities decreased by $201,849, to
$441,362 in 1998 from $643,211 in 1997, primarily as a result of principal
reductions on notes payable in 1997, which were partially offset by the proceeds
from notes payable of $150,000 in 1997.
The Company has relied on the proceeds from the sale of its securities
and from loans and equipment leases to provide the cash necessary to develop its
facilities and ride films and to operate its business.
The Company generates the majority of its revenues from the Las Vegas
Facility. In connection with the December 1995 amendment to the Las Vegas
Facility lease, the Company waived its exclusivity right within the Forum Shops
by allowing an IMAX Simulator Theater to be installed within the Forum shops.
However, the Company obtained the right to terminate its lease if the Company's
sales for any full lease year after the opening of the IMAX Simulator Theater do
not equal or exceed $2,000,000, and in return the landlord obtained the right to
terminate the lease if sales for any full lease year do not equal or exceed
$1,500,000. The IMAX Simulator Theater opened during December 1997 and the
Company has not experienced any
15
<PAGE>
significant decrease in revenues during 1998. However, there can be no
assurances that revenues in subsequent years at the Las Vegas Facility will not
decrease below $1,500,000 annually and that the landlord will not terminate the
lease.
On March 6, 1996, the Company's wholly-owned subsidiary, Cinema Ride
Edmonton, Inc., obtained a $40.328 loan from a Canadian bank with interest at
price plus 2% per annum. The loan had a term of four years and required monthly
payments of approximately $1,027. The loan may be prepaid at any time without
penalty. The lender was granted a first security interest in the equipment and
improvements located at the West Edmonton Mall Facility. The loan was guaranteed
by the Company, and restricts the transfer of funds to the Company other than
excess cash flows. As of December 31, 1998, the loan had a principal balance
outstanding of $10,052.
On December 31, 1996, the Company completed a financing agreement with
Finova Technology Finance, Inc. (the "Lender") which was structured as a sale
leaseback transaction of certain equipment owned by the Company. Based on the
substance of this transaction, for financial reporting purposes this financing
agreement was accounted for as a note payable. The gross loan amount was
$1,575,027, repayable over a four year period at $40,903 per month with a
balloon payment of $157,503. The loan bears interest at an annual rate of 15.7%.
The financing agreement requires the Company to repurchase the equipment at the
end of the lease for $1.00. 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 or
liabilities. The Company has issued 55,536 shares of common stock to various
vendors and 31,250 shares to existing note holders as payment for amounts owed
by the Company, thus enabling the Company to meet the Lender's requirement. The
Company also issued 12,500 warrants to the Lender at an exercise price of $16.00
per share, and an aggregate of 33,205 warrants to the brokers who arranged the
financing at an exercise price of $3.28 per share, which was approximately 110%
of the fair market value of the Company's common stock at the closing date of
the financing. On March 10, 1999, the financing agreement was amended to reduce
the monthly payments from $40,903 per month to $21,879 per month, and to extend
the maturity date from January 1, 2001 to January 1, 2004, with no change in the
balloon payment of $157,503.
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 warrants
to purchase 3,125 shares of common stock at an exercise price of $2.24 per
share. The note, including accrued interest, was fully paid during 1997.
On February 2, 1999, the Company entered into a loan agreement with the
Company's President and Chief Executive Officer. The loan agreement amends the
existing notes receivable from him to allow the Company the right to demand
repayment within 90 days of a written request. The loan agreement also includes
a line of credit of $120,000 that matures on February 2, 2002, with interest at
12% per annum. The line of credit is secured by a lien on the Company's assets.
As consideration for providing the line of credit, the Company has granted the
President and Chief Executive Officer warrants to purchase 1,527,461 shares of
common stock at an exercise price of $0.13 per share, the fair market value on
the date of the agreement, expiring on February 2, 2002.
16
<PAGE>
Company Outlook
Identify and Develop New Sites for Attractions
Subject to the availability of operating capital, the Company intends
to seek additional locations for attractions. The Company intends to target
sites for its attractions which are in large metropolitan areas or which are at
tourist destinations that attract more than three million persons per year. The
Company's objective is to lease high-profile, high-traffic space at a reasonable
cost in areas with a large number of permanent residents and which do not have
extreme seasonal attendance patterns, and 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. In addition to the cost of the
equipment necessary to establish a new attraction location, the Company
estimates that it will add approximately twenty employees per each additional
two-capsule location that it owns and operates. There can be no assurances that
the Company will be able to locate acceptable new sites in which to establish
new attractions, or that the Company will be able to fund the development of any
new sites that it may select. However, the Company currently owns four capsules
that are available for installation at future sites.
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 joint venture partner would split the profits, if
any, from the attraction based on their respective contributions to the joint
venture.
Simulator Sales, Joint Ventures and Ride Film Leasing
The Company intends to pursue the joint venture or sale of simulator
equipment to property owners and businesses that wish to operate their own
attractions. The sale of simulators to third parties would provide the Company
with an additional source of revenues and profits with a lesser 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 license 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.
17
<PAGE>
Year 2000 Issue
The Year 2000 Issue results from the fact that certain computer
programs have been written using two digits rather than four digits to define
the applicable year. Computer programs that have sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, sell tickets or engage in similar normal business activities.
Based on a recent internal assessment, the Company has determined that
its software programs are already year 2000 compliant, or that the cost of any
needed modifications will not have a material effect on the Company's
consolidated financial position, results of operations or cash flows.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"), which is effective
for financial statements issued for fiscal years beginning after December 15,
1997. SFAS No. 130 establishes standards for the reporting and display of
comprehensive income, its components and accumulated balances in a full set of
general purpose financial statements. SFAS No. 130 defines comprehensive income
to include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS No. 130
requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is presented with the same prominence as other
financial statements. The Company adopted SFAS No. 130 for its fiscal year
beginning January 1, 1998. Adoption of SFAS No. 130 did not have a material
effect on the Company's financial statement presentation and disclosures.
In June 1997, the Financial Accounting Standards Board issued Statement
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"), which supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise", and which is effective for financial
statements issued for fiscal years beginning after December 15, 1997. SFAS No.
131 establishes standards for the way that public companies report information
about operating segments in annual financial statements and requires reporting
of selected information about operating segments in interim financial statements
issued to the public. SFAS No. 131 also establishes standards for disclosures by
public companies regarding information about their major customers, operating
segments, products and services, and the geographic areas in which they operate.
SFAS No. 131 defines operating segments as components of an enterprise about
which separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and in
assessing performance. SFAS No. 131 requires comparative information for earlier
years to be restated. The Company adopted SFAS No. 131 for its fiscal year
beginning January 1, 1998. Adoption of SFAS No. 131 did not have a material
effect on the Company's financial statement presentation and disclosures.
18
<PAGE>
In February 1998, the Financial Accounting Standards Board issued
Statement No. 132, "Employers' Disclosures about Pension and Other
Postretirement Benefits" ("SFAS No. 132"), which is effective for financial
statements issued for fiscal years beginning after December 15, 1997. SFAS No.
132 revises employers' disclosures about pension and other postretirement
benefit plans. SFAS No. 132 requires comparative information for earlier years
to be restated. The Company adopted SFAS No. 132 for its fiscal year beginning
January 1, 1998. Adoption of SFAS No. 132 did not have a material effect on the
Company's financial statement presentation and disclosures.
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133"), which is effective for financial statements for all fiscal quarters
of all fiscal years beginning after June 15, 1999. SFAS No. 133 standardizes the
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, by requiring that an entity recognize those items
as assets or liabilities in the statement of financial position and measure them
at fair value. SFAS No. 133 also addresses the accounting for hedging
activities. The Company will adopt SFAS No. 133 for its fiscal year beginning
January 1, 2000, and does not anticipate that adoption of SFAS No. 133 will have
a material effect on its financial statement presentation and disclosures.
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements are listed at the "Index to
Consolidated Financial Statements" elsewhere in this document.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
19
<PAGE>
PART III.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table and text set forth the names and ages of all
directors and executive officers of the Company as of March 19, 1999. The Board
of Directors is comprised of only one class. All of the directors will serve
until the next annual meeting of stockholders and until their successors are
elected and qualified, or until their earlier death, retirement, resignation or
removal. There are no family relationships among directors and executive
officers. Also provided is a brief description of the business experience of
each director and executive officer during the past five years and an indication
of directorships held by each director in other companies subject to the
reporting requirements under the Federal securities laws.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- --- -----------
<S> <C> <C>
Mitchell J. Francis 44 Chairman of the Board of Directors, President,
Chief Executive Officer and Chief Financial
Officer
Benjamin Frankel 63 Director
Norman Feirstein 50 Director
</TABLE>
Biographies of Directors and Executive Officers
Mitchell J. Francis. Mr. Francis has been the Chairman of the Board of Directors
since June 1993, has been Chief Executive Officer, President and a director
since the Company's inception in April 1993, and has been Chief Financial
Officer since March 1, 1999. Prior to founding the Company, Mr. Francis was
involved in site acquisition, analysis, architectural design, construction,
management and marketing of numerous residential and commercial projects and has
been the general partner of several real estate limited partnerships. Mr.
Francis is also the President and principal shareholder of Francis Development
Inc., a real estate development company that he founded in 1981.
Benjamin Frankel. Mr. Frankel has been a director of the Company since March 17,
1995. Mr. Frankel is a certified public accountant and has been a partner in the
accountancy firm of Frankel, Lodgen, Lacher, Golditch & Sardi and its
predecessors since 1965.
Norman Feirstein. Mr. Feirstein has been a director of the Company since March
17, 1995. Mr. Feirstein practiced law as a sole practitioner from 1978 until
July 1993. Since such time, Mr. Feirstein has practiced law as the Law Offices
of Norman Feirstein, P.C.
Compliance with Section 16(a) of the Securities Exchange Act of 1934, as Amended
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers and persons who own more
than 10% of a registered class of the Company's equity securities to file
various reports with the Securities and Exchange
20
<PAGE>
Commission concerning their holdings of, and transactions in, securities of the
Company. Copies of these filings must be furnished to the Company.
Based on a review of the copies of such forms furnished to the Company
and written representations from the Company's directors and executive officers,
the Company believes that all individual filing requirements applicable to the
Company's directors and executive officers were complied with under Section
16(a) during 1998.
ITEM 10. EXECUTIVE COMPENSATION
The following table and text sets forth information with respect to the
compensation paid to the Chief Executive Officer and the other executive officer
of the Company whose total compensation exceeded $100,000 during the fiscal
years ended December 31, 1996, 1997 and 1998.
<TABLE>
<CAPTION>
Summary Compensation Table
Other Annual
Name and Principal Position(s) Year Salary Compensation
- ------------------------------ ----- ------- ------------
<S> <C> <C> <C>
Mitchell J. Francis 1998 $200,200 $24,384 (2)
Chairman of the Board of 1997 177,330 22,934 (3)
Directors, President and 1996 153,373 18,240 (4)
Chief Executive Officer
Toufic R. Bassil (1) 1998 129,600 3,107 (5)
Chief Financial Officer, 1997 125,000 19,000 (6)
Secretary and Treasurer 1996 93,206 15,900 (7)
</TABLE>
- ----------------------
(1) Mr. Bassil's employment as an officer of the Company terminated effective
March 1, 1999.
(2) Includes $2,810 in disability insurance premiums, $11,001 in automobile
expense, $5,422 in life insurance premiums and $5,151 in medical insurance
premiums paid to or on behalf of Mr. Francis in 1998.
(3) Includes $4,688 in disability insurance premiums, $11,073 in automobile
expense, $2,409 in life insurance premiums and $4,764 in medical insurance
premiums paid to or on behalf of Mr. Francis in 1997.
(4) Includes $3,747 in disability insurance premiums, $7,521 in automobile
expense and $6,972 in medical insurance premiums paid to or on behalf of
Mr. Francis in 1996.
(5) Represents the value of 6,474 shares of common stock issued to Mr. Basil
during 1998.
(6) Represents the value of 6,250 shares of common stock issued to Mr. Basil
during 1997.
(7) Represents the value of 3,750 shares of common stock issued to Mr. Basil
during 1996.
Board of Directors
During the year ended December 31, 1998, the Company had two meetings
of the Board of Directors. Each director attended all of the meetings of the
Board of Directors and all of the
21
<PAGE>
meetings of the committees on which he served. For serving on the Board of
Directors, directors who are not employees of the Company receive $1,000 for
each meeting of the Board of Directors, and reimbursement for any expenses
incurred in attending board meetings. Directors who are employees of the Company
receive no additional compensation for serving on the Board of Directors. The
non-employee directors are eligible to participate in the 1995 Directors Stock
Option Plan.
The Company does not have a nominating committee of the Board of
Directors, or any committee performing similar functions. The nominees for
election as a director are selected by the Board of Directors.
The compensation committee of the Board of Directors consists of the
three directors of the Company, one of whom is an employee of the Company. The
compensation committee reviews the performance of the executive officers of the
Company and reviews the compensation programs for key employees, including
salary and bonus levels.
The audit committee of the Board of Directors consists of Benjamin
Frankel and Norman Feirstein, neither of whom is an employee of the Company. The
audit committee reviews, acts on and reports to the Board of Directors with
respect to various auditing and accounting matters, including the selection of
the Company's independent public accountants, the scope of the annual audits,
the nature of non-audit services, and the fees to be paid to the independent
public accountants, the performance of the Company's independent public
accountants, and the accounting practices of the Company.
The stock option committee of the Board of Directors consists of
Benjamin Frankel and Norman Feirstein, neither of whom is an employee of the
Company. The stock option committee is responsible for the operation and
administration of the Company's stock option plans, including the grants
thereunder.
Employment Agreements
Effective September 1, 1997, the Company entered into a three year
employment agreement with Mitchell J. Francis to serve as Chairman, President
and Chief Executive Officer. The agreement provided 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. The agreement also provided for the issuance of 37,500 stock
options, with a current exercise price of $0.43 per share, through September 1,
2002, and vesting in equal annual increments over the three years subsequent to
their issuance. The agreement provided for the granting of additional
performance stock options based on various occurrences such as opening of new
locations, obtaining additional funds, and attaining and maintaining certain
market prices for the Company's common stock. In conjunction with the opening of
the Company's new facility in Atlanta, Georgia in September 1998, the Company
granted Mr. Francis a bonus in the form of a stock option to purchase 25,000
shares of common stock exercisable at the fair market value of $0.25 per share
for a period of five years.
Effective April 1, 1997, the Company entered into a three year
employment agreement with Toufic R. Bassil to serve as the Company's Chief
Financial Officer. The agreement
22
<PAGE>
provided for a base annual salary of $120,000 and annual increases of 8%. The
agreement also provided for the issuance of 12,500 stock options, with a current
exercise price of $0.39 per share, through April 1, 2002, and vesting in equal
annual increments over the two years subsequent to their issuance. Mr. Bassil's
employment as an officer of the Company terminated effective March 1, 1999. In
conjunction therewith, Mr. Bassil's employment agreement and severance agreement
with the Company were terminated, and the Company agreed to pay Mr. Bassil
approximately $70,000.
Effective May 13, 1998, the Company entered into a severance
agreement with Mitchell J. Francis that provided for certain compensation to
such executive officer in the event of a change in control of the Company.
The term of the severance agreement is through June 30, 1999, at which time
it is automatically extended for one year periods commencing on July 1, 1999
and on each subsequent July 1, unless the Company gives notice not later than
December 31 of the preceding year that it does not wish to extend the
severance agreement. A change in control of the Company is defined as (a) the
acquisition by any person or entity of 20% or more of the Company's voting
equity securities, (b) a change in control of the Board of Directors, or (c)
a merger or consolidation of the Company with any other entity, unless the
shareholders of the Company prior to the merger or consolidation continue to
represent at least 80% of the combined voting power of the merged entity. In
the event of a change in control, among other compensation and benefits, the
severance agreement entitles Mr. Francis to receive a severance payment of
five times his current annual salary.
Stock Option Plans
In June 1994, the Company adopted the Cinema Ride, Inc. Stock Option
Plan (the "Option Plan"), under which stock options to purchase a maximum of
112,500 shares of common stock of the Company may be issued pursuant to
incentive and non-qualified stock options granted to officers, employees,
directors and consultants of the Company. The Option Plan is administered by the
Board of Directors or, in the discretion of the Board of Directors, by a
committee of not less than two individuals with authority to determine employees
to whom options will be granted, the timing and manner of grants of options, the
exercise prices, the number of shares covered by the options, the terms of the
options, and all other determinations necessary or advisable for administration
of the Option Plan.
The purchase price for the shares subject to any incentive stock option
granted under the Option Plan shall not be less than 100% of the fair market
value of the shares of common stock of the Company on the date of the option is
granted (110% for stockholders who own in excess of 10% of the outstanding
common stock). No options shall be exercisable after the earliest of the
following: the expiration of 10 years after the date the option is granted;
three months after the date the optionee's employment with the Company
terminates if termination is for any reason other than permanent disability or
death; or one year after the date the optionee's employment terminates if
termination is a result of death or permanent disability. Unless sooner
terminated by the Board of Directors, the Option Plan expires on December 31,
2003.
In December 1995, the Company adopted the 1995 Directors Stock Option
Plan (the "Directors Plan"), under which stock options to purchase a maximum of
12,500 shares of common stock of the Company may be issued to non-employee
directors of the Company. The
23
<PAGE>
Directors Plan provides that on the fourth business day following each annual
meeting of stockholders, each director who is not an employee of the Company
automatically receives a non-statutory option to purchase 1,250 shares at the
fair market value on the date of grant. The Company granted Mr. Frankel and Mr.
Feirstein 1,250 options each under the Directors Plan during 1997 and 1998.
All stock options shown below reflect the one for eight reverse stock
split effective May 29, 1998. On June 18, 1998, the Board of Directors cancelled
all issued and outstanding stock options at that time and reissued them based on
the current fair market value of $0.39 per share.
During the year ended December 31, 1998, officers of the Company were
granted stock options under the Option Plan as shown below.
Stock Option Grants Table
<TABLE>
<CAPTION>
Number of Percent of Weighted
Options Options Granted Exercise
Name Granted to Total Options Price
- ---- ------- Granted --------
-------
<S> <C> <C> <C>
Mitchell J. Francis 95,188 79.5% $0.43
Toufic R. Bassil (1) 9,375 7.8% $0.39
------- ----
Total 104,563 87.3%
------- ----
------- ----
</TABLE>
- -------------
(1) Mr. Bassil's employment as an officer of the Company terminated
effective March 1, 1999.
24
<PAGE>
A summary of stock options held by the Company's officers as of
December 31, 1998 is presented below. No stock options were exercised during
1997 or 1998.
Stock Option Value Table
<TABLE>
<CAPTION>
Number of
Shares of Value of
Common Stock Unexercised
Underlying in-the-Money
Stock Options Weighted Stock Options at
---------------------- Exercise Fiscal Year-End (1)
Name Unvested Vested Price Unvested Vested
- ---- -------- ------ ----- --------- -------
<S> <C> <C> <C> <C> <C>
Mitchell J. Francis 28,396 66,792 $0.43 $ -- $ --
Toufic R. Bassil (2) 7,292 2,083 $0.39 -- --
------- ------ -------- -------
Total 35,688 68,875 $ -- $ --
------- ------ -------- -------
------- ------ -------- -------
</TABLE>
- -------------------
(1) The dollar values are calculated by determining the difference between
the weighted average exercise price of the stock options and the market
price for the common stock of $0.13 per share on December 31, 1998.
(2) Mr. Bassil's employment as an officer of the Company terminated
effective March 1, 1999.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As used in this section, the term beneficial ownership with respect to
a security is defined by Rule 13d-3 under the Securities Exchange Act of 1934,
as amended, as consisting of sole or shared voting power (including the power to
vote or direct the vote) and/or sole or shared investment power (including the
power to dispose of or direct the disposition of) with respect to the security
through any contract, arrangement, understanding, relationship or otherwise,
subject to community property laws where applicable.
As of March 19, 1999, the Company had a total of 731,823 shares of
common stock issued and outstanding, which is the only issued and outstanding
voting equity security of the Company. All common share amounts reflect the one
for eight reverse stock split effective May 29, 1998.
The following table sets forth, as of March 19, 1999: (a) the names and
addresses of each beneficial owner of more than five percent (5%) of the
Company's common stock known to the Company, the number of shares of common
stock beneficially owned by each such person, and the percent of the Company's
common stock so owned; and (b) the names and addresses of each director and
executive officer, the number of shares of common stock beneficially owned, and
the percentage of the Company's common stock so owned, by each such person, and
by all directors and executive officers of the Company as a group. Each person
has sole voting and investment power with respect to the shares of common stock,
except as otherwise indicated. Beneficial ownership consists of a direct
interest in the shares of common stock, except as otherwise indicated.
25
<PAGE>
<TABLE>
<CAPTION>
Percent of
Name and Address Amount and Nature of Shares of Common
Of Beneficial Owner Beneficial Ownership Stock Outstanding (2)
- ------------------- -------------------- ---------------------
<S> <C> <C>
Mitchell J. Francis (1) 1,771,371 (3) 74.2%
Benjamin Frankel (1) 7,500 (4) 1.0%
Norman Feirstein (1) 5,000 (5) .7%
All directors and
Executive officers
as a group (3 persons) 1,783,871 (6) 74.4%
</TABLE>
- ----------------------
(1) The address of each such person is c/o the Company, 12001 Ventura
Place, Suite 340, Studio City, California 91604.
(2) The calculation is based on the number of shares of common stock
outstanding on March 19, 1999, plus, with respect to each named person,
the number of shares of common stock, if any, which the stockholder has
the right to acquire within 60 days thereafter.
(3) Includes 1,656,753 shares of common stock issuable upon exercise of
stock options and warrants to acquire an aggregate of 1,685,149 shares
of common stock granted to Mitchell J. Francis (see "ITEM 10. EXECUTIVE
COMPENSATION - Employment Agreements" and "- Stock Option Plans" and
"ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS"). Excludes
4,688 shares of common stock owned by Sandra Francis, the wife of
Mitchell J. Francis, and 3,125 shares of common stock issuable upon
exercise of options granted to Mrs. Francis, as to which Mr. Francis
disclaims beneficial ownership.
(4) Includes 5,000 shares of common stock issuable upon exercise of stock
options to acquire an aggregate of 5,000 shares of common stock granted
to Mr. Frankel. Also includes 2,500 shares of common stock that were
issued to the accountancy firm of Frankel, Lodgen, Lacher, Golditch &
Sardi in exchange for services rendered in 1994. Mr. Frankel is a
partner in such firm, but disclaims beneficial ownership of such
shares.
(5) Includes 5,000 shares of common stock issuable upon exercise of stock
options to acquire an aggregate of 5,000 shares of common stock granted
to Mr. Feirstein.
(6) Includes 1,666,753 shares of common stock issuable upon exercise of
stock options.
Changes in Control
The Company is unaware of any contract or other arrangement, the
operation of which may at a subsequent date result in a change in control of the
Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended December 31, 1995, the Company made a $50,000
loan to Mitchell J. Francis, its President and Chief Executive Officer, with
interest at 8% per annum.
26
<PAGE>
The maturity date of the loan was originally June 30, 1998, but was extended to
June 30, 2001 during 1998. The note is secured by the greater of 5,000 shares of
common stock or the number of shares equivalent to the unpaid value of the note.
On January 29, 1998, the Company made an additional $35,000 loan to Mr. Francis,
with interest at 8.5% per annum. This loan is due on the earlier of June 30,
2001 or six months after Mr. Francis ceases to be an employee of the Company,
and is secured by shares of common stock equivalent to the unpaid value of the
note. As of December 31, 1997 and 1998, the amount due from Mr. Francis in
connection with these loans aggregated $47,462 and $89,631, respectively,
including accrued interest of $7,492 and $14,631, respectively.
During April 1997, the Company obtained a $50,000 loan from Sandra
Francis, the wife of Mitchell J. Francis, with interest at 18% per annum and due
in six months. In connection with obtaining this loan, the Company issued
warrants to purchase 3,125 shares of common stock exercisable at $2.24 per share
through April 30, 2003. The warrants were valued at $3,000 and were charged to
interest expense during 1997. This loan, including accrued interest, was fully
paid during 1997.
During the years ended December 31, 1997 and 1998, the Company issued
6,250 shares and 6,474 shares of common stock, respectively, to Toufic R.
Bassil, its Chief Financial Officer at that time, and recorded the fair market
value of the shares of $19,000 and $3,107, respectively, as compensation
expense. During February 1999, the Company transferred 6,474 shares of treasury
stock to Mr. Bassil.
On February 2, 1999, the Company entered into a loan agreement with
Mitchell J. Francis. The loan agreement amends the existing notes receivable
from him to allow the Company the right to demand repayment within 90 days of a
written request. The loan agreement also includes a line of credit of $120,000
that matures on February 2, 2002, with interest at 12% per annum. The line of
credit is secured by a lien on the Company's assets. As consideration for
providing the line of credit, the Company has granted Mr. Francis warrants to
purchase 1,527,461 shares of common stock at an exercise price of $0.13 per
share, the fair market value on the date of the agreement, expiring on February
2, 2002.
27
<PAGE>
PART IV.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
A list of exhibits required to be filed as part of this report
is set forth in the Index to Exhibits, which immediately
precedes such exhibits, and is incorporated herein by
reference.
(b) Reports on Form 8-K:
The Company did not file any Current Reports on Form 8-K
during or related to the three months ended December 31, 1998.
28
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
CINEMA RIDE, INC.
(Registrant)
Date: April 28, 1999 By: /s/ Mitchell J. Francis
-----------------------
Mitchell J. Francis
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Date: April 28, 1999 By: /s/ Mitchell J. Francis
-----------------------
Mitchell J. Francis
Chief Executive Officer,
President, Chief Financial
Officer and Chairman of the
Board of Directors
Date: April 28, 1999 By: /s/ Benjamin Frankel
--------------------
Benjamin Frankel
Director
Date: April 28, 1999 By: /s/ Norman Feirstein
--------------------
Norman Feirstein
Director
29
<PAGE>
CINEMA RIDE, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
CONTENTS
<TABLE>
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2
CONSOLIDATED FINANCIAL STATEMENTS
Balance sheets F-3
Statements of operations F-5
Statements of stockholders' equity F-6
Statements of cash flows F-7
SUMMARY OF ACCOUNTING POLICIES F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-14
</TABLE>
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, 1998 and 1997 and the related
consolidated statements of operations, stockholders' equity and cash flows
for the years ended December 31, 1998 and 1997. 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, 1998 and 1997, and the results
of their operations and cash flows for the years ended December 31, 1998 and
1997, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As discussed in Note 1
to the consolidated financial statements, the Company has suffered recurring
operating losses that raises substantial doubt about its ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note 1. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ BDO SEIDMAN, LLP
Los Angeles, California
February 14, 1999, except for Notes 9, 14, and 15, as to
which the date is March 10, 1999.
F-2
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 240,341 $ 705,630
Inventories 8,666 21,614
Prepaid expenses 62,139 69,601
Receivable from Times Square landlord (Note 11) - 500,000
Other receivables 438 852
Assets to be disposed - short-term (Note 11) - 1,490,915
- ------------------------------------------------------------------------------------------------------
Total current assets 311,584 2,788,612
- ------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT (Notes 7, 8, 11 and 15)
Office equipment and furniture 105,477 106,938
Equipment under capital lease 139,474 139,474
Lease improvements 946,515 943,873
Theater and film equipment 1,653,798 2,953,259
Theater and film equipment available for use and
disposal (Note 4) - 564,432
- ------------------------------------------------------------------------------------------------------
2,845,264 4,707,976
Accumulated depreciation (1,390,528) (1,226,811)
- ------------------------------------------------------------------------------------------------------
1,454,736 3,481,165
- ------------------------------------------------------------------------------------------------------
FILM LIBRARY
Film projects under development - 316,387
Film library, net of accumulated amortization of
$676,293 and $460,710 416,477 299,651
- ------------------------------------------------------------------------------------------------------
416,477 616,038
- ------------------------------------------------------------------------------------------------------
INVESTMENT IN JOINT VENTURE (Note 3) 473,957 -
ASSETS TO BE DISPOSED - LONG-TERM (Note 11) - 161,629
RECEIVABLES FROM OFFICERS (Notes 2 and 15) 89,631 47,962
CONSULTING AGREEMENT (Note 2) 39,016 49,420
DEFERRED LEASE COSTS AND OTHER ASSETS 156,679 283,713
- ------------------------------------------------------------------------------------------------------
Total assets $ 2,942,080 $ 7,428,539
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.
F-3
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 243,480 $ 539,006
Current portion of capital lease obligations (Note 6) 18,985 58,641
Current portion of note payable to lender (Note 9) 111,386 322,286
Current portion of note payable to bank (Note 7) 10,052 10,568
Deferred lease termination (Note 11) - 1,490,915
- --------------------------------------------------------------------------------------------------------
Total current liabilities 383,903 2,421,416
- --------------------------------------------------------------------------------------------------------
OBLIGATIONS UNDER CAPITAL LEASE, less current
portion (Note 6) 63,004 300,819
NOTE PAYABLE TO BANK, less current portion (Note 7) - 11,576
NOTE PAYABLE TO LENDER, less current portion (Note 9) 782,849 894,098
DEFERRED RENT (Note 14) 109,157 137,617
- --------------------------------------------------------------------------------------------------------
Total liabilities 1,338,913 3,765,526
COMMITMENTS (Note 14)
- --------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY (Notes 12 and 13)
Preferred stock, $.01 par value, 500,000 shares authorized,
none issued - -
Common stock, $.08 par value, 20,000,000 shares
authorized, 731,823 and 725,349 shares issued 58,546 58,028
Additional paid-in capital 9,175,780 9,173,191
Treasury stock, at cost, 6,474 shares at December 31, 1998
and 1997 (29,000) (29,000)
Accumulated deficit (7,602,159) (5,539,206)
- --------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,603,167 3,663,013
- --------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 2,942,080 $ 7,428,539
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.
F-4
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES $ 2,377,674 $ 3,875,295
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,308,453 3,549,266
IMPAIRMENT LOSS (Notes 4 and 11) 1,399,797 275,548
DEPRECIATION AND AMORTIZATION 606,956 1,051,934
- --------------------------------------------------------------------------------------------
OPERATING LOSS FROM OPERATIONS (1,937,532) (1,001,453)
OTHER INCOME (EXPENSE)
Equity in net income of joint venture 5,578 -
Interest income 25,724 12,265
Miscellaneous income 12,950 -
Interest expense (228,004) (465,357)
- --------------------------------------------------------------------------------------------
Operating loss before extraordinary item (2,121,284) (1,454,455)
- --------------------------------------------------------------------------------------------
Extraordinary item - settlement with vendors 58,331 -
- --------------------------------------------------------------------------------------------
NET LOSS $ (2,062,953) $ (1,454,545)
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
BASIC AND DILUTED LOSS PER COMMON SHARE:
Operating loss before extraordinary item $ (2.90) $ (2.01)
Extraordinary item 0.08 -
- --------------------------------------------------------------------------------------------
NET LOSS $ (2.82) $ (2.01)
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 731,273 723,469
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.
F-5
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Common Stock
(Notes 12 and 13) Additional Total
--------------------- Paid-In Treasury Accumulated Stockholders'
Shares Amount Capital Stock Deficit Equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1997 716,474 $ 57,318 $ 9,134,389 $ - $ (4,084,661) $ 5,107,046
Issuance of common stock to officer 6,250 500 18,500 - - 19,000
Issuance of common stock to employee 625 50 1,850 - - 1,900
Repurchase of stock - - - (29,000) - (29,000)
Issuance of common stock for services
rendered 2,000 160 800 - - 960
Issuance of warrants to lenders - - 3,000 - - 3,000
Issuance of warrants to
directors - - 14,652 - - 14,652
Net loss - - - - (1,454,545) (1,454,545)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1997 725,349 58,028 9,173,191 (29,000) (5,539,206) 3,663,013
Issuance of common stock to officer 6,474 518 2,589 - - 3,107
Net loss - - - - (2,062,953) (2,062,953)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1998 731,823 $ 58,546 $ 9,175,780 $ (29,000) $ (7,602,159) $ 1,603,167
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.
F-6
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH
YEARS ENDED DECEMBER 31, 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (2,062,953) $ (1,454,545)
Adjustments to reconcile net loss to cash provided by
operating activities:
Depreciation and amortization 606,956 1,051,934
Stock issued for services rendered 3,107 39,512
Equity in net income of joint venture (5,578) -
Amortization of consulting agreement 10,404 -
Amortization of deferred financing costs 42,088 192,027
Settlement with vendors (58,331) -
Loss on exchange and other 3,141 -
Impairment loss 1,399,797 275,548
Changes in operating assets and liabilities:
Inventories 12,948 23,901
Prepaid expenses and other current assets (1,538) 36,405
Other receivables (6,255) (58)
Receivable from Times Square landlord 500,000 500,000
Accounts payable and accrued expenses (284,895) (545,320)
Deferred rent (28,460) (16,644)
Accrued interest payable - (50,547)
- ------------------------------------------------------------------------------------------------
Net cash provided by operating activities 130,431 52,213
- ------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of:
Film production costs (16,019) (52,515)
Capital expenditures (2,643) (46,835)
Investment in joint venture (108,737) -
Dividends from joint venture 8,041 -
Loan made to officer (35,000) -
- ------------------------------------------------------------------------------------------------
Net cash used in investing activities (154,358) (99,350)
- ------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable - 150,000
Payments made on notes payable (334,241) (739,021)
Principal payments under capital lease obligation (107,121) (30,190)
Payments made from officers - 5,000
Repurchase of stock - (29,000)
- ------------------------------------------------------------------------------------------------
Net cash used in financing activities (441,362) (643,211)
- ------------------------------------------------------------------------------------------------
</TABLE>
F-7
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH
YEARS ENDED DECEMBER 31, 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET DECREASE IN CASH AND CASH EQUIVALENTS (465,289) (690,348)
CASH AND CASH EQUIVALENTS, beginning of year 705,630 1,395,978
- ------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year $ 240,341 $ 705,630
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest $ 198,276 $ 253,087
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Non-cash financing and investing activities:
Common stock issued to vendors in exchange for services rendered $ - $ 960
Issuance of common stock and warrants to employees and directors
3,107 35,552
Issuance of warrants to lender - 3,000
Conversion of accounts payable to notes payable - 12,394
</TABLE>
On October 28, 1997, the Company entered into an agreement with the landlord of
the Times Square Facility to terminate the lease. As a result of the
termination agreement, the Company recorded a receivable from the landlord of
$500,000, wrote-off a deposit of $30,767 and accounts payable of $246,134 and
recorded a non-cash deferred lease termination liability of $715,367. The
Company also transferred leasehold improvements of $1,652,544 from property
and equipment to assets to be disposed (Note 11).
During 1997, the Company converted $52,021 of receivables from officers into a
five-year consulting agreement (Note 2).
During 1998, the Company transferred $367,683 of equipment into the joint
venture as part of its contributed capital.
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 ACTIVITY Cinema Ride, Inc. (the "Parent") and Subsidiaries (the
"Company") were 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 projected three-dimensional ("3-D")
action films, of approximately four minutes in 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, 1998 and
1997, revenues and long-lived assets for Cinema Ride
Edmonton, Inc. were $302,712 and $219,633, respectively,
and $271,918 and $332,926, respectively.
The Company also established a wholly owned subsidiary,
Cinema Ride Times Square, Inc., that operated one motion
simulator ride Facility consisting of three capsules,
located at New York Times Square which commenced operation
in September 1996. On October 28, 1997, the Company
entered into an agreement with its landlord to terminate
the lease and discontinue operations at New York Times
Square (Note 11).
All significant intercompany transactions and balances
have been eliminated in consolidation.
CONCENTRATION OF The Company maintains cash balances at various financial
CREDIT RISK institutions. Deposits not to exceed $100,000 for each
institution are insured by the Federal Deposit Insurance
Corporation. At December 31, 1998 and 1997, the Company
had uninsured cash and cash equivalents in the amount of
$58,412 and $399,379.
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.
F-9
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
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. A minimum
amount of costs are amortized each year.
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.
INCOME TAXES The Company provides for income taxes in accordance with
Statement of Financial Accounting Standards No. 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 carrying amounts of financial instruments including
FINANCIAL cash and cash equivalents and accounts payable approximate
INSTRUMENTS fair value because of their short maturity.
The carrying amount of long-term debt and capital lease
obligations approximate fair value because the interest
rates on these instruments approximate the rate the
Company could borrow at December 31, 1998.
The fair value of receivables from officers cannot be
determined due to their related party nature.
FOREIGN CURRENCY Foreign currency denominated assets and liabilities of the
TRANSLATION subsidiary where the United States dollar is the
functional currency and which have certain transactions
denominated in a local currency are remeasured as if the
functional currency was the U.S. dollar. The
remeasurement of local currency into U.S. dollars creates
translation adjustments which are included in income. The
translation exchange loss in 1998 was $7,843. Previously,
the Company translated financial statements of the foreign
subsidiary, using year end exchange rates for U.S.
dollars. The effects of translation was included in the
accumulated deficit amount of shareholders' equity. Such
translation in 1997 was minimal and totaled $4,871. This
change in accounting did not have a material effect on the
financial position or results of operations of the
Company.
F-10
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
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. 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" with pro forma
disclosures of net income as if the fair value method had
been applied. 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 On March 3, 1997, the FASB issued Statement of Financial
Accounting Standard No. 128, "Earnings Per Share"
(SFAS 128). SFAS 128 provides for the calculation 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. The Company has adopted this pronouncement
during the fiscal year ended December 31, 1997 and it had
no effect on loss per share.
For the year ended December 31, 1998, potential common
stock representing 194,188 outstanding stock options and
372,074 outstanding warrants are not included since their
effect would be anti-dilutive. For the year ended
December 31, 1997, potential common stock representing
164,188 outstanding stock options and 447,264 outstanding
warrants are not included since their effect would be
anti-dilutive.
STATEMENT OF CASH For purposes of the statement of cash flows, the Company
FLOWS considers all highly liquid debt instruments with an
original maturity of three months or less to be cash
equivalents.
F-11
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
SEASONALITY OF Because of the seasonal nature of tourist traffic,
BUSINESS attendance patterns at attractions may vary. The nature
and degree of this seasonality varies 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 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.
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 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.
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" establishes
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
periodically reviews such assets for possible impairment
and expected losses, if any, are recorded currently.
NEW ACCOUNTING In June 1997, the Financial Accounting Standards Board
PRONOUNCEMENTS issued Statement No. 130, "Reporting Comprehensive
Income." Statement No. 130 establishes standards for the
reporting and display of comprehensive income and its
components in the full set of financial statements, and
does not address recognition or measurement of
comprehensive income and its components. The adoption of
this Statement had no material effect on the financial
statements.
F-12
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
NEW ACCOUNTING Also in June 1997, the Financial Accounting Standards
PRONOUNCEMENTS Board issued Statement No. 131, "Disclosures about
(CONTINUED) Segments of an Enterprise and Related Information."
Statement No. 131 establishes standards for the reporting
of financial information from operating segments in annual
and interim financial statements. This Statement requires
that financial information be reported on the basis that
it is reported internally for evaluating segment
performance and deciding how to allocate resources to
segments. Because the Company is in a single line of
business, it was not affected by the adoption of this
Statement.
In June 1998, the Financial Accounting Standards Board
issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which is required to
be adopted in years beginning after June 15, 1999.
Because of the Company does not use derivatives,
instruments or hedging activities, management does not
anticipate that the adoption of the new Statement will
have a material effect on earnings or the financial
position of the Company.
F-13
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF The accompanying consolidated financial statements have
PRESENTATION been prepared assuming that the Company will continue
as a going concern which contemplates the realization
of assets and the satisfaction of liabilities in the
normal course of business. The carrying amounts of
assets and liabilities presented in the financial
statements do not purport to represent realizable or
settlement values. However, the Company has suffered
recurring operating losses and, at December 31, 1998,
has a working capital deficit that impairs its ability
to obtain additional financing. These factors raise
substantial doubt about the Company's ability to
continue as a going concern.
The Company intends to manage short-term liquidity
concerns through the renegotiation of the terms of the
Note Payable to Lender and a line of credit provided by
its Chief Executive Officer. See Notes 9 and 15. The
Company believes that its past efforts to improve and
utilize its operating efficiencies will reduce its
expenses and result in higher cash flows from
operations. The Company believes that the additional
financing and the modified financing arrangement will
provide funding and improve working capital necessary
to open new locations or to enter into additional joint
venture agreements which management believes will
significantly improve the Company's operating results.
There can be no assurance, however, that the Company
will be able to open new locations, enter into
additional joint venture agreements and realize any
benefit from improved operating efficiencies that will
result in higher cash flows provided by operations.
In addition, the Company is continuing its efforts to
secure working capital for operations, expansion and
possible acquisitions, mergers, joint ventures, and/or
other business combinations. However, there can be no
assurance that the Company will be able to secure
additional capital, or that if such capital is
available, whether the terms or conditions would be
acceptable to the Company.
2. RECEIVABLES FROM During the year ended December 31, 1995, the Company
OFFICERS AND made a loan to its Chief Operating Officer in the
CONSULTING amount of $50,000. The note was secured by the higher
AGREEMENT of 5,000 shares of the Company's common stock held by
officer or the number of shares equivalent to the
unpaid value of the note. On February 1, 1997, the
Company's Chief Operating Officer resigned and agreed
to be available to the Company on a consulting basis
for the period between February 1, 1997 and September
30, 1997. Additionally, he agreed to be available to
the Company on a limited consulting basis for the five
years following September 30, 1997 in consideration for
the release from one fifth each year, of the balance on
his loan to the Company and the waiver of accrued and
future interest on the unpaid balance.
F-14
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. RECEIVABLES FROM The Company is amortizing the balance of the consulting
OFFICERS AND agreement over the period of the consulting contract.
CONSULTING As of September 30, 1997, $51,021 was transferred from
AGREEMENT receivables from officers to consulting agreement. The
(CONTINUED) balance of the remaining unamortized consulting
agreement at December 31, 1998 and 1997 are $39,016 and
$49,420, respectively.
During the year ended December 31, 1995, the Company
also made a loan to its Chief Executive Officer in the
amount of $50,000. The loan bears interest at 8% per
year and the maturity date was extended from June 30,
1998 to June 30, 2001. On January 29, 1998, the
Company made an additional loan to its Chief Executive
Officer in the amount of $35,000. The loan bears
interest at a rate of 8.5% per year and is due on the
earlier of June 30, 2001 or six months after the
officer ceases to be an employee of the Company. As of
December 31, 1998 and 1997, the receivable balances due
from this officer were $89,631 and $47,462,
respectively, and included accrued interest of $14,631
and $7,492, respectively. (See Note 15)
3. INVESTMENT IN On May 29, 1998, the Company entered into a three-year
JOINT VENTURE joint venture agreement with Dave & Buster's, Inc., to
install the Company's 3-D motion simulation theater at
Dave & Buster's, Inc. Atlanta facility. The Company
was responsible for the transportation and installation
of the theater. As of November 11, 1998, the Company
incurred $95,924 in transportation and installation
costs relating to this facility in addition to $367,683
in equipment costs. Management does not expect any
additional expenditures relating to the installation of
this facility. Dave and Buster's, Inc., was
responsible for providing the space in its Atlanta
facility and preparing the premises for installation.
The venture agreement can be terminated earlier by
either party if, among other things, certain sales and
cash flow goals are not met. The installation was
completed and operational on September 14, 1998. The
Company accounts for its investment in joint venture
under the equity method of accounting whereby the
Company recognizes its share of the joint venture's net
income or losses and accordingly, the carrying value of
investment in joint venture in the accompanying
consolidated balance sheets is adjusted.
4. IMPAIRMENT LOSS As of December 31, 1998, the Company established a
reserve due to the uncertainty in recovering the cost
of the theater and film equipment held available for
use and disposal since these assets were not placed in
service during the year or sold. The reserve recorded
was $1,399,797 as of December 31, 1998.
F-15
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. INCOME TAXES The income tax effect of temporary differences between
financial and tax reporting gives rise to the deferred
income tax assets as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 1997
--------------------------------------------------------------
<S> <C> <C>
Loss on lease termination $ - $ 110,219
Net operating loss carryforward 2,354,906 1,947,554
--------------------------------------------------------------
2,354,906 2,057,773
Less valuation allowance (2,354,906) (2,057,773)
--------------------------------------------------------------
Net deferred tax asset $ - $ -
--------------------------------------------------------------
--------------------------------------------------------------
</TABLE>
The Company has provided a 100% valuation allowance as
it cannot determine that it is more likely than not
that it will realize the deferred tax assets. As of
December 31, 1998, for federal income tax purposes, the
Company has approximately $6,364,638 in net operating
loss carryforwards expiring through 2018. As of
December 31, 1998, for State tax purposes, the Company
has approximately $3,182,319 in net operating loss
carryforwards expiring through 2013.
6. OBLIGATIONS UNDER Minimum future lease payments under capital lease
CAPITAL LEASES obligations for equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, AMOUNT
---------------------------------------------------------
<S> <C>
1999 $ 31,656
2000 31,656
2001 31,656
2002 13,947
---------------------------------------------------------
108,915
Amount representing interest 26,926
---------------------------------------------------------
Present value of minimum lease payments $ 81,989
---------------------------------------------------------
---------------------------------------------------------
</TABLE>
At December 31, 1998, equipment included assets under
capitalized lease obligations of $139,474 less
accumulated amortization of $83,725.
7. NOTE PAYABLE TO On March 6, 1996, Cinema Ride Edmonton, Inc. obtained a
BANK $40,328 loan ($55,000 Canadian dollars) from a Canadian
bank at Canadian prime plus two percent (total interest
is 8.5% at December 31, 1998). 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, 1998 and 1997,
$10,052 and $22,144 remained unpaid on this loan.
F-16
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. NOTES PAYABLE TO During the quarter ended September 30, 1996, the
INVESTORS Company obtained loans aggregating $437,500 bearing
interest at 15% payable 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. 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.
9. NOTE PAYABLE TO On December 31, 1996, the Company closed a financing
LENDER 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 and the
original terms specified a four-year term at $40,903
per month with a balloon payment of $157,503. On March
10, 1999, the financing agreement was amended to reduce
the monthly payments from $40,903 to $21,789 and to
extend the maturity date from January 1, 2000 to
January 1, 2004, with no change in the balloon payment
of $157,503. The loan bears interest at an annual rate
of 15.7%. The financing agreement requires the Company
to repurchase the equipment at the end of the lease for
$1. The balance of the loan at December 31, 1998 and
1997 was $894,235 and $1,216,384, respectively.
Minimum future payments under note payable to Lender is
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, AMOUNT
--------------------------------------------------------
<S> <C>
1999 $ 111,386
2000 131,396
2001 155,002
2002 182,847
2003 156,101
Thereafter 157,503
--------------------------------------------------------
$ 894,235
--------------------------------------------------------
--------------------------------------------------------
</TABLE>
F-17
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. NOTE PAYABLE TO During April 1997, the Company obtained a $50,000 loan
RELATED PARTY from a related party bearing interest payable monthly
at 18% per annum with principal due in six months. The
Company paid this loan in full as of December 31, 1997.
In connection with obtaining this loan, the Company
issued 3,125 warrants at an exercise price of $2.24 per
share. The warrants were valued at $3,000 and were
charged to interest expense during 1997.
11. TIMES SQUARE The Company entered into an agreement dated October 28,
LEASE 1997 with the landlord of the Times Square Facility to
TERMINATION terminate the lease due to the intended demolition of
the existing building where the facility is located.
The agreement, among other things, required the Company
to vacate the premises by February 28, 1998 and waive
the security deposit previously made to the landlord.
In consideration, the landlord: 1) paid the Company
$500,000 upon the execution of the agreement, 2) agreed
to a rent concession for the period from April 1997
through October 1997, 3) waived its right for all
future rents following execution of the agreement to
include the months of November 1997 through February
1998, and 4) paid 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 informed the landlord on February 26, 1998 that
the Company had vacated the premises and the remaining
$500,000 payment was received on March 5, 1998.
As a result of the termination agreement, the Company
recorded a loss of $275,548 in the Consolidated
Statement of Operations for the year ending December
31, 1997 related to the impairment of signage,
equipment and moving costs. A deferred liability of
$1,490,915 was recorded in connection with the
agreement and $1,652,544 of net leasehold improvements
and equipment are included as assets to be disposed of
in the Consolidated Balance Sheet as of December 31,
1997.
F-18
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. CAPITAL STOCK In September 1994, the Company completed an initial
TRANSACTIONS public stock offering of 150,000 shares of common stock
at a price of $0.625 per share and 250,000 warrants, at
a price of $0.03 per warrant. Each warrant entitles
the holder thereof, upon exercise, to purchase one
share of common stock at a price of $0.75 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 $0.03 per warrant
if the average closing bid price for the common stock
equals or exceeds $0.87 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 its option to purchase 22,500 shares of
common stock and 37,500 redeemable warrants at the
initial public offering prices of such securities in
order to meet over-allotments in connection with the
initial public offerings.
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 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 $.63 $.52 62,500 12,690
Public Warrants .75 .62 250,000 51,960
Underwriters Warrants .63 .52 37,500 7,614
---------------------------------------------------------------------
---------------------------------------------------------------------
</TABLE>
F-19
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. CAPITAL STOCK During the year ended December 31, 1997, the Private
TRANSACTIONS Placement Warrants outstanding of 75,190 were expired.
(CONTINUED)
During the year ended December 31, 1997, the Company
issued 2,000 shares of common stock at the then fair
market values to vendors in exchange for services in
the amount of $960.
During January 1997, the Company issued 6,875 shares of
the Company's common stock to employees, including
6,250 shares to its Chief Financial Officer at the fair
market value of $0.40 per share. The Company recorded
the then fair market value of the shares as additional
compensation to the employees.
During April 1997, the Company repurchased 6,473 shares
of the Company's common stock previously issued to one
of its vendors for $29,000.
On May 29, 1998, the Board of Directors approved a 1
for 8 reverse stock split of outstanding common stock
which increased the par value from $.01 to $.08. Share
amounts presented in the consolidated financial
statements and footnotes have been restated for prior
periods to reflect the adjusted share amounts
outstanding for each period presented.
On January 21, 1998, the Company issued 6,474 shares of
common stock to its Chief Financial Officer with an
aggregate fair value of $3,107. The Company recorded
the then fair market value of the shares as additional
compensation to the employee.
13. STOCK-BASED At December 31, 1998, the Company had various stock-
COMPENSATION based compensation plans, which are described below.
PLANS
EMPLOYEE STOCK OPTION PLAN
The Company adopted a Stock Option Plan (the "Plan")
for officers, employees, directors and consultants of
the Company or its subsidiaries. The Plan authorizes
the granting of incentive stock options and non-
qualified stock options to purchase an aggregate of not
more than 112,500 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
F-20
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. STOCK-BASED EMPLOYEE STOCK OPTION PLAN (Continued)
COMPENSATION
PLANS (CONTINUED) 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 12,500 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.
OTHER OPTIONS
On April 1, 1997,the Company approved the issuance of
12,500 options to the former Chief Financial Officer at
an option price of $1.52 (repriced to $0.39 on June 18,
1998) as part of an employment agreement. The options
vest over a two year period (see Note 14).
On September 1, 1997, the Company approved the issuance
of 37,500 options to the Chief Executive Officer at an
option price of $2.00 per share (repriced to $0.43 on
June 18, 1998) as part of an employment agreement. The
options vest over a three year period (see Note 14).
During September 1998, the Company granted the Chief
Executive Officer options to purchase 25,000 shares of
common stock exercisable at $0.25 per share for a
period of five years as part of an employee agreement
(see Note 14).
F-21
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. STOCK-BASED OPTIONS ACTIVITY
COMPENSATION
PLANS (CONTINUED) On June 18, 1998, the Company's Board of Directors
approved repricing the exercise price of options
already issued under both the Company's Stock Option
Plan, Directors' Plan and other options to the then
current market value.
OPTIONS ACTIVITY
Options activity during the years ended December 31,
1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Options Price
----------------------------------------------------------------
<S> <C> <C>
Balance outstanding, January 1, 1997 113,750 $3.04
Options canceled (28,312) $3.04
Options granted 78,750 $1.92
----------------------------------------------------------------
Balance outstanding, December 31, 1997 164,188 $2.46
Options granted 30,500 $0.28
----------------------------------------------------------------
Balance outstanding, December 31, 1998 194,688 $0.40*
----------------------------------------------------------------
----------------------------------------------------------------
Options exercisable:
December 31, 1998 119,676 $0.42
----------------------------------------------------------------
----------------------------------------------------------------
</TABLE>
*Includes the effect of 164,188 options repriced in
June 1998 from a weighted average price of $2.46 to
$0.40 per share.
Information relating to stock options at December 31,
1998 summarized by exercise price are as follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
---------------------------------------- ---------------------------------
Weighted Average
Exercise Price ----------------------------- Weighted Average
Per Share Shares Life (Years) Exercise Price Shares Exercise Price
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.43 132,688 6.3 $0.43 90,192 $0.43
$0.39 37,000 7.3 $0.39 29,484 $0.39
$0.25 25,000 5.0 $0.25 - -
---------------------------------------------------------------------------------------------
$0.25 - $0.43 194,688 6.3 $0.40 119,676 $0.42
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
</TABLE>
F-22
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. STOCK-BASED All stock options issued to employees have an exercise
COMPENSATION price not less than the fair market value of the
PLANS (CONTINUED) 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, 1998 and 1997
would have been reduced to the pro forma amounts
presented below:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 1997
------------------------------------------------------
<S> <C> <C>
Net loss
As reported $(2,062,953) $(1,454,545)
Pro forma $(2,116,139) $(1,509,448)
Loss per share
As reported $ (2.82) $ (2.01)
Pro forma $ (2.89) $ (2.09)
------------------------------------------------------
------------------------------------------------------
</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 1998 and 1997, expected life of 5.9 and 7.1 years:
expected volatility of 41% and 40%, risk-free interest
rates of 6% and 8.5%, and a 0% dividend yield. The
weighted average fair value at date of grant for
options granted during 1998 and 1997 approximated $0.14
and $0.13 per option.
14. 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 and Edmonton, Canada.
An amendment of the Las Vegas Facility lease gave the
Company a rent reduction not to exceed $150,000. The
rent reduction was deducted from the monthly rent
payment until the Company had recorded $150,000 as
deferred rent and the rent is being recorded on a
straight-line basis through the expiration of lease
which is July 2004. Deferred rent at December 31, 1998
and 1997 was $109,157 and $137,617, respectively, which
also includes deferred rent on the corporate office
lease.
F-23
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. COMMITMENTS Minimum future rental payments for each of the next
(CONTINUED) five years and thereafter is as follows:
<TABLE>
<CAPTION>
YEAR ENDING Annual
DECEMBER 31, Rent
--------------------------------------------------------
<S> <C>
1999 $ 489,000
2000 438,380
2001 380,988
2002 380,988
2003 380,988
Thereafter 222,243
--------------------------------------------------------
$ 2,292,587
--------------------------------------------------------
--------------------------------------------------------
</TABLE>
Rent expense for the years ended December 31, 1998 and
1997 was $514,407 and $807,555.
Effective September 1, 1997, the Company entered into a
three-year employment agreement with its Chief
Executive Officer. 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
37,500 options exercisable at $2.00 (repriced at $0.43
per share) 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. In conjunction with the opening of the
Company's new facility in Atlanta, Georgia in September
1998 the Company granted the Chief Executive Officer a
bonus in the form of options to purchase 25,000 shares
of common stock exercisable at the fair market value of
$0.25 for a period of five years.
Effective April 1, 1997, the Company entered into a
three-year employment agreement with its Chief
Financial Officer (the "CFO"). The agreement provides
for a base salary of $120,000, annual increases of 8%,
and issuance of 12,500 options exercisable at the then
fair market value of $1.52 per share (repriced at $0.39
per share) vesting equally over the next two years.
The CFO's employment as an officer of the Company
terminated effective March 1, 1999. In conjunction
therewith, the CFO's employment agreement and severance
agreement with the Company were terminated, and the
Company agreed to pay approximately $70,000.
F-24
<PAGE>
CINEMA RIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. COMMITMENTS Effective May 13, 1998, the Company entered into
(CONTINUED) severance agreements with its executive officers that
provided for certain compensation to each such
executive officer in the event of a change in control
of the Company. The terms of the severance agreements
are through June 30, 1999, at which time they are
automatically extended for one year periods commencing
on July 1, 1999 and on each subsequent July 1, unless
the Company gives notice not later than December 31 of
the preceding year that it does not wish to extend the
severance agreements. A change in control of the
Company is defined as (a) the acquisition by any person
or entity of 20% or more of the Company's voting equity
securities, (b) a change in control of the Board of
Directors, or (c) a merger or consolidation of the
Company with any other entity, unless the shareholders
of the Company prior to the merger or consolidation
continue to represent at least 80% of the combined
voting power of the merged entity. In the event of a
change in control, among other compensation and
benefits, the severance agreements entitle each
executive officer to receive a severance payment of
five times his current annual salary.
15. SUBSEQUENT On February 2, 1999, the Company entered into a loan
EVENTS agreement with its Chief Executive Officer. The loan
agreement amends the existing notes receivable from
officer to allow the Company the right to demand
repayment within 90 days of a written request. Also,
the loan agreement includes a line of credit in the
amount of $120,000 that matures on February 2, 2002 and
bears interest at 12% per annum. The line of credit
provides a security interest in the Company's assets.
As consideration for executing this agreement, the
Company has granted the Chief Executive Officer
1,527,461 stock warrants. Each stock warrant allows
the holder the right to purchase one share of common
stock at an exercise price of $.13 per share,
representing the per share market price on the date
thereof, and expires on February 2, 2002.
On March 10, 1999, the Company renegotiated the terms
of its note payable to lender (see Note 9).
16. FOURTH QUARTER During the fourth quarter of the year ended December
ADJUSTMENT, 1998 31, 1998, the Company recorded a significant adjustment
which increased the net loss by $1,399,797. The
adjustment was to record a $1,399,797 reserve for
impairment of theater and film equipment held available
for use or disposal.
F-25
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description of Document
- ------ -----------------------
3.1 Certificate of Incorporation, as amended. (1)(P)
3.2 Bylaws of the Company. (1)(P)
10.1 Cinema Ride, Inc. Stock Option Plan. (1)(P)(C)
10.2 Equipment lease between the Company and Sign Systems dated April 6,
1995. (2)(P)
10.3 Lease between the Company and Forum Developers Limited Partnership
dated July 2, 1993. (1)(P)
10.4 Amendment to lease between the Company and Forum Developers Limited
Partnership dated May 18, 1993. (1)(P)
10.5 Third lease amendment between the Company and Forum Developers Limited
Partnership dated July 27, 1994. (1)(P)
10.6 Fourth lease amendment between the Company and Forum Developers Limited
Partnership dated December 30, 1995. (2)(P)
10.7 Form of Promissory Note and Security Agreement (stock pledge) of
Mitchell J. Francis dated July 5, 1995. (3)(P)
10.8 Standard Office Lease - Gross between the Company and WFC Ventures L.P.
dated March 21, 1995. (3)(P)
10.9 First Lease Amendment between the Company and WFC Ventures L.P. dated
April 15, 1995. (3)(P)
10.10 Lease between the Company and West Edmonton Mall Property Inc. dated
July 17, 1995. (3)(P)
10.11 Amendment to lease between the Company and West Edmonton Mall Property
Inc. dated April 7, 1998.
10.12 Master Equipment Lease Agreement between the Company and Finova
Technology Finance, Inc. dated December 12, 1996. (4)
10.13 Amendment to Master Equipment Lease Agreement between the Company and
Finova Technology Finance, Inc. dated March 10, 1999.
10.14 Form of employment agreement with Mitchell J. Francis dated
September 1, 1997. (5)(C)
10.15 Stipulation and consent judgement between the Company and Three Times
Square Center Partners, L.P. dated October 28, 1997. (5)
10.16 Joint Venture Agreement with Dave & Buster's, Inc. dated May 29, 1998.
10.17 Loan Agreement between the Company and Mitchell J. Francis dated
February 2, 1999.
10.18 1995 Directors Stock Option Plan. (C)
10.19 Warrant expiring February 2, 2002 to Mitchell J. Francis
21 Subsidiaries of the Registrant.
27 Financial Data Schedule. (E)
- -----------------------
(1) Previously filed as an Exhibit to the Company's Registration Statement
on Form SB-2, and incorporated herein by reference.
<PAGE>
(2) Previously filed as an Exhibit to the Company's Quarterly Report on
Form 10-QSB for the quarterly period ended March 31, 1995, and
incorporated herein by reference.
(4) Previously filed as an Exhibit to the Company's Quarterly Report on
Form 10-QSB for the quarterly period ended June 30, 1995, and
incorporated herein by reference.
(5) Previously filed as an Exhibit to the Company's Current Report on Form
8-K filed on January 28, 1997, and incorporated herein by reference.
(P) Indicates that the document was originally filed with the Securities
and Exchange Commission in paper form and that there have been no
changes or amendments to the document which would require filing of the
document electronically with this Annual Report on Form 10-KSB.
(C) Indicates compensatory plan, agreement or arrangement.
(E) Indicates electronic filing only.
<PAGE>
Exhibit 10.11
WEST EDMONTON MALL
7 April 1998
Cinema Ride
12001 Venture Place
Suite 340
Studio City, California
USA 91604
ATTENTION: MR. MITCH FRANCIS
RE: CINEMA RIDE UNIT Q135 WEST EDMONTON MALL
Dear Mr. Francis,
Further to our conversation of yesterday please sign below and return to me
your acceptance of the following rental deal;
Effective January 1, 1998 and until the end of your lease term your gross
rent will be $5,250.00 per month plus GST. Percentage rent of 20% plus GST
is also due for sales over $400,000.00 per annum. For the calculation of
your percentage rent your lease year shall be January 1 to December 31. All
other terms and conditions of your lease shall remain unchanged.
Sincerely,
/s/ Mark Crisp
Mark Crisp
West Edmonton Mall Property Inc.
SIGNED /s/ Mitch Francis
------------------------
DATED 4/13/98
------------------------
<PAGE>
Exhibit 10.13
MODIFICATION AGREEMENT AND WAIVER OF DEFAULTS
THIS MODIFICATION AGREEMENT AND WAIVER OF DEFAULTS (this "Agreement")
dated as of March 10, 1999 is made by and between Cinema Ride, Inc.
("Lessee") and FINOVA Capital Corporation, a Delaware Corporation, as
Successor in interest to FINOVA TECHNOLOGY FINANCE INC. ("Lessor").
WHEREAS, Lessee and Lessor have entered into that certain Master
Equipment Lease designated no. S619001 dated as of December 12, 1996 and
Rental Schedule No. 1 dated as of December 26, 1996 (the "Lease"). The
Lease, together with all other agreements, instruments and other documents
executed or otherwise delivered in connection therewith are defined herein as
the "Lease Documents"; and
WHEREAS, Lessee has defaulted in its obligations to Lessor by failing to
pay to Lessor the payments which were due for January 1999, February 1999 and
March 1999 (the "Defaults") and Lessee has requested that Lessor modify the
Lease and waive the Defaults, and Lessor has agreed to modify the Lease and
waive the Defaults on the conditions set forth below.
NOW THEREFORE, in consideration of the foregoing, the parties agree as
follows:
1. ESTOPPEL WITH RESPECT TO OUTSTANDING INDEBTEDNESS. Lessee hereby
acknowledges, confirms and agrees that through and including the date of this
Agreement, the following amounts are due and owing to Lessor pursuant to the
Lease: underlying unpaid obligation in the amount of $1,285,537 50, open
delinquent payments due on January 1, 1999, February 1, 1999 and March 1,
1999 in the aggregate amount of $122,710.35 (collectively, tile "Delinquent
Amounts") and Lessee acknowledges that Lessee's failure to have paid tile
Delinquent Amounts constitutes an Event of Default under the Lease. Lessee
hereby acknowledges, confirms and agrees that as of the date hereof, the
Lease Documents are in full force and effect and represent the valid, legal
and binding obligations of Lessee to Lessor.
2. MODIFICATION OF LEASE AND WAIVER OF DEFAULT. Subject to the
satisfaction of the conditions precedent contained in Section 3 herein,
Lessor hereby waives the Defaults referred to above. Furthermore, subject to
the satisfaction of the conditions precedent contained in Section 3 herein,
the Lease shall be modified to provide that as of January 1, 1999, the
monthly rental payments shall be reduced to $21,788.77 (exclusive of
applicable taxes) according to the amortization schedule attached hereto and
incorporated by reference herein as Exhibit "A." A final balloon payment
shall be due to Lessor on January 1, 2004 in the amount of $157,502.69.
Lessee acknowledges that except to the extent expressly modified in this
Agreement, all provisions of the Lease Documents are and shall remain and be
in full force and effect as to any and all actions and transactions entered
into by or on behalf of Lessee at any time on or prior to the date hereof, or
at any time subsequent to the date hereof. Lessee further acknowledges that
Lessor reserves its rights to declare defaults other than the Defaults
referred to above to the extent Lessee defaults under the terms of this
Agreement or the Lease.
1
<PAGE>
3. CONDITIONS PRECEDENT TO WAIVER. The agreement to modify the Lease
and waive Defaults contained herein is subject to the satisfaction, in
Lessor's sole and absolute discretion, of the following conditions precedent:
a. Lessee shall pay to Lessor all fees, costs and expenses
incurred by Lessor in connection with this Agreement on or before the
execution of this Agreement;
b. Lessee shall pay to Lessor on or before March 31, 1999 the
modified payments in the amount of $21,788.77 each of which is due under the
Lease on January 1, 1999, February 1, 1999 and March 1, 1999 in the aggregate
amount of $63,366.31.
c. Lessee shall sign all documents and financing statements
reasonably required by Lessor to perfect Lessor's security interests in tile
equipment subject to the Lease resulting from Lessee's relocation of same.
4. AFFIRMATIONS. Lessee hereby unconditionally and irrevocably
confirms, reaffirms, ratifies and agrees that all of Lessee's obligations and
liabilities to Lessor remain in full force and effect as the legally binding
and enforceable obligations and liabilities of Lessee.
5. WAIVER OF CLAIMS. Lessee irrevocably acknowledges, agrees and
affirms that it possesses no claims, defenses, offsets, recoupment or
counterclaims of any kind or nature against or with respect to the
enforcement of this Agreement or any of the Lease Documents (collectively,
the "Claims") nor does Lessee now have knowledge of any facts that would or
might give rise to any Claims. If facts now exist which would or could give
rise to any Claim against or with respect to the enforcement of this
Agreement and/or any of the Lease Documents, Lessee hereby unconditionally,
irrevocably and unequivocally waives and fully releases any and all such
Claims as if such Claims were the subject of a lawsuit, adjudicated to final
judgment from which no appeal could be taken, and therein dismissed with
prejudice. Lessee irrevocably acknowledges, agrees and affirms that Lessor's
waiver does not create nor shall be deemed to create any reliance or
expectation on the part of Lessee, or any course of dealing between Lessor
and Lessee, pursuant to which Lessor would be obligated to continue to waive
defaults under the Lease Documents other than the Defaults, except as
expressly set forth in this Agreement.
6. COUNTERPARTS/FACSIMILE COPIES. This Agreement may be executed in
counterparts, each of which shall constitute an original hereof and all of
which together shall constitute one Agreement. The parties to this Agreement
hereby agree that an executed facsimile of this Agreement shall constitute a
legally binding original copy.
7. MISCELLANEOUS.
a. The recitals set forth above are material, are incorporated
herein by this reference and shall be construed consistent with such recitals.
b. This Agreement constitutes the entire agreement of the parties
concerning the subject matter hereof and it shall not be modified or amended
except by written consent of the parties.
2
<PAGE>
c. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Connecticut.
IN WITNESS WHEREOF the parties hereto have signed this Agreement or have
caused this Agreement to be signed on their respective behalves by their duly
authorized officers, as applicable, all as of the date and year first above
written.
CINEMA RIDE, INC.
By: /s/ Mitch Francis
-------------------------
Name: Mitch Francis
------------------------
Its: President
------------------------
FINOVA CAPITAL CORPORATION, as successor in
interest to FINOVA TECHNOLOGY FINANCE, INC.
By: /s/ Pamela Merchant
------------------------
Name: Pamela Merchant
------------------------
Its: Vice President
------------------------
3
<PAGE>
<TABLE>
<CAPTION>
Receivable unearned
pmt Balloon Balance Int balance prin bal
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1/1/97 1,963,365.60 545,842.55 1,575,026.88
1 2/1/97 81,806.90 1,881,558.70 545,841.41 81,806.90 1,493,219.98
2 3/1/97 40,903.45 1,840,655.25 19,456.38 526,386.17 21,447.07 1,471,772.91
3 4/1/97 40,903.45 1,799,751.80 19,176.92 507,209.25 21,726.53 1,450,046.38
4 5/1/97 40,903.45 1,758,848.35 18,893.83 488,315.42 22,009.62 1,428,036.76
5 6/1/97 40,903.45 1,717,944.90 18,607.05 469,708.37 22,296.40 1,405,740.36
6 7/1/97 40,903.45 1,677,041.45 18,316.53 451,391.83 22,586.92 1,383,153.45
7 8/1/97 40,903.45 1,636,138.00 18,022.23 433,369.60 22,881.22 1,360,272.23
8 9/1/97 40,903.45 1,595,234.55 17,724.09 415,645.51 23,179.36 1,337,092.87
9 10/1/97 40,903.45 1,554,331.10 17,422.07 398,223.44 23,481.38 1,313,611.49
10 11/1/97 40,903.45 1,513,427.65 17,116.11 381,107.33 23,787.34 1,289,824.15
11 12/1/97 40,903.45 1,472,524.20 16,806.17 364,301.17 24,097.28 1,265,726.87
12 1/1/98 40,903.45 1,431,620.75 16,492.18 347,808.98 24,411.27 1,241,315.60
13 2/1/98 40,903.45 1,390,717.30 16,174.11 331,634.87 24,729.34 1,216,586.26
14 3/1/98 40,903.45 1,349,813.85 15,851.89 315,782.98 25,051.56 1,191,534.70
15 4/1/98 40,903.45 1,308,910.40 15,525.47 300,257.51 25,377.98 1,166,156.72
16 5/1/98 40,903.45 1,268,006.95 15,194.80 285,062.70 25,708.65 1,140,448.08
17 6/1/98 40,903.45 1,227,103.50 14,859.82 270,202.88 26,043.63 1,114,404.45
18 7/1/98 40,903.45 1,186,200.05 14,520.48 255,682.40 26,382.97 1,088,021.48
19 8/1/98 40,903.45 1,145,296.60 14,176.72 241,505.68 26,726.73 1,061,294.75
20 9/1/98 40,903.45 1,104,393.15 13,828.47 227,677.21 27,074.98 1,034,219.77
21 10/1/98 40,903.45 1,063,489.70 13,475.69 214.201.52 27,427.76 1,006,792.01
22 11/1/98 40,903.45 1,022,586.25 13,118.31 201,083.21 27,785.14 979,006.87
23 12/1/98 40,903.45 1,307,326.28 13,572.11 588,289.62 27,331.34 951,675.53
24 1 1/1/99 21,788.77 1,285,537.50 13,193.22 499,960.22 8,595.55 943,079.98
25 2 2/1/99 21,788.77 1,263,748.73 13,074.06 486,886.16 8,714.72 934,365.26
26 3 3/1/99 21,788.77 1,241,959.96 12,953.24 473,932.92 8,835.53 925,529.73
27 4 4/1/99 21,788.77 1,220,171.19 12,830.75 461,102.17 8,958.02 916,571.72
28 5 5/1/99 21,788.77 1,198,382.42 12,706.57 448,395.60 9,082.20 907,489.51
29 6 6/1/99 21,788.77 1,176,593.65 12,580.66 435,814.94 9,208.11 898,281.40
30 7 7/1/99 21,788.77 1,154,804.88 12,453.01 423,361.93 9,335.77 888,945.63
31 8 8/1/99 21,788.77 1,133,016.11 12,323.58 411,038.35 9,465.19 879,480.45
32 9 9/1/99 21,788.77 1,111,227.33 12,192.37 398,845.99 9,596.41 869,884.04
33 10 10/1/99 21,788.77 1,089,438.56 12,059.33 386,786.66 9,729.44 860,154.60
34 11 11/1/99 21,788.77 1,067,649.79 11,924.45 374,862.21 9,864.32 850,290.28
35 12 12/1/99 21,788.77 1,045,861.02 11,787.70 363,074.51 10,001.07 840,289.20
36 13 1/1/00 21,788.77 1,024,072.25 11,649.05 351,425.46 10,139.72 830,149.48
37 14 2/1/00 21,788.77 1,002,283.48 11,508.48 339,916.98 10,280.29 819,869.19
38 15 3/1/00 21,788.77 980,494.71 11,365.97 328,551.01 10,422.81 809,446.39
39 16 4/1/00 21,788.77 958,705.94 11,221.47 317,329.54 10,567.30 798,879.09
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Receivable unearned
pmt Balloon Balance Int balance prin bal
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
40 17 5/1/00 21,788.77 936,917.16 11,074.98 306,254.56 10,713.79 788,165.30
41 18 6/1/00 21,788.77 915,128.39 10,926.45 295,328.11 10,862.32 777,302.98
42 19 7/1/00 21,788.77 893,339.62 10,775.86 284,552.24 11,012.91 766,290.07
43 20 8/1/00 21,788.77 871,550.85 10,623.19 273,929.05 11,165.58 755,124.49
44 21 9/1/00 21,788.77 849,762.08 10,468.40 263,460.65 11,320.37 743,804.12
45 22 10/1/00 21,788.77 827,973.31 10,311.46 253,149.19 11,477.31 732,326.81
46 23 11/1/00 21,788.77 806,184.54 10,152.35 242,996.83 11,636.42 720,690.39
47 24 12/1/00 21,788.77 784,395.77 9,991.04 233,005.80 11,797.74 708,892.66
48 25 1/1/01 21,788.77 762,606.99 9,827.48 223,178.32 11,961.29 696,931.37
49 26 2/1/01 21,788.77 740,818.22 9,661.66 213,516.66 12,127.11 684,804.26
50 27 3/1/01 21,788.77 719,029.45 9493.54 204,023.11 12,295.23 672,509.03
51 28 4/1/01 21,788.77 697,240.68 9,323.09 194,700.02 12,465.68 660,043.35
52 29 5/1/01 21,788.77 675,451.91 9,150.28 185,549.75 12,638.49 647,404.85
53 30 6/1/01 21,788.77 653,663.14 8,975.07 176,574.68 12,813.70 634,591.15
54 31 7/1/01 21,788.77 631,874.37 8,797.43 167,777.25 12,991.34 621,599.81
55 32 8/1/01 21,788.77 610,085.60 8,617.33 159,159.92 13,171.44 608,428.37
56 33 9/1/01 21,788.77 588,296.82 8,434.73 150,725.19 13,354.04 595,074.33
57 34 10/1/01 21,788.77 566,508.05 8,249.60 142,475.59 13,539.17 581,535.16
58 35 11/1/01 21,788.77 544,719.28 8,061.91 134,413.68 13,726.86 567,808.29
59 36 12/1/01 21,788.77 522,930.51 7,871.61 126,542.07 13,917.16 553,891.13
60 37 1/1/02 21,788.77 501,141.74 7,678.67 118,863.40 14,110.10 539,781.03
61 38 2/1/02 21,788.77 479,352.97 7,483.06 111,380.34 14,305.71 525,475.32
62 39 3/1/02 21,788.77 457,564.20 7,284.74 104,095.59 14,504.03 510,971.29
63 40 4/1/02 21,788.77 435,775.43 7.083.67 97,011.92 14,705.10 496,266.19
64 41 5/1/02 21,788.77 413,986.65 6,879.81 90,132.11 14,908.96 481,357.23
65 42 6/1/02 21,788.77 392,197.88 6,673.13 83,458.99 15,115.65 466,241.59
66 43 7/1/02 21,788.77 370,409.11 6,463.58 76,995.41 15,325.20 450,916.39
67 44 8/1/02 21,788.77 348,620.34 6,251.12 70,744.29 15,537.65 435,378.74
68 45 9/1/02 21,788.77 326,831.57 6,035.72 64,708.58 15,753.05 419,625.69
69 46 10/1/02 21,788.77 305,042.80 5,817.33 58,891.24 15,971.44 403,654.25
70 47 11/1/02 21,788.77 283,254.03 5,595.92 53,295.33 16,192.85 387,461.39
71 48 12/1/02 21,788.77 261,465.26 5,371.43 47,923.89 16,417.34 371,044.05
72 49 1/1/03 21,788.77 239,676.48 5,143.84 42,780.05 16,644.93 354,399.12
73 50 2/1/03 21,788.77 217,887.71 4,913.09 37,866.97 16,875.68 337,523.44
74 51 3/1/03 21,788.77 196,098.94 4,679.14 33,187.83 17,109.63 320.413.80
75 52 4/1/03 21,788.77 174,310.17 4,441.94 28,745.89 17,346.83 303,066.97
76 53 5/1/03 21,788.77 152,521.40 4,201.46 24,544.43 17,587.31 285,479.66
77 54 6/1/03 21,788.77 130,732.63 3,957.65 20,586.78 17,831.13 267,648.54
78 55 7/1/03 21,788.77 108,943.86 3,710.45 16,876.33 18,078.32 249,570.22
79 56 8/1/03 21,788.77 87,155.09 3,459.83 13.416.50 18,328.94 231,241.28
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Receivable unearned
pmt Balloon Balance Int balance prin bal
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
80 57 9/1/03 21,788.77 65,366.31 3,205.73 10,210.77 18,583.04 212,658.24
81 58 10/1/03 21,788.77 43,577.54 2,948.11 7,262.66 18,840.66 193,817.58
82 59 11/1/03 21,788.77 21,788.77 2,686.92 4,575.74 19,101.85 174,715.73
83 60 12/1/03 21,788.77 - 2,422.11 2,153.63 19,366.66 155,349.07
84 1/1/04 157,502.69 - 2,153.63 (0.00) 155,349.07 (0.00)
</TABLE>
6
<PAGE>
Exhibit 10.16
JOINT VENTURE AGREEMENT
This Joint Venture Agreement ("Agreement") is entered into and is
effective as of May 29, 1998 by and between Cinema Ride, Inc. ("CR") and Dave
& Buster's, Inc. ("D&B").
WHEREAS, CR has developed a location-based entertainment attraction
known as Cinema Ride ("Cinema Ride"); and
WHEREAS, CR is the owner and/or exclusive licensor in the United States
of the entire right, title and interest to the Cinema Ride and its component
parts for utilization in connection with retail entertainment environments;
and
WHEREAS, D&B owns and operates an entertainment center in Atlanta,
Georgia known as "Dave & Buster's" ("Facility"); and
WHEREAS, D&B and CR desire to form a joint venture to install and
operate a Cinema Ride in the existing "Dave & Buster's" entertainment center
in the Facility ("Installation").
NOW THEREFORE, it is agreed as follows:
ARTICLE I
FORMATION OF JOINT VENTURE
1. The parties desire to constitute themselves a joint venture for the
purposes and upon the terms, covenants and conditions hereinafter set forth
(herein the "Venture"). The parties hereto are herein sometimes collectively
referred to as the "Venturers" and individually referred to as a "Venturer".
2. The name of the Venture is the "D&B/CR - Atlanta Joint Venture" and
all business done or undertaken by the Venture shall be done and conducted
under said name and style, except that the Installation shall be operated
publicly under the trade name "Cinema Ride at Dave & Buster's".
3. The principal place of business of the Venture shall be such place
or places as the Venturers shall from time to time mutually determine. Until
changed by the Venturers,, the principal place of business shall be at the
Facility (defined below), except that the books and records of the Venture
may be kept at the offices of D&B in Dallas, TX.
4. The business of the Venture shall be limited to the installation
and operation of the Installation in the Facility and all business necessary
and related thereto.
ARTICLE II
CAPITAL CONTRIBUTIONS
1. D&B and CR shall each contribute $100.00 as their respective
initial capital contributions to the Venture.
<PAGE>
2. Should additional funds be required by the Venture as provided in
Paragraph 5 of Article VI, each Venturer shall contribute its share, if any,
of such cash requirements as determined in accordance with Paragraph 5 of
Article VI promptly upon written demand of the other Venturer.
3. Neither Venturer shall have the right or power to (a) withdraw or
reduce its capital contributions, except as a result of the dissolution of
the Venture or as otherwise provided by law; (b) bring an action for
partition against the Venture or the Installation; (c) cause the termination
and dissolution of the Venture, except as set forth in the Agreement; or (d)
demand or receive property other than cash in return for its capital
contributions. Except as expressly provided in Article VI, neither Venturer
shall have priority over the other for the return of capital contributions.
No interest shall be payable on the contributions of the Venturers.
ARTICLE III
RESPONSIBILITIES OF VENTURERS
1. In addition to its capital contributions to the Venture pursuant to
Paragraphs 1 and 2 of the Article II:
a) D&B will perform or provide the following for the Venture, at
its sole expense except as otherwise specifically provided herein:
1) Provide the space in the Facility for the Installation
(the "Premises") and all management staff, rent, property insurance, real
estate taxes, utilities, and maintenance for the Premises;
2) Prepare the Premises for the Installation in accordance
with CR guidelines, but both parties will have mutual approval rights for the
design of the Installation, including the installation and cost of those
items set forth on Exhibit A hereto.
3) Provide input into the marketing, operations, theming and
staffing issues as they arise; and
4) Act as the "managing venturer" of the Venture and as such
maintain all books and records of the Venture and prepare and be responsible
for all Federal, state and local tax and information filings on behalf of the
Venture. D&B shall provide CR duplicate copies of monthly bookkeeping and
weekly debit card summaries for the Cinema Ride at the end of each month.
b) D&B will perform or provide the following for the Venture, the
costs of which shall be recovered by D&B as "Direct Operating Costs" or
"Major One-Time Costs" subject to and as provided in Paragraphs 3(a) and
3(b)of Article VI:
1) Operate the Installation on a day-to-day basis,
including, but not limited to, providing personnel, training, advertising and
promotion (in amounts as agreed by the parties), appropriate property
insurance (but only for any property owned by the Venture; D&B shall provide
insurance on the Premises at its own expense, CR shall provide insurance on
the
2
<PAGE>
Equipment at its own expense and each party shall name the other party on its
liability insurance policy), and maintaining the Installation in a clean,
orderly and safe manner; and
2) Pay for expendables, ticket stock, etc. and any direct
marketing expenses for the attraction; and
3) Apply for, and diligently attempt to obtain, all
necessary federal, state and local governmental consents, permits or licenses
which may be necessary for D&B to install and carry on the operation of the
Installation in the Premises.
With respect to advertising and promotion the parties agree that there
will be initial, dedicated advertising and promotion expenditures in an
amount to be agreed upon, which may be higher than 5% of first year Venture
revenues, but thereafter ongoing advertising and promotion expenditures will
not exceed 5% of Venture revenue annually, unless otherwise agreed by both
parties.
2. In addition to its capital contributions to the Venture pursuant to
Paragraphs 1 and 2 of Article II, CR will perform or provide the following to
the Venture at its expense except as otherwise specifically provided herein:
a) Manufacture, ship and install at the Premises the Cinema Ride
equipment package including signage and props (the "Equipment"), as specified
on Exhibit B hereto, with signage and props subject to D&B's approval, which
approval will not be unreasonably withheld.
b) Provide on-site training for the personnel at the Facility.
CR should be responsible for directing the repair and maintenance of the
Equipment (other than routine maintenance and repair by the on-site staff);
however, the Venture will bear the expense, subject to the approval of D&B,
which will not be unreasonably withheld. All work shall be performed by
qualified technicians who receive authorization from CR, and who will be
local service companies, not affiliated in any way with CR;
c) Maintain the Equipment in timely fashion;
d) Provide a non-exclusive license for use of the Cinema Ride and
any related trademarks at the Installation;
e) Provide one copy of the current Operations Manual, and a copy
of all additions, revisions, modifications, updates and addenda to such
manual as deemed appropriate in CR's sole discretion (the "Manual"). D&B
agrees that the Manual contains confidential information and "Trade Secrets"
subject to Paragraph 7 of Article IX of this Agreement and, in its entirety,
constitutes a compilation of information that is not available in equivalent
form to the general public. CR is the exclusive owner of all property and
proprietary rights to the information revealed in the Manual and to the
Manual itself. D&B agrees not to disclose the Manual to any person (i)
except to employees and agents of D&B and the Venture for purposes related
solely to the operation of the Installation and (ii) except as provided in
Paragraph 7 of Article IX; nor shall D&B use, reprint or reproduce the Manual
other than as expressly authorized by CR hereunder.
3
<PAGE>
f) Provide input into the design, marketing, operations, theming
and staffing issues as they arise and on-going service and marketing support.
3. a) CR will provide to the Venture any written or verbal
warranties it receives on any part of the Equipment from a manufacturer, but
CR makes no other warranty with respect to any part of the Equipment.
b) CR warrants that it has the right to license the Cinema Ride
and related trademarks to the Venture.
4. Except as expressly provided in paragraph 3 of Article VI, no
compensation, drawings, or other remuneration shall be payable by the Venture
to either of the Venturers hereto, or to their respective officers, directors
and shareholders, if any.
ARTICLE IV
MANAGEMENT
1. D&B will be responsible for, and will have authority to manage, the
day-to-day operations of the Installation and the Venture so long as the
Installation is operated in accordance with the Manual.
2. Notwithstanding any contrary implication in Paragraph 1 of this
Article IV, D&B and the Venture shall not do any of the following without
CR's prior written consent:
a) Operate the Installation under any name other than "Cinema
Ride at Dave & Buster's" or use any other registered or unregistered
trademark, service mark, logo or trade or service name in connection with
operation of the Installation;
b) Use any equipment in the operation of the Installation other
than the Equipment supplied by CR; or
c) Sell merchandise and other products which relate to the
Installation or the Cinema Ride (the "Merchandise") not purchased by the
Venture from CR or a third party licensed by CR to produce and sell such
Merchandise.
3. Notwithstanding anything to the contrary, the following actions of
the Venture shall require the consent of both Venturers:
a) Incurring any "Major One-Time Costs" (as hereinafter defined);
b) The sale, exchange, lease, mortgage, pledge, or other transfer
of all or a substantial part of the assets of the Venture (it being
acknowledged that CR leases the Equipment and conveys a lien thereon to the
lessor);
c) The incurrence of indebtedness by the Venture, other than
simple credit transactions;
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<PAGE>
d) A change in the sole nature of the Venture's business as
identified in paragraph 4 of Article I;
e) The admission of additional Venturers;
f) The continuation of the term of the Venture; and
g) Any amendment of this Agreement.
4. Except as to matters entered into pursuant to Paragraph 1 (b) of
Article III and Paragraph 1 of this Article IV in the ordinary course of
business of the operation of the Installation in accordance with the
requirements of said paragraphs, no contract, commitment, obligation,
liability or expense of any type shall be entered into or incurred by one
Venturer on behalf of the Venture unless such contract, commitment,
obligation or liability is approved in writing by the other Venturer. Each
Venturer shall be solely responsible for its respective individual debts and
obligations, without any right to contribution from the other Venturer in
connection with any such individual debts or obligations.
5. CR or its authorized agents and representatives shall have the
right to enter and inspect the Premises and the Installation at any time
during the term of this Agreement, and D&B shall permit and assist CR in
making all such other investigations and inspections as CR reasonably
considers to be necessary or desirable in order to ensure compliance with
CR's rules and standards for use of the Cinema Ride as set forth in the
Manual.
ARTICLE V
ADVERTISING AND PROMOTION
1. D&B will generally be responsible for creating and placing all
advertising and promotion on behalf of the Installation and the Venture. D&B
agrees that all use of any registered or unregistered trademarks, service
marks or trade or service names of CR or its licensors or affiliated, in any
advertising or promotional materials (in whatever medium), shall be subject
to the prior written approval of CR, which approval shall not be unreasonably
withheld. Any advertising and promotional materials supplied by CR or
previously approved by CR shall be deemed approved.
2. CR may from time to time create or place, or both create and place,
advertising or promotion for the Cinema Ride that includes the Installation
and the Venture. CR agrees that all use of any registered or unregistered
trademarks, service marks, logos, or trade or service names or marks of D&B
or its affiliated, in any advertising or promotional materials (in whatever
medium) for the Cinema Ride, shall be subject to the prior written approval
of D&B, which approval shall not be unreasonably withheld. Any advertising
and promotional materials supplied by D&B or previously approved by D&B shall
be deemed approved.
3. Notices of copyright, trademark usage, trademark registration or
other proprietary rights, notices or designations and credits shall be
included in all advertising and promotional materials as reasonably required
by either party in writing from time to time on materials disseminated by or
on behalf of the Venture using CR's or its licensor's marks or as required by
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<PAGE>
D&B in writing from time to time on materials disseminated by or on behalf of
CR using D&B's marks.
ARTICLE VI
CASH DISTRIBUTIONS
1. The following terms are used in the Agreement with the following
definitions:
a) "Gross Revenue" means the aggregate of all sales or other
income from whatever source received by the Venture, or either of the
Venturers, arising from the operation of the Installation, but excluding any
sales and use taxes actually collected and paid to the governmental taxing
authority. For parties and special events involving the Installation and
other parts of the Facility, the amount to be included in Gross Revenue will
be the party prices in effect for the Installation at such time.
b) "Direct Operating Costs" means only the following direct cash
expenses incurred by the Venture, or D&B on behalf of the Venture, in the
course of operation of the Installation: Salaries, payroll taxes and fringe
benefits (but excluding profit sharing plans and bonuses not based
specifically upon performance at the Installation) of personnel while working
exclusively for the Installation; advertising relating exclusively to the
Installation and for pro-rated costs of advertising shared with other
operations in the Facility; cost of merchandise sold; and miscellaneous
direct, out-of-pocket costs of operation of the Installation such as
supplies. In no event, however, shall "Direct Operating Costs" recoverable
by D&B include any overhead or profit of D&B, occupancy costs of the Premises
(other than percentage rent on revenues of the CR if payable to D&B's
landlord), "Major One-Time Costs" (as defined below) or any other cost not
reflecting direct cash expenses attributable to the operation of the
Installation.
c) "Major One-Time Costs" means significant, nonrecurring
expenses incurred outside the ordinary course of the business of the Venture,
but only if approved by the Venturers as required by Paragraph 3(a) of
Article IV.
2. D&B shall collect all Gross Revenue and other monies (e.g., sales
and use taxes) on behalf of the Venture. If CR receives any Gross Revenue or
other monies of the Venture, it shall promptly pay it over to D&B. D&B shall
also pay all Direct Operating Costs and Major One-Time Costs on behalf of the
Venture out of Gross Revenue collected. If CR pays any Direct Operating
Costs or Major One-Time Costs, D&B shall reimburse CR within 45 days after
D&B's receipt of an invoice and appropriate supporting documentation out of
Gross Revenue collected. Subject to reimbursement as provided in Paragraph 3
of this Article VI, D&B shall pay any Direct Operating Costs to the extent
Gross Revenue collected is not sufficient to pay such costs, and D&B and CR
shall each pay one-half of any Major OneTime Costs approved by them to the
extent Gross Revenue collected is not sufficient to pay such costs.
3. D&B shall account to CR on a monthly basis for all Gross Revenue,
Direct Operating Costs and Major One-Time Costs, and shall apply Gross
Revenue in the following order of priority:
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<PAGE>
a) First, to pay for all Direct Operating Costs payable during
such monthly period and to reimburse D&B for any Direct Operating Costs paid
by D&B during such monthly period Or during any prior period which have not
previously been reimbursed;
b) Second, to pay for all Major One-Time Costs approved by the
Venturers payable during such monthly period and to reimburse D&B and CR for
any Major One-Time Costs approved by the Venturers paid by them during such
monthly period or during any prior period which have not previously been
reimbursed; and
c) Third, all Gross Revenue received in excess of the amounts
necessary to make the payments provided for in Paragraphs 3(a) and 3(b) of
this Article VI shall be paid 50% to CR and 50% to D&B.
4. All payments to the Venturers pursuant to this Article VI shall be
made in cash within thirty days after the end of each monthly accounting
period based upon monthly cash basis financial statements prepared by D&B
pursuant to Article XI, Section 6. Payments to the Venturers in the third
month of a fiscal quarter will reflect accrual basis accounting adjustments
recorded quarterly. Without limiting either Venturer's rights to declare a
material breach of this Agreement, if either Venturer withholds, or causes to
be withheld, any payment due the other pursuant to this Article VI without
cause, such payment shall bear interest after the due date until paid in full
at an annual rate of interest equal 125% of the United States prime rate in
effect from time to time, as published in the United States Western edition
of THE WALL STREET JOURNAL calculated and payable monthly, in arrears, both
before and after default or judgment, with interest on overdue interest at
the aforesaid rate.
5. D&B and CR shall each bear 50% of the financial loss of any Direct
Operating Costs and any Major One-Time Costs to the extent Gross Revenues are
insufficient to pay or reimburse such costs upon dissolution and liquidation
of the Venture.
6. CR shall have the right, upon giving reasonable notice to D&B, to
appoint its own auditors to undertake audits of the accounts and records of
the Venture, during normal business hours at such reasonable intervals as CR
may consider necessary. D&B agrees to provide full access to all of the
Venture's accounts and records to CR and to CR's auditors in this event.
7. D&B shall keep at the principal office of the Venture, or at its
offices located in Dallas, TX, all of the following:
a) Copies of all of the Venture's federal, state and local income
tax information returns and reports, if any, for the two most recent taxable
years;
b) Copies of this Agreement and all amendments thereto; and
c) The Venture's books and records for at least the current and
past two fiscal years.
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ARTICLE VII
TAX ALLOCATIONS
Profit, gain, loss and other tax items will be allocated to follow as
closely as possible the allocation of cash distributions between the parties
as provided in Article VI:
1. Any tax loss items shall be allocated equally between the Venturers.
2. Any tax profit or gain items shall be allocated in the following
order of priority:
a) First, pro rata between the Venturers in proportion to the
amount of any loss items previously allocated to the Venturers until the
amount allocated pursuant to this item (a) equals the amount of any items
previously allocated;
b) Second, all items of profit and gain in excess of the amounts
necessary to make the payments provided for in paragraphs 2(a) and 2 (b) of
this Article VII shall be allocated 50% to CR and 50% to D&B.
ARTICLE VIII
TERM AND TERMINATION
1. The Venture shall commence as of the effective date hereof and
shall continue thereafter until July 15, 2001 unless terminated earlier as
provided in the Article VIII (the "Term").
2. The Term of the Agreement may be terminated prior to the date
referred to in paragraph 1 of this Article VIII:
a) If both Venturers agree in writing to terminate the Venture; or
b) Upon thirty days prior written notice of termination from CR
to D&B in the event D&B fails to obtain any material governmental consent,
permit or license required for the lawful operation of the Installation,
unless D&B obtains such consent, permit or license within such 30 day period;
or
c) Upon thirty days prior written notice of termination from
either party to the other party in the event that the aggregate Gross
Revenues of the Installation fall below a total of $120,000.00 for any period
of 180 days after opening of the Installation to the public for business; or
d) Upon thirty days prior written notice of termination from
either party to the other party if aggregate Direct Operating Costs exceed
60% of aggregate Gross Revenues (if Gross Revenues are below $65,000) for any
period of three consecutive months after opening of the Installation to the
Public for business; or
e) Upon thirty days prior written notice of termination from CR
to D&B:
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<PAGE>
(i) In the event D&B breaches any material provision of this
Agreement and fails to cure such breach within five business days after
receipt of such written notice; or
(ii) In the event of repeated and significant violation of
CR's operating requirements (as outlined in Paragraph 1 of Article IV above)
by D&B after notice and opportunity to cure prior violations as provided in
subpart (i);
f) Upon thirty days prior written notice of termination from D&B
to CR:
(i) In the event CR breaches any material provision of this
Agreement and fails to cure such breach within five business days after
receipt of such written notice; or
(ii) In the event of repeated and significant failures by CR
to support the Installation as required by Paragraphs 2 and 3 of Article III
above after notice and opportunity to cure prior failures as provided in
subpart (i);
g) Immediately without notice or other action in the event of the
"withdrawal", "bankruptcy" or dissolution of either Venturer. As used
herein, the term (i) "withdrawal" of a Venturer means the voluntary
withdrawal of a Venturer from the business of the venture, which shall
constitute a material non-curable breach of this Agreement; and (ii)
"bankruptcy" includes not only the adjudication of a Venturer as bankrupt
under applicable bankruptcy laws, but also includes a Venturer's assignment
for the benefit of creditors of a substantial portion of such Venturer's
assets, the appointment of a receiver for the property or affairs of such
Venturer, or any petition for any type of relief under applicable bankruptcy
or insolvency laws which has been filed and is not vacated within 90 days
after filing.
3. CR and D&B expressly agree that "cure" of any default must include
the cessation of the defaulting conduct; correction of all factors
contributing to the occurrence of the defaulting conduct; and establishment
of such correcting measures as shall provide a reasonable basis for
concluding that the breaching Venturer will be able to perform all of its
contractual obligations in the future without default.
4. At the expiration of the Term or the effective date of any prior
termination, the Installation shall be closed to the public, the Equipment
and Manual supplied by CR and all items bearing or utilizing its trademarks
or other property rights of the Cinema Ride will be removed and returned to
CR at CR's expense (CR being responsible for any damage to the Facility
caused by such removal if CR directs the removal of its Equipment) and the
Venture shall be dissolved and its assets liquidated and the proceeds
therefrom shall be applied as follows:
a) First, to payment or provision for payment of all Venture
debts and liabilities to persons other than Venturers;
b) Second, to payment or provision for payment of any other costs
and expenses advanced by any Venturer as approved in accordance with the
provisions of this Agreement; and
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<PAGE>
c) Thereafter, any remaining cash shall be distributed to the
Venturers in accordance with the provisions of Article VI, and all remaining
assets other than cash shall be distributed to the Venturers, as tenants in
common, in the proportions in which they share in Venture cash distributions
pursuant to Article VI.
D&B shall be responsible for taking all acts and filing all documents
required to dissolve and liquidate the Venture, except that if the Venture
has been terminated pursuant to the provisions of Paragraph 2(e) of this
Article VIII or by reason of the withdrawal, bankruptcy or dissolution of
D&B, CR shall be responsible for taking all acts and filing all documents
required to dissolve and liquidate the Venture.
ARTICLE IX
INDEMNITIES
1. D&B agrees, during and after the term of this Agreement, to
indemnify and hold CR, its licensors, directors, officers, shareholders,
agents, subcontractors, employees, and its parent, subsidiary and affiliated
entities, harmless from and against any and all claims, losses, damages,
costs and expenses incurred by any such indemnified persons as a result of
any violation of this Agreement by, or any act of omission or commission on
the part of, D&B or any of its directors, officers, shareholders, agents,
subcontractors, or employees, and from all claims, damages, suits or rights
of any persons arising out of the negligence, breach of contract or other
civil wrong of D&B or its directors, officers, shareholders, agents,
subcontractors, and employees in connection with the operation of the
Installation.
2. CR agrees, during and after the term of this Agreement, to
indemnify and hold D&B, its directors, officers, shareholders, agents,
subcontractors, employees, and its parent, subsidiary and affiliated
entities, harmless from and against any and all claims, losses, damages,
costs and expenses incurred by any of such indemnified persons as a result of
the violation of this Agreement by, or any act of omission or commission on
the part of, CR or any of its directors, officers, shareholders, agents,
subcontractors or employees, and from all claims, damages, suits or right of
any persons arising out of CR's negligence, breach of contract, or other
civil wrong, or that of its directors, officers, shareholders, agents,
subcontractors or employees in connection with the operation of the
Installation.
3. D&B and CR shall promptly exchange information about any claims or
actions that are subject to the aforementioned indemnification and each shall
furnish, at its own expense, all such information and evidence as is
available and all assistance as is necessary to resist, defend or settle any
such claim. The indemnifying Venturer shall promptly assume the defense
thereof and be entitled, at its own expense, to comprise or defend any such
claim. The failure to give timely notice under this clause shall not
preclude an indemnified person from seeking indemnification hereunder unless
such failure has materially prejudiced the indemnifying Venturer's ability to
defend the claim or litigation.
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ARTICLE X
GENERAL PROVISIONS
1. AFFILIATE. As used in this Agreement the term "Affiliate" means
(i) any person directly or indirectly controlling, controlled by or under
common control with any other person, or (ii) any person owning or
controlling 50% or more of the outstanding securities of such other person.
The term "person" shall mean any natural person, partnership, corporation,
association, trust or other legal entity. The term "control" (including the
terms "controlled by" and "under common control with") shall mean the
possession, direct or indirect, of the power to direct or cause the direction
of the management and policies of a person, whether through the ownership of
voting securities or by contract.
2. OUTSIDE ACTIVITIES/NON-COMPETITION. Each of the Venturers
recognizes and acknowledges that the other Venturer has heretofore engaged
and may hereafter (both during and after the expiration of the Term of the
Venture) engage, for its account and for, with and on behalf of others, in
activities and transactions (herein at time collectively called the "outside
activities") whether of the same type or in the same field as, or different
from, the activities or transactions of the Venture. Neither the Venture nor
either of the Venturers shall be entitled to any rights in or to any
remuneration or profits from nor shall it bear any of the losses of any of
the outside activities. Notwithstanding the foregoing, however, CR agrees
that it will not open another Cinema Ride within a radius of five (5) miles
of the Facility at any time during the Term of this Agreement or for a period
of 1 year thereafter, except in the event of termination of this Agreement
(a) pursuant to Paragraphs 2(b) or 2(e) or Article VIII or (b) by reason of
the withdrawal from the venture, bankruptcy or dissolution of D&B as provided
in Paragraph 2(g) of Article VIII. All rights in the Cinema Ride not
expressly licensed to the Venture or to D&B as provided in the Agreement are
expressly reserved to CR without obligation to account, report or inform D&B
or the Venture of its exercise of such rights. Without limiting the
generality of such reservation of rights, CR specifically reserves the right
to demonstrate and to sell the Cinema Ride or any of its component parts on a
temporary basis at all trade shows, conventions and other events wherever
they occur, including those within a radius of five (5) miles of the
Facility, provided that no such demonstration of the Cinema Ride within a
radius of five (5) miles of the Facility at any time during the term of this
Agreement shall be on other than a temporary basis (not to exceed thirty
consecutive days).
3. OPERATION OF THE CINEMA RIDE. Both parties must reasonably agree
to the ticket pricing structure for the Cinema Ride and operational/marketing
methods for Cinema Ride. All operations employees for the Cinema Ride shall
be employees of D&B.
4. PROMOTIONAL USE OF THE CINEMA RIDE. D&B shall be restricted from
operating the Equipment for free or discounted promotional use to no more
than 100 rides per month, unless otherwise agreed to by CR. This excludes
party and special event pricing, the structure of which will be set forth and
approved by both parties in advance.
5. PUBLIC REPORTING REQUIREMENTS. Either party may report the results
and terms of this Agreement to the extent required by applicable law.
Further, the finalization of the Agreement may be announced by press release,
subject to both parties' approval as to form.
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6. FURTHER INSTRUMENTS. Each of the Venturers agrees to execute,
acknowledge and deliver and cause to be executed, acknowledged and delivered,
any and all such further documents and instruments, and to perform and cause
to be performed all such acts, as may be necessary or proper to carry out the
intent of this Agreement and such Venturer's obligations hereunder, all of
which further documents, instruments and acts shall be in accordance with and
consistent with the terms and the content hereof.
7. TRANSFER OF VENTURE INTERESTS. No Venturer may assign, hypothecate
or otherwise transfer (collectively "sell") any portion of its Venture
interest or other rights or obligations hereunder, without the consent of the
other Venturer, except that each Venturer may sell all or any part of its
interest in the Venture to any Affiliate of such Venturer ("affiliated
transferee"), subject to compliance with applicable securities and other
laws, if any, and provided that the affiliated transferee shall become a
Venturer hereunder and shall expressly agree in writing to assume and be
bound by all of the terms, provisions and obligations of this Agreement (it
being acknowledged that CR leases the Equipment and conveys a lien thereon to
the lessor). No transfer pursuant to this Paragraph shall relieve either
Venturer of its obligations to the Venture or the other Venturer or from
personal liability for Venture debts incurred prior to such transfer, except
in the case of an affiliated transferee if the applicable creditor(s)
expressly accepts the affiliated transferee as an obligor in place of such
Venturer. Notwithstanding the above, a transfer of interest in this Venture
by either party by way of merger of the party into another entity or buy-out
of the stock or assets of such party will not be a violation of this
Paragraph, so long as there is no financial or operational impact on the
Venture.
8. INVESTMENT REPRESENTATIONS. Each Venturer represents to the other
that it: (i) either has a preexisting personal or business relationship with
the other Venturer or that by reason of its business or financial experience
(or the business or financial experience of its professional advisors) such
Venturer has the capacity to protect its own interests in connection with
entering into the Agreement; (ii) is contributing capital to the Venture as
an investment for its own account and without a view to resell or distribute;
and (iii) has sufficient assets to be able to hold its Venture interest for
an indefinite period of time to suffer a complete loss of capital contributed
to the Venture.
9. NOTICES. All notices and other communications under this Agreement
shall be in writing and shall be deemed to have been duly given only if
delivered in one or more of the following ways: (a) on the day of delivery,
if delivered personally; (b) three days after the date of mailing, if mailed
by certified or registered first class mail, return receipt requested and
postage prepaid, or the date of actual receipt, if earlier; (c) the next
business day after deposit with an overnight air courier company guaranteeing
next day delivery; or (d) when received by facsimile (with a copy sent as
provided in item (b) or (c) within 24 business hours) at the following
address and/or facsimile telephone number (or to such person or persons or
such other address or addresses or facsimile telephone number or numbers as a
party may specify by notice pursuant to this provision):
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For CR: Cinema Ride, Inc.
Attention: Mitch Francis
12001 Venture Place, Suite 340
Studio City, CA 91604
Telecopier: (818) 761-1072
For D&B: Dave & Buster's, Inc.
Attention: Legal Department
2481 Manana Drive
Dallas, Texas 75220
Telecopier: (214) 357-1536
10. APPLICABLE LAW, ARBITRATION. This Agreement shall be governed by
and construed in accordance with the laws of the State of Texas applicable to
contracts entered into and fully to be performed therein. In the event of
any dispute or controversy hereunder (including, without limitation, any
dispute involving the existence, validity or breach of this Agreement), the
parties agree to submit same to arbitration privately and confidentially in
Dallas, Texas, by one arbitrator mutually agreed (or, if none, appointed
pursuant to the commercial arbitration rules of the American Arbitration
Associations), subject to the arbitrator executing an appropriate
confidentiality agreement. The result of any such arbitration shall be
binding but shall not be made public unless necessary to confirm same after
non-compliance by a Venturer.
11. ATTORNEYS' FEES. The prevailing party in any proceeding brought
pursuant to this Agreement shall be entitled to reasonable attorneys' fees
and all costs and other expenses which it expends or incurs in enforcing this
Agreement against the other party including, but not limited to, all costs,
attorneys' fees and expenses incurred by the prevailing party in connection
with any insolvency, bankruptcy, reorganization, arrangement or other similar
proceedings involving the other party which in any way affects the exercise
of the prevailing party of its rights any remedies hereunder.
12. WAIVER. A waiver by either Venturer of any of the terms and
conditions of this Agreement in any one instance shall not be construed to be
a waiver of any preceding or succeeding breach thereof or of any other term
or condition of this Agreement. All remedies, rights, undertakings,
obligations and agreements contained in the Agreement shall be cumulative and
none of them shall be in limitation of any other remedy, right, undertaking,
obligation or agreement of either Venturer.
13. ARTICLE HEADINGS. The headings of the Articles in the Agreement
are for convenience only. They shall not be used in any way to govern,
limit, modify, construe or affect the provisions of this Agreement nor shall
they otherwise be given any legal effect.
14. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be a valid and binding original, but all of
which together shall constitute one and the same instrument.
15. ENTIRE AGREEMENT. This agreement constitutes the entire agreement
between the Venturers. No representations or warranties have been made,
except as herein specifically
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provided. This Agreement cannot be modified except by a written agreement
signed by both of the Venturers.
WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first hereinabove written.
DAVE & BUSTER'S, INC.
By: /s/ David Corriveau
---------------------------
David Corriveau, President
CINEMA RIDE, INC.
By: /s/ Mitch Francis
---------------------------
Mitch Francis, President
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EXHIBIT A
DECORATING IMPROVEMENTS TO PREMISES
(Note: All items direct from vendors with no CR mark-up)
1) Florescent Carpet Approx. $25 per yard
2) Florescent Wallpaper (3 rolls) Approx. $35 each
3) Florescent Tape Rolls for Accent (6) Approx. $20 each
4) Misc. Florescent Materials Approx. $300
Note: All walls, doors and ceiling to be painted semi-gloss black.
Pre-show area to utilize black light florescent bulbs in standard
florescent fixtures.
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EXHIBIT B
CR EQUIPMENT CONTRIBUTIONS
<TABLE>
<CAPTION>
QUALITY ITEM DESCRIPTION
- ------- ----------------
<S> <C>
1 15 Seat Capsule with Seatbelts
1 Show Control System and Programmable Logic Computer System
3 LCD Video Projectors (includes 1 backup)
3 NTSC Laser Disc Players
1 Flat Screen (per specifications of approximately 7 feet wide
and 5 feet height at a 3:4 aspect ratio)
1 Full Spectrum Digital Sound Systems with Amplifiers, Speakers
and Graphic Equalizers
1 Seat Shaker System
1 Fan/Wind System
1 Electronic Equipment Rack
1 Pilot Operations Console with 4 Video Cameras, Monitors and
Slow-Scan Recorder
1 Retractable Loading Platform
1 Pre-Show Monitor and Mount
10 Line CR Sanctions with Directional Signage
1 Hydraulic oil (system shipped dry)
1 Uninterrupted Power Supply
1 Initial 3-D glasses
1 Ticket Sales Sheet Package
1 3-D Glass Deposit Sign
Marquee Signage - Approx. $5,000 to $8,000
</TABLE>
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EXHIBIT B
CR EQUIPMENT CONTRIBUTIONS
<TABLE>
<CAPTION>
QUALITY ITEM DESCRIPTION
- ------- ----------------
<S> <C>
Movie Poster Cases (up to 8) - Approx. $700 each
Ride Film Posters (up to 8) - Approx. $350.00 each
Florescent Panels (4) - Approx. $1,500 each
</TABLE>
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Exhibit 10.17
LOAN AGREEMENT
This Loan Agreement (the "Loan Agreement") is entered into as of this
2nd day of February, 1999, by and among Cinema Ride, Inc., a Delaware
corporation (the "Company"), and Mitch Francis, an individual ("Francis"), with
reference to the following:
A. After reviewing the Company's cash flow projections for the 1999
fiscal year, the directors of Company have concluded that, based on such
projections, including projected cash flow from operations and debt service, and
in view of the Company's current and anticipated cash position, the Company is
expected to have insufficient funds to satisfy its existing financial
obligations as well as to meet anticipated and unanticipated expenditures with
respect to the Company's business plan.
B. After an extensive search, management of the Company has been unable
to secure alternate sources of financing.
C. Francis has offered to assist the Company to satisfy in part its
financial obligations by: (a) converting his existing note in the principal
amount of $80,000 (the "Existing Note") to a demand note and (b) providing a
line of credit to the Company in the amount of $120,000, all on the following
terms and conditions.
D. The outside directors of the Company deem it in the best interests
of the Company and its stockholders to enter into this Loan Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. CONVERSION OF EXISTING NOTE. The Existing Note is hereby amended to
provide that at any time prior to maturity and from time to time, the Company,
at the request of the Board of Directors has the right to demand a repayment of
all or a portion of the principal amount thereof, together with accrued and
unpaid interest, upon 90 days written notice to Francis.
2. LINE OF CREDIT.
a. LOAN. Subject to the terms and conditions of this
Agreement, Francis agrees to make a loan (the "Loan") to the Company as and when
the Company, through its Board of Directors may request at any time up to
February 2, 2002 (the "Termination Date"). The aggregate unpaid principal amount
of the Loan together with interest thereon shall be paid by the Company to
Francis on the Termination Date. The Loan shall be evidenced by a Note
substantially in the form of Exhibit A attached hereto. Prior to or concurrently
with making a request hereunder, the Company shall require payment under the
existing Note as amended.
b. INTEREST ON LOAN. The Loan shall bear interest on the
unpaid principal amount thereof from time to time outstanding at 12% interest
per annum. Interest on the Loan shall be payable monthly commencing the first
day of the month following the date of the Loan. Interest shall be based upon a
360-day year and actual number of days elapsed.
<PAGE>
c. DISBURSEMENT OF FUNDS. Whenever the Company desires to
receive the Loan hereunder, it shall give Francis at least 90 days prior written
notice. The request shall be signed by the Company's Chief Financial Officer and
specify the amount of the Loan. Only one request may be made by the Company.
3. SECURITY.
a. GRANT OF SECURITY INTEREST. To secure all of the Company's
obligations under the Loan, the Company hereby grants and transfers to Francis a
continuing security interest in all of the assets of the Company except as set
forth below in Section 3.2. Subject to Section 3.2, such assets shall include
all of Company's
3.1 inventory,
3.2 accounts and other rights to receive the payment of money,
3.3 general intangibles,
3.4 business and office equipment,
3.5 business fixtures,
3.6 all other tangible personal property and physical properties,
3.7 rights in all motion pictures and programs (the "Ride Film
Library") whether recorded on film, videotape, cassettes, cartridge, disk or on
or by any other means, method, process or device whether now known or hereafter
developed,
3.8 all rights of every kind or nature of the Company in and to any and
all music and musical composition created for, used in or to be used in
connection with the Ride Film Library, including, all copyrights therein, all
copyrights, rights and copyrights,
3.9 All of the Company's interest in copyrights and renewals and
extensions of copyrights with respect to the Ride Film Library,
3.10 all rights of the Company to produce, acquire, release, sell,
distribute, lease, market, license, exhibit, transmit, or otherwise exploit the
Ride Film Library or any portion thereof,
3.11 all rights of the Company in any trademarks, service marks and
patents, and all applications, renewals and extensions therefor, and all know
how, trade secrets and other intellectual property rights, and
3.12 all cash and non-cash proceeds of the foregoing.
b. EXCLUDED PROPERTY. Notwithstanding anything to the
contrary, there shall be excluded from the security interest hereunder all
rights or property arising under
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agreements that prohibit (either expressly or under applicable law) the creation
of a security interest in such property or rights.
4. ISSUANCE OF WARRANT. In consideration for the agreements of Francis
hereunder, including the amendment of the Existing Note and the provision of the
Loan, the Company shall issue to Francis a warrant, substantially in the form of
Exhibit B hereto to purchase an aggregate of 1,538,461 shares at $.13 per share,
representing the per share market price on the date hereof.
5. MISCELLANEOUS.
a. APPLICABLE LAW. This Agreement and the rights and
obligations of the parties hereunder shall be governed by and interpreted and
construed in accordance with the laws of the State of California.
b. NOTICES. Any notice required or permitted to be given
hereunder shall be given in writing and shall be deemed to have been given when
deposited in the United States mail, certified, return receipt requested, with
first-class postage prepaid, properly addressed or by personal delivery or
recognized overnight courier to the following addresses:
Francis:
12001 Ventura Place, Suite 340
Studio City, California 91604
Attention: Chief Financial Officer
The Company:
12001 Ventura Place, Suite 340
Studio City, California 91604
Attention: Chief Financial Officer
c. ASSIGNMENTS. The provisions of this Agreement are hereby
made applicable to and shall inure to the benefit of each parties' successors
and assignors; provided, however, that the Company may not assign or transfer
its rights or obligations under this Agreement without the prior written consent
of Francis.
d. COMPLETE AGREEMENT. This Agreement, together with the
exhibits to the Agreement, is intended by the parties hereto as a final
expression of their agreement and is intended as a complete statement of the
terms and conditions of this Agreement.
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IN WITNESS WHEREOF, Francis and Company have caused this Agreement to
be executed on the date and year first written at the head of this Agreement.
CINEMA RIDE, INC., a Delaware corporation
By: /s/ N. Feirstein
-----------------------------------
Its: Director
By: /s/ B. Frankel
-----------------------------------
Its: Director
/s/ Mitch Francis
-------------------------------------
Mitch Francis
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EXHIBIT A
PROMISSORY NOTE
$________________ Studio City, California
FOR VALUE RECEIVED, Cinema Ride, Inc. ("Borrower" or "Company"),
promises to pay to the order of Mitch Francis ("Lender"), the principal sum of
_____________________________ ($_____________), together with interest at the
rate specified in Section 1.1 from the date of this Note and computed on the
unpaid principal sum from time to time outstanding, the same to be paid in
lawful money of the United States of America. Principal, interest and other
amounts payable hereunder to Lender are payable at the Company's offices in
Studio City, California.
1. INTEREST AND PAYMENTS.
1.1 INTEREST.
Interest hereunder shall accrue from the date of this Note at a per
annum rate equal to twelve percent (12%) (calculated on the basis of a
360-day-year composed of twelve 30-day months). Interest shall be payable
monthly commencing the first day of the month following the date of this Note.
1.2 DUE DATE.
The entire principal balance, and all accrued interest thereon, shall
be paid in full by the Borrower on February 2, 2002.
2. PREPAYMENTS.
Borrower may prepay all or any portion of the principal balance of this
Note at any time provided that such prepayment is accompanied by the payment of
all default interest and accrued interest under this Note to the date of such
prepayment.
3. DEFAULT.
3.1 EVENTS OF DEFAULT.
An Event of Default shall have occurred under this Note if any amount
due (including principal and interest) is not paid within ten (10) days after
written notice that such amount is delinquent, in which case the entire amount
due hereunder shall be due and payable..
3.2 COSTS OF DEFAULT.
Borrower shall pay all costs of collection when incurred by Lender,
including, but not limited to, reasonable attorney's fees whether incurred in
connection any trial or appeal of a trial court decision.
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4. MISCELLANEOUS.
This Note shall be governed by the laws of the State of California.
CINEMA RIDE, INC.
By:
-----------------------------------
Its:
-----------------------------------
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Exhibit 10.18
CINEMA RIDE, INC.
1995 DIRECTORS STOCK OPTION PLAN
1. PURPOSE. The purpose of this Cinema Ride, Inc. 1995 Directors
Stock Option Plan ("Plan") is to further the growth and development of Cinema
Ride, Inc. ("Company") by providing, through ownership of stock of the
Company, an incentive to non-employee Directors who are in a position to
contribute materially to the prosperity of the Company:
(i) To increase such persons' interests and provide
mutuality of interest in the Company's welfare between shareholders and
non-employee Directors,
(ii) To encourage non-employee Directors to continue their
services to the Company or its subsidiaries, and
(iii) To attract individuals of outstanding ability.
This Plan is effective on the Effective Date (as provided in Section 10)
and shall apply to options granted on or after the Effective Date.
2. TYPES OF STOCK OPTIONS. Only non-Qualified Stock Options
("Options") not specifically authorized or qualified for favorable income tax
treatment by the Code shall be granted under the Plan.
3. DEFINITIONS. The following definitions are applicable to the Plan:
3.1 BOARD. The Board of Directors of the Company.
3.2 COMMON STOCK. The shares of Common Stock of the Company.
3.3 CODE. The Internal Revenue Code of 1986, as amended from time
to time.
3.4 COMPANY. Cinema Ride, Inc., a Delaware corporation.
3.5 DISABLED OR DISABILITY. For the purposes of Section 7.4, a
disability of the type defined in Section 22(e)(3) of the Code. The
determination of whether an individual is Disabled or has a Disability is
determined under procedures established by the Plan Administrator for
purposes of the Plan.
3.6 FAIR MARKET VALUE. For purposes of the Plan, the "Fair Market
Value" per share of Common Stock of the Company at any date shall be (a) if
the Common Stock is listed on an established stock exchange or exchanges, the
closing price per share on the last trading day immediately preceding such
date on the principal exchange on which it is traded, or (b) if the Common
Stock is not then listed on an exchange but is quoted on the Nasdaq National
Market, the Nasdaq Small Cap Market, the Nasdaq electronic bulletin board or
the National Quotation Bureau pink sheets, the average of the closing bid and
asked prices per share for the Common Stock as quoted by Nasdaq or the
National Quotation Bureau, as the case may be, on last trading
<PAGE>
day immediately preceding such date, or (c) if the Common Stock is not then
listed on an exchange or quoted by Nasdaq or the National Quotation Bureau,
an amount determined in good faith by the Plan Administrator.
3.7 PLAN. The Cinema Ride, Inc. 1995 Directors Stock Option Plan,
as amended from time to time.
3.8 PLAN ADMINISTRATOR. The Board or the Stock Option Committee
designated pursuant to Section 4 to administer, construe and interpret the
terms of the Plan.
4. ADMINISTRATION.
4.1 ADMINISTRATION BY BOARD. Subject to Section 4.2, the Plan
Administrator shall be the Board of Directors of the Company (the "Board").
Subject to the provisions of the Plan, the Plan Administrator shall have
authority to construe and interpret the Plan, to promulgate, amend, and
rescind rules and regulations relating to its administration, and to make all
of the determinations necessary or advisable for administration of the Plan.
The interpretation and construction by the Plan Administrator of any
provision of the Plan, or of any agreement issued and executed under the
Plan, shall be final and binding upon all parties. No member of the Board
shall be liable for any action or determination undertaken or made in good
faith with respect to the Plan or any agreement executed pursuant to the Plan.
4.2 ADMINISTRATION BY COMMITTEE. The Board may, in its sole
discretion, delegate any or all of its duties as Plan Administrator to a
stock option committee (the "Committee") of not fewer than two (2) members of
the Board to be appointed by and serve at the pleasure of the Board. From
time to time, the Board may increase or decrease (to not less than two
members) the size of the Committee, and add additional members to, or remove
members from, the Committee. The Committee shall act pursuant to a majority
vote, or the written consent of a majority of its members, and minutes shall
be kept of all of its meetings and copies thereof shall be provided to the
Board. Subject to the provisions of the Plan and the directions of the
Board, the Committee may establish and follow such rules and regulations for
the conduct of its business as it may deem advisable. No member of the
Committee shall be liable for any action or determination undertaken or made
in good faith with respect to the Plan or any agreement executed pursuant to
the Plan.
4.3 DISCRETION OF COMMITTEE. Notwithstanding the above, the
selection of the Director to whom options may be granted, the timing of such
grants, the number of shares subject to any stock option, the exercise price
of any stock option, the period during which any stock option may be
exercised, and the term of any stock option shall be as hereinafter provided,
and the Committee shall have no discretion as to such matters.
5. GRANT OF STOCK OPTIONS. On the fourth business day following the
day of each annual meeting of the shareholders of the Company, each person
who is then a member of the Board and who is not then an employee of the
Company or any of its subsidiaries (a "non-employee Director") shall
automatically and without further action by the Board or the Committee be
granted a "non-statutory stock option (i.e. an option which does not qualify
under
2
<PAGE>
Sections 422 or 423 of the Code) to purchase 10,000 shares of Company stock
subject to adjustment and substitution as set forth in Section 7.10.
In addition, upon the adoption of this Plan, each non-employee Director
shall receive an option for (i) an addition 10,000 shares and (ii) a number
of shares computed by multiplying 10,000 by the number of full years each
such non-employee Director has served on the Company's Board of Directors.
If at any time the number of shares then remaining available for the
grant of stock options under the Plan is not sufficient for each
non-employees Director to be granted an option for 10,000 shares (or the
number of adjusted or substituted shares pursuant to Section 7.10), then each
non-employee Director shall be granted an option for a member of whole shares
equal to the number of shares then remaining divided by the number of
non-employee Directors, disregarding any fraction of a share.
6. SHARES SUBJECT TO OPTIONS. The stock available for grant of
Options under the Plan shall be shares of the Company's authorized but
unissued, or reacquired, Common Stock. The aggregate number of shares which
may be issued pursuant to exercise of Options granted under the Plan, as
amended, shall not exceed 100,000 shares of Common Stock (subject to
adjustment as provided in Section 7.10), including shares previously issued
under the Plan. In the event that any outstanding Option under the Plan for
any reason expires or is terminated, the shares of Common Stock allocable to
the unexercised portion of the Option shall again be available for Options
under the Plan as if no Option had been granted with respect to such shares.
7. TERMS AND CONDITIONS OF STOCK OPTIONS. Stock options granted under
the Plan shall be subject to the following terms and conditions:
7.1 The purchase price at which each Stock Option may be exercised
(the "option price") shall be the Fair Market Value per share of Common Stock
on the date of grant. Each Option granted under the Plan shall become
exercisable on a cumulative basis as to one-third (1/3) 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 (1/3) 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. All Options granted but not yet exercisable as a result of the
previous sentence shall become exercisable notwithstanding the previous
sentence upon the death or disability of the grantee. To the extent that a
grantee has the right to exercise an Option and purchase shares pursuant
thereto, the Option may be exercised from time to time by written notice to
the Company, stating the number of shares being purchased and accompanied by
payment in full of the exercise price for such shares.
7.2 The option price for each stock option shall be paid in full
upon exercise and shall be payable in cash in United States dollars
(including check, bank draft or money order); provided, however, that in lieu
of such cash the person exercising the stock option may pay the option price
in whole or in part by delivering to the Company shares of the Common Stock
having a Fair Market Value on the date of exercise of the Stock Option, equal
to the option price for the shares being purchased; except that (i) any
portion of the option price representing a fraction of a share shall in any
event be paid in cash and (ii) no shares of the Common Stock
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<PAGE>
which have been held for less than six months may option. Delivery of shares
may also be accomplished through the effective transfer to the Company of
shares held by a broker or other agent. The Company will also cooperate with
any person exercising a stock option who participates in a cashless exercise
program of a broker or other agent under which all or part of the shares
received upon exercise of the stock option are sold through the broker or
other agent or under which the broker or other agent makes a loan to such
person. Notwithstanding the foregoing, the exercise of the stock option
shall not be deemed to occur and no shares of Common Stock will be issued by
the Company upon exercise of the stock option until the Company has received
payment of the option price in full. The date of exercise of a stock option
shall be determined under procedures established by the Committee, and as of
the date of exercise the person exercising the stock option shall be
considered for all purposes to be the owner of the shares with respect to
which the stock option has been exercised. Payment of the option price with
shares shall not increase the number of shares of the Common Stock which may
be issued under the Plan as provided in Section 5.
7.3 No stock option shall be exercisable during the first six
months of its term except in case of death as provided in Section 7.5.
Subject to the preceding sentence and subject to Section 7.5 which provides
for earlier termination of a stock option under certain circumstances, each
stock option shall be exercisable for ten years from the date of grant and
not thereafter. A stock option to the extent exercisable at any time may be
exercised in whole or in part.
7.4 No stock option shall be transferable by the grantee otherwise
than by Will, or if the grantee dies intestate, by the laws of descent and
distribution of the state of domicile of the grantee at the time of death.
All stock options shall be exercisable during the lifetime of the grantee
only by the grantee or the grantee's guardian or legal representative. These
restrictions on transferability shall not apply to the extent such
restrictions are not at the time required for the Plan to continue to meet
the requirements of Rule 16b-3 under the Securities Exchange Act of 1934 (the
"1934 Act"), or any successor Rule.
7.5 If a grantee ceases to be a Director of the Company for any
reason, any outstanding stock options held by the grantee shall be
exercisable according to the following provisions:
(i) If a grantee ceases to be a Director of the Company for
any reason other than resignation, removal for cause or death, any
outstanding stock option held by such grantee shall be exercisable by the
grantee (but only if exercisable by the grantee immediately prior to ceasing
to be a Director) at any time prior to the expiration date of such stock
option or within one year after the date the grantee ceases to be a Director,
whichever is the shorter period;
(ii) If during his term of office as a Director a grantee
resigns from the Board or is removed from office for cause, any outstanding
stock option held by the grantee which is not exercisable by the grantee
immediately prior to resignation or removal shall terminate as of the date of
resignation or removal, and any outstanding stock option held by the grantee
which is exercisable by the grantee immediately prior to resignation or
removal shall be exercisable by the grantee at any time prior to the
expiration date of such stock option or within
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<PAGE>
three months after the date of resignation or removal of the grantee,
whichever is the shorter period;
(iii) Following the death of a grantee during service as a
Director of the Company, any outstanding stock option held by the grantee at
the time of death (whether or not exercisable by the grantee immediately
prior to death) shall be exercisable by the person entitled to do so under
the Will of the grantee, or, if the grantee shall fail to make testamentary
disposition of the stock option or shall die intestate, by the legal
representative of the grantee at any time prior to the expiration date of
such stock option or within one year after the date of death of the grantee,
whichever is the shorter period;
(iv) Following the death of a grantee after ceasing to be a
Director and during a period when a stock option is exercisable under clause
(ii) above, the stock option shall be exercisable by such person entitled to
do so under the Will of the grantee or by such legal representative at any
time prior to the expiration date of the stock option or within one year
after the date of death, whichever is the shorter period; and
(v) Following the death of a grantee after ceasing to be a
Director and during a period when a stock option is exercisable under clause
(iii) above, the stock option shall be exercisable by such person entitled to
do so under the Will of the grantee or by such legal representative at any
time during the shorter of the following two periods: (i) until the
expiration date of the stock option or (ii) until one year after the grantee
ceased being a Director or one year after the date of death of the grantee
(whichever is longer).
A stock option held by a grantee who has ceased to be a Director of the
Company shall terminate upon the expiration of the applicable exercise
period, if any, specified in this Section 7.5.
7.6 All stock options shall be confirmed by an agreement, or an
amendment thereto, which shall be executed on behalf of the Corporation by
the Chief Executive Officer (if other than the President), the President or
any Vice President and by the grantee.
7.7 The obligation of the Corporation to issue shares of the
Common Stock under the Plan shall be subject to (i) the effectiveness of a
registration statement under the Securities Act of 1933, as amended, with
respect to such shares, if deemed necessary or appropriate by counsel for the
Corporation, (ii) the condition that the shares shall have been listed (or
authorized for listing upon official notice of issuance) upon each stock
exchange, if any, on which the Common Stock may then be listed and (iii) all
other applicable laws, regulations, rules and orders which may then be in
effect.
Subject to the foregoing provisions of this Section 7 and the other
provisions of the Plan, any stock option granted under the Plan shall be
subject to such restrictions and other terms and conditions, if any, as shall
be determined, in its discretion, by the Committee and set forth in the
agreement referred to in Section 7.6, or an amendment thereto; except that in
no event shall the Committee or the Board have any power or authority which
would cause the Plan to fail to be a plan described in Rule 16b-3(c)(2)(ii),
or any successor Rule.
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<PAGE>
7.8 RESTRICTIONS ON ISSUANCE OF SHARES. The issuance of Options
and shares shall be subject to compliance with all the applicable
requirements of law with respect to the issuance and sale of securities,
including, without limitation, any required qualification under the
California Corporate Securities Law of 1968, as amended, or other state
securities laws. If a grantee acquires shares of Common Stock pursuant to
the exercise of an Option, the Plan Administrator, in its sole discretion,
may require as a condition of issuance of shares covered by the Option that
the shares of Common Stock shall be subject to restrictions on transfer. The
Company may place a legend on the certificates evidencing the shares,
reflecting the fact that they are subject to restrictions on transfer
pursuant to the terms of this Section. In addition, the grantee may be
required to execute a buy-sell agreement in favor of the Company or its
designee with respect to all or any of the shares so acquired. In such
event, the terms of such agreement shall apply to such shares.
7.9 INVESTMENT REPRESENTATION. Any grantee may be required, as a
condition of issuance of shares covered by his or her Option, to represent
that the shares to be acquired pursuant to exercise of the Option will be
acquired for investment and without a view to distribution thereof; and in
such case, the Company may place a legend on the certificate evidencing the
shares reflecting the fact that they were acquired for investment and cannot
be sold or transferred unless registered under the Securities Act of 1933, as
amended, or unless counsel for the Company is satisfied that the
circumstances of the proposed transfer do not require such registration.
7.10 RECAPITALIZATION OR REORGANIZATION OF COMPANY. Except as
otherwise provided herein, appropriate and proportionate adjustments shall be
made in the number and class of shares subject to the Plan and to the Option
rights granted under the Plan, and the exercise price of such Option rights,
in the event that the number of shares of Common Stock of the Company are
increased or decreased as a result of a stock dividend (but only on Common
Stock), stock split, reverse stock split, recapitalization, reorganization,
merger, consolidation, separation, or like change in the corporate or capital
structure of the Company.
In the event there shall be any other change in the number or kind of
the outstanding shares of Common Stock of the Company, or any stock or other
securities into which such common stock shall have been changed, or for which
it shall have been exchanged, whether by reason of a complete liquidation of
the Company or a merger, reorganization or consolidation of the Company with
any other corporation in which the Company is not the surviving corporation
or the Company becomes a wholly-owned subsidiary of another corporation, then
if the Plan Administrator shall, in its sole discretion, determine that such
change equitably requires an adjustment to shares of Common Stock currently
subject to Options under the Plan, or to prices or terms of outstanding
Options, such adjustment shall be made in accordance with such determination.
In addition, in the event of such change described in this paragraph, the
Board may accelerate the time or times at which any option may be exercised
and may provide for cancellation of such accelerated options which are not
exercised within a time period prescribed by the Board in its sole discretion.
To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Plan
Administrator, the determination of which in that respect shall be final,
binding, and conclusive. No right to purchase fractional shares shall result
6
<PAGE>
from any adjustment of Options pursuant to this Section. In case of any such
adjustment, the shares subject to the option shall be rounded down to the
nearest whole share. Notice of any adjustment shall be given by the Company
to each grantee whose Options shall have been so adjusted and such adjustment
(whether or not notice is given) shall be effective and binding for all
purposes of the Plan.
7.11 OTHER PROVISIONS. Each Option may contain such other terms,
provisions, and conditions not inconsistent with the Plan as may be
determined by the Plan Administrator.
8. AMENDMENT AND TERMINATION. The right to amend the Plan at any time
and from time to time and the right to terminate the Plan at any time are
hereby specifically reserved to the Board; provided always that no such
termination shall terminate any outstanding stock options granted under the
Plan; and provided further that no amendment of the Plan shall (i) be made
without stockholder approval if stockholder approval of the amendment is at
the time required for stock options under the Plan to qualify for the
exemption from Section 16(b) of the 1934 Act provided by Rule 16b-3, or any
successor Rule, or by the rules of any stock exchange on which the Common
Stock may then be listed, (ii) amend more than once every six months the
provisions of the Plan relating to the selection of the Directors to whom
stock options are to be granted, the timing of such grants, the number of
shares subject to any stock option, the exercise price of any stock option,
the periods during which any stock option may be exercised and the term of
any stock option other than to comport with changes in the Code or the rules
and regulations thereunder or (iii) otherwise amend the Plan in any manner
that would cause stock options under the Plan not to qualify for the
exemption provided by Rule 16b-3, or any successor Rule. No amendment or
termination of the Plan shall, without the written consent of the holder of a
stock option theretofore awarded under the Plan, adversely affect the rights
of such holder with respect thereto.
Notwithstanding anything contained in the preceding paragraph or any
other provision of the Plan or any stock option agreement, the Board shall
have the power to amend the Plan in any manner deemed necessary or advisable
for stock options granted under the Plan to qualify for the exemption
provided by Rule 16b-3 (or any successor rule relating to exemption from
Section 16(b) of the 1934 Act), and any such amendment shall, to the extent
deemed necessary or advisable by the Board, be applicable to any outstanding
stock options theretofore granted under the Plan notwithstanding any contrary
provisions contained in any stock option agreement. In the event of any such
amendment to the Plan, the holder of any stock option outstanding under the
Plan shall, upon request of the Committee and as a condition to the
exercisability of such option, execute a conforming amendment in the form
prescribed by the Committee to the stock option agreement referred to in
Section 7.6 within such reasonable time as the Committee shall specify in
such request.
9. INDEMNIFICATION. In addition to such other rights of
indemnification as they may have as members of the Plan Administrator, the
members of the Plan Administrator administering the Plan shall be indemnified
by the Company against reasonable expense, including attorneys' fees,
actually and necessarily incurred in connection with the defense of any
action, suit, or proceeding, or in connection with any appeal therein, to
which they or any of them may be a party by reason of any action taken or
failure to act under or in connection with the Plan or any Option granted
thereunder, and against all amounts paid by them in settlement
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<PAGE>
thereof (provided such settlement is approved by independent legal counsel
selected by the Company) or paid by them in satisfaction of a judgment in any
action, suit, or proceeding, except in relation to matters as to which it
shall be adjudged in such action, suit, or proceeding that such member is
liable for negligence or misconduct in the performance of his duties,
provided that within 60 days after institution of any such action, suit, or
proceeding, the member shall in writing offer the Company the opportunity, at
its own expense, to handle and defend the same.
10. EFFECTIVE DATE AND TERM OF PLAN. This Plan shall become effective
(the "Effective Date") on the date of adoption designated below. No options
granted under the Plan will be effective unless the Plan is approved by the
stockholders of the Company within 12 months of the date of adoption. Unless
sooner terminated by the Board in its sole discretion, the Plan will expire
on December 31, 2004.
IN WITNESS WHEREOF, the Company by its duly authorized officer, has
caused this Plan to be executed at Studio City, California, this _____ day
of ____________, 1995.
CINEMA RIDE, INC.
By: /s/ Mitch Francis
--------------------------
Mitch Francis, President
By: /s/ Gary H. Packman
--------------------------
Gary H. Packman, Secretary
8
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Exhibit 10.19
CINEMA RIDE, INC.
1,538,461 WARRANTS
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE COMMON STOCK OF THE COMPANY
ISSUABLE UPON EXERCISE OF SUCH WARRANTS HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), NOR UNDER ANY STATE SECURITIES
LAWS, AND MAY NOT BE PLEDGED, SOLD, ASSIGNED OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE
COMPANY OR AN OPINION REASONABLY SATISFACTORY TO THE COMPANY OF COUNSEL TO THE
HOLDER THAT SAID SECURITIES MAY BE PLEDGED, SOLD, ASSIGNED OR TRANSFERRED, AS
THE CASE MAY BE, WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND
ANY APPLICABLE STATE SECURITIES LAW. BY ITS ACCEPTANCE HEREOF, THE HOLDER OF
THE WARRANTS REPRESENTED BY THIS CERTIFICATE REPRESENTS THAT IT IS ACQUIRING
THIS WARRANT FOR INVESTMENT PURPOSES.
CINEMA RIDE, INC.
Warrant Certificate
to purchase Common Stock
Expiring February 2, 2002
This Warrant Certificate certifies that Mitch Francis or registered
assigns, is the registered holder of Warrants expiring FEBRUARY 2, 2002, (the
"Warrants") to purchase common stock, $.01 par value per share (the "Common
Stock"), of Cinema Ride, Inc., a Delaware corporation (the "Company"). Each
Warrant entitles the holder upon exercise to receive from the Company one fully
paid and non-assessable share of Common Stock (a "Warrant Share") at the
purchase price per share (the "Exercise Price") of $.13 per share, payable in
cash, by certified or bank check at the office or agency of the Company, or, at
the option of the holder, as provided in Section 12 hereof, by reducing the
amount outstanding under any outstanding Promissory Note of the Company in favor
of the holder but only subject to the conditions set forth herein. The foregoing
Exercise Price and the number of Warrant Shares issuable upon exercise of the
Warrants are subject to adjustment upon the occurrence of certain events set
forth herein.
NO WARRANT MAY BE EXERCISED AFTER 5:00 P.M., LOS ANGELES TIME ON
FEBRUARY 2, 2002, AND TO THE EXTENT NOT EXERCISED BY SUCH TIME, SUCH WARRANTS
SHALL BECOME VOID.
The Warrants are subject to the following additional terms:
SECTION 1. REGISTRATION OF TRANSFERS AND EXCHANGES. Subject to
compliance with the terms of this Warrant Certificate, the Company shall from
time to time register the
<PAGE>
transfer of this Warrant Certificate upon the records to be maintained by it for
that purpose, upon surrender thereof accompanied (if so required by it) by a
written instrument or instruments of transfer in form satisfactory to the
Company, duly executed by the registered holder hereof or by the duly appointed
legal representative thereof or by a duly authorized attorney. Upon any such
registration or transfer, a new Warrant Certificate shall be issued to the
transferee(s) and the surrendered Warrant Certificate shall be cancelled by the
Company.
The holder of the Warrants represented by this Warrant Certificate
agrees that prior to any proposed transfer of the Warrants or of the Warrant
Shares, if such transfer is not made pursuant to an effective Registration
Statement under the Securities Act of 1933, as amended (the "Act"), such holder
shall deliver to the Company an opinion of counsel, reasonably satisfactory in
form and substance to the Company, and from counsel reasonably satisfactory to
the Company, that the Warrants or Warrant Shares may be so sold without
registration under the Act.
The Warrant holder agrees that each certificate representing Warrant
Shares will bear the following legend:
"The securities evidenced or constituted hereby have been acquired for
investment purposes and have not been registered under the Securities
Act of 1933, as amended. Such securities may not be sold,
transferred, pledged or hypothecated unless (i) effected in compliance
with that certain Warrant Holder Rights Agreement, dated as of
December 31, 1996, among the Company and the other signatories
thereto, and (ii) the registration provisions of said Act and any
applicable state securities or "blue sky" laws have been complied with
or the Company has received an opinion of counsel reasonably
satisfactory to the Company that such registration is not required."
The Company may deem and treat the registered holder hereof as the
absolute owner of the Warrants (notwithstanding any notation of ownership or
other writing hereon made by anyone), for the purpose of any exercise hereof, of
any distribution to the holder hereof, and for all other purposes, and the
Company shall not be affected by any notices to the contrary. The Warrants do
not entitle the holder hereof to any rights of a stockholder of the Company.
The holder of this Warrant Certificate is entitled to certain
registration rights with respect to the Warrants and the Warrant Shares
purchasable upon exercise hereof. Said registration rights are set forth in full
in a Warrant Holder Rights Agreement, dated of even date herewith, between the
Company and FINOVA TECHNOLOGY FINANCE, INC..
SECTION 2. TERMS OF WARRANTS: EXERCISE OF WARRANTS. Subject to the
terms contained herein, the holder of this Warrant Certificate shall have the
right, which may be exercised at any time until 5:00 p.m., Los Angeles time, on
FEBRUARY 2, 2002 to purchase and receive from the Company the number of validly
issued, fully paid and non-assessable Warrant Shares which the holder may at the
time and from time to time be entitled to receive on exercise of the Warrants
represented by this Warrant Certificate and payment of the applicable Exercise
Price then in effect for such Warrant Shares. Each Warrant not exercised prior
to 5:00 p.m., Los
2
<PAGE>
Angeles time, on FEBRUARY 2, 2002 shall become void, and all rights hereunder
and all rights in respect thereof hereunder shall cease as of such time.
A Warrant may be exercised upon surrender to the Company at its
principal office of this Warrant Certificate with the form of election to
purchase attached hereto duly completed and signed, and upon payment to the
Company for the account of the Company of the applicable Exercise Price, as
adjusted as herein provided, for the number of Warrant Shares in respect of
which such Warrants are then exercised. Payment of the aggregate Exercise Price
shall be made in cash, by certified or official bank check payable to the order
of the Company, or at the option of holder, as set forth in Section 12 hereof.
Subject to the provisions of Section 3 hereof, upon such surrender of
this Warrant Certificate and payment of the applicable Exercise Price, the
Company shall issue and cause to be delivered with all reasonable dispatch to
the holder of this Warrant Certificate a certificate or certificates for the
number of full Warrant Shares issuable upon the exercise of such Warrants,
together with cash as provided in Section 7. Such certificate or certificates
for the Warrant Shares shall be deemed to have been issued and, subject to
applicable federal and state securities laws and regulations, any person so
designated to be named therein shall be deemed to have become a holder of record
of such Warrant Shares as of the date of the surrender of this Warrant
Certificate and payment of the applicable Exercise Price. Such certificate or
certificates for the Warrant Shares shall bear the legend set forth in Section 1
hereto. If the exercise is for less than all the Warrant Shares, a new Warrant
Certificate shall be issued for the remaining Warrant Shares.
SECTION 3. PAYMENT OF TAXES. The Company will pay any documentary stamp
taxes attributable to the initial issuance of Warrant Shares upon the exercise
of such holder's Warrants.
SECTION 4. MUTILATED OR MISSING WARRANT CERTIFICATES. In case this
Warrant Certificate shall be mutilated, lost, stolen or destroyed, the Company
may in its discretion issue, in exchange and substitution for and upon
cancellation of the mutilated Warrant Certificate, or in lieu of and
substitution for the Warrant Certificate lost, stolen or destroyed, a new
Warrant Certificate of like tenor and representing an equivalent number of
Warrants, but only upon receipt of evidence satisfactory to the Company of such
loss, theft or destruction of such Warrant Certificate and indemnity, if
requested, also satisfactory to it. An applicant for such substitute Warrant
Certificate shall also comply with such other reasonable requirements and pay
such other reasonable charges as the Company may prescribe.
SECTION 5. RESERVATION OF WARRANT SHARES. The Company will at all times
reserve and keep available, free from preemptive rights, out of the aggregate of
its authorized but unissued Common Stock or its authorized and issued Common
Stock held in its treasury, for the purpose of enabling it to satisfy any
obligation to issue Warrant Shares upon exercise of Warrants, the maximum number
of shares of Common Stock which may then be deliverable upon the exercise of all
outstanding Warrants.
The Company or, if appointed, the transfer agent for the Common Stock
(the "Transfer Agent") and every subsequent transfer agent for any shares of the
Company's capital
3
<PAGE>
stock issuable upon the exercise of any of the rights of purchase aforesaid will
be irrevocably authorized and directed at all times to reserve such number of
authorized shares as shall be required for such purpose. The Company will keep a
copy of this Warrant Certificate on file with the Transfer Agent and with every
subsequent transfer agent for any shares of the Company's capital stock issuable
upon the exercise of the rights of purchase represented by the Warrants. The
Company will supply such Transfer Agent with duly executed certificates for such
purposes and will provide or otherwise make available any cash which may be
payable as provided in Section 7. The Company will furnish such Transfer Agent a
copy of all notices of adjustments and certificates related thereto transmitted
to the holder pursuant to Section 8 hereof.
Before taking any action which would cause an adjustment to the
Exercise Price in accordance with Section 6 hereof, the Company will take any
corporate action which may, in the opinion of its counsel (which may be counsel
employed by the Company), be necessary in order that the Company may validly and
legally issue fully paid and nonassessable Warrant Shares at the Exercise Price
as so adjusted.
The Company covenants that all Warrant Shares which may be issued upon
exercise of Warrants will, upon issue, be validly issued, fully paid,
nonassessable, free of preemptive rights and free from all taxes, liens, charges
and security interests with respect to the issue thereof, other than those
created by the holder of such Warrants.
SECTION 6. ADJUSTMENT OF EXERCISE PRICES AND NUMBER OF WARRANT SHARES
ISSUABLE. The Exercise Price and the number of Warrant Shares issuable upon the
exercise of each Warrant are subject to adjustment from time to time upon the
occurrence of the events enumerated in this Section 6. The Exercise Price shall
be adjusted simultaneously upon occurrence of such events. For purposes of this
Section 6, "Common Stock" means shares now or hereafter authorized of any class
of common stock of the Company and any other stock of the Company, however
designated, that has the right (subject to any prior rights of any class or
series of preferred stock) to participate in any distribution of the assets or
earnings of the Company without limit as to per share amount.
a. In case the Company shall at any time after the date of
original issuance hereof do any of the following: (i) pay a dividend or make a
distribution on its capital stock in shares of Common Stock, (ii) subdivide its
outstanding shares of Common Stock, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares, or (iv) issue by reclassification
of its Common Stock any shares of capital stock of the Company; then immediately
after the distribution date of such stock dividend or the effective date of such
subdivision, split-up, combination or reclassification, as the case may be, the
number of shares of Common Stock which the registered holder of this Warrant is
entitled to purchase hereunder and the Exercise Price of such shares of Common
Stock shall be appropriately adjusted so that the registered holder hereof shall
be entitled to purchase the number of shares of Common Stock that such holder
would have held after such stock dividend, subdivision, split-up, combination or
reclassification, as the case may be, at the aggregate Exercise Price such
holder would have paid for such shares of Common Stock, if such holder had
exercised the Warrants represented by this Warrant Certificate prior to such
event.
4
<PAGE>
b. In case of any consolidation or merger to which the Company
is a party other than a merger or consolidation in which the Company is the
continuing corporation, or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, or in case of any statutory exchange of securities with another
corporation (including any exchange effected in connection with a merger of a
third corporation into the Company), lawful and adequate provisions shall be
made whereby the registered holder of this Warrant Certificate shall thereafter
have the right to purchase and receive upon the basis and upon the terms and
conditions specified in this Warrant Certificate and in lieu of the shares of
Common Stock immediately theretofore purchasable hereunder and receivable upon
the exercise of the Warrants, such shares of stock, securities or assets as may
be issued or payable with respect to or in exchange for a number of outstanding
shares of Common Stock equal to the number of outstanding shares of Common Stock
immediately theretofore purchasable and receivable upon the exercise of the
Warrants represented by this Warrant Certificate, and in any such case
appropriate provision shall be made with respect to the rights and interests of
the registered holder of this Warrant Certificate to the end that the provisions
hereof (including without limitation, to the extent provided herein, provisions
for adjustments of the Exercise Price and of the number of shares of Common
Stock purchasable and receivable upon the exercise of the Warrants represented
by this Warrant Certificate) shall thereafter be applicable, as nearly as may
be, in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise hereof. The Company will not effect any such
consolidation, merger or sale, unless prior to the consummation thereof the
successor entity (if other than the Company) resulting from such consolidation
or merger or the entity purchasing such assets shal assume by written instrument
executed and delivered to the registered holder of this Warrant Certificate, the
obligation to deliver to such holder such shares of stock, securities or assets
as, in accordance with the foregoing provision, such registered holder of this
Warrant Certificate may be entitled to purchase. Notice of any such
consolidation, merger, statutory exchange, sale or conveyance, and of the
provisions so proposed to be made, shall be mailed to the registered holder of
this Warrant Certificate not less than forty-five (45) days prior to such event
or promptly upon the Company's receiving notice thereof. A sale of all or
substantially all of the assets of the Company for a consideration consisting
primarily of securities shall be deemed a consolidation or merger for the
foregoing purposes.
c. Before taking any action which would cause an adjustment
reducing either the Exercise Price below the then par value of the shares of
Common Stock issuable upon the exercise of the Warrants, the Company will take
any corporate action which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue fully paid and
nonassessable shares of such Common Stock at such adjusted Exercise Price.
d. In case at any time or from time to time, conditions arise
by reason of action taken by the Company, which in the opinion of its Board of
Directors or the holder of this Warrant Certificate, are not adequately covered
by the provisions of this Warrant Certificate, and might adversely affect the
exercise rights of the holder of this Warrant Certificate, then the Board of
Directors of the Company shall appoint a firm of independent certified public
accountants of recognized national standing (which may be the firm regularly
retained by the Company), who shall give their opinion upon the adjustment, if
any, on a basis consistent with the standards established in the other
provisions of this Warrant Certificate, necessary with
5
<PAGE>
respect to the Exercise Price or the number of Warrant Shares issuable upon
exercise of the Warrants, so as to preserve, without dilution, the exercise
rights of the holder of this Warrant Certificate and the number of Warrant
Shares issuable upon exercise of the Warrants by the holder hereof to the extent
contemplated by this Section 6. Upon receipt of such opinion, which shall be
conclusive and binding on the Company and the holder, the Board of Directors of
the Company shall forthwith make the adjustments provided therein.
SECTION 7. FRACTIONAL INTERESTS. The Company shall not be required to
issue fractional Warrant Shares on the exercise of Warrants. If more than one
Warrant shall be presented for exercise in full at the time by the same holder,
the number of full Warrant Shares which shall be issuable upon the exercise
thereof shall be computed on the basis of the aggregate number of Warrant Shares
purchasable on exercise of the Warrants so presented. If any fraction of a
Warrant Share would, except for the provisions of this Section 7, be issuable
upon exercise of any Warrants (or specified portion thereof), the Company shall
issue a full Warrant Share in lieu of such fractional share.
SECTION 8. NOTICES TO THE WARRANT HOLDER. Upon any adjustment of the
Exercise Price and/or the number of Warrant Shares issuable upon exercise of the
Warrants pursuant to Section 6, the Company shall promptly thereafter cause to
be given to the Warrant holder, as provided in Section 9, a certificate setting
forth the Exercise Price and/or the number of Warrant Shares issuable upon
exercise of the Warrants after such adjustment and setting forth in reasonable
detail the method of calculation and the facts upon which such calculations are
based. Where appropriate, such notice to the Warrant holder may be given in
advance and included as a part of the notice required to be mailed under the
other provisions of this Section 8.
In case:
a. the Company shall authorize the issuance to holders of
shares of Common Stock of rights, options or warrants to subscribe for or
purchase shares of Common Stock or of any other subscription rights or warrants;
or
b. the Company shall authorize the distribution to holders of
shares of Common Stock of evidences of its indebtedness or assets (other than
cash dividends or cash distributions payable out of consolidated earnings); or
c. of any consolidation or merger to which the Company is a
party and for which approval of any stockholders of the Company is required, or
of the conveyance or transfer of the properties and assets of the Company
substantially as an entirety, or of any reclassification or change of Common
Stock issuable upon exercise of the Warrants (other than a change in par value,
or from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), or a tender offer or exchange offer for
shares of Common Stock; or
d. of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
6
<PAGE>
e. the Company proposes to take any action which would require
an adjustment of the Exercise Price or the number of Warrant Shares issuable
upon exercise of the Warrants pursuant to Section 6;
then the Company shall promptly give to the registered holders of the Warrant
Certificates at their respective addresses appearing on the Warrant register by
first-class mail, postage prepaid, a written notice describing the specific
details of such contemplated action, including, without limitation (i) the date
as of which the holders of record of shares of Common Stock to be entitled to
receive any such rights, options, warrants or distribution are to be determined,
or (ii) the initial expiration date set forth in any tender offer or exchange
offer for shares of Common Stock, or (iii) the date on which any such
consolidation, merger, conveyance, transfer, dissolution, liquidation or winding
up is expected to become effective or consummated, and the date as of which it
is expected that holders of record of shares of Common Stock shall be entitled
to exchange such shares for securities or other property, if any, deliverable
upon such reclassification, consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up.
SECTION 9. NOTICES. Any notice, request, instruction or other document
to be given hereunder shall be in writing, shall be deemed to have been duly
given or delivered when delivered personally or telecopied (receipt confirmed,
with a copy sent by certified or registered mail as set forth herein) or sent by
certified or registered mail, postage prepaid, return receipt requested, or by
Federal Express or other reputable overnight delivery service, to the address of
the party set forth below or to such address as the party to whom notice is to
be given may provide in a written notice to the Company, a copy of which written
notice shall be on file with the Secretary of the Company:
a. To the Company:
Cinema Ride, Inc.
12001 Ventura Place, Suite 340
Studio City, California 91604
b. To the Registered Holder:
At the address of such Registered Holder on the register
maintained pursuant to Section 1 hereof.
SECTION 10. AMENDMENTS. This Warrant Certificate may only be amended or
modified by a written instrument executed by the Company and the registered
holders of 100% of the issued and outstanding Warrants.
SECTION 11. GOVERNING LAW. This Warrant Certificate shall be governed
by and construed under the laws of the State of California, without reference to
choice or conflict of laws principles.
SECTION 12. REDUCTION OF NOTE. At the option of a holder, the exercise
price may be paid by reducing the amount of any outstanding promissory note of
the Company owed to a holder by the aggregate amount thereof.
7
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed and delivered by its Secretary.
Dated:
---------------------
CINEMA RIDE, INC., a Delaware corporation
By: /s/ Norman Feirstein
--------------------------------
Norman Feirstein
8
<PAGE>
CINEMA RIDE, INC.
PURCHASE FORM
Number of Warrants exercised _______________
The undersigned hereby irrevocably elects to exercise the right
represented by this Warrant Certificate to purchase ______________ shares of
Common Stock and herewith tenders in payment for such shares $_____________ in
cash in accordance with the terms hereof. The undersigned requests that a
certificate representing such shares be registered and delivered as follows:
Name: _________________________________
Address: _________________________________
_________________________________
_________________________________
Delivery Address: _________________________________
(if different)
_________________________________
9
<PAGE>
ASSIGNMENT
(To be signed only upon assignment of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
________________________________________________________
________________________________________________________
(Name and Address of Assignee Must be Printed or Typewritten)
(Insert Social Security No. or
other identifying number of Assignee)
the within Warrant, hereby irrevocably constituting and appointing
_____________________________________ attorney to transfer said Warrant on the
books of the Company with full power of substitution in the premises.
DATED: _____________________ ______________________________
Signature of Registered Holder
Signature Guaranteed:
NOTE: The above signature
must correspond with the name as
written on the face of this Warrant
Certificate.
10
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
State or Other
Jurisdiction of
Incorporation Percentage
Name of Subsidiary Or Organization Owned
- ------------------ ----------------- -------
<S> <C> <C>
Cinema Ride Edmonton, Inc. Alberta, Canada 100%
Cinema Ride Times Square, Inc. New York 100%
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S ANNUAL REPORT ON
FORM 10K-SB FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 240,341
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 8,666
<CURRENT-ASSETS> 311,584
<PP&E> 2,845,264
<DEPRECIATION> 1,390,528
<TOTAL-ASSETS> 2,942,080
<CURRENT-LIABILITIES> 383,903
<BONDS> 845,853
0
0
<COMMON> 58,546
<OTHER-SE> 1,544,621
<TOTAL-LIABILITY-AND-EQUITY> 2,942,080
<SALES> 0
<TOTAL-REVENUES> 2,377,674
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 228,004
<INCOME-PRETAX> (2,121,284)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,121,284)
<DISCONTINUED> 0
<EXTRAORDINARY> 58,331
<CHANGES> 0
<NET-INCOME> (2,062,953)
<EPS-PRIMARY> (2.82)
<EPS-DILUTED> (2.82)
</TABLE>
