-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OjIxbnIcE7+NRHYqFN8GMVwksFKG74NkUZp5KaFeKpnsaet+WOgXSKlyIQS4EWSE ljETbGo14kfKQR7UkrSItg== 0001096906-01-000151.txt : 20010418 0001096906-01-000151.hdr.sgml : 20010418 ACCESSION NUMBER: 0001096906-01-000151 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010417 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CINEMA RIDE INC CENTRAL INDEX KEY: 0000925956 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE THEATERS [7830] IRS NUMBER: 954417467 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-24592 FILM NUMBER: 1604143 BUSINESS ADDRESS: STREET 1: 12001 VENTURA PL STREET 2: STE340 CITY: STUDIO CITY STATE: CA ZIP: 91604 BUSINESS PHONE: 8187611002 MAIL ADDRESS: STREET 1: 12001 VENTURA PL #340 CITY: STUDIO CITY STATE: CA ZIP: 91604 10KSB 1 0001.txt ANNUAL REPORT 2000 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, 2000 [ ] 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. ---------------------------------------------- (Name of small business issuer in its charter) Delaware 95-4417467 - ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 12001 Ventura Place, Suite 340, Studio City, California 91604 -------------------------------------------------------------- (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, $0.08 par value ----------------------------- (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 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. [ ] The issuer's revenues for the fiscal year ended December 31, 2000 were $2,760,309. The aggregate market value of the issuer's common stock held by non-affiliates of the Company as of March 30, 2001, was $182,183. As of March 30, 2001, the issuer had 789,823 shares of common stock issued and outstanding. Transitional Small Business Disclosure Format: Yes [ ] No [x] Documents incorporated by reference: None. 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, 2000 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, 2000 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. -2- 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 3-D motion simulator attractions and filmed entertainment that combines projected three-dimensional 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. 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 five 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 at a location in Times Square in New York City, New York, and was closed during January 1998. 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 fifth facility (the "New Jersey Facility") commenced operations in January 2000 and is located in the Jersey Gardens Mall in Elizabeth, New Jersey, near Newark Airport. The Company's executive offices are located in Studio City, California. Going Concern: The consolidated financial statements as of and for the year ended December 31, 2000 have 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 consolidated financial statements do not purport to represent the realizable or settlement values. The Company has suffered recurring operating losses and had a working capital deficit at December 31, 2000. In addition, the Company did not make several monthly payments to its primary secured lender during the latter part of the year ended December 31, 2000 and the early part of the year ending December 31, 2001. 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 believes that its previous efforts to reduce costs and operate more efficiently, combined with the March 1999 modified financing arrangements with the Company's secured lender, borrowings under the line of credit provided by the Company's Chief Executive Officer, and the opening of the New Jersey Facility, will generate improved cash flows, although there can be no assurances that such efforts will be successful. Furthermore, to the extent that the Company's Las Vegas Facility experiences a continuing decline in revenues, the Company's liquidity and ability to continue to conduct operations may be impaired. The Company will require additional capital to fund operating and debt service requirements, as well as to fund expansion plans and possible acquisitions, mergers and joint ventures, including the amended joint venture agreement with Dave & Buster's, Inc. The Company is exploring various alternatives to raise this required capital, but there can be no assurances that the Company will be successful in this regard. To the extent that the Company is unable to secure the capital necessary to fund its future cash requirements on a timely basis and/or under acceptable terms and conditions, the Company may not have sufficient cash resources to maintain operations. In such event, the Company may be required to consider a formal or informal restructuring or reorganization. Equipment and Technology: Each of the Company's rides is comprised of two basic elements, a motion simulator, which consists of an enclosed seating platform and related equipment and computer programming, and the 3-D films viewed by audiences in the simulator. -3- Simulators: The Company utilizes a simulator that is both space and cost efficient. Each simulator includes an enclosed capsule with 15 seats 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 consist of one or more capsules, the number of which varies depending on the size and desired seating capacity of a particular location. The Las Vegas Facility consists of four capsules, the New Jersey consists of two capsules, 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. The motion bases used by the Company were constructed by a manufacturer of military and commercial flight simulators which is now out of business. However, to date this has not been a problem for the Company, since replacement parts are available from other sources and the motion bases are being manufactured by another company. Each simulator combines the motion base and capsule with two video projectors and audio systems which provide 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 entire presentations 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 machines. 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 the 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. The Company currently owns two remaining capsules that it intends to use exclusively for spare parts. Accordingly, the Company expects that any new ride sites would be based on newly-developed ride technology. 3-D Films: Each of the Company's attractions utilize 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. With regard to this technology, 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. The Company had completed production of six ride films for exhibition in its attractions. The Company produces ride films by contracting with independent film production companies. 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. -4- Facility Operations: The Company currently generates virtually all of its income from the sale of ride tickets. Ride tickets are sold to customers at a ticket booth. Prior to the showing, ticket holders are led through an entry area 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 price per show is generally less than $5.00 due to the Company's practice of selling multiple features per ticket and the use of coupons and other promotional discounts. Joint Ventures: 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 preparing the premises for installation. The Company was responsible for the transportation and installation of its equipment. The theater installation was completed and became 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. During May 2000, the Company entered into an agreement with Dave & Buster's, Inc. to amend and update the existing joint venture agreement to include the installation of five additional ride facilities in new or existing Dave & Buster's, Inc. locations. The Company will be responsible for the installation of its newly-designed twenty seat open pod simulator systems. The Company will also be responsible for providing all of the hardware and software required to operate the ride facility. The Company will require additional capital in order to be able to fund its obligations under the amended joint venture agreement (see "ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - Going Concern"). In order to reduce the out-of-pocket costs in the development of new attractions, the Company intends to continue to pursue joint venture arrangements with property owners and businesses that want to operate their own attractions. The Company and its joint venture partner would split the profits, if any, from the attraction based on negotiated terms. Joint ventures with third parties would provide the Company with an additional source of revenues and profits with less risk and capital investment than is associated with owning and operating systems. Competition: The Company faces intense competition in the development and marketing of attractions. Such competition includes gaining access to desirable locations for attractions, as well as to selling or leasing simulators and ride films. Iwerks Entertainment, Inc. and Showscan Corporation, as well as other companies, develop and market simulators that compete with the simulators and related filmed entertainment 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. 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. -5- The Company also competes with existing motion simulators on a site-by-site basis. The Company is aware of several competing motion simulator attractions currently existing 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 Hilton Hotel Casino and the Luxor Hotel and Casino in Las Vegas also offer motion simulator attractions. In addition, other hotels or theme parks in Las Vegas may acquire or develop motion simulator attractions, including such major new hotels such as the Mandalay Bay and the Venetian. To a lesser extent, the Company also competes for customers 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 New Jersey Facility has no motion simulator competition within the immediate vicinity. 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 assists 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, enable it to compete effectively for customers with regard to the marketing of its attractions. Identification and Development of 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 $400,000 per 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 theaters 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 ten employees per each additional 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. 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. Attendance at the Company's facilities is highest during June through August (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. -6- 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. 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. Although patent, trademark and copyright protection is desirable, the Company believes that such legal protection is 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 insurance coverage that it believes provides adequate coverage for all of its current operations. The Company also maintains $1,000,000 "key-man" life insurance on the life of Mitchell J. 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 is in compliance with such standards and has obtained all necessary permits and approvals. Employees: As of March 30, 2001, the Company had three full-time employees at its corporate offices (including its officers), 21 employees at its Las Vegas Facility, four employees at its West Edmonton Mall Facility, five employees at its New Jersey Facility, and one employee at the Dave & Buster's, Inc. facility in Atlanta, Georgia. Employees at the ride locations consist of both full-time and part-time employees. 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 through July 2004, with an option to extend the term of the lease for one additional five-year period. West Edmonton Mall Facility: During July 1995, the Company, through its wholly-owned Alberta, Canada subsidiary, Cinema Ride Edmonton, Inc., entered into a lease agreement to install and operate one capsule in the West Edmonton Mall, Alberta, Canada. Effective July 1, 2000, the Company entered into a Renewal and Amending Agreement for a term of five years through June 2005. 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 two motion simulators. 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 completed an expansion project in 1999 that included an entertainment center and an IMAX Theater. -7- New Jersey Facility: During October 1999, the Company, through its wholly-owned New York subsidiary, Cinema Ride Times Square, Inc., entered into a lease agreement to install and operate two capsules in the Jersey Gardens Mall, Elizabeth, New Jersey. The New Jersey Facility lease has a term of five years through January 2005, with an option to extend the term of the lease for one additional five-year period. The Company opened this facility in January 2000. The Jersey Gardens Mall consists of 1,500,000 square feet of rentable space, combining factory outlet shops and entertainment, and is located near Newark Airport. Corporate Offices: The Company leases office space in Studio City, California as its corporate headquarters. The lease is for a period of five years expiring June 2005, with an option to extend the term of the lease for one additional five-year period. The monthly rent is currently $4,263. 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, 2000. PART II. ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Since March 12, 1998, the common stock of the Company has been traded on the OTC Bulletin Board under the symbol "MOVE". 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. High Low ---- --- Fiscal Year Ended December 31, 1999: ----------------------------------- Three months ended - March 31, 1999 0.25 0.06 June 30, 1999 0.38 0.12 September 30, 1999 0.13 0.13 December 31, 1999 0.44 0.13 Fiscal Year Ended December 31, 2000: ----------------------------------- Three months ended - March 31, 2000 1.69 0.25 June 30, 2000 1.51 1.13 September 30, 2000 1.25 0.50 December 31, 2000 0.54 0.31 -8- As of March 30, 2001, the Company had approximately 200 common shareholders of record, excluding shares held in street name by brokerage firms and other nominees who hold shares for multiple investors. The Company estimates that it had approximately 1,100 beneficial common shareholders as of March 30, 2001. 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 may 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's business operations. During the year ended December 31, 2000, the Company issued 58,000 shares of common stock to certain of its non-officer employees and consultants. During the year ended December 31, 2000, the Company issued a stock option to its Chief Executive Officer to purchase 25,000 shares of common stock with an exercise price of $0.25 per share. During the year ended December 31, 2000, the Company issued a stock option to its Chief Executive Officer to purchase 300,000 shares of common stock with an exercise price of $0.50 per share. 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. 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 current operating locations, the West Edmonton Mall Facility, the Atlanta Facility, and the New Jersey Facility, in August 1995, September 1998, and January 2000, respectively. Going Concern: The consolidated financial statements as of and for the year ended December 31, 2000 have 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 consolidated financial statements do not purport to represent the realizable or settlement values. The Company has suffered recurring operating losses and had a working capital deficit at December 31, 2000. In addition, the Company did not make several monthly payments to its primary secured lender during the latter part of the year ended December 31, 2000 and the early part of the year ending December 31, 2001. 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 believes that its previous efforts to reduce costs and operate more efficiently, combined with the March 1999 modified financing arrangements with the Company's secured lender, borrowings under the line of credit provided by the Company's Chief Executive Officer, and the opening of the New Jersey Facility, will generate improved cash flows, although there can be no assurances that such efforts will be successful. Furthermore, to the extent that the Company's Las Vegas Facility experiences a continuing decline in revenues, the Company's liquidity and ability to continue to conduct operations may be impaired. -9- The Company will require additional capital to fund operating and debt service requirements, as well as to fund expansion plans and possible acquisitions, mergers and joint ventures, including the amended joint venture agreement with Dave & Buster's, Inc. The Company is exploring various alternatives to raise this required capital, but there can be no assurances that the Company will be successful in this regard. To the extent that the Company is unable to secure the capital necessary to fund its future cash requirements on a timely basis and/or under acceptable terms and conditions, the Company may not have sufficient cash resources to maintain operations. In such event, the Company may be required to consider a formal or informal restructuring or reorganization. From time to time the Company may also consider a wide range of other business opportunities, some of which may be unrelated to the Company's current business activities and could also require additional capital, and could result in a change in control of the Company. Results of Operations: Years Ended December 31, 2000 and 1999 - Revenues increased by $302,702 or 12.3% to $2,760,309 in 2000, as compared to $2,457,607 in 1999, almost all of which was attributable to the New Jersey Facility, which opened in January 2000. Direct costs of revenues increased by $349,999 or 30.4% to $1,474,949 in 2000, as compared to $1,130,950 in 1999, primarily as a result of the opening of the New Jersey Facility in January 2000. Approximately $75,000 of start-up costs for the New Jersey Facility were incurred during January 2000. Direct costs of revenues were 53.4% of revenues in 2000, as compared to 46.0% of revenues in 1999. Selling and marketing costs increased by $99,796 or 67.5% to $247,588 in 2000, as compared to $147,792 in 1999, primarily as a result of increased marketing and promotional activities. General and administrative expenses decreased by $52,591 or 5.1% to $978,529 in 2000, as compared to $1,031,120 in 1999, primarily as a result of cost-cutting measures implemented by the Company. Depreciation and amortization decreased by 24.1% or $120,741, to $381,788 in 2000, as compared to $502,529 in 1999, primarily as a result of a reduction in depreciation and amortization related to the closure of the Times Square Facility in January 1998. Interest expense decreased by $16,471 or 8.2% to $184,422 in 2000, as compared to $200,893 in 1999, primarily as a result of a reduction in the outstanding principal balance on the note payable to lender and a reduction in the outstanding balance of capital lease obligations. Equity in net income (loss) of joint venture was $(6,715) in 2000, as compared to $48,403 in 1999 (see "ITEM 1. DESCRIPTION OF BUSINESS - Joint Ventures"). As consideration for providing a line of credit to the Company, the Company granted the Chief Executive Officer warrants to purchase 1,538,461 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. The Company calculated the fair value of the warrants issued to the Chief Executive Officer on the date of grant using the Black-Scholes option pricing model, and charged the fair value of $64,620 to operations as a loan commitment fee during the year ended December 31, 1999. -10- The Company recorded a net loss of $510,283 in 2000, as compared to a net loss of $559,941 in 1999. As of December 31, 2000, the Company had Federal and California net operating loss carryforwards of approximately $7,244,000 and $3,374,000, respectively, available to offset future Federal and California taxable income. The unused net operating loss carryforwards expire in various amounts through 2020 for Federal and through 2010 for California state purposes. Net deferred tax assets of approximately $2,733,000 at December 31, 2000 resulting from net operating losses, tax credits and other temporary differences have been offset by a 100% valuation allowance since management cannot determine whether it is more likely than not that such assets will be realized. Liquidity and Capital Resources: The Company utilized cash of $84,088 in operating activities during the year ended December 31, 2000, as compared to utilizing cash of $17,260 during the year ended December 31, 1999. The increase in cash utilized in operating activities in 2000 as compared to 1999 of $66,828 was primarily a result of the opening of the New Jersey Facility in January 2000 and a reduction in the Company's equity in net income (loss) of joint venture. At December 31, 2000, the Company's cash and cash equivalents had decreased by $210,355, to $109,834, as compared to $320,189 at December 31, 1999. The Company has also reclassified to current liabilities the non-current portion of notes payable to lender of $553,891 at December 31, 2000. As a result, the Company had a working capital deficit of ($874,385) at December 31, 2000, as compared to a working capital deficit of ($47,006) at December 31, 1999, resulting in current ratios of 0.16:1 and 0.88:1 at December 31, 2000 and 1999, respectively. Net cash provided by investing activities was $9,431 in 2000, as compared to $73,163 in 1999. Dividends from the joint venture were $44,223 in 2000, as compared to $110,697 in 1999. The Company received $8,069 and $85,000 in 2000 and 1999, respectively, as proceeds from the repayment of a loan to its Chief Executive Officer, including both principal and interest. The Company expended $42,861 and $122,535 in 2000 and 1999, respectively, for the purchase of fixed assets, primarily with respect to the New Jersey Facility. Net cash utilized in financing activities was $135,698 in 2000, as compared to net cash generated by financing activities of $23,946 in 1999. Principal payments on notes payable were $98,238 in 2000, as compared to $73,722 in 1999. Principal payments on capital lease obligations were $37,460 in 2000, as compared to $22,332 in 1999. During November 1999, the Company borrowed $120,000 from its Chief Executive Officer under the line of credit arranged in February 1999, which was utilized to fund the costs associated the installation and start-up of the New Jersey Facility, which opened in January 2000. The Company also financed the acquisition of fixed assets aggregating $65,384 for the New Jersey Facility through capital lease obligations in 1999. During the last few years the Company has relied on the proceeds from loans from both related and unrelated parties and capital leases to provide the resources necessary to develop its facilities and ride films and to operate its business. As of December 31, 2000, the Company did not have any capital expenditure commitments outstanding. 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, on a one-time only basis, its exclusivity right within the Forum Shops at Caesar's Palace Hotel and Casino to allow 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. Management does not believe that the Company has experienced any significant decrease in revenues at its Las Vegas Facility subsequent to that date as a result of the opening of the IMAX Simulator Theater. 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. -11- 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, this financing agreement was accounted for as a note payable for financial reporting purposes. 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. 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, 2001 to January 1, 2004, with no change in the balloon payment of $157,503. The loan bears interest at an annual rate of 16.75%. The financing agreement requires the Company to repurchase the equipment at the end of the lease for $1.00. The balance of the loan was $732,327 and $830,149 at December 31, 2000 and 1999, respectively. As a result of reduced cash flows generated by operations during the year ended December 31, 2000, Company did not make the monthly payments due the lender during the latter part of the year ended December 31, 2000 and the early part of the year ending December 31, 2001. Although the Company is in discussions with the lender to restructure its financing agreement, there can be no assurances that the Company will be successful in this regard. As a result, the Company has classified its entire obligation to the lender as a current obligation in the consolidated financial statements. On February 2, 1999, the Company entered into a loan agreement with the Company's Chief Executive Officer. The loan agreement amended outstanding notes receivable, including accrued interest, of approximately $90,000 from such officer so as to grant the Company the right to demand repayment within 90 days of a written request. In addition, the loan agreement included a line of credit of $120,000 from the Chief Executive Officer that expires on February 2, 2002, with interest at 12% per annum, which is secured by a lien on the Company's assets. As consideration for providing the line of credit, the Company granted the Chief Executive Officer warrants to purchase 1,538,461 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. Pursuant to this amended loan agreement, during November 1999, the Chief Executive Officer repaid $85,000 of his notes receivable, consisting of principal of $75,000 and accrued interest of $10,000, and the Company borrowed $120,000 from him under the line of credit. At December 31, 1999, the remaining balance of notes receivable from the Chief Executive Officer was $8,069, which was repaid during the year ended December 31, 2000. New Accounting Pronouncement: 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, 2000. 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, 2001. The Company does not anticipate that the adoption of SFAS No. 133 will have any impact on its financial statement presentation or 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 Effective February 5, 2001, BDO Seidman, LLP ("BDO") resigned as the independent accountants of the Company. Effective February 7, 2001, the Company engaged Hollander, Lumer & Co. LLP ("HLC") as the Company's new independent accountants. The retention of HLC was approved by the Company's Board of Directors. -12- Prior to the engagement of HLC, neither the Company, nor anyone on its behalf, consulted with HLC regarding either the application of accounting principles to a specific or contemplated transaction, or the type of audit opinion that might be rendered on the Company's financial statements; or any matter that was the subject of a disagreement or event as defined at Item 304 (a)(1)(iv) of Regulation S-B. BDO audited the Company's financial statements for the fiscal years ended December 31, 1999 and 1998. BDO's reports for these fiscal years did not contain an adverse opinion or a disclaimer of opinion, nor were they qualified as to audit scope or accounting principles. However, BDO's reports for these fiscal years were modified as to uncertainty with respect to the Company's ability to continue as a going concern. During the period from January 1, 1998 to December 31, 1999 and the period from January 1, 2000 to February 5, 2001, there were no disagreements with BDO on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of BDO, would have caused it to make reference to the subject matter of the disagreements in connection with its reports on the Company's financial statements. In addition, there were no such events as described under Item 304(a)(1)(iv)(B) of Regulation S-B during such periods. The Company provided BDO with a copy of the disclosures it has made herein in response to Item 304(a) of Regulation S-B, and requested that BDO provide its response letter, addressed to the United States Securities and Exchange Commission, pursuant to Item 304(a)(3) of Regulation S-B, stating whether it agreed with the statements made by the Company and, if not, stating the respects in which it did not agree. BDO confirmed by letter that it agreed with the statements made by the Company herein insofar as they related to BDO. Effective February 16, 2001, HLC merged with the accounting firm of Good Swartz Brown & Berns LLP ("GSBB"), as a result of which GSBB became the successor entity to HLC. As a result of this merger, GSBB subsequently acquired most of the accounting practice of HLC and became the independent accountants for the Company effective March 29, 2001. HLC did not issue an audit opinion on the Company's financial statements between February 7, 2001 and March 29, 2001. Prior to GSBB becoming the independent accountants for the Company, neither the Company, nor anyone on its behalf, consulted with GSBB regarding either the application of accounting principles to a specific or contemplated transaction, or the type of audit opinion that might be rendered on the Company's financial statements; or any matter that was the subject of a disagreement or event as defined at Item 304 (a)(1)(iv) of Regulation S-B. During the period from February 7, 2001 to March 29, 2001, there were no disagreements with HLC any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of HLC, would have caused it to make reference to the subject matter of the disagreements in connection with its reports on the Company's financial statements. In addition, there were no such events as described under Item 304(a)(1)(iv)(B) of Regulation S-B during such periods. The Company provided HLC with a copy of the disclosures it has made herein in response to Item 304(a) of Regulation S-B, and requested that HLC provide its response letter, addressed to the United States Securities and Exchange Commission, pursuant to Item 304(a)(3) of Regulation S-B, stating whether it agreed with the statements made by the Company and, if not, stating the respects in which it did not agree. HLC confirmed by letter that it agreed with the statements made by the Company herein insofar as they related to HLC. -13- 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 30, 2001. 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 herein 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. Name Age Position(s) - ---- --- ----------- Mitchell J. Francis 46 Chairman of the Board of Directors, President, Chief Executive Officer and Chief Financial Officer Benjamin Frankel 65 Director Norman Feirstein 52 Director 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 and President 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 numerous 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 Commission concerning their holdings of, and transactions in, securities of the Company. Copies of these filings must be furnished to the Company. -14- 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 2000. 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 at December 31, 2000 whose total compensation exceeded $100,000 during the fiscal years ended December 31, 1998, 1999 and 2000. Summary Compensation Table Name and Principal Other Annual All Other Position(s) Year Salary Compensation Compensation - ----------- ---- ------ ------------ ------------ Mitchell J. Francis 2000 $235,936 $30,965 (1) $ Chairman of the 1999 216,216 28,665 (2) 64,620 (4) Board of Directors, 1998 200,200 24,384 (3) President and Chief Executive Officer - ---------------------- (1) Includes $4,807 in disability insurance premiums, $13,387 in automobile expense, $6,399 in life insurance premiums, and $6,372 in medical insurance premiums paid to or on behalf of Mr. Francis in 2000. (2) Includes $4,575 in disability insurance premiums, $12,569 in automobile expense, $5,731 in life insurance premiums, and $5,790 in medical insurance premiums paid to or on behalf of Mr. Francis in 1999. (3) 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. (4) Represents the value of warrants to purchase 1,538,461 shares of common stock at an exercise price of $0.13 per share, the fair market value on the date of issuance, expiring on February 2, 2002. The warrants were issued as consideration for the Chief Executive Officer providing a $120,000 line of credit to the Company (see "ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - Liquidity and Capital Resources" and "ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS"). Board of Directors: During the year ended December 31, 2000, the Company had no meetings of the Board of Directors; all board actions were by unanimous written consent. For serving on the Board of Directors, directors who are not employees of the Company receive $2,000 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. 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. -15- 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, 2000, the Company entered into a three-year employment agreement with Mitchell J. Francis to serve as Chairman, President and Chief Executive Officer. The agreement provides for a base annual salary of $275,000, annual increases of 8%, and annual bonuses based on 6% of the Company's annual earnings before interest, taxes, depreciation and amortization in excess of $500,000. The agreement provides for the issuance of 300,000 stock options, with an exercise price of $0.50 per share, vesting in equal annual increments through September 1, 2003. The agreement also provides for the granting of additional stock options based on the opening of new locations and attaining and maintaining certain market prices for the Company's common stock. In addition, in the event the Company completes a new debt or equity financing, for each $1,000,000 of such funding, or fraction thereof on a pro rata basis, the Company shall issue to Mr. Francis shares of common stock equal to 5% of the Company's fully diluted shares outstanding. Pursuant to the Company's previous employment agreement with Mr. Francis that expired on August 31, 2000, the Company granted Mr. Francis stock options as follows: During September 1998, in conjunction with the opening of the Company's new facility in Atlanta, Georgia, 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 exercisable for a period of five years, and during January 2000, in conjunction with the opening of the Company's new facility in Elizabeth, New Jersey, 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 exercisable for a period of five years. Effective May 13, 1998, the Company entered into a severance agreement with Mr. 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 upon his termination without cause. 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. -16- 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 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 1998 and 1999. 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 then current fair market value of $0.39 per share, except for the Chief Executive Officer's stock options, which were repriced at 110% of the then current fair market value, or $0.43 per share. During the years ended December 31, 1999 and 2000, no officers of the Company were granted stock options under the Option Plan. A summary of stock options issued to the Company's officer under the Option Plan as of December 31, 2000 is presented below. No stock options were exercised during 1999 or 2000. Stock Option Value Table Number of Value of Shares of Unexercised Common Stock in-the-Money Underlying Stock Options at Stock Options Weighted Fiscal Year-End (1) ------------------ Exercise ------------------- Name Unvested Vested Price Unvested Vested - ---- -------- ------ ----- -------- ------ Mitchell J. Francis -0- 95,188 $0.43 $ - $ - ======= ====== ====== ====== - ------------------- (1) The dollar values are calculated by determining the excess, if any, of the market price for the common stock of $0.31 per share at December 31, 2000 over the weighted average exercise price of the stock options. As of December 31, 2000, none of the unexercised stock options were in-the-money. 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 30, 2001, the Company had a total of 789,823 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. -17- The following table sets forth, as of March 30, 2001: (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. Percent of Name and Address Amount and Nature of Shares of Common of Beneficial Owner Beneficial Ownership Stock Outstanding (2) - ------------------- -------------------- ----------------- Mitchell J. Francis (1) 1,832,767 (3) 72.3% Benjamin Frankel (1) 8,750 (4) 1.1% Norman Feirstein (1) 6,250 (5) .8% All directors and executive officers as a group (3 persons) 1,847,767 (6) 72.5% - ---------------------- (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 30, 2001, plus, with respect to each named person, the number of shares of common stock which the stockholder has the right to acquire upon exercise of stock options. (3) Includes 1,746,149 shares of common stock issuable upon exercise of stock options and warrants granted to Mitchell J. Francis, but excludes 300,000 shares of common stock issuable upon exercise of stock options which had not vested as of March 30, 2001 (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 6,250 shares of common stock issuable upon exercise of stock options 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 6,250 shares of common stock issuable upon exercise of stock options granted to Mr. Feirstein. (6) Includes 1,758,649 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 As of December 31, 1998, the amount due from the Company's Chief Executive Officer, Mitchell J. Francis, in connection with loans made to him in prior years aggregated $89,631, consisting of principal of $75,000 and accrued interest of $14,631. During November 1999, the Chief Executive Officer repaid $85,000 of the loan balance, consisting of principal of $75,000 and accrued interest of $10,000. As of December 31, 1999, the remaining accrued interest due from the Chief Executive Officer was $8,069, which was paid during the year ended December 31, 2000. -18- During the year ended December 31, 1999, the Company issued 6,473 shares of common stock to Toufic R. Bassil, its then Chief Financial Officer, and recorded the fair market value of the shares of $809 as compensation expense. On February 2, 1999, the Company entered into a loan agreement with its Chief Executive Officer, Mitchell J. Francis. The loan agreement amended outstanding notes receivable, including accrued interest, of approximately $90,000 from such officer so as to grant the Company the right to demand repayment within 90 days of a written request. In addition, the loan agreement included a line of credit of $120,000 from the Chief Executive Officer expiring on February 2, 2002, with interest at 12% per annum, secured by a lien on the Company's assets. As consideration for providing the line of credit, the Company granted the Chief Executive Officer warrants to purchase 1,538,461 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. Pursuant to this amended loan agreement, during November 1999, the Company borrowed $120,000 from the Chief Executive Officer under the line of credit. 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, 2000. -19- 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) /s/ MITCHELL J. FRANCIS Date: April 12, 2001 By: ___________________________ 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. /s/ MITCHELL J. FRANCIS Date: April 12, 2001 By: ___________________________ Mitchell J. Francis Chief Executive Officer, President, Chief Financial Officer and Chairman of the Board of Directors /s/ BENJAMIN FRANKEL Date: April 12, 2001 By: ___________________________ Benjamin Frankel Director /s/ NORMAN FEIRSTEIN Date: April 12, 2001 By: ___________________________ Norman Feirstein Director -20- 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. (6) 10.14 Form of employment agreement with Mitchell J. Francis dated September 1, 2000. (7)(C) 10.16 Joint Venture Agreement with Dave & Buster's, Inc. dated May 29, 1998. (6) 10.17 Loan Agreement between the Company and Mitchell J. Francis dated February 2, 1999. (6) 10.18 1995 Directors Stock Option Plan. (6) (C) 10.19 Warrant expiring February 2, 2002 to Mitchell J. Francis. (6) 10.20 Lease between the Company and Jersey Gardens Mall dated October 19, 1999. 21 Subsidiaries of the Registrant. (6) - ----------------------- (1) Previously filed as an Exhibit to the Company's Registration Statement on Form SB-2, and incorporated herein by reference. (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. (3) 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. (4) 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. (5) Previously filed as an Exhibit to the Company's Quarterly Report on Form 10-QSB for the quarterly period ended September 30, 1997, and incorporated herein by reference. (6) Previously filed as an Exhibit to the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1998, and incorporated herein by reference. (7) Filed herein. (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. -21- CINEMA RIDE, INC. AND SUBSIDIARIES YEARS ENDED DECEMBER 31, 2000 AND 1999 CONTENTS Page Independent auditors' report - 2000 F-1 Independent auditors' report - 1999 F-2 Financial statements Consolidated balance sheets F-3 Consolidated statements of operations F-5 Consolidated statements of stockholders' equity F-6 Consolidated statements of cash flows F-7 Notes to consolidated financial statements F-8 Independent Auditors' Report Board of Directors and Stockholders Cinema Ride, Inc. Studio City, California We have audited the accompanying consolidated balance sheet of Cinema Ride, Inc. and Subsidiaries as of December 31, 2000 and the related consolidated statements of operations, stockholders' equity and cash flows for the year then ended. 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 audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 audit provides 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, 2000, and the results of its operations and cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. 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. GOOD SWARTZ BROWN & BERNS, LLP. Los Angeles, California April 6, 2001 F-1 Report of Independent Certified Public Accountants Board of Directors and Stockholders Cinema Ride, Inc. Studio City, California We have audited the accompanying consolidated balance sheet of Cinema Ride, Inc. and Subsidiaries as of December 31, 1999 and the related consolidated statements of operations, stockholders' equity and cash flows for the year then ended. 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 audit 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 audit provides 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, 1999, and the results of their operations and cash flows for the year then ended, 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. BDO Seidman, LLP Los Angeles, California March 6, 2000 F-2
CINEMA RIDE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2000 AND 1999 ASSETS 2000 1999 ----------- ----------- Current assets Cash and cash equivalents $ 109,834 $ 320,189 Prepaid expenses and other current assets 57,791 25,804 ----------- ----------- Total current assets 167,625 345,993 ----------- ----------- Property and equipment Office equipment and furniture 110,033 105,249 Equipment under capital lease 208,236 204,858 Leasehold improvements 1,062,582 1,051,723 Theater and film equipment 1,696,972 1,673,132 ----------- ----------- 3,077,823 3,034,962 Less accumulated depreciation (1,989,420) (1,688,658) ----------- ----------- 1,088,403 1,346,304 ----------- ----------- Other assets Film library, net of accumulated amortization of $940,193 and $869,930 for 2000 and 1999, respectively 152,577 222,840 Investment in joint venture 360,725 411,663 Receivables from officers -- 8,069 Consulting agreement 18,207 28,611 Deferred lease costs and other assets 91,826 123,967 ----------- ----------- 623,335 795,150 ----------- ----------- $ 1,879,363 $ 2,487,447 =========== =========== See notes to consolidated financial statements. F-3
CINEMA RIDE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - Continued DECEMBER 31, 2000 AND 1999 LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999 ----------- ----------- Current liabilities Accounts payable and accrued expenses $ 260,829 $ 219,125 Current portion of capital lease obligations 48,854 40,381 Current portion of note payable to lender 732,327 133,077 Current portion of note payable to bank -- 416 ----------- ----------- Total current liabilities 1,042,000 392,999 ----------- ----------- Long-term debt Obligations under capital lease, less current portion 38,727 84,660 Note payable to lender, less current portion -- 697,072 Loan payable, officer 120,000 120,000 Deferred rent 63,254 84,061 ----------- ----------- 221,981 985,793 ----------- ----------- Commitments (Note 12) Stockholders' equity Preferred stock, $.01 par value; 500,000 shares authorized; none issued -- -- Common stock, $.08 par value; 20,000,000 shares authorized; 789,823 shares issued and outstanding 63,186 58,546 Additional paid-in capital 9,224,569 9,212,209 Accumulated deficit (8,672,383) (8,162,100) ----------- ----------- 615,372 1,108,655 $ 1,879,363 $ 2,487,447 =========== =========== See notes to consolidated financial statements. F-4
CINEMA RIDE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2000 AND 1999 2000 1999 ----------- ----------- Revenues $ 2,760,309 $ 2,457,607 Direct costs of revenues 1,474,949 1,130,950 Selling and marketing expenses 247,588 147,792 General and administrative expenses 978,529 1,031,120 Depreciation and amortization 381,788 502,529 ----------- ----------- Loss from operations (322,545) (354,784) Other income (expense) Equity in net income (loss) of joint venture (6,715) 48,403 Interest income 3,399 11,953 Interest expense (184,422) (200,893) Fair value of warrants issued to officer as commitment fee for line of credit -- (64,620) ----------- ----------- (187,738) (205,157) ----------- ----------- Net loss $ (510,283) $ (559,941) =========== =========== Basic and diluted loss per common share $ (0.66) $ (0.77) =========== =========== Basic and diluted weighted average common shares outstanding 778,740 731,823 =========== =========== See notes to consolidated financial statements. F-5
CINEMA RIDE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2000 AND 1999 Common stock Additional Total --------------------------- paid-in Treasury Accumulated stockholders' Shares Amount capital stock deficit equity ----------- ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1998 731,823 $ 58,546 $ 9,175,780 $ (29,000) $(7,602,159) $1,603,167 Issuance of treasury stock to officer at market value -- -- (28,191) 29,000 -- 809 Issuance of warrants to officer -- -- 64,620 -- -- 64,620 Net loss -- (559,941) (559,941) ----------- ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1999 731,823 58,546 9,212,209 -- (8,162,100) 1,108,655 Common stock issued for services rendered 58,000 4,640 12,360 -- 17,000 Net loss -- (510,283) (510,283) ----------- ----------- ----------- ----------- ----------- ----------- Balance, December 31, 2000 789,823 $ 63,186 $ 9,224,569 $ $(8,672,383) $ 615,372 =========== =========== =========== =========== =========== =========== See notes to consolidated financial statements. F-6
CINEMA RIDE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2000 AND 1999 2000 1999 --------- --------- Cash flows from operating activities Net loss $(510,283) $(559,941) Adjustments to reconcile net loss to cash used by operating activities Depreciation and amortization 381,788 502,529 Common stock issued to employees and outside consultants 17,000 809 (Income) loss in equity of joint venture 6,715 (48,403) Amortization of consulting agreement 10,404 10,405 Amortization of deferred financing costs 12,418 12,418 Warrants issued to officer -- 64,620 Interest income on loan to officer -- (3,438) Changes in operating assets and liabilities Inventories -- 8,666 Prepaid expenses and other current assets (31,987) 36,773 Deposits 8,960 9,532 Accounts payable and accrued expenses 41,704 (26,134) Deferred rent (20,807) (25,096 --------- --------- Net cash used by operating activities (84,088) (17,260) --------- --------- Cash flows from investing activities Dividends received from joint venture 44,223 110,697 Decrease in receivable from officer 8,069 85,000 Purchase of fixed assets (42,861) (122,535) --------- --------- Net cash provided by investing activities 9,431 73,162 --------- --------- Cash flows from financing activities Proceeds from loan payable to officer -- 120,000 Payments on notes payable (98,238) (73,722) Principal payments under capital lease obligations (37,460) (22,332) --------- --------- Net cash provided by (used in) financing activities (135,698) 23,946 --------- --------- Net increase (decrease) in cash and cash equivalents (210,355) 79,848 Cash and cash equivalents, beginning of year 320,189 240,341 --------- --------- Cash and cash equivalents, end of year $ 109,834 $ 320,189 ========= ========= Supplemental disclosures of cash flow information Cash paid for Interest $ 165,635 $ 200,885 ========= ========= Non-cash financing and investing activities Common stock issued for services $ 17,000 $ -- ========= ========= Purchase of fixed assets by leasing $ -- $ 65,384 ========= ========= See notes to consolidated financial statements. F-7
CINEMA RIDE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2000 AND 1999 1. Basis of presentation - going concern The accompanying consolidated financial statements have 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 accompanying consolidated financial statements do not purport to represent the realizable or settlement values. The Company has suffered recurring operating losses and had a working capital deficit at December 31, 2000. In addition, the Company did not make several monthly payments to its primary secured lender during the latter part of the year ended December 31, 2000 and the early part of the year ending December 31, 2001. As a result of these factors, the Company's independent certified public accountants have expressed substantial doubts about the Company's ability to continue as a going concern. The Company believes that its previous efforts to reduce costs and operate more efficiently, combined with the March 1999 modified financing arrangements with the Company's secured lender, borrowings under the line of credit provided by the Company's Chief Executive Officer, and the opening of the New Jersey Facility, will generate improved cash flows, although there can be no assurances that such efforts will be successful. Furthermore, to the extent that the Company's Las Vegas Facility experiences a continuing decline in revenues, the Company's liquidity and ability to continue to conduct operations may be impaired. The Company will require additional capital to fund operating and debt service requirements, as well as to fund expansion plans and possible acquisitions, mergers, and joint ventures, including the amended joint venture agreement with Dave & Buster's, Inc. The Company is exploring various alternatives to raise this required capital, but there can be no assurances that the Company will be successful in this regard. To the extent that the Company is unable to secure the capital necessary to fund its future cash requirements on a timely basis and/or under acceptable terms and conditions, the Company may not have sufficient cash resources to maintain operations. In such event, the Company may be required to consider a formal or informal restructuring or reorganization. From time to time the Company may also consider a wide range of other business opportunities, some of which may be unrelated to the Company's current business activities and could also require additional capital, and could result in a change in control of the Company. F-8 CINEMA RIDE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued YEARS ENDED DECEMBER 31, 2000 AND 1999 2. Summary of significant accounting policies and business activity 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, Nevada 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, 2000 and 1999, revenues and long-lived assets for Cinema Ride Edmonton, Inc. were $258,098 and $236,308 and $178,674 and $302,712, respectively. The Company opened a new facility in Elizabeth, New Jersey under the Cinema Ride Times Square, Inc. subsidiary on January 20, 2000. During the years ended December 31, 2000 and 1999, revenues and long-lived assets for the New Jersey location were $396,093 and -0- and $178,609 and $166,538, respectively All significant intercompany transactions and balances have been eliminated in consolidation. Concentration of credit risk The Company maintains cash balances at various financial institutions. Deposits not to exceed $100,000 for each institution are insured by the Federal Deposit Insurance Corporation. The Company exceeded the issuance limit at various times during the year. Property and equipment Property and equipment are stated at cost. Depreciation is provided at the time property and equipment is placed in service using the straight-line method over the estimated useful lives of the assets which range from five to ten years. F-9 CINEMA RIDE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued YEARS ENDED DECEMBER 31, 2000 AND 1999 2. Summary of significant accounting policies and business activity - Continued Film production costs Film production costs are stated at the lower of amortized cost or market. Upon completion, film production costs are amortized on an individual production basis in the proportion that current gross revenues bear to management's estimate of total gross revenues with such estimates being reviewed at least quarterly. Deferred lease costs Deferred lease costs represent amounts paid in connection with the successful negotiation of the Company's leases. Costs are amortized on a straight-line basis over the term of the 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 financial instruments The carrying amounts of financial instruments including cash and cash equivalents and accounts payable approximate 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, 2000 The fair value of receivables from officers cannot be determined due to their related party nature. Foreign currency translation Foreign currency denominated assets and liabilities of the 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 losses in 2000 and 1999 were $979 and $1,746, respectively. F-10 CINEMA RIDE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued YEARS ENDED DECEMBER 31, 2000 AND 1999 2. Summary of significant accounting policies and business activity - Continued Stock-based compensation Statements of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123) establishes a fair value method of accounting for stock-based compensation plans and for transactions in which an entity acquires goods or services from nonemployees in exchange for equity instruments. 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 The Company adopted 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. Since the Company incurred losses in 2000 and 1999, basic and diluted per share amounts are the same. For the year ended December 31, 2000, potential common stock representing 197,118 outstanding stock options and 1,131,586 outstanding warrants are not included since their effect would be anti-dilutive. For the year ended December 31, 1999, potential common stock representing 197,118 outstanding stock options and 1,899,535 outstanding warrants are not included since their effect would be anti-dilutive. Statement of cash flows For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents. F-11 CINEMA RIDE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued YEARS ENDED DECEMBER 31, 2000 AND 1999 2. Summary of significant accounting policies and business activity - Continued Seasonality of business Because of the seasonal nature of tourist traffic, 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 August (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. Reclassifications: Certain reclassifications of 1999 amounts have been made to conform with the 2000 presentation. Accounting estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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 Long-Lived Assets Statement of Financial Accounting Standards No. 121, "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. F-12 CINEMA RIDE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued YEARS ENDED DECEMBER 31, 2000 AND 1999 3. Receivables from officers and consulting agreement The Company is amortizing the balance of a consulting agreement with a former officer over the period of the consulting contract. The balance of the remaining unamortized consulting agreement at December 31, 2000 and 1999 are $18,207 and $28,611, respectively. 4. Investment in joint venture On May 29, 1998, the Company entered into a three-year 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. The Company incurred $95,924 in transportation and installation costs relating to this facility in addition to $367,683 in equipment costs. 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 the joint venture under the equity method of accounting whereby the Company recognizes its 50% 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. The Company received dividends from the joint venture of $86,543 and $110,697 in 2000 and 1999, respectively. Summarized financial information for the joint venture is as follows: Year ended December 31, ------------------------------ 2000 1999 ------------ ------------- Sales $ 234,674 $ 218,024 Net income 148,780 171,664 December 31, ----------------------------- 2000 1999 ------------ ------------- Non-current assets $ 360,725 $ 450,085 F-13 CINEMA RIDE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued YEARS ENDED DECEMBER 31, 2000 AND 1999 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: 2000 1999 ------------ ------------ Net operating loss carryforward $ 2,733,013 $ 2,581,105 Less valuation allowance (2,733,013) (2,581,105) ----------- ----------- $ - $ - =========== =========== 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, 2000, for federal income tax purposes, the Company has approximately $7,244,000 in net operating loss carryforwards expiring through 2020. As of December 31, 2000, for State tax purposes, the Company has approximately $3,374,000 in net operating loss carryforwards expiring through 2010. 6. Obligations under capital leases Minimum future lease payments under capital lease obligations for equipment are as follows: Year ended December 31, 2001 $ 57,497 2002 36,845 2003 2,075 2004 1,861 Thereafter - ----------- 98,278 Amount representing interest (10,697) --------- Present value of minimum lease payments $ 87,581 ========= At December 31, 2000, equipment included assets under capitalized lease obligations of $208,236 less accumulated amortization of $152,737. F-14 CINEMA RIDE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued YEARS ENDED DECEMBER 31, 2000 AND 1999 7. Note payable to bank On March 6, 1996, Cinema Ride Edmonton, Inc. obtained a $40,328 loan ($55,000 Canadian dollars) from a Canadian bank at Canadian prime plus two percent (total interest is 8.5% at December 31, 1999). 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, 2000 and 1999, $0 and $416, remained unpaid on this loan. 8. Note payable to lender On December 31, 1996, the Company closed a financing agreement (the "Financing Agreement") with Finova Technology Finance, Inc. (the "Lender") structured as a sale leaseback transaction of certain equipment owned by the Company. Based on the substance of this transaction, the Financing Agreement was accounted for as a note payable for financial reporting purposes. The gross loan amount was for $1,575,027 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 16.75%. 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, 2000 and 1999 was $732,327 and $830,149, respectively. As of December 31, 2000, the Company was delinquent on its last three monthly payments and has classified this Note as current. Management is restructuring its agreement with the lender. Minimum future payments under note payable to lender cannot be determined because of the Company's delinquency and debt restructuring negotiations. F-15 CINEMA RIDE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued YEARS ENDED DECEMBER 31, 2000 AND 1999 9. Loan payable to officer On February 2, 1999, the Company entered into a loan agreement with its Chief Executive Officer. The loan agreement amends the existing notes payable to the officer so as 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 October 31, 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 1,538,461 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. 10. Capital stock transactions On February 2, 1999, the Company issued 6,473 shares of treasury stock to its former Chief Financial Officer with an aggregate fair value of $809. The Company recorded the then fair market value of the shares as additional compensation to the employee, with the difference between the fair market value of the shares and the amount recorded as treasury stock being recorded to additional paid-in capital. 11. Stock-based compensation plans At December 31, 2000, the Company had various stock-based compensation plans, which are described below. 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 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). F-16 CINEMA RIDE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued YEARS ENDED DECEMBER 31, 2000 AND 1999 11. Stock-based compensation plans - Continued 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. Option Activity Options activity during the years ended December 31, 2000 and 1999 is as follows: Weighted average Options price ------- --------- Balance outstanding, December 31, 2000 and 1999 197,188 0.40 Options exercisable December 31, 2000 and 1999 160,063 0.42 F-17 CINEMA RIDE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued YEARS ENDED DECEMBER 31, 2000 AND 1999 11. Stock-based compensation plans - Continued Option Activity Information relating to stock options at December 31, 2000 summarized by exercise price are as follows:
Outstanding Exercisable ------------------------------------------- ------------------------------- Weighted Average Weighted Average Exercise Price Life Exercise Exercise Per Share Shares (Years) Price Shares Price - --------------------- --------- ---------- ------------ ----------- ------------ $0.43 132,688 5.3 $ 0.43 122,506 $ 0.43 $0.39 37,000 6.3 $ 0.39 30,890 $ 0.39 $0.38 2,500 9.5 0.38 417 0.38 $0.25 25,000 4.0 $ 0.25 6,250 $ 0.25 --------- ---------- ------------ ----------- ------------ $0.25 - $0.43 197,188 5.4 $ 0.40 160,063 $ 0.42 ===================== ========= ========== ============ =========== ============
In addition to the above, the Company issued 325,000 warrants in 2000 to its Chief Executive Officer, of which 300,000 of the warrants vest equally over a three year period. The 25,000 warrants were vested 100% in 2000. For purposes of pro forma disclosure below, the compensation cost of these warrants will be recognized over the vesting period. All stock options and warrants issued to employees have an exercise price not less than the fair market value of the Company's common stock on the date of grant, and in accordance with accounting for such options utilizing the intrinsic value method there is no related compensation expense recorded in the Company's financial statements. Had compensation cost for stock-based compensation been determined based on the fair value at the grant dates consistent with the method of SFAS 123, the Company's net loss and loss per share for the years ended December 31, 2000 and 1999 would have been adjusted to the pro forma amounts presented below: December 31, --------------------------------- 2000 1999 -------------- -------------- Net loss As reported $ (510,283) $ (559,941) Pro forma (522,033) (582,818) Loss per share As reported $ (0.66) $ (0.77) Pro forma $ (0.67) $ (0.80) ============== ================ 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 2000 and 1999, expected life of 3 and 10 years: expected volatility of 208% and 665%, risk-free interest rates of 6.1% and 6.5%, and a 0% dividend yield. The weighted average fair value at date of grant for options granted during 2000 and 1999 approximated $.47 and $0.38 per option, respectively. F-18 CINEMA RIDE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued YEARS ENDED DECEMBER 31, 2000 AND 1999 12. Commitments The Company leases office space for its corporate headquarters in Studio City, California. Additionally, the Company leases retail space for its attractions in Las Vegas, Nevada, Edmonton, Canada and Elizabeth, New Jersey. 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, 2000 and 1999 was $63,253 and $84,061, which also includes deferred rent on the corporate office lease. Minimum future rental payments for each of the next five years and thereafter is as follows: Year ending December 31, 2001 $ 419,033 2002 420,251 2003 426,859 2004 338,567 Thereafter 166,313 ----------- $1,771,023 =========== In addition, some leases require the payment of additional rent if sales exceed a certain level. Effective September 1, 2000, the Company entered into a three-year employment agreement with its Chief Executive Officer. The agreement provides for a base annual salary of $275,000, annual increases of 8%, and 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 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. F-19 CINEMA RIDE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued YEARS ENDED DECEMBER 31, 2000 AND 1999 12. Commitments - Continued Effective May 13, 1998, the Company entered into a severance agreement with its Chief Executive Officer that provided for certain compensation in the event of a change in control of the Company. The terms of the severance agreement were through June 30, 1999, at which time they were 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 agreement entitles the Chief Executive Officer to receive a severance payment of five times his current annual salary upon his termination without cause. F-20 EX-10.14 2 0002.txt EMPLOYMENT AGREEMENT Exhibit 10.14 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of the 1st day of September, 2000, by and between Cinema Ride, Inc., a Delaware corporation (hereinafter the "Company"), and Mitch Francis, an individual (hereinafter "Employee"). WITNESSETH WHEREAS, the Company desire to retain the services of Employee, and Employee is willing to be an employee of the Company, on the terms and subject to the conditions hereinafter set forth. NOW, THEREFORE, for and in consideration of the mutual promises herein contained, the parties hereto hereby agree as follows; 1. Engagement; Nature of Duties. The Company hereby engages Employee, for the period hereinafter set forth, to serve as and hold the offices of Chairman of the Board, President and Chief Executive Officer, and to perform the duties of such offices as provided in the Bylaws of the Company and as directed by the Board of Directors of the Company. Employee agrees to serve in such capacity and to do and perform the service, acts, or things necessary to carry out the duties of such offices, and such other duties, not inconsistent with such offices and Employee's position as an executive officer of the Company. Employee shall report only to the Board of Directors of the Company. It is expressly agreed and acknowledged that employment in the capacity of the aforementioned offices was a material inducement to Employee to enter into this Agreement. The Company further agrees and acknowledges that election, and being retained in office, as a director was a material inducement to Employee to enter into this Agreement. The Company agrees to cause Employee to be nominated as a director at any and all meetings, or any actions of the stockholders of the Company for the purpose of electing directors, and to use the Company's best efforts to cause Employee to be elected and retained in office as a director throughout the term of this Agreement. 2. Term. The term of employment pursuant to this Agreement shall be for a period of three (3) years, commencing on September 1, 2000 (the "Commencement Date"), unless sooner terminated in accordance with the provisions hereof (the "Term"). 1 3. Performance of Duties. Employee shall devote such time and attention to Employee's duties as may be reasonably necessary to perform and carry out such duties. Nothing herein contained shall be deemed to preclude Employee from performing services to other businesses or entities not affiliated with the Company or having personal investments and from devoting a reasonable amount of time to the care and attention thereof, provided that the same shall in no manner interfere with or derogate from Employee's work for the Company or conflict with the Company's business. Employee shall perform his duties hereunder primarily in the Los Angeles, California area, and shall not be required to perform such duties on a regular basis at any other location except for site visits. Employee shall not be required to relocate without his consent. 4. Compensation. (a) Base Salary. The Company shall pay to Employee a base salary in the amount of Two Hundred Seventy-five Thousand Dollars ($275,000) per year (the "Base Salary"), payable in periodic installments in accordance with the Company's prevailing policy for compensating personnel, but not less often than semi monthly. On each yearly anniversary of the Commencement Date (September 1, 1997), the Base Salary shall be increased by eight percent (8%). (b) Earnings Bonus. In addition to the Base Salary, and any and all other compensation, profit-sharing participating, benefits, bonuses or other amounts due to or receivable by Employee pursuant to this Agreement, Employee shall receive an annual bonus (the "Earnings Bonus") equal to six (6%) percent of the Company's annual earnings before interest, taxes, depreciation and amortization (ebitda) in excess of $500,000. A pro rata portion of the Earnings Bonus (calculated by annualizing the year to date ebitda and taking into account any Earnings Bonus paid for any prior periods) shall be due and payable within forty-five (45) days of each calendar quarter and shall be adjusted within ninety (90) days after the calendar (or the Company's fiscal) year end. In the event that this Agreement terminates prior to a final accounting of the Earnings Bonus, if any, for the applicable year, Employee shall repay any overpayment within 45 days of the final accounting. (c) Grant of Common Stock. Upon the funding of new capital or new debt for borrowed money to the Company, the Company shall grant Employee a number of shares of the Company's Common Stock equal to five (5%) percent of the Company's outstanding common and preferred shares, (after such new capital or debt and on a non-dilutive basis), for each One Million ($1,000,000) dollars of such funding, or fraction thereof on a pro rata basis. 2 (d) Options. Effective on the Commencement Date, the Company shall grant to Employee 300,000 options to purchase shares of the Company's Common Stock at an exercise price of $.50 per share. Such options shall be vested equally over three (3) years (100,000 options on 9/1/01, 100,000 options on 9/1/02 and 100,000 options on (9/1/03) and shall be for a term of five years from the Commencement Date. If Employee voluntarily leaves or is terminated by the Company with cause, all unvested options shall automatically terminate. If Employee is terminated without cause, the options shall not terminate. The Company shall use its best efforts to register the resale of the underlying shares of Common Stock on Form S-8. (e) Performance Warrants. During the Term hereof, the Company shall grant to Employee options to purchase shares of the Company's Common Stock upon the following occurrences and terms: (1) Stock price for 20 consecutive trading days at $1.00 per share: 100,000 options exercisable @ $1.00 (2) Stock price for 20 consecutive trading days at $1.50 per share: 150,000 options exercisable @ $1.50 (3) Stock price for 20 consecutive trading days at $2.00 per share: 200,000 options exercisable @ $2.00 (4) Stock price for 20 consecutive trading days at $3.00 per share: 200,000 options exercisable @ $3.00 (5) Stock price for twenty consecutive trading days at $4.00 per share: 300,000 options exercisable @ $4.00 (6) Stock price for twenty consecutive trading days at $5.00 per share: 300,000 options exercisable @ $5.00 (7) Upon opening each new Company owned, or joint ventured new facility, or Mobile system put into operation: 100,000 options exercisable at the price of the common stock on the day of opening. As used herein, the stock price shall be the closing bid price and shall be appropriately adjusted for any stock splits, stock dividends, recapitalizations etc. occurring after the Commencement Date. 4 5. Expenses Reimbursement; Automobile. The services required of Employee by this Agreement shall include the responsibility and duty of entertaining business associates and others with whom the Company is, desires to be, or may become engaged in business or with whom it seeks, now or in the future, to develop or expand business relationships, or with whom it is otherwise to the benefit of the Company to establish or maintain communications. It may also be necessary for Employee to travel from time to time on behalf of and for the benefit of the Company, or in furtherance of the Company's business. It is the Company's belief that the performance of Employee's duties in such travel and entertainment activities will produce the maximum benefits which the Company expects to derive from Employee's services. Accordingly, the Company shall pay, or if Employee shall have paid, shall reimburse to Employee, any and all expenses incurred by him or for his account in the performance of his duties hereunder, including all expenses for business, entertainment, promotion and travel by Employee, subject only to Employee providing appropriate documentation for such expenses. It is expressly agreed, in connection therewith, that Employee shall be provided or reimbursed for reasonable travel and accommodations, but no first-class air travel will be deemed reasonable, (unless under special price offering). The Company shall provide Employee with an automobile, reasonably commensurate with Employee's office and position, for use by Employee in performing Employee's, duties hereunder and the Company shall be responsible for all expenses associated with ownership/leasing of such automobile, including, but not limited to, costs of licensing or registration, maintenance, taxes and gasoline. Employee shall maintain such records with respect to the use of such automobile as the Company may reasonably request. In the event that Employee shall be deemed to have received income, for state or federal income tax purposes, by reason of Employee's receipt of or reimbursement for any of the benefits or expenses set forth in this Paragraph 5, the Company shall pay or reimburse Employee for all taxes required to be paid by Employee with respect to such income. 6. Medical and Life Insurance; Pension Benefits. The Company shall provide or reimburse Employee for health, life (premiums up to $5,000 per year), and disability income (up to $20,000 per month coverage) insurance. Coverage under any group health insurance shall also cover Employee's spouse. Employee shall also have the right to participate in any and all employee retirement benefits plan or profit-sharing plan which the Company maintains for its personnel, and in effect at any time during the period of Employee's employment hereunder, subject only to any eligibility restrictions of such plans. 7. Vacation. During each year of the Term, Employee shall be entitled to a vacation of six (6) weeks, without deduction of salary. Such vacation shall be taken at such time or times during the applicable year as may be mutually determined by Employee and the Company. Any additional vacation period shall be determined by the Company consistent with the general customs and practices of the Company applicable to its personnel. 8. Termination. This Agreement may be terminated by the Company only for cause. As used herein, "cause" shall mean: (a) Employee's willful breach of Employee's duties hereunder which breach remains uncured for (30) days after written notice of such breach to Employee; or 4 (b) Employee's conviction of a felony involving moral turpitude. In addition, this Agreement shall automatically be terminated upon Employee's death or permanent disability. As used herein, "permanent disability" shall mean Employee's complete inability to perform Employee's duties hereunder, as determined by Employee's physician, which inability continues for more than one-hundred eighty (180) consecutive days. In the event that this Agreement is terminated by the Company for any reason other than for cause or for death or permanent disability as defined above, the Company expressly agrees and acknowledges that Employee shall be entitled to receive the base salary, bonuses and benefits described in Section 5 of this Agreement for the remainder of the term and shall have no duty or obligation to and/or accept other employment, or otherwise mitigate Employee's damage resulting from such termination. The Company further agrees and acknowledges that, in the event Employee does obtain other employment following the Company's termination of this Agreement other than for cause, the Company shall not be entitled to any set off or reduction in the amounts payable to Employee hereunder as a result of any compensation paid to Employee with respect to such new employment. 9. Indemnification. The Company shall indemnify, defend and hold Employee harmless from and against and all claims, demands, suits, obligations, liabilities, actions, losses, cost, expenses, fines or penalties which may now or hereafter be pending, threatened or commenced against or incurred by Employee relating to or in any way resulting from Employee's performance of his duties hereunder, or any action or failure to act to Employee in connection with such duties. Employee's rights under this Section 9 shall be in addition to, and not in lieu of or, any and all other rights of Employee under applicable law or any agreement with the Company regarding indemnification. 10. Confidential Information. (a) As used in this Agreement "Confidential Information" means any and all information disclosed to Employee or which Employee gains knowledge of as a consequence or through Employee's employment by the Company (including information conceived, originated, discovered or developed by Employee) about the Company's products, processes, and services, including information relating to research, development, inventions, manufacture, purchasing, accounting, engineering, marketing, merchandising, selling trade secrets, or customer lists, which information the Company maintains as confidential. 5 (b) Except as required in Employee's duties to the Company and then only with the Company's prior written consent, Employee will not, directly or indirectly, use for Employee's own benefit or the benefit of others, or disseminate, disclose, comment upon or publish articles concerning, any Confidential Information either during or at any time after the term of this Agreement without the Company's consent. (c) All documents, papers, notes, notebooks, memoranda, computer files, and other written electronic records of the Company of any kind in the possession or under the control of Employee, shall remain in the property of the Company at all times. Upon the termination of Employee's employment with the Company, all documents, papers, notes, notebooks, memoranda, computer files and other written or electronic records in Employee's possession, whether prepared by Employee or others will be left with Company. 11. Notices. Any and all notices which are required or permitted to be given by any party to any other party hereunder shall be given in writing, sent by registered or certified mail, electronic communications (including telegram or facsimile) followed by a confirmation letter sent by registered or certified mail, postage prepaid, return receipt requested, or delivered by hand or messenger service with the charges therefor prepaid, addressed to such party as follows: (a) Notice to the Employee: Mitch Francis 12001 Ventura Place Suite 340 Studio City, CA 91604 Telecopy No. (818) 761-1072 (b) Notice to the Company: Cinema Ride, Inc. 12001 Ventura Place Suite 340 Studio City, CA 91604 Telecopy No. (818) 761-1072 or to such other address as the parties shall from time to time give notice of in accordance with this Section. Notices sent in accordance with this Section shall be deemed effective on the date of dispatch, and an affidavit of mailing or dispatch, executed under penalty of perjury, shall be deemed presumptive evidence of the date of dispatch. 6 12. Entire agreement and Modification. This Agreement, including the exhibits hereto and the agreements expressly referred to herein, constitutes the entire understanding between the parties pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written. There are no warranties, representations or other agreements between the parties, in connection with the subject matter hereof, except as specifically set forth herein. No supplement, modification, waiver or termination of this Agreement shall be binding unless made in writing and executed by the party thereto to be bound. 13. Waivers. No term, condition or provision of this Agreement may be waived except by an express written instrument to such effect signed by the party to whom the benefit of such term condition or provision runs. No such waiver of any term condition or provision of this Agreement shall be deemed a waiver of any other term, condition or provision, irrespective of similarity, or shall constitute a continuing waiver of the same term, condition or provision, unless otherwise expressly provided. No failure or delay on the part of any party in exercising any right, power or privilege under any term, condition or provision of this agreement shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise of any other right, power or privilege. 14. Severability. In the event any one or more of the terms, conditions or provisions contained in this Agreement should be found in a final award or judgment rendered by any court or arbitrator or panel of arbitrators of competent jurisdiction to be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining terms, conditions and provisions contained herein shall not in any way be affected or impaired thereby, and this Agreement shall be interpreted and construed as if such term condition or provision, to the extent the same shall have been held invalid, illegal or unenforceable, had never been contained herein, provided that such interpretation and construction is consistent with the intent of the parties as expressed in this Agreement. 15. Headings. The headings of the Articles and Sections contained in this Agreement are included herein for reference purposes only, solely for the convenience of the parties hereto, and shall not in any way be deemed to affect the meaning, interpretation or applicability of this Agreement or any term, condition or provision hereof. 16. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California, notwithstanding the fact that one or more counterparts hereof may be executed outside of the State, or one or more of the obligations of the parties hereunder are to be performed outside of the state. 7 17. Attorney's fees. In the event that any party to this Agreement shall commence any suit, action, arbitration or other proceeding to interpret this Agreement, or determine or enforce any right or obligation created hereby, including but not limited to any action for rescission of this Agreement or for a determination that this Agreement is void or ineffective abinitio, the prevailing party in such action shall recover such party's costs and expenses incurred in connection therewith, including attorney's fees and costs of appeal, if any. Any court, arbitrator or panel of arbitrators shall, in entering any judgment or making any award in any such suit, action, arbitration or other proceeding, in addition to any and all other relief awarded to such prevailing party, include in such judgment or award such party's costs and expenses as provided in this Section 17. 18. Execution and Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and such counterparts together shall constitute only one instrument. Any or all of such counterparts may be executed within or outside the State of California. Any one of such counterparts shall be sufficient for the purpose of proving the existence and terms of this Agreement, and no party shall be required to produce an original or all of such counterparts in making such proof. 19. Covenant of Further Assurances. All parties to this Agreement shall, upon request, perform any and all acts and execute and deliver any and all certificates, instruments and other documents that may be necessary or appropriate to carry out any of the terms, conditions and provisions hereof or to carry out the intent of this Agreement. 20. Remedies Cumulative. Each and all of the several right and remedies provided for in this Agreement shall be construed as being cumulative and no one of them shall be deemed to be exclusive of the others or of any right or remedy allowed b law or equity, and pursuit of any one remedy, or a waiver of any other remedy. 21. Binding Effect. Subject to the restrictions in Section 25 hereof respecting assignments, this Agreement shall inure to the benefit of and be binding upon all of the parties hereto and their respective executors, administrators, successors and permitted assigns. 22. Compliance With Laws. Nothing contained in this Agreement shall be construed to require the commission of any act contrary to law and whenever there is a conflict between any term, condition or provision of this Agreement and any present or future statute, law, ordinance or regulation contrary to which the parties have no legal right to contract, the latter shall prevail, but in such event the term, condition or provision of this Agreement affected shall be curtailed and limited only to the extent necessary to bring it within the requirement of the law, provided that such construction is consistent with the intent of the parties as expressed in this Agreement. 23. Gender. As used in this Agreement, the masculine, feminine or neuter gender, and the singular or plural number, shall be deemed to include the others whenever the context so indicates. 8 24. No Third Party Benefit. Nothing contained in this Agreement shall be deemed to confer any right or benefit on any person who is not a party to this Agreement. 25. Assignment. Neither party may assign this Agreement, or any rights hereunder, without the prior express consent of the other party. 26. Arbitration. Any claim arising out of or relating to this Agreement, or the breach thereof, or Employee's employment by the Company, or the termination of Employee's employment by the Company, shall be settled by binding arbitration in Los Angeles, California, in accordance with the commercial Arbitration Rules of the American Arbitration Association then in effect, and judgment upon the award entered by the arbitrator(s) may be entered in any court having jurisdiction thereof. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written. "Company" Cinema Ride, Inc. A Delaware Corporation By: /s/ MITCH FRANCIS ----------------------------- Mitch Francis, President "Employee" /s/ MITCH FRANCIS ----------------------------- Mitch Francis -----END PRIVACY-ENHANCED MESSAGE-----