Item 1. Business.
Formation.
Cinema Plus, L.P. (the "Partnership") is a Delaware
limited partnership which was formed to finance, own and
exploit through various distribution arrangements English
language feature-length theatrical motion pictures ("Films"
or "Partnership Films"). The Partnership was organized
under the laws of the State of Delaware on September 10,
1987. HBO Film Management, Inc., a Delaware corporation
wholly owned by Time Warner Operations Inc. ("Time
Warner"), is the managing general partner (the "Managing
General Partner") of the Partnership. Entertainment
Finance Services, Inc., a Delaware corporation, is the
administrative general partner (the "Administrative General
Partner") of the Partnership. The Managing General Partner
and the Administrative General Partner are sometimes
collectively referred to as the "General Partners." A
public offering (the "Offering") of limited partnership
interests was completed over the course of two closings,
the first of which took place on August 5, 1988 and the
second of which took place on September 30, 1988. 36,028
units and 7,398 units, respectively, of limited partnership
interests were sold at the closings, at a price of $1,000
per unit. Pursuant to section 6.4 of the limited
partnership agreement, 140 limited partnership units were
redeemed in October 1989. Accordingly, the Partnership
received gross proceeds in the amount of $43,286,000 (the
"Gross Proceeds") and net proceeds in the amount of
$37,341,000 (the "Net Proceeds") after adjusting for the
140 units that were redeemed. Subscriptions were accepted
by the Partnership from taxable as well as tax-exempt
investors and from United States citizens and foreign
investors. In the event that the Partnership terminates or
is dissolved prior to the time that an Assured Return of
Film Investment Payment is to be made, provision will be
made in accordance with the limited partnership agreement
for payment of such Assured Return of Film Investment
Payment. Such provision may include the appointment of a
liquidating trustee to receive such payments and transmit
them to the former limited partners.
As is required by its limited partnership agreement, the
Partnership will dissolve at the expiration of its term on
September 30, 1997, and the Partnership Assets shall thereupon
be liquidated and distributed in accordance with such
agreement. Provisions shall be made, as necessary, prior to
such date for the establishment of a trust for the purpose,
among others, of receiving and distributing the Assured Return
of Film Investment Payments in accordance with the limited
partnership agreement at the time, and to the limited partners
to whom, they would otherwise become due.
Business Plan.
The Partnership invested in the production of four Films
which had production costs (including contingency reserves,
the production and overhead fees payable to the General
Partners, and completion bond fees) ranging from approximately
$11 million to approximately $22 million per Film, with an
average production cost of approximately $16.5 million. The
dollar amounts set forth in the preceding sentence are higher
than those anticipated at the time of the Offering and
included in the Offering prospectus (the "Prospectus");
however, the aggregate Partnership Investment (as defined
below) and ownership interest in Films has remained unchanged.
As of December 31, 1996, an aggregate of $98,383,000
(including the HBO Commitment, as defined below) had been
incurred toward the production and theatrical release of
Partnership Films. Each Partnership Film was produced by an
experienced independent producer and was distributed
theatrically by Warner Bros. ("Warner"), a division of Time
Warner Entertainment Company, L.P., as assignee of Warner
Bros., Inc., in the United States and Canada. In addition,
Warner has the right to distribute the Partnership's Films on
network television in the United States and Canada.
Distribution rights in all other domestic television and
consumer video media have been licensed on an exclusive basis
in perpetuity to Home Box Office ("HBO"), a
division of Time Warner Entertainment Company, L.P., as
assignee of Home Box Office, Inc. All other distribution
rights have been licensed to distributors selected by the
Managing General Partner. See "Film Distribution." The
Partnership will not produce any additional Films.
Film Selection.
As of December 31, 1996, all of the Partnership's Films had
been released in domestic theatres.
The title and domestic theatrical release date for the Films
are set forth below:
Title Release Date
Switch May 1991 Don't Tell Mom The Babysitter's Dead ("Don't Tell Mom") June 1991 Ricochet October 1991 Mom and Dad Save The World July 1992 As of March l5, 1997, all of the Partnership Films had been
released in foreign markets and have been made available
domestically on video cassette. In addition, as of March 15,
1997, "Don't Tell Mom" and "Ricochet" have been exhibited on
network television; and "Switch" has been exhibited on
syndicated television.
Film Production.
The Partnership monitored all phases of production and
administered all Partnership funds invested in Films.
Negotiation of production agreements was undertaken by the
Managing General Partner. Subject to the Partnership's
approval rights exercised through the Managing General
Partner, the independent producer, in consultation with
creative personnel, made all determinations concerning
creative and artistic matters and conducted all day-to-day
operations concerning the production of a Film.
The agreement with each independent producer provided HBO,
the Partnership and the theatrical distributor the right of approval regarding the subject matter, story-line and screenplay of each Film. The Partnership also had certain approval rights
concerning artistic personnel (such as principal cast and
director). In addition, each agreement with an independent
producer provided a maximum budget for each Film, and the
Partnership also exercised certain approval rights over line
items in each budget. Furthermore, each such agreement
provides that the Partnership will control in perpetuity all
rights (including copyright) in the Films throughout the
world.
Production Costs. The "Budgeted Negative Cost of a Film"
represents its budgeted production cost which includes the
following elements:
o the estimated direct production
costs of a
Film, including all costs
incurred in
connection with the acquisition
of rights,
the development of the project,
the anticipated costs of principal
photography and post-production
(including interest on development
and production expenditures advanced
by HBO prior to commitment of funds
by the Partnership, and all other
costs associated with delivering a
Film and complying with negotiated
delivery requirements), and a fee
payable to the independent producers
of a Film (the "Direct Costs");
o a net bonding fee paid to the
completion guarantor in an amount
which did not exceed 6% of the
Direct Costs;
o a production
contingency fund in an
amount equal to 10%
of the Direct Costs
(the "Contingency"); and
o a fee payable to the General Partners
(the "Production and Overhead
Fee") equal to 12.5% of the
total of the Direct Costs, the bonding fee and
the Contingency, as compensation to the General
Partners
for negotiating and administering
production, financing
and distribution agreements,
reviewing and
approving Film budgets,
monitoring expenditures of
Partnership funds, monitoring and
auditing Film revenues and accounting
and reporting to investors. See
"Executive Compensation."
The full amount actually paid by the Partnership directly in connection with a Film's production and delivery to the Partnership (including deferments, bonuses and participations, if any, in gross receipts payable to creative personnel before the Partnership has recouped its investment in such Film), after taking into account any rebates provided to the Partnership by the completion guarantor or any other party and any portion of the Contingency which was not expended, is the "Partnership Investment," which is the amount upon which the Assured Return of Film Investment Payment (as defined below) is based. See "Film Distribution - Domestic Cable and Other Non-Standard Television and ThirdParty Participations." The Partnership Investment does not
include the HBO Commitment, the Shortfall Production Advance
(as defined below), or certain interest which has been
capitalized for purposes of the financial statements that
accompany this report. See "HBO Commitment."
All costs and expenses relating to the production of
a Film to be paid by the Partnership were advanced in
accordance with budget, production and cash flow schedules
approved by the Partnership and HBO. The Administrative
General Partner monitored the compliance with such
schedules. Shortfall Production Advance.
HBO loaned to the Partnership, on a non-recourse
basis to the general and limited partners, the additional
funds necessary to complete the production of the
Partnership's last Film to commence principal photography,
entitled "Ricochet" (the "Shortfall Production Advance").
HBO is entitled to recoup this loan with interest at the
Prime Rate from funds remitted to the Partnership (other
than the Foreign Distribution Advance used to repay the HBO
Commitment) from the exploitation of such Film. See Note
4(b) of the Financial Statements for financial information
relating to the Shortfall Production Advance.
HBO Commitment.
Pursuant to the terms of the HBO License Agreement, HBO advanced to the Partnership, for investment in each Partnership Film, approximately 30% of the aggregate production costs of such Film (the "HBO Commitment"). On a per Film basis, the amount so advanced approximated the advance payable to the Partnership for foreign distribution rights (the "Foreign Distribution Advance") discounted by an amount attributable to interest at the Prime Rate. For each Partnership Film, HBO is entitled to recoup the HBO Commitment, plus interest, from the Foreign Distribution Advance as it is paid. See Note 4(a) of the Financial
Statements for financial information relating to the HBO
Commitment.
Film Distribution.
The Managing General Partner has negotiated and
entered into agreements on behalf of the Partnership for the
worldwide distribution of its Films in all media in which
HBO does not distribute directly. Each Partnership Film has
been distributed theatrically by Warner in the United States
and Canada. In addition, Warner has the right to distribute
the Partnership's Films on network television in the United
States and Canada. Distribution rights in all other
domestic television and consumer video media have been
licensed on an exclusive basis in perpetuity to HBO.
Domestic Theatrical Distribution. The Partnership
was party to an agreement with Metro-Goldwyn-Mayer Pictures,
Inc. ("MGM") which granted MGM the exclusive right to
distribute certain of the Partnership's Mercury/Douglas
Films in the domestic theatrical and non-theatrical media
and in the foreign media. By its terms, the MGM agreement
is no longer in effect.
On October 2, 1989, the Partnership entered into an agreement with Warner granting Warner the right to distribute each of the Partnership's Films in the domestic theatrical and network television media (hereinafter referred to as the "Warner Agreement"). HBO agreed to provide for the expenditure of not less than $5 million in print and advertising costs in connection with each Film's domestic theatrical release. HBO is entitled to recoup that portion of such expenditure which is in excess of the HBO P&A Advance (as defined below), plus interest at the Prime Rate, from domestic theatrical revenues ("Rentals") and Non- Theatrical Revenues (as defined below) remitted to the Partnership with respect to such Film. "Non-Theatrical Revenues" has the
meaning commonly given to such term in the motion picture
industry, which does not include television or home video
revenues. HBO is entitled to recoup the lesser of
$5,000,000 or 50% of such expenditures (the "HBO P&A
Advance") for a Film, plus interest at the Prime Rate, in a
priority position from all the funds remitted to the
Partnership from the exploitation of such Film (excluding
the Foreign Distribution Advance which will be used to repay
the HBO Commitment). Print and advertising costs incurred in
connection with the domestic theatrical distribution of each
Film in excess of those funded by HBO were paid by Warner;
Warner is entitled to recoup such amounts from Rentals and
Non-Theatrical Revenues. In addition, Warner received a
distribution fee equal to 15% of each Film's Rentals and Non-
Theatrical Revenues. Rentals and Non-Theatrical Revenue
less Warner's distribution fees and expenses and amounts
recoupable by HBO were remitted to the Partnership.
Revenues from each Film are accounted for separately. See
Note 4(c) of the Financial Statements for financial
information relating to Print and Advertising Expenses.
Domestic Consumer Video. Domestic consumer video distribution rights in the Films have been licensed to HBO. The Partnership receives 100% of domestic consumer video revenues (after the deduction of direct manufacturing, marketing, advertising and distribution costs, and guild residuals as well as any amounts recoupable by HBO) from each Film until the Partnership has received sufficient funds from domestic consumer video and all prior sources to recoup its Investment in the Film. Thereafter, the Partnership receives 35% of domestic consumer video revenues (after deduction of direct manufacturing, marketing, advertising and distribution costs and guild residuals). See Note 3(b) of the Financial Statements for financial information relating to the Net
Domestic Video Receivable.
Domestic Cable and Other Non-Standard Television.
All domestic cable and other non-standard television rights
and all English-language foreign cable and other non-
standard television rights in the Films have been licensed
to HBO. For each Film, the Partnership receives a license
fee from HBO for these rights based on a percentage of the
Rentals earned by a Film. License fees are payable within
90 days after a Film first becomes available for non-
standard television exhibition on a subscription basis by
HBO, which has been generally six to thirteen months after a
Film's initial theatrical release. The Partnership receives
an amount equal to 20% of Rentals between $10 million and
$20 million, plus 10% of Rentals between $20 million and $40
million, plus 5% of Rentals between $40 million and $60
million. HBO is entitled to retain amounts recoupable by it
from amounts otherwise payable to the Partnership with
respect to this source of revenue. In the aggregate, as of
December 31, 1996 the Partnership had recorded $ 29,000 for
non-standard television net revenues related to "Don't Tell
Mom." The Partnership does not anticipate any other
significant domestic cable or non-standard television
revenue.
Under the HBO License Agreement, if net proceeds from all sources to the Partnership are less than 115% of the Partnership Investment in any Film, HBO will pay to the Partnership on the seventh anniversary of the theatrical release of that Film an additional license fee sufficient to assure an aggregate return to the Partnership of 115% of the Partnership Investment in that Film (the "Assured Return of Film Investment Payment" or "ARFIP"). In return for HBO's agreement to make the Assured Return of Film Investment Payment, the Partnership has agreed to pay HBO 10% of the
Partnership's subsequent revenues from each Film after the
Partnership has received from all sources 115% of its
Investment in the Film. Based on the anticipated
performance of the Partnership's Films at December 31, 1996,
it is expected that HBO will be required to make an Assured
Return on Film Investment Payment with respect to each of
these Films. Accordingly, $21,540,000 (amount present
valued) was recorded by the Partnership as a receivable in
the accompanying financial statements as of December 31,
1996. ARFIP payments will be payable to the Partnership in
1998 and 1999.
With respect to any Film for which an ARFIP is made,
HBO will thereafter be entitled to receive from the
Partnership any additional revenues received by the
Partnership with respect to that Film until the entire
amount of such ARFIP has been recouped by HBO. If HBO has
not recouped this ARFIP for a Film by July l999, the
Partnership will be
required to pay to HBO at that time an amount (the "HBO Interest Recoupment") equal to the lesser of: (a) the sum of the unrecouped ARFIP and the non-standard television residuals for such Film or (b) the Per Film Interest. "Per Film Interest" represents the interest income earned on Partnership Funds awaiting investment in Films divided by the four Partnership Films. $283,000, $218,000, and $246,000 was recorded by the Partnership as an expense relating to Per Film Interest for the years ended December 31, 1996, 1995 and 1994, respectively. $4,251,000 (amount present valued) has been recorded by the Partnership and included in the Payable to HBO in the accompanying financial statements as of December 31, l996. This expense does not have any effect on the Partnership's entitlement to receive 115% of the Partnership Investment in Films.
Domestic Standard Broadcast Television-Network.
Pursuant to the Warner Agreement, the Partnership has
granted domestic network television rights in the Films to
Warner. HBO and Warner will receive a distribution fee
aggregating no more than 20% of the gross receipts from such
license. The remaining revenues, less distribution expenses
and guild residuals, are being remitted to the Partnership.
HBO will be entitled to retain amounts recoupable by it from
amounts otherwise payable to the Partnership with respect to
this source of revenue. "Ricochet" aired on network
television during the first quarter of 1995 and the third
quarter of 1996. See Note 3(a) of the Financial Statements
for financial information relating to the Network Receivable
from HBO.
Domestic Standard Broadcast Television-Syndication.
Domestic syndicated television rights in the Films may be
licensed by HBO (or a subdistributor designated by HBO) on
behalf of the Partnership. HBO and its subdistributor, if
any, will receive distribution fees aggregating no more than
37.5% of the gross receipts from such license. Gross
receipts less distribution fees and expenses and guild
residuals will be remitted to the Partnership. HBO will be
entitled to retain amounts recoupable by it from amounts
otherwise payable to the Partnership with respect to this
source of revenue. Through an arrangement in which Warner
acted as subdistributor, "Switch" aired on syndicated
television during the third quarter of l994.
Foreign Distribution-All Media. The Partnership has
an agreement with The Odyssey/Regency Switch Company
("Odyssey"), a joint venture between Odyssey Distributors,
B.V. and Regency International Pictures, B.V., which grants
to Odyssey foreign distribution rights with respect to the
Partnership Film "Switch" in media other than foreign English-
language cable and other non-standard television which
rights are licensed to HBO. Pursuant to the terms of the
Odyssey agreement, during 1991 the Partnership received
approximately $7,925,000 representing 47% of the production
cost of "Switch." The advance was paid to HBO in
reimbursement of the HBO Commitment for "Switch" together
with interest thereon at the Prime Rate. With respect to
the remaining three Films, the Partnership has an agreement
with The Summit Group (MEV) N.V. ("Summit") which appoints
Summit as the Partnership's exclusive sales agent for these
three Films in foreign territories. As such, Summit is
entitled to receive distribution fees calculated upon, and
recoup its distribution expenses out of, the gross proceeds
of these Films from foreign territories. See Note 4(a) of
the Financial Statements for financial information relating
to the HBO Commitment.
Worldwide Music, Merchandising and Publication. To the extent not otherwise acquired by the domestic or foreign distributors of the Partnership Films, all music, merchandising and publication rights in the Partnership Films may be licensed by HBO on behalf of the Partnership. HBO will be entitled to a fee not to exceed 20% of the revenues to the Partnership from the exploitation of these rights. Soundtrack album agreements have been entered into for certain of the Partnership's Films. All revenues (other than album advances offset by music production costs), less fees payable to HBO and to third parties from the exploitation of music, merchandising and publication rights, were paid to the Partnership. HBO will be entitled to retain amounts recoupable by it from amounts otherwise payable to the Partnership with respect to this source of revenue. The Partnership does not anticipate receiving any additional revenue from this source of income.
Remakes, Sequels, Television Movies and Television
Series. The Partnership will receive fixed payments and,
in certain circumstances, revenue participations in the
event that a remake, sequel, television movie or television
series is produced based on a Partnership Film. HBO will
be entitled to retain amounts recoupable by it from amounts
otherwise payable to the Partnership with respect to this
source of revenue. The Partnership does not anticipate
that a remake, sequel, television movie or television
series will be produced based on any of the Partnership
Films.
Third Party Participations. The Partnership's
agreements with independent producers generally provide
that third party profit participations (i) will not be
payable until after the Partnership recoups 110% of the
Partnership Investment in the relevant Film and (ii) will
generally not exceed 45% of Partnership revenues on that
Film thereafter. Based on estimates of ultimate net revenue
as of December 31, 1996, additional profit participations
will be paid only with respect to "Don't Tell Mom."
Competition.
The Partnership must compete with other filmmakers
for the services of a limited number of distribution
companies, including distribution companies which engage in
the production of their own motion pictures. Competition
for distribution in other media is as intense as the
competition for theatrical distribution.
Employees.
The Partnership has no employees; its business is
conducted by the Managing General Partner and the Administrative General Partner. The Administrative General Partner has retained Magera Management Corporation ("Magera") to provide operational and financial services as well as certain supervisory services for the Partnership. See Item
l0, "Directors and Executive Officers of the
Partnership." Magera has seven employees who perform
services for the Administrative General Partner and for
the general partners of other private and public limited
partnerships.
Item 2.

Item 2. Properties.
The executive offices of the Partnership and the
General Partners are located at 1100 Avenue of the
Americas, New York, New York 10036. The Partnership pays
no rent; all charges for leased space and administrative
facilities are borne by the General Partners.
Item 3.

Item 3. Legal Proceedings.
On August 14, 1995, a lawsuit styled as a class
action was filed by two holders of Cinema Plus limited
partnership units in the United States District Court of
the Western District of Pennsylvania against HBO Film
Management, Inc. and Entertainment Finance Services, Inc.,
the general partners of Cinema Plus, Home Box Office, Inc.,
and Kidder, Peabody & Co., Incorporated and Smith Barney
Inc., two of the underwriters of the original sale of
limited partnership units of Cinema Plus. Cinema Plus has
not been named as a defendant in the lawsuit. The lawsuit
alleged various violations of law by the defendants in
connection with the original sale of limited partnership
units of Cinema Plus and the subsequent operation of Cinema
Plus. The action was dismissed on March 4, 1996. On March
20, 1996, the plaintiffs filed a Notice of Appeal in the
Third Circuit Court of Appeals. Oral argument before the
Third Circuit Court of Appeals was heard on October 3,
1996. The defendants believe the lawsuit to be without
merit and are vigorously defending it.
Item 4.

Item 4. Submission of Matters to a Vote of Security
Holders.
None.
PART II.
Item 5.

Item 5. Market for the Registrant's Common Equity and Related Security Holder Matters.
The Partnership is a limited partnership; there is
no public market for limited partnership units of the
Partnership.
As of March 15, 1997, there were approximately 4,000
holders of record of limited partnership units of the
Partnership.
Cash Distributions.
The Partnership commenced making cash distributions
in November 1988. The following chart sets forth the cash
distributions made by the Partnership to the limited
partners through March 15, 1997:
Year Amount Per Unit
1988 $ 22.50 1989 95.00 1990 130.15 1991 97.50 l992 20.00 1993 30.00 1995 10.00 1996 15.00 1997 (through March l5th) Total $420.15
Accordingly, as of March 15, 1997, limited partners
had received distributions aggregating 42% of their
original investment in the Partnership. These
distributions were attributable primarily to Minimum
Distribution Advances received from HBO (which have been
fully repaid from net domestic consumer video revenues) and
to interest received on Partnership funds. Future cash
distributions will be dependent upon the revenue generated
by the Partnership's Films once advances and distribution
expenses have been
recouped. It is not anticipated that significant cash
distributions will be made until the Partnership receives
the Assured Return of Film Interest Payments from HBO in
l998 and l999.
Item 6.

Item 6. Selected Financial Data.
Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 1. Liquidity and Capital Resources.
As of December 31, 1996, the Partnership held cash
and cash equivalents of $176,000 and short-term investments
of $2,275,000.
The Partnership invested in the production of four
Films. The production costs (including contingency
reserves, the production and overhead fee payable to the
General Partners and completion bond fees) of Partnership
Films
ranged from approximately $11 million to approximately $22
million per Film, with an average production cost of
approximately $16.5 million. As of December 31, 1996, an
aggregate of $98,383,000
(including the HBO Commitments) had been incurred toward
the production and theatrical release of the Partnership's
four Films.
Prior to the receipt of the ARFIP receivable, no
significant cash outlays are expected to be made by the
Partnership other than its operating expenses and the
satisfaction of the Partnership's payables to HBO (except
for the HBO Interest Recoupment). Subsequent to the
receipt of the ARFIP in 1998 and 1999, additional cash
outlays are expected to be made to HBO for payment of the
HBO Interest Recoupment, as well as to pay the
Partnership's operating expenses and to make distributions
to partners.
As of December 31, 1996, the Partnership's net
payable to HBO totaled $4,805,000. Of this amount
$4,251,000 relates to the HBO Interest Recoupment which is
not payable until one month after the last ARFIP proceeds
are received from HBO. Based on current estimates of
ultimate net revenues, it is anticipated that the remainder
of the payable to HBO at December 31, 1996 will be
substantially repaid to HBO within the next two years.
During the year ended December 31, 1996, the
Partnership recognized net revenue in the amounts of
$1,000, $300,000, $757,000 and $882,000 with respect to the
domestic theatrical, foreign, domestic video and network
television markets, respectively, for its Films. In
addition, third party participations expense related to
"Don't Tell Mom," was $47,000 thereby decreasing the
Partnership's Net Revenue from Motion Pictures for the year
ended December 31, 1996.
Since the Partnership is not anticipating
significant
future revenue (other than those used to repay HBO) until
the Assured Return of Film Investment Payments are received
from HBO in 1998 and 1999, the Partnership's future
operating expenses are expected to be met from current cash
and shortterm investments. Management believes that the
cash and short-term investments held at December 31, 1996
are sufficient to meet its liquidity needs without the need
to obtain external financing from a third party or its
General Partners. Cash distributions will be made only as
significant cash becomes available from the exploitation of
the Films in excess of the payables due to HBO or as the
Assured Return of Film Investment Payments are received
from HBO.
As is required by its limited partnership agreement,
the Partnership will dissolve at the expiration of its term
on September 30, 1997, and the Partnership Assets shall
thereupon be liquidated and distributed in accordance with
such agreement. Provisions shall be made, as necessary,
prior to such date for the establishment of a trust for the
purpose, among others, of receiving and distributing the
Assured Return of Film Investment Payments in accordance
with the limited partnership agreement at the time, and to
the limited partners to whom, they would otherwise become
due.
2. Results of Operations
For the year ended December 31, 1996, the
Partnership recorded net income of $1,318,000 due primarily
to the performance of its Films in the foreign markets,
domestic consumer video and "Ricochet" in the domestic
television network market as well as the resolution of
audits of domestic consumer video and domestic theatrical
distribution activity.
For the year ended December 31, 1995, the
Partnership recorded net income of $1,093,000 due primarily
to the
performance of its Films in the foreign markets, domestic
consumer video and "Ricochet" in the domestic television
network market.
For the year ended December 31, 1994, the
Partnership recorded net income of $1,503,000 due
primarily to the performance of its Films in the foreign
markets and "Don't Tell Mom" in the domestic television
network market.
The decrease in operating expenses during the period
ended December 31, 1996 and 1995 as compared, respectively,
with the corresponding periods in 1995 and 1994 is due
primarily to a decrease in amortization of Motion Picture
Production Costs. The decrease in amortization of Motion
Picture Production Costs is due primarily to a decrease in
Net Revenue from Motion Pictures.
There was a decrease in interest expense, included in Other Income (Expense), net, during the periods ended December 31, l996 and 1995 as compared, respectively, with the corresponding periods in l995 and l994. This decrease is due primarily to the decline in outstanding payables to HBO.
Item 8.

Item 8. Financial Statements and Supplementary Data.
See the financial statements set forth in Item 14 of this annual report.
Item 9.

Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
PART III.
Item 10.

Item 10. Directors and Executive Officers of the
Partnership.
The Partnership is managed by HBO Film Management, Inc., the Managing General Partner, and by Entertainment Finance Services, Inc., the Administrative General Partner. Both of the General Partners were incorporated in Delaware in September 1987. The Managing General Partner is primarily
responsible for negotiating production and distribution
agreements. The Administrative General Partner is
primarily responsible for reviewing Film budgets,
monitoring expenditures of Partnership funds, administering
financing, production and distribution agreements,
monitoring and auditing Partnership revenues, and
accounting and reporting to the limited partners.
The Managing General Partner
The executive officers and directors of the Managing
General Partner are set forth below. Each of these
individuals has served as an officer or director of the
Managing General Partner since the Managing General Partner
was incorporated, except that in March 1989 John B. Newton
resigned as Executive Vice President and Director of the
Managing General Partner and was replaced in such position
by Leslie H. Jacobson, and in November 1995, Michael J.
Fuchs left his position as Chairman. Mr. Fuchs was
succeeded as Chairman by Jeffrey L. Bewkes and Bill Nelson
assumed the position of Director, Executive Vice President
and Chief Financial Officer.
Name Age Positions Held Jeffrey L. Bewkes 44 Chairman Stephen J. Scheffer 58 President, Director Leslie H. Jacobson 49 Executive Vice President, Director Bill Nelson 48 Executive Vice President, Chief Financial Officer, Director John S. Redpath, Jr. 52 Vice President, General Counsel Secretary, Director Perry L. Schneider 41 Vice President, Treasurer, Director George A. Cooke, Jr. 49 Vice President Glenn Whitehead 42 Vice President
Jeffrey L. Bewkes, Chairman, has been Chairman,
President and Chief Executive Officer of HBO since November
1995. As such, he exercises authority for the overall
management, planning and administration of the nation's
oldest and largest pay television company. Mr. Bewkes
joined HBO in 1979 and since that time has held positions
in the areas of sales, marketing, finance and strategic
planning as well as served as its Treasurer, Chief
Financial Officer, Executive Vice President and Chief
Operating Officer. He serves on the boards of the National
Cable Television Association and Comedy Central. A
graduate of Yale University and Stanford Graduate School of
Business, Mr. Bewkes previously was employed as a lending
officer for Citibank, N.A. and as operations director for
Sonoma Vineyards.
Stephen J. Scheffer, President, has been President,
Film Programming, Home Video and Enterprises, for HBO since
June 1995, having been Executive Vice President, Film
Programming and Home Video since February 1983 and head of
its consumer video activities since May 1984. He is
responsible for overseeing the acquisition of all motion
pictures for HBO, is Chairman of HBO Video and heads HBO
Enterprises. A graduate of the U.S. Naval Academy and
recipient of an M.B.A. degree from Harvard Business School,
Mr. Scheffer joined HBO in 1980 after having held executive
positions with Time-Life Films, Allied Artists, Polydor
Records, MGM/UA and Columbia Pictures.
Leslie H. Jacobson, Executive Vice President, has been Senior Vice President, Film Programming, for HBO since March 1989. From October 1987 until March 1989, Ms. Jacobson was Senior Vice President, Business Affairs and Administration for HBO. Her responsibilities in her current position include the selection and licensing of feature films
for exhibition on the HBO program services and for
distribution by HBO Video as well as the supervision of
relationships with independent filmmakers. A former
general counsel and executive vice president of Tri-Star
Pictures, Inc. from April 1983 to October 1987, Ms.
Jacobson holds degrees from Georgetown University and
Cornell University Law School.
Bill Nelson, Executive Vice President and Chief
Financial Officer, has been Executive Vice President and
Chief Financial Officer for HBO since April 1994. Mr.
Nelson holds responsibility for all of HBO's financial
matters and information and systems technology. He also
oversees HBO's business affairs department. Prior to
joining HBO as Vice President and Assistant Controller, in
May 1984, Mr. Nelson was an executive at Time Inc. A
graduate of Pace University, he also holds an M.B.A. from
that institution.
John S. Redpath, Jr., Executive Vice President,
General Counsel and Secretary, is responsible for all legal
aspects of HBO's operations. Mr. Redpath became a member
of HBO's legal department in June 1978, initially
specializing in the film programming area. He became HBO's
General Counsel in January 1981. A graduate of Princeton
University, he holds a J.D. from the University of Michigan
and an L.L.M. in taxation from New York University.
Perry L. Schneider, Vice President and Treasurer, has been Vice President, Film Programming for HBO since September 1988. Mr. Schneider's responsibilities include licensing programming for exhibition on the HBO program services in the United States and abroad, as well as overseeing HBO's investment oriented film activities. Since joining HBO in 1983, he has held a series of programming and finance positions. Prior to joining HBO, Mr. Schneider was a vice president in the entertainment and media group at the
European American Bank in New York. He is a graduate of
the State University of New York at Stony Brook and holds
an M.B.A. from New York University.
George A. Cooke, Jr., Vice President, has been Vice
President and Chief Counsel, Film Programming for HBO since
September 1995. Mr. Cooke oversees the legal aspects of
HBO's film licensing and financing arrangements and is
responsible for matters in the areas of corporate and
securities law. Prior to joining HBO as associate counsel,
film programming, in April 1983, Mr. Cooke was an associate
at the law firm of Ropes & Gray. A graduate of Dartmouth
College, he holds an M.A. from Cambridge University and a
law degree from Harvard Law School.
Glenn Whitehead, Vice President, has been Vice
President, Business Affairs and Production for HBO since
January 1992. Based in Los Angeles, he is responsible for
all contract negotiations and physical production regarding
television motion pictures and West Coast original
programming. He joined HBO in September 1983 as an
associate counsel, shifting to business affairs in 1985.
He is a graduate of the University of California at
Riverside and holds a law degree from the University of
California at Los Angeles.
The Managing General Partner was incorporated under
the laws of the State of Delaware in September 1987. All
of the outstanding capital stock of the Managing General
Partner is owned by Time Warner.
The Administrative General Partner.
Bradley J. Wechsler, age 45, is the sole director and officer of the Administrative General Partner. Mr. Wechsler has served in these positions since the Administrative General Partner was incorporated in 1987. Mr. Wechsler is also the sole director and officer of Bedford Capital
Advisors, Inc., which provides financial and advisory
services in the entertainment and media industries. Mr.
Wechsler is also a Chairman and Co-Chief Executive Officer
of Imax Corporation.
All of the outstanding capital stock of the
Administrative General Partner is owned by Mr. Wechsler.
Operational and Financial Services.
To assist it in the performance of its duties, the
Administrative General Partner has engaged Magera
Management Corporation to provide operational and financial
services to the Partnership. Magera is owned by Richard M.
Mason and Aaron German. Magera also provides operational
and financial services to the general partners of other
private and public limited partnerships and serves as a
consultant to others engaged in the entertainment industry.
Item 11.

Item 11. Executive Compensation.
The following table sets forth the fees, income,
distributions and other amounts payable to the General
Partners in connection with the management of the
Partnership.
Except as set forth below, the General Partners will receive no other remuneration of any type whatsoever from the Partnership in connection with the administration of Partnership affairs.
Type of Compensation and Entity Receiving Method of Compensation Aggregate Amount Production and Overhead Fee 5.0% of the Budgeted $2,965,000 Payable to the Managing Negative Cost of each General Partner Film (excluding the Production and Overhead Fee), payable at the time principal photography commences on the Film
Production and Overhead Fee 5.0% of the Budgeted $2,965,000, plus Payable to the Administrative Negative Cost of each interest General Partner Film (excluding the Production and Overhead Fee), payable at the time principal photography commences on the Film, plus interest to the extent payment is deferred (1)
Production and Overhead Fee 2.5% of the Budgeted $1,483,000, plus Payable to the General Negative Cost of each interest Partners, to be allocated Film (excluding the between the General Partners Production and Overhead based upon the deduction of Fee), payable at the time certain expenses incurred principal photography in operating the Partnership commences on the Film, plus interest to the extent payment is deferred (1)
General Partners' Share of l% of all income, profits Actual amounts depend Cash Available for Distribu- losses and cash distribu- upon the results of tion and Profits and Losses tions will generally be Partnership operations. allocated to the Adminis- trative General Partner until the Limited Partners have received a return of their Adjusted Capital Contributions (as defined in the partnership agree ment) plus a l2.5% cumula tive (but not compounded) annual return on their Adjusted Capital Contribu tion. Thereafter, 20% of all income, profits, losses and cash distributions will be allocated to the General Partners (l0% to the Managing General Partner and l0% to the Administrative General Partner)
- -----------------------------------
(1) The Partnership has established a reserve in the amount of the Production and Overhead Fee payable to the Administrative General Partner as it accrues. Amounts are being paid to the Administrative General Partner from the reserve from time to time in accordance with a set schedule. Interest is accruing on the amounts included in the reserve at a rate equal to the interest rate earned by the Partnership on the short-term investment of its funds. The partnership agreement provides that all Partnership
expenses, including, among other things, expenses for
financial statement preparation, tax preparation, auditing
and accounting fees, compliance with government regulations
and legal expenses, will be billed to and paid by the
Partnership. Subject to the restrictions set forth in the
partnership agreement, the Administrative General Partner
may be reimbursed by the Partnership for certain
administrative services including, among other things, the
cost of goods, materials and services obtained from
entities unaffiliated with the General Partners.
As of December 31, l996, the General Partners had
received $7,284,000 attributable to the Production and Overhead Fee. A portion of the Production and Overhead Fee to the Administrative General Partner is paid in accordance with a set schedule and, as such, $484,000 (inclusive of interest) remains payable to the Administrative General Partner as of December 31, 1996. In addition, the Administrative General Partner has received $7,000, $4,000, and $0, representing its 1% share of cash distributed to partners during 1996, 1995 and 1994, respectively. No portion of such cash distributions was paid to the Managing General Partner.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management. To the best knowledge of the General Partners, no
person beneficially owns in excess of 5% of the limited
partnership units of the Partnership.
Item 13.

Item 13. Certain Relationships and Related Transactions.
The Partnership's operations relating to the
ownership and exploitation of films involve HBO. See
"Business." The General Partners are entitled to receive a
Production and Overhead Fee and to an interest in cash
distributions. See "Executive Compensation."
PART IV. Item 14.

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)(1) Financial Statements:
Report of Independent Auditors
Balance Sheets at December 31, 1996 and 1995 Statements of Operations for the years ended December 31, 1996, 1995 and 1994 Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994
Statements of Changes in Partners' Capital for the years ended December 31, 1996, 1995 and 1994
Notes to Financial Statements
(a)(2) Financial Statement Schedules:
No financial statement schedules have been filed as part of this report as none are required.
(1) Incorporated by reference to the Partnership's registration statement No. 33-17318, as amended, on file with the Securities and Exchange Commission.
(2) Incorporated by reference to the Partnership's Form 10-K for the year ended December 31, 1989 on file with the Securities and Exchange Commission.
(3) Incorporated by reference to the Partnership's Form 10-K for the year ended December 31, 1990 on file with the Securities and Exchange Commission.
(4) Incorporated by reference to the Partnership's Form 10-Q for the quarter ended June 30, 1991 on file with the Securities and Exchange Commission.
(5) Incorporated by reference to the Partnership's
Form 10-K for the year ended December 31, 1991 on file with
the Securities and Exchange Commission.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last
quarter of the Partnership's fiscal year ended December 31,
1996.
(c) Exhibits.
The Exhibits required by Item 601 of Regulation S-K
are submitted as a separate section following the
Partnership's financial statements.
(d) Financial Statement Schedules.
No financial statement schedules have been filed as part of this report as none are required.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, Cinema Plus, L.P., a Delaware limited partnership (the "Registrant"), has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CINEMA PLUS, L.P.
(a Delaware limited partnership) Dated: March 26, 1997 By:Entertainment Finance
Services, Inc., Administrative General Partner
By: /s/ Bradley J. Wechsler Bradley J. Wechsler President and sole Director
EXHIBIT INDEX Page Reference in Sequentially Numbered Copy
4 Amended and Restated Agreement of Limited Partnership dated as of December 9, 1987 *
4.1 Amendment to Amended and Restated Agreement of Limited Partnership dated as of April 22, 1988 *
4.2 Amendment to Amended and Restated Agreement of Limited Partnership dated as of June 2, 1988 *
4.3 Amendment to Amended and Restated Agreement of Limited Partnership dated as of August 17, 1988 *
10(b) License, Co-financing and Distribution Agreement between the Registrant and Home Box Office, Inc. dated December 4, 1987 * 10(b).1Amendment to License, Co-financing and Distribution Agreement dated April 22, 1988 *
10(b).2Amendment to License, Co-financing and Distribution Agreement dated August 17, 1988 *
10(b).3Amendment to License, Co-financing and Distribution Agreement dated as of June 28, 1991 *
10(c) Master Letter Agreement dated as of September 8, 1987 between Mercury/Douglas Films and Home Box Office, Inc. *
10 (d) Distribution Agreement dated November 13, 1987 between Metro-Goldwyn-Mayer Pictures, Inc., Home Box Office, Inc. and Mercury/Dougla s Films *
10 (e) Agreement dated October 2, 1989 between Home Box Office, Inc. and Warner Bros., including the letter dated March 27, 1990 from Warner Bros. to Home Box Office, Inc. setting forth certain clarifications *
10(f) Distribution Agreement dated February 26, 1990 between Cinema Plus, L.P. and the Odyssey/Regency Switch Company *
10(g) Credit Agreement dated as of June 28, 1991 between Cinema Plus, L.P. and Home Box Office *
10(h) Memorandum of Agreement dated February 1, 1991
between Cinema Plus, L.P. and Summit Group (MEV),
N.V.*
27 Financial Data Schedule
*Incorporated by reference
Report of Independent Auditors
To the Partners of Cinema Plus, L.P.
We have audited the accompanying balance sheets of Cinema Plus, L.P. as of December 31, 1996 and 1995, and the related statements of operations, cash flows and changes in partners' capital for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of Cinema Plus, L.P. at December 31, 1996 and
1995, and the results of its operations and its cash flows
for each of the three years in the period ended December
31, 1996, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
New York, New York March 21, 1997
CINEMA PLUS, L.P. (A Delaware Limited Partnership)
BALANCE SHEETS
(000's omitted)
CINEMA PLUS, L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS (000's omitted, except net income per unit)
CINEMA PLUS, L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS (000's omitted)
CINEMA PLUS, L.P. (A Delaware Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(000's omitted)
CINEMA PLUS, L.P. (A Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. General
Cinema Plus, L.P. (the "Partnership") is a Delaware
limited partnership which was formed to finance, own and
exploit through various distribution arrangements English
language feature-length theatrical motion pictures ("Films"
or "Partnership Films"). The Partnership was organized
under the laws of the State of Delaware on September l0,
l987. HBO Film Management, Inc., a Delaware corporation
wholly-owned by Time Warner Operations Inc., is the
managing general partner (the "Managing General Partner")
of the Partnership. Entertainment Finance Services, Inc., a
Delaware corporation, is the administrative general partner
(the "Administrative General Partner") of the Partnership.
The Managing General Partner and the Administrative General
Partner are sometimes collectively referred to as the
"General Partners." The total number of limited
partnership units as of December 31, 1996, 1995 and 1994
was 43,286. The net income per unit of limited partnership
interests for the years ended December 31, l996, 1995 and
1994 was $30.15, $25.00 and $34.38, respectively. All
terms not otherwise defined herein shall have the meanings
set forth in the Partnership's prospectus dated December 9,
1987, as amended.
2. Summary of Significant Accounting Policies
(a) General
The preparation of financial statements in conformity
with generally accepted accounting principles requires the
Partnership to make estimates and assumptions that affect
the amounts reported in the financial statements and
accompanying notes. The Partnership believes that the
estimates utilized in preparing the financial statements
are reasonable and prudent; however, actual results could
differ from these estimates.
(b) Cash Equivalents
Cash Equivalents consist of U.S. Government Securities
that are readily convertible into cash, and have original
maturities of three months or less. All Cash Equivalents
are stated at cost plus accrued interest, which
approximates market value.
(c) Short-Term Investments
Short-term Investments consist of U.S. Government
Securities which have original maturities of greater than
three months and are stated at amortized cost, which
approximates market value. The investments held as of
December 31, 1996 are due to mature within six months.
(d) Income Taxes
No provision for Federal and State income taxes has been
made in the accompanying financial statements as Cinema
Plus, L.P. is a partnership, with all income tax
consequences flowing directly to its partners. As of
December 31, 1996 and 1995, reported amounts of the
Partnership's assets less liabilities were greater than the
tax bases by $2,908,000 and $1,838,000, respectively.
(e) Payable to General Partners
A portion of the Production and Overhead Fee to the
General Partners is paid in accordance with a set schedule.
Interest accrues on the balance at a rate equal to the
interest rate earned by the Partnership on the short-term
investment of its funds. Accordingly, as of December 31,
1996 and 1995, $484,000 and $718,000, respectively, is
recorded as a payable to the General Partners in the
accompanying financial statements.
(f) Recognition of Revenues
Net revenues from the distribution of the Partnership's
Films consist of gross receipts less distribution fees and
expenses. A distribution fee of 15% of gross domestic
theatrical revenues was paid to Warner Bros., an affiliate
of the Managing General Partner, with respect to all four
Partnership Films. Films are initially distributed in the
theatrical, videocassette and pay television media.
Subsequently, Films are made available for U.S. and foreign
television network exhibition and/or television
syndication. All foreign revenues are received by the
Partnership in U.S. dollars.
Revenues from the distribution of Films in the
theatrical market are recognized as the Films are
exhibited. Home video revenues, less a provision for
returns, are recognized when the video cassettes are
shipped. Revenues from television license agreements are
recognized when the respective license period begins
pursuant to the terms of the license agreements. Advances
received prior to the Film's availability are deferred.
(g) Motion Picture Production Costs and Amortization
Motion Picture Production Costs represent the amounts
expended by the Partnership in connection with the
production of the Partnership Films and are stated at the
lower of unamortized cost or net realizable value. In
addition, interest incurred during production as well as
print and advertising expenditures which benefit future
periods have been capitalized and included in Motion
Picture Production Costs. Motion Picture Production Costs
are amortized under the individual film forecast method
based on net revenues recognized in proportion to the
Partnership's estimate of
ultimate net revenues to be received. Unamortized Motion
Picture Production Costs are compared quarterly with the
net realizable value on a film by film basis, and losses
are recognized to the extent of any excess of costs over
net realizable value with respect to each Film.
Based on estimates of net revenue as of December 31,
1996, approximately 100% of unamortized Motion Picture
Production Costs applicable to the released Films will be
amortized by December 31, 1998.
(h) Deferred Revenue
Deferred Revenue represents Foreign Distribution
Advances for the Partnership Films "Don't Tell Mom the
Babysitter's Dead" ("Don't Tell Mom") and "Mom and Dad Save
the World" ("Mom and Dad") that were received during the
year ended December 31, 1995 for territories in which the
theatrical print or video cassette was not yet delivered or
the pay television license period for these Films had not
begun at that respective date. The revenue related to
these advances along with related costs was recorded after
the theatrical print or video cassette is delivered or pay
television license period began in each applicable foreign
territory.
3. Receivable from HBO
The Receivable from HBO at December 31, 1996 and 1995
consists of the following amounts:
1996 1995
Network $1,335,000 $ 453,000 Net Domestic Video 609,000 60,000 Foreign 11,000 821,000 Interest 143,000 $2,098,000 $1,334,000
(a) Network Receivable from HBO
Pursuant to the HBO License Agreement, the Partnership
has granted domestic network television distribution rights
in
the Films to HBO, and HBO has caused such rights to be
licensed to Warner Bros. HBO and Warner Bros. receive in
the aggregate a distribution fee of no more than 20% of
the gross proceeds received from the exploitation of their
network television distribution rights in each Film. The
remaining revenues, less distribution expenses and guild
residuals, are remitted to the Partnership. During the
year ended December 31, 1996, the Partnership recognized
net revenue of $882,000 for the film "Ricochet" which was
available for airing on network television.
(b) Net Domestic Video Receivable From HBO
Domestic consumer video distribution rights in the
Films have been licensed to HBO. The Partnership receives
l00% of domestic consumer video revenues (after the
deduction of direct manufacturing, marketing, advertising
and distribution costs, and guild residuals as well as any
amounts recoupable by HBO) from each Film until the
Partnership has received sufficient funds from domestic
consumer video and all prior sources to recoup its
Investment in the Film ("Video Breakeven"). Thereafter,
the Partnership receives 35% of domestic consumer video
revenues (after deduction of direct manufacturing,
marketing, advertising and distribution costs and guild
residuals).
During the year ended December 31, l996, the
Partnership recognized revenues of $757,000 from net
domestic home video distribution of all of its Films (see
Note 7). Based upon estimates of ultimate net revenues as
of December 31, 1996, the Partnership will not reach Video
Breakeven for any Film with the exception of "Don't Tell
Mom". During the year ended December 31, l996, the
Partnership received $208,000 from the net domestic home
video distribution of all of its Films.
(c) Foreign Receivable from HBO
As the HBO Commitment with respect to "Ricochet" has
been fully repaid, any future foreign receipts for this
Film are being remitted to the Partnership net of any guild
residuals, distribution fees and expenses. During the year
ended December 31, 1996, the Partnership received $821,000
(including interest) from the foreign distribution of the
Film "Ricochet."
(d) Interest Receivable
With respect to audits of the Films' domestic
consumer video revenues, $143,000 is recorded as an
interest receivable from HBO (see Note 7).
4. Payable to HBO
The Payable to HBO at December 31, 1996 and l995
(including accrued interest) consists of the following
amounts:
1995 HBO Commitment $ 357,000 $ 404,000 Print and Advertising Expenditures 197,000 228,000 HBO Interest Recoupment (See Note 5) 4,251,000 3,968,000
Total $4,805,000 $ 4,600,000
(a) HBO Commitment
Pursuant to the HBO License Agreement, HBO advanced to
the Partnership, for investment in each Partnership Film,
approximately 30% of the aggregate production costs of such
Film (the "HBO Commitment"). On a per Film basis, the
amount advanced approximated the advance payable to the
Partnership for foreign distribution rights (the "Foreign
Distribution Advance") discounted by an amount attributed
to interest at the Prime Rate. For each Partnership Film,
HBO will generally recoup the HBO Commitment, plus interest
at the Prime Rate, from the Foreign Distribution Advance as
it is
paid. A Foreign Distribution Advance in the amount of
$7,925,000 for the Partnership Film entitled "Switch" was
received during 1991. The entire HBO Commitment related
to "Switch" was repaid out of these funds.
Through December 31, 1996, the Partnership has received
HBO Commitment funds in the amount of $15,816,000 in
connection with the production of "Mom and Dad," "Don't
Tell Mom" and "Ricochet." During l996 and l995, $68,000
and $1,175,000, respectively, of the HBO Commitments
(including interest) were repaid from net Foreign
Distribution Advances received with respect to these
Films. In addition, interest was accrued in the amount of
$169,000 and $195,000 in l996 and l995, respectively. The
HBO Commitment with respect to "Ricochet" was fully repaid
as of December 31, 1995. Based upon current revised
estimates of ultimate net foreign revenues as of December
31, 1996, it is anticipated that HBO will be able to
recoup the HBO Commitment with respect to "Don't Tell
Mom." Based upon current revised estimates of ultimate net
foreign revenues as of December 31, 1996, it is
anticipated that HBO will be unable to recoup the HBO
Commitment in the amount of $2,604,000 with respect to
"Mom and Dad Save the World." As a result, the
Partnership's Payable to HBO has been reduced by $148,000
for "Mom and Dad Save the World" during the year ended
December 31, 1996 with a corresponding reduction to the
capitalized Motion Picture Production Costs of this Film.
(b) Shortfall Production Advance
HBO loaned to the Partnership, on a non-recourse basis to
the general and limited partners, the additional funds
necessary to complete the production of the Partnership's
last Film to commence principal photography, entitled
"Ricochet" (the "Shortfall Production Advance"). HBO was
entitled to recoup this loan with interest at the Prime
Rate
from funds remitted to the Partnership (other than the
Foreign Distribution Advance used to repay the HBO
Commitment) from the exploitation of such Film. Through
December 31, 1995, the Partnership had received Shortfall
Production Advances aggregating $8,019,000.
During the year ended December 31, l995, the Partnership
repaid $753,000 (including accrued interest of $25,000) of
the Shortfall Production Advance to HBO from the net
domestic video and network revenue received with respect to
the Film "Ricochet." As of December 31, 1995, HBO has
fully recouped this loan.
(c) Print and Advertising Expenditures
As of December 31, 1996, $43,262,000 of domestic print
and advertising expenditures and related interest were
incurred in connection with the Partnership's four Films.
All of these expenditures were advanced by Warner Bros. on
behalf of HBO and HBO will reimburse Warner Bros. for all
amounts not recouped from domestic theatrical and non-
theatrical distribution. Pursuant to the HBO License
Agreement, and based upon estimates of ultimate net
revenues and ultimate print and advertising expenditures as
of December 31, 1996, $31,829,000 of the $43,262,000 is
reimbursable (and most of which has been repaid) by the
Partnership to HBO with HBO being responsible for the
remaining $11,433,000. $32,004,000 of print and
advertising expenditures had been capitalized as Motion
Picture Production Costs as of December 31, l993. However,
based upon estimates of ultimate net revenues of the Film
"Mom and Dad Save the World" as of December 31, 1996, it is
anticipated that HBO will be unable to fully recoup Print
and Advertising Expenditures with respect to this Film.
During the years ended December 31, 1996 and l995, the
Partnership recognized revenues, net of distribution fees,
of $1,000, and $9,000, respectively, from the domestic
theatrical distribution of its released Films. All of
these revenues were applied toward the recoupment of the
print and advertising expenditures described above.
During the year ended December 31, 1996, the Partnership
increased its payable to HBO for print and advertising
expenses incurred for the Film "Mom and Dad Save the World"
in the amount of $67,000.
During the years ended December 31, 1996 and l995, the
Partnership repaid to HBO a portion of the print and
advertising expenses incurred for the Film "Mom and Dad
Save the World" in the amount of $97,000 and $9,000,
respectively (including accrued interest), from the net
domestic video revenue received with respect to that Film.
5. Assured Return of Film Investment and the HBO Interest
Recoupment
Under the HBO License Agreement, if net proceeds from all
sources to the Partnership are less than 115% of the
Partnership Investment in any Film, HBO will pay to the
Partnership on the seventh anniversary of the initial
theatrical release of that Film an additional license fee
sufficient to assure an aggregate return to the Partnership
of ll5% of the Partnership Investment in that Film (the
"Assured Return of Film Investment Payment" or "ARFIP").
Based on the anticipated performance of each of the four
Films in release at December 31, 1996, it is expected that
HBO will be required to make an Assured Return on Film
Investment Payment with respect to each of these Films.
Accordingly, $21,540,000 and $21,355,000 (amounts present
valued at the Prime Rate as of the initial theatrical
release of each film) were recorded by the Partnership as a
receivable in the accompanying financial statements as of
December 31, 1996 and l995, respectively.
With respect to any Film for which an ARFIP is made, HBO
will be thereafter entitled to receive from the Partnership
any additional revenues received by the Partnership with
respect to that Film until the entire amount of such ARFIP
has been recouped by HBO. If HBO has not recouped this
ARFIP for a Film by July l999, the Partnership will be
required to pay to HBO at that time an amount (the "HBO
Interest Recoupment") equal to the lesser of: (a) the sum
of the unrecouped ARFIP and the non-standard television
residuals for such Film or (b) the Per Film Interest (as
defined below). "Per Film Interest" represents the
interest income earned on Partnership Funds awaiting
investment in Films divided by the four Partnership Films.
$283,000 and $218,000 was recorded by the Partnership as an
expense relating to Per Film Interest for the years ended
December 31, 1996 and l995, respectively. Accordingly,
$4,251,000 and $3,968,000 (amounts present valued) was
recorded by the Partnership and included in the Payable to
HBO in the accompanying financial statements as of December
31, l996 and l995, respectively. This expense does not have
any effect on the Partnership's entitlement to receive 115%
of the Partnership Investment in Films.
6. Supplemental Disclosure of Cash Flow Information
The Partnership paid $19,000 and $432,000 of interest to
HBO in the years ended December 31, 1996 and 1995,
respectively. All payables to HBO earned interest at the
Prime Rate, which was 8.25% and 8.5% at December 31, l996
and l995, respectively.
7. Current Operations
The Partnership has financed four Films. All of these
Films have completed their domestic theatrical and video
releases and are currently being distributed in various
ancillary media.
Future revenue is expected to be recorded from distribution in
the domestic syndication and the remaining foreign markets. No
other films will be financed by the Partnership.
During the year ended December 31, 1996, the Partnership
recognized net revenue in the amounts of $1,000, $300,000,
$757,000, and $882,000 with respect to the domestic theatrical,
foreign, domestic video, and network television markets,
respectively, for its Films. During the year ended December
31, l996, third party participations expense for "Don't Tell
Mom" was $47,000 thereby decreasing the Partnership's net
revenue by a corresponding amount.
In accordance with the Partnership's rights pursuant to
the HBO License Agreement and its theatrical distribution
agreement with Warner Bros., and as is customary in the motion
picture industry, an audit of the Films' domestic consumer
video and domestic theatrical distribution activity has been
conducted. This audit covered the period through December 31,
1993, when the major portion of revenue and expense arose from
these media. As a result of this audit, adjustments of
$696,000 and $75,000 were made in the Films' distribution
expenses for domestic consumer video and domestic theatrical
distribution, respectively. These adjustments are primarily
reflected as an increase in Net Revenue from Motion Pictures.
In addition, interest calculated pursuant to the HBO License
Agreement, of $159,000 and $25,000 is included in Interest
Income with respect to domestic consumer video and domestic
theatrical distribution, respectively.
Through December 31, 1996, $25,559,000, $22,135,000,
$18,723,000 and $31,966,000 (including the HBO Commitment, the
Shortfall Production Advance and capitalized Print and
Advertising Expenditures which benefit future periods) had been
incurred toward the production of "Switch," "Don't Tell Mom,"
"Mom and Dad" and "Ricochet," respectively.
For the years ended December 31, l996, 1995 and l994,
Motion
Picture Production Costs have been reduced by amortization
of $287,000, $966,000 and $2,884,000, respectively.
For the purposes of computing the net income per unit
and the paid and accrued distributions to partners, income
and distributions have been allocated 1% to the
Administrative General Partner and 99% to the limited
partners.
As is required by its limited partnership agreement, the
Partnership will dissolve at the expiration of its term on
September 30, 1997, and the Partnership Assets shall thereupon
be liquidated and distributed in accordance with such
agreement. Provisions shall be made, as necessary, prior to
such date for the establishment of a trust for the purpose,
among others, of receiving and distributing the Assured Return
of Film Investment Payments in accordance with the limited
partnership agreement at the time, and to the limited partners
to whom, they would otherwise become due.
8. Legal Proceedings
On August 14, 1995, a lawsuit styled as a class action
was filed by two holders of
Cinema Plus limited partnership units in the United States
District Court of the Western District of Pennsylvania against
HBO Film Management, Inc. and Entertainment Finance Services,
Inc., the general partners of Cinema Plus, Home Box Office,
Inc., and Kidder, Peabody & Co., Incorporated and Smith Barney
Inc., two of the underwriters of the original sale of limited
partnership units of Cinema Plus. Cinema Plus has not been
named as a defendant in the lawsuit. The lawsuit alleged
various violations of law by the defendants in connection with
the original sale of limited partnership units of Cinema Plus
and the subsequent operation of Cinema Plus. The action was
dismissed on March 4, 1996. On March 20, 1996 the plaintiffs
filed a Notice of Appeal in the Third Circuit Court of Appeals.
Oral argument before the Third Circuit Court of Appeals was
heard on October 3,
1996. The defendants believe the lawsuit to be without merit and are vigorously defending it.