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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended DECEMBER 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_________ to___________
Commission file number: 0-27556
NETWORK EVENT THEATER, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 13-3864111
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
529 Fifth Avenue, New York, New York 10017
(Address of Principal Executive Offices) (Zip Code)
(212) 622-7300
(Registrant's Telephone Number, Including Area Code)
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the
preceding 12 months (or such shorter period that the registrant was required to
file such reports), and (2) has been subject of such filing requirements for the
past 90 days.
Yes [X] No [ ]
At February 11, 1998 there were 11,341,320 shares of Common Stock, $.01 par
value outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
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Network Event Theater, Inc.
Form 10-QSB
Index
Page
PART I--FINANCIAL INFORMATION Number
------
Item 1 Financial Statements
Consolidated balance sheets - December 31, 1997
(unaudited) and June 30, 1997................................. 1
Consolidated statements of operations - three and six months
ended December 31, 1997 and 1996 (unaudited).................. 2
Consolidated statements of cash flows - six months ended
December 31, 1997 and 1996 (unaudited)........................ 3
Consolidated statement of stockholders' equity - six
months ended December 31, 1997 (unaudited).................... 4
Notes to consolidated financial statements....................... 5
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 9
PART II--OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K................................ 12
Signatures.............................................................. 13
PART I
FINANCIAL STATEMENTS
Item 1. Financial Statements
Network Event Theater, Inc
Consolidated Balance Sheets
(In thousands)
December 31, June 30,
1997 1997
----------- ---------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents ............................ $ 1,335 $ 4,185
Accounts receivable, net of
allowance for doubtful
accounts of $150 and $73
at December 31, 1997
and June 30, 1997, respectively .................... 2,852 1,439
Prepaid expenses ..................................... 357 341
Deposits and other current assets .................... 121 120
-------- --------
Total current assets .................................... 4,665 6,085
Property and equipment, net of accumulated
amortization of $2,038 and $1,537 at
December 31, 1997 and June 30, 1997,
respectively ......................................... 5,036 4,718
Intangible assets, net of accumulated
amortization of $601 and $367 at
December 31, 1997 and June 30, 1997,
respectively ......................................... 6,175 6,339
Notes receivable ........................................ 34 33
-------- --------
Total assets ............................................ $ 15,910 $ 17,175
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ..................................... $ 2,173 $ 542
Accrued advertising costs ............................ 172 --
Accrued employee compensation ........................ 152 321
Accrued professional fees ............................ 265 320
Other accrued expenses ............................... 360 785
Current portion of long-term debt .................... 766 949
-------- --------
Total current liabilities ............................... 3,888 2,917
Long-term debt .......................................... 4,409 5,275
Commitments and contingencies ........................... -- --
Stockholders' Equity:
Preferred stock, $.01 par value, 1,000
shares authorized, no shares issued
and outstanding .................................... -- --
Common stock, $.01 par value, 17,000
shares authorized,10,286 and 9,861 shares
issued and outstanding at December 31, 1997
and June 30, 1997, respectively .................... 103 99
Additional paid-in capital ........................... 22,621 20,421
Accumulated deficit .................................. (15,111) (11,537)
-------- --------
Total stockholders' equity .............................. 7,613 8,983
-------- --------
Total liabilities and stockholders' equity .............. $ 15,910 $ 17,175
======== ========
See notes to consolidatedfinancial statements.
1
Network Event Theater, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
Three months ended Six months ended
December 31, December 31,
------------------ ------------------
1997 1996 1997 1996
---- ---- ---- ----
Net Revenues ........................... $ 3,002 $ 1,755 $ 5,955 $ 2,673
Operating Expenses:
Selling, general and
administrative expenses ........... 3,654 1,858 6,922 2,883
Corporate expenses .................. 801 694 1,435 931
Depreciation and amortization ....... 412 385 806 482
------- ------- ------- -------
Total operating expenses ............... 4,867 2,937 9,163 4,296
------- ------- ------- -------
Loss from operations ................... (1,865) (1,182) (3,208) (1,623)
Interest income ........................ 25 28 65 190
Interest expense ....................... (171) (91) (326) (109)
------- ------- ------- -------
Loss before provision for income taxes . (2,011) (1,245) (3,469) (1,542)
Provision for income taxes ............. 59 78 105 104
------- ------- ------- -------
Net loss ............................... $(2,070) $(1,323) $(3,574) $(1,646)
======= ======= ======= =======
Net loss per basic common share ........ $ (0.21) $ (0.15) $ (0.36) $ (0.19)
======= ======= ======= =======
Weighted average basic
common shares outstanding ........... 9,904 8,654 9,883 8,654
======= ======= ======= =======
See notes to consolidated financial statements.
2
Network Event Theater, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Six months ended
December 31,
----------------------
1997 1996
---- ----
Cash Flows From Operating Activities:
Net loss ........................................... $(3,574) $(1,646)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Provision for bad debts ......................... 77 24
Depreciation and amortization ................... 806 482
Changes in assets and liabilities:
Increase in prepaid expenses .................. (16) (649)
Increase in deposits and other
current assets .............................. (1) --
Increase in accounts receivable ............... (1,490) (1,841)
Increase in accounts payable .................. 1,631 1,756
Increase in accrued advertising
costs ....................................... 172 288
(Decrease) increase in accrued
employee compensation ...................... (169) 39
(Decrease) increase in accrued
professional fees .......................... (55) 129
(Decrease) increase in other
accrued expenses ........................... (425) 855
------- -------
Net cash used in operating activities .............. (3,044) (563)
Cash Flows From Investing Activities:
Capital expenditures ............................ (890) (437)
Notes receivable ................................ (1) --
Payment for business acquisitions ............... (10) (5,256)
Sale of investments ............................. -- 4,421
------- -------
Net cash used in investing activities .............. (901) (1,272)
Cash Flows From Financing Activities:
Net proceeds from sale of common stock .......... 60 --
Proceeds from long-term debt .................... 5,125 4,250
Repayment of long-term debt ..................... (4,030) (94)
Debt issuance costs ............................. (60) --
------- -------
Net cash provided by financing
activities ....................................... 1,095 4,156
------- -------
Net (decrease) increase in cash and
cash equivalents ................................. (2,850) 2,321
Cash and cash equivalents at beginning
of period ........................................ 4,185 267
------- -------
Cash and cash equivalents at end of period ......... $ 1,335 $ 2,588
======= =======
Supplementary cash flow information:
Cash paid for interest .......................... $ 324 $ 89
======= =======
Cash paid for income taxes ...................... $ 78 $ 40
======= =======
Debt assumed in connection with
acquisitions .................................. $ -- 750
======= =======
See notes to consolidated financial statements.
3
Network Event Theater, Inc.
Consolidated Statement of Stockholders' Equity
For the period July 1, 1997 to December 31, 1997
(In thousands)
(Unaudited)
Common Stock Additional
--------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
------ ------- ------- ------- ------
Balances at
June 30, 1997 ............ 9,861 $ 99 $ 20,421 $(11,537) $ 8,983
Net loss ................... -- -- -- (3,574) (3,574)
Issuance of
common stock ............. 425 4 2,200 -- 2,204
-------- -------- -------- -------- --------
Balances at
December 31, 1997 ........ 10,286 $ 103 $ 22,621 $(15,111) $ 7,613
======== ======== ======== ======== ========
See notes to consolidated financial statements.
4
Network Event Theater, Inc.
Notes to Consolidated Financial Statements
December 31, 1997
(Unaudited)
1. Organization and Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Network Event Theater, Inc. ("NET"), and its wholly-owned subsidiaries American
Passage Media, Inc. ("American Passage"), Campus Voice, Inc. ("Campus Voice"),
Beyond the Wall, Inc. ("Beyond the Wall") and Pik:Nik Media, Inc. ("Pik:Nik")
(collectively, the "Company"). All significant intercompany transactions have
been eliminated.
The Company completed its Initial Public Offering in April, 1996, whereby
it sold common stock and warrants and realized net proceeds of approximately
$9.7 million.
The Company was organized to develop, own and operate a proprietary
national network of theaters on college campuses (the "Network"). The Network
delivers entertainment and educational events via satellite for display through
high resolution video projectors on movie theater sized screens. The Company
presently provides a comprehensive marketing service to advertisers, sponsors
and entertainment companies by helping them target young adult and college
audiences through a variety of media, some of which are proprietary to the
Company, including the sponsorship of events presented on the Network, the
placement of advertisements in college newspapers, the placement of posters on
general and proprietary bulletin and wallboards on college campuses, and the
distribution of free postcards at selected venues, both on and off campuses.
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310 of Regulation
S-B. Accordingly, they do not include all the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for an interim period are not necessarily indicative of the
results that may be expected for the year ended June 30, 1998. Because the
Company earns most of its revenues during the academic year (September through
May), the Company's second and third quarters generally reflect higher levels of
revenues than are earned in the first and fourth quarters. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Form 10-KSB for the fiscal year ended June 30,
1997 filed with the Securities and Exchange Commission on September 29, 1997.
2. Pro Forma Financial Data
The following unaudited pro forma information for the six months ended
December 31, 1996 is presented as if the Company had completed the acquisitions
of American Passage, Campus Voice, Beyond the Wall and Pik:Nik as of July 1,
1996:
Six months ended
December 31, 1996
-----------------
Net revenue ......................................... $ 4,159,000
Net loss applicable to common stock ................. (2,199,000)
Net loss per basic common share ..................... (0.25)
Basic common shares outstanding ..................... 8,654,000
The pro forma information for the six months ended December 31, 1996 above
is not necessarily indicative of the results of operations that would have
occurred had the transactions actually been made as of July 1, 1996.
5
Network Event Theater, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 1997
(Unaudited)
3. Long-Term Debt
A summary of long-term debt is as follows:
December 31, June 30,
1997 1997
------------ -----------
Note Payable to Bank (A) ..................... $ -- $ 3,500,000
Subordinated Promissory Note (B) ............. -- 469,000
Junior Secured Promissory Notes ( C) ......... -- 1,671,000
Senior Indebtedness - Working Capital Line (D) -- 360,000
Note Payable to Bank (E) ..................... 4,000,000 --
Note Payable to Finance Company (F) .......... 1,000,000 --
Other ........................................ 175,000 224,000
----------- -----------
5,175,000 6,224,000
Less current portion ......................... (766,000) (949,000)
----------- -----------
$ 4,409,000 $ 5,275,000
=========== ===========
(A) In September 1996, in conjunction with the acquisition of certain
assets, American Passage entered into a five year $3.5 million bank loan (the
"Loan"). The Loan was secured by all of American Passage's assets and was
guaranteed by NET. The Loan was payable in quarterly installments with the final
installment due in September 2001. Interest was payable monthly at a variable
rate of interest set each ninety days based either on 400 basis points above
LIBOR for U.S. Dollar deposits of ninety day maturity or 100 basis points above
the prime rate of the bank. In December 1997, a refinancing of the Loan
occurred, whereby the entire outstanding principal and all accrued interest was
completely satisfied. See paragraph (E) for further information on this
refinancing.
(B) In September 1996, American Passage issued a two-year, unsecured
subordinated promissory note to the seller in the principal amount of $750,000
bearing interest thereon at the rate of 8% per year, guaranteed by NET. The note
was payable in eight equal quarterly installments of principal and accrued
interest commencing in December 1996. In December 1997, a refinancing of this
note occurred, whereby the entire outstanding principal and all accrued interest
was completely satisfied. See paragraph (E) for further information on this
refinancing.
(C ) In February 1997, in conjunction with the acquisition of certain
assets, Campus Voice issued two junior secured promissory notes in the aggregate
amount of $1,563,000 with a maturity date in December 2006. The debt accrued
interest at the rate of 12.0%, but no interest or principal payments were due to
be paid until June 1999. Subsequent to such date, interest was payable monthly
and principal payments were to be made annually until full repayment in December
2006. In December 1997, the debt and all accrued interest was satisfied by the
issuance of common stock in Network Event Theater, Inc. (see note 4).
(D) In connection with the Campus Voice acquisition, the seller agreed to
advance up to $660,000 of senior indebtedness which was to be used as a working
capital line for Campus Voice. This senior debt accrued interest at the rate of
8.0% per annum and required that the interest be paid monthly and was to be due
in December 1999. Campus Voice was obligated to apply its Free Cash Flow, as
defined, to prepayment of the senior indebtedness. In December, 1997, the debt
and all accrued interest was satisfied by the issuance of common stock in
Network Event Theater, Inc. (see note 4)
(E) In December 1997, in conjunction with the refinancing of certain debt
owed by American Passage to a bank, Campus Voice, Beyond the Wall, and American
Passage (the "Borrowers") entered into a loan agreement with another bank. Under
the terms of this loan agreement, that bank advanced to the Borrowers $4.0
million that was used to repay all existing long-term indebtedness of American
Passage (Notes A and B) in the amount of $3.8 million. The balance of the
proceeds was used for working capital. The loan is secured by all of the assets
of the
6
Network Event Theater, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 1997
(Unaudited)
Borrowers and is guaranteed by NET. The loan is payable in equal monthly
installments, commencing February 2, 1998, over a maximum of six years (as
defined). Interest is payable monthly at a variable rate of interest set every
month at 275 basis points above LIBOR for U.S. Dollar deposits of one month
maturity. The Borrowers also entered into an interest swap agreement for $3.0
million of the outstanding principal. The swap agreement has a fixed interest
rate of 9.11%.
In conjunction with this loan, the bank has also made available to the
Borrowers a revolving line of credit with a maximum principal amount of $1.0
million. All amounts borrowed under this facility must be repaid by July 30,
1999. The facility bears interest at the rate of the bank's prime rate plus 25
basis points. Interest on this facility is due monthly. The note is secured by
the Borrower's eligible accounts receivable (as defined) and is also guaranteed
by NET. As of December 31, 1997 the Borrowers have not borrowed any amounts
under this facility.
(F) In December 1997, Pik:Nik borrowed $1.0 million from a finance company
and issued its 30 month secured note. Interest on the note is payable monthly at
a rate of 12% per annum. The note is secured by all of the assets of Pik:Nik and
is guaranteed by NET. The proceeds may be used for working capital for Pik:Nik
and NET.
At December 31, 1997, the aggregate principal amounts of long-term debt due
during the next five years were as follows:
Year Ending June 30,
1998..................................................... $ 384,000
1999..................................................... 740,000
2000..................................................... 1,718,000
2001..................................................... 667,000
2002 and thereafter...................................... 1,666,000
-------------
$ 5,175,000
=============
4. Stockholders' Equity
In December 1997, NET issued 412,397 shares of common stock in exchange for
long-term debt, including accrued interest, in the amount of $2,154,772.
In December 1997, NET issued 12,000 shares of common stock upon exercise of
warrants at $5.00 per share. The Company realized $60,000 as a result of this
exercise of the warrants.
5. Loss Per Common Share
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("Statement 128").
Statement 128 replaced the previously reported primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
options, warrants, and convertible securities. Diluted earnings per share is
very similar to the previously reported fully diluted earnings per share. All
earnings per share amounts for all periods have been presented, and where
necessary, restated to conform to the Statement 128 requirements. The adoption
of Statement 128 did not have a material effect on the Company's reported loss
per basic common share.
6. Industry Segments
In June 1997, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("Statement 131"), which is effective for
years beginning after December 15, 1997. Statement 131 establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that
7
Network Event Theater, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 1997
(Unaudited)
those enterprises report selected information about operating segments in
interim financial reports. It also establishes standards for related disclosure
about products and services, geographic areas and major customers. Statement 131
is effective for financial statements for fiscal years beginning after December
15, 1997, and therefore the Company will adopt the new requirements effective
with their June 30, 1999 consolidated financial statements. Management has not
completed its review of Statement 131.
7. Subsequent Event
In January and February 1998, the Company sold an aggregate of 1,055,556
shares of its common stock. The net proceeds of those sales (an aggregate of
approximately $4.7 million) are being used for general corporate purposes. The
Company is obligated to register these shares under the Securities Act of 1933
as soon as practicable.
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the consolidated
financial statements and related notes thereto. The following discussion
contains certain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, the ability to obtain financing, integration of
recently completed acquisitions, the management of growth, changing consumer
tastes and general economic conditions. The Company undertakes no obligation to
publicly release the results of any revisions to these forward-looking
statements that may be made to reflect any future events or circumstances.
The Company's consolidated financial statements are not directly comparable
from period to period due to acquisition activity. The following financial
analysis compares the three months and the six months ended December 31, 1997
(unaudited) to the three months and six months ended December 31, 1996
(unaudited), respectively.
Results of Operations
For the three months ended December 31,1997, net revenues were $3,002,000
as compared to $1,755,000 for the three months ended December 31,1996. The
increase in net revenues of $1,247,000 is primarily due to the acquisitions of
Campus Voice, Beyond the Wall, and Pik:Nik, which, in the aggregate, accounted
for $590,000 of this increase. Additionally, $450,000 of this increase in net
revenues was generated by American Passage. The remaining $207,000 of this
increase was generated by the theater Network.
For the six months ended December 31, 1997, net revenues were $5,955,000 as
compared to $2,673,000 for the six months ended December 31, 1996. The increase
of $3,282,000 in net revenues is primarily due to the acquisitions of Campus
Voice, Beyond the Wall, and Pik:Nik which, in the aggregate, accounted for
$2,009,000 of this increase. American Passage accounted for an additional
$1,015,000 of the increase in net revenues, primarily because six months of
revenues were accounted for in this period in 1997, but only three and one-half
months of revenues were accounted for in this period in 1996 as American Passage
was acquired in the middle of September 1996. The remaining amount of $258,000
of the increase in net revenues was generated by the theater Network.
For the three months ended December 31, 1997, selling, general and
administrative expenses were $3,654,000 as compared to $1,858,000 for the three
months ended December 31, 1996. The increase of $1,796,000 was primarily due to
the acquisitions of Campus Voice, Beyond the Wall and Pik:Nik which accounted
for approximately $127,000, $232,000 and $629,000 of this increase,
respectively. Additionally, $206,000 of the increase was due to American
Passage. The remaining increase of $602,000 was due to the expansion of the
theater Network and increases in the number of sales, management and support
staff.
For the six months ended December 31, 1997, selling, general and
administrative expenses were $6,922,000 as compared to $2,883,000 for the six
months ended December 31, 1996. The increase of $4,039,000 was primarily due to
the acquisitions of Campus Voice, Beyond the Wall and Pik:Nik which accounted
for approximately $227,000, $887,000 and $1,163,000 of this increase,
respectively. American Passage accounted for an additional $1,107,000 of the
increase in selling, general and administrative expenses primarily because six
months of expenses were accounted for in this period in 1997, but only three and
one-half months of expenses were accounted for in this period in 1996 as
American Passage was acquired in the middle of September 1996. The remaining
increase of $655,000 was due to the expansion of the theater Network and
increases in the number of sales, management and support staff.
For the three months ended December 31, 1997, corporate expenses were
$801,000 as compared to $694,000 for the three months ended December 31, 1996.
The increase of $107,000 is due to increased staff and overhead expenses.
For the six months ended December 31, 1997, corporate expenses were
$1,435,000 as compared to $931,000 for the six months ended December 31, 1996.
The increase of $504,000 is due to increased staff and overhead expenses.
9
For the three months ended December 31, 1997, depreciation and amortization
was $412,000 as compared to $385,000 for the three months ended December 31,
1996, an increase of $27,000 primarily due to additional Network theater
installations.
For the six months ended December 31, 1997, depreciation and amortization
expense was $806,000 as compared to $482,000 for the six months ended December
31, 1996, representing an increase of $324,000. The increase was primarily due
to acquisitions of Campus Voice, Pik:Nik and Beyond the Wall, which accounted
for $138,000 of the total. American Passage accounted for an additional $116,000
of the increase in this expense primarily because six months of expenses were
accounted for in this period in 1997, but only three and one-half months of
expense were accounted for in this period in 1996 as American Passage was
acquired in the middle of September 1996. The remainder of $70,000 was the
result of additional theater Network installations.
For the three months ended December 31, 1997, total operating expenses were
$4,867,000 as compared to $2,937,000 in 1996. The increase of $1,930,000 was
primarily due to the acquisitions of Campus Voice, Pik:Nik and Beyond The Wall.
Operating expenses for these subsidiaries were approximately $169,000, $649,000
and $240,000, respectively. Additionally, $204,000 was due primarily to
increased selling costs at American Passage which resulted in a $450,000
increase in net revenues . The remaining increase of $668,000 was due to the
expansion of the theater Network and increases in the number of sales,
management and support staff.
For the six months ended December 31, 1997, total operating expenses were
$9,163,000 as compared to $4,296,000 for the six months ended December 31, 1996.
The increase of $4,867,000 was primarily due to the acquisitions of Campus
Voice, Pik:Nik and Beyond The Wall. Operating expenses for these subsidiaries
were approximately $313,000, $1,201,000 and $901,000, respectively. American
Passage accounted for an additional $1,223,000 of the increase in total
operating expense primarily because six months of expense was accounted for in
this period in 1997, but only three and one-half months of operating expenses
were accounted for in this period in 1996 as American Passage was acquired in
the middle of September 1996. It should be noted that increased selling costs
resulted in increased net revenues. The remaining amount of the increase of
$1,229,000 was due to the expansion of the theater Network and increases in the
number of sales, management and support staff.
For the three months ended December 31, 1997, interest income was $25,000
as compared to $28,000 for the three months ended December 31, 1996. For the six
months ended December 31, 1997, interest income was $65,000 as compared to
$190,000 for the six months ended December 31, 1996. This income represents
interest on cash balances which has fluctuated from period to period.
For the three months ended December 31, 1997, interest expense was $171,000
as compared to $91,000 for the three months ended December 31, 1996. For the six
months ended December 31, 1997, interest expense was $326,000 as compared to
$109,000 for the six months ended December 31, 1996. Interest expense relates
primarily to the debt incurred related to the acquisitions of American Passage,
Campus Voice, and Pik:Nik.
For the three months ended December 31, 1997, income tax expense was
$59,000 as compared to $78,000 for the three months ended December 31, 1996. For
the six months ended December 31, 1997, income tax expense was $105,000 as
compared to $104,000 for the six months ended December 31, 1996. The provision
represents state taxes imposed on revenues and net assets.
For the three months ended December 31, 1997, net loss was $2,070,000 as
compared to $1,323,000 for the three months ended December 31, 1996. For the six
months ended December 31, 1997, net loss was $3,574,000 as compared to
$1,646,000 for the six months ended December 31, 1996. The increases of $747,000
and $1,928,000 for the three and six month periods, respectively, were a result
of increased operating expenses from acquisitions, an increase in the number of
management, sales and support staff resulting therefrom and the costs of further
expansion of the theater Network.
Impact of Year 2000
Some of the Company's computer programs and systems are not year 2000
compliant. The Company's use of computer applications is not complex. The
Company expects it will have to modify or replace portions of its software so
that its computer systems will function properly with respect to dates in the
year 2000 and thereafter. Management does not believe such related costs will be
significant.
10
Liquidity and Capital Resources
The Company consummated an initial public offering of its common stock and
warrants on April 9, 1996 (the "Initial Public Offering"), pursuant to which it
raised net proceeds of approximately $9.7 million, of which $500,000 was used to
repay previously existing Company indebtedness. Since the Initial Public
Offering, the Company has purchased approximately $1.5 million of Network
theater equipment and invested approximately $1.3 million in the acquisitions of
American Passage, Campus Voice, Beyond the Wall and Pik:Nik (the remainder of
the cash portion of the purchase prices having been borrowed). The balance of
the proceeds have otherwise been used to fund the Company's operations.
On June 24, 1997, the Company sold an aggregate of 1,015,873 shares of its
common stock. The net proceeds of that sale of $3.8 million was used to fund the
Company's operations.
The Company used approximately $3.0 million in operating activities during
the six months ended December 31, 1997 as compared to $563,000 during the six
months ended December 31, 1996. The increase of approximately $2.4 million
represents the increase in net loss and accounts receivable offset substantially
by increases in short-term liabilities. Cash used in investing activities during
the six months ended December 31, 1997 of approximately $901,000 is composed
primarily of capital expenditures. Cash provided by financing activities in 1997
is primarily due to taking on additional long-term debt.
The Company's primary capital requirements with respect to its operations
have been to fund corporate overhead, the operation of its Network of campus
theaters and the operation of Pik:Nik. In the event that the Company's plans and
assumptions with respect to its Network change or prove to be inaccurate, if its
assumptions with respect to American Passage, Campus Voice, Beyond the Wall and
Pik:Nik being able to fund their operations and to make debt service payments
out of their own cash flow in the future prove to be inaccurate, or if the
working capital or capital expenditure requirements of American Passage, Campus
Voice, Beyond the Wall or Pik:Nik prove to be greater than anticipated, the
Company could be required to seek additional financing. The inability to obtain
additional financing will have a material adverse effect on the Company,
including possibly requiring the Company to significantly curtail or cease its
operations.
As of December 31, 1997, the Company had approximately $1.3 million in cash
and cash equivalents. The Company believes that such amounts plus additional
amounts of $4.7 million which have been raised through private placement of the
Company's common stock in January and February, 1998 will be sufficient to fund
working capital, including debt service and interest requirements, at least
through the fiscal year ended June 30, 1998. The Company's ability to improve
its operations will be subject to prevailing economic conditions and to legal,
financial, business, regulatory, industry and other factors, many of which are
beyond the Company's control.
The Company may also seek additional debt or equity financing to fund the
cost of additional expansion of its Network and the cost of developing or
acquiring additional media and marketing services businesses. To the extent that
the Company finances its requirements through the issuance of additional equity
securities, including the exercise of warrants issued in the Initial Public
Offering, any such issuance would result in dilution to the interests of the
Company's shareholders.
Additionally, to the extent that the Company incurs indebtedness or issues
debt securities in connection with financing activities, the Company will be
subject to all of the risks associated with incurring substantial indebtedness,
including the risk that interest rates may fluctuate and cash flow may be
insufficient to pay principal and interest on any such indebtedness. The Company
has no current arrangements with respect to, or sources of, additional
financing. There can be no assurance that any additional financing will be
available to the Company on acceptable terms, if at all.
11
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
12
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
February 13, 1997
BY:/S/ HARLAN D. PELTZ
----------------------------
Harlan D. Peltz
Chairman of the Board
and Chief Executive Officer
BY:/S/ BRUCE L. RESNIK
----------------------------
Bruce L. Resnik
Executive Vice President
Chief Financial Officer and
Chief Accounting Officer
13