UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ______________________
Commission File Number 0-23914
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ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 87-0521389
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16055 Space Center Blvd., Suite 230, Houston, TX 77062
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(Address of principal executive offices) (Zip Code)
(281) 486-6115
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(1) YES XXX NO _____ (2) YES XXX NO _____
----- -----
As of December 31, 1999, the Registrant had outstanding 32,734,422 shares of
common stock, par value $0.001 per share.
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC.
TABLE OF CONTENTS
FORM 10-QSB FOR THE QUARTER ENDED DECEMBER 31, 1999
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements................................ F-1
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations....... F-11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................... F-14
Signature Page............................................... F-15
Exhibit 27 - Financial Data Schedule......................... F-16
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
- ------ --------------------
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC. AND SUBSIDIARIES
__________
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
(UNAUDITED)
F-1
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
__________
PAGE(S)
-------
Consolidated Condensed Financial Statements:
Consolidated Condensed Balance Sheet as of
December 31, 1999 and September 30, 1999................... F-3
Consolidated Condensed Statement of Operations
for the three months ended December 31, 1999
and 1998................................................... F-4
Consolidated Condensed Statement of Cash Flows
for the three months ended December 31, 1999
and 1998................................................... F-5
Consolidated Condensed Statement of Stockholders'
Deficit for the three months ended December 31,
1999....................................................... F-6
Selected Notes to Consolidated Condensed Financial
Statements................................................... F-7
F-2
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
__________
(UNAUDITED)
DECEMBER 31,
1999 SEPTEMBER 30,
ASSETS (UNAUDITED) 1999
------- ----------- -------------
Current assets:
Cash and cash equivalents $ 30,362 $ --
Accounts receivable, net 455,167 441,861
Inventory 75,474 92,445
Prepaid expenses 14,580 21,681
---------- ----------
Total current assets 575,583 555,987
Property and equipment, net 4,283,248 4,301,587
Net non-current assets of discontinued
restaurant operations 90,000 90,000
Other assets 107,640 28,166
---------- ----------
Total assets $ 5,056,471 $ 4,975,740
=========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
Current liabilities:
Book overdraft $ -- $ 36,888
Current maturities of notes payable and
capital lease obligation 4,152,471 1,552,471
Accounts payable and accrued liabilities 1,544,476 1,168,481
Accrued phase-out period losses of discontinued
restaurant operations 20,000 20,000
----------- -----------
Total current liabilities 5,716,947 2,777,840
Notes payable and capital lease obligation, net
of current portion 227,320 2,817,943
----------- -----------
Total liabilities 5,944,267 5,595,783
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Commitments and contingencies
Stockholders' deficit:
Common stock, $.001 par value, 50,000,000
shares authorized, 32,734,422 shares
outstanding at December 31, 1999 and
September 30, 1999 32,734 32,734
Additional paid-in capital 5,663,139 5,663,139
Accumulated deficit (6,433,669) (6,165,916)
Treasury stock: 400,000 shares at cost (150,000) (150,000)
----------- -----------
Total stockholders' deficit (887,796) (620,043)
----------- -----------
Total liabilities and stockholders'
deficit $ 5,056,471 $ 4,975,740
=========== ===========
Note: The balance sheet at September 30, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
F-3
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
__________
(UNAUDITED)
THREE MONTHS
THREE MONTHS ENDED
ENDED DECEMBER 31,
DECEMBER 31, 1998
1999 (RESTATED)
------------- -------------
Total revenue $ 1,071,086 $ 1,188,803
Total cost of sales and services 581,126 630,415
----------- -----------
Gross margin 489,960 558,388
General and administrative expenses 440,219 667,255
Depreciation and amortization 192,319 116,619
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Loss from operations (142,578) (225,486)
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Other expenses:
Interest expense 125,175 50,328
Other -- (6,000)
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Total other expenses 125,175 44,328
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Loss from continuing operations (267,753) (269,814)
Discontinued operations:
Loss from operation of discontinued
restaurant division -- (69,524)
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Loss before cumulative effect of change in
accounting principle (267,753) (339,338)
Cumulative effect of change in accounting for
start up expenses -- (170,611)
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Net loss $ (267,753) $ (509,949)
=========== ===========
Basic and diluted net loss per common share:
Continuing operations $(0.01) $ (0.01)
Discontinued operations -- --
Cumulative effect of change in accounting
principle -- (0.01)
----------- -----------
Net loss $(0.01) $ (0.02)
=========== ===========
Weighted average shares outstanding 32,734,422 30,382,857
=========== ===========
See selected notes to consolidated condensed financial statements.
F-4
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
__________
(UNAUDITED)
THREE MONTHS
THREE MONTHS ENDED
ENDED DECEMBER 31,
DECEMBER 31, 1998
1999 (RESTATED)
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Cash flows from operating activities:
Net loss $(267,753) $(509,949)
Adjustments to reconcile net loss to net
cash used in operating activities 499,606 (69,438)
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Net cash provided by (used in)
operating activities 231,853 (579,387)
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Cash flows from investing activities:
Capital expenditures (173,980) --
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Net cash used in investing activities (173,980) --
--------- ---------
Cash flows from financing activities:
Decrease in book overdraft (36,888) --
Proceeds from notes payable and capital
lease obligations 9,377 600,000
--------- ---------
Net cash provided by (used in)
financing activities (27,511) 600,000
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Increase in cash and cash equivalents 30,362 20,613
Cash and cash equivalents, beginning of
period -- 6,740
--------- ---------
Cash and cash equivalents, end of period $ 30,362 $ 27,353
========= =========
See selected notes to consolidated condensed financial statements.
F-5
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999
__________
(UNAUDITED)
ADDITIONAL
COMMON STOCK PAID-IN ACCUMULATED TREASURY
SHARES AMOUNT CAPITAL DEFICIT STOCK
---------- -------- ---------- ------------ -----------
Balance at September 30,
1999 32,734,422 $32,734 $5,663,139 $(6,165,916) $(150,000)
Net loss for the three
months ended December 31,
1999 -- -- -- (267,753) --
---------- -------- ---------- ----------- ----------
Balance at December 31,
1999 32,734,422 $32,734 $5,663,139 $(6,433,669) $(150,000)
========== ======== ========== =========== ==========
See selected notes to consolidated condensed financial statements.
F-6
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC. AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
__________
1. GENERAL
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The unaudited consolidated condensed financial statements included herein
have been prepared without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted,
pursuant to such rules and regulations. These unaudited consolidated
condensed financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto of Entertainment
Technologies & Programs, Inc. and Subsidiaries (the "Company") included in
the Company's Annual Report on Form 10-KSB for the year ended September 30,
1999. Certain reclassifications have been made to prior year amounts to
conform with the current year presentation.
In the opinion of management, the unaudited consolidated condensed financial
information included herein reflect all adjustments, consisting only of
normal, recurring adjustments, which are necessary for a fair presentation of
the Company's financial position, results of operations and cash flows for
the interim periods presented. The results of operations for the interim
periods presented herein are not necessarily indicative of the results to be
expected for a full year or any other interim period.
2. BACKGROUND
----------
Entertainment Technologies & Programs, Inc. ("ETP") and its wholly-owned
subsidiaries (the "Company") are engaged in three major areas of operations
as follows:
. Operation of night clubs and other entertainment facilities on United
States military bases throughout the world, including the planning,
promotion and production of live performances at such facilities.
. Design and retail sale of professional sound and lighting equipment to
both the United States military and the non-military consumer markets.
. Design and operation of amusement facilities and equipment.
The accompanying consolidated condensed financial statements include the
accounts and transactions of ETP, along with its wholly-owned subsidiaries.
All intercompany balances and transactions have been eliminated in
consolidation. The consolidated financial statements and notes thereto are
presented as if all mergers and business combinations accounted for as
poolings of interest have operated as one entity since inception.
Continued
F-7
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC. AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
__________
3. COMPREHENSIVE INCOME
--------------------
The Company has adopted Statement of Financial Accounting Standard ("SFAS")
No. 130, "Reporting Comprehensive Income", which establishes standards for
reporting and display of comprehensive income and its components in a full
set of financial statements. Comprehensive income includes all changes in a
company's equity, except those resulting from investments by and
distributions to owners. There was no difference between comprehensive loss
and net loss for the three months ended December 31, 1999 and 1998.
4. INCOME TAXES
------------
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The Company
has provided deferred tax valuation allowances for cumulative net operating
tax losses to the extent that the net operating losses may not be realized.
The difference between the federal statutory income tax rate and the
Company's effective income tax rate is primarily attributed to changes in
valuation allowances for deferred tax assets related to net operating losses.
5. BUSINESS SEGMENTS
-----------------
During the three months ended December 31, 1999 and 1998, the Company
operated primarily in four strategic business units that offer different
products and services: providing military entertainment services, retail
sale of sound and lighting equipment, design and operation of amusement
facilities and equipment, and operation of restaurants. Restaurant
operations have not been included in segment information since they were
reported as discontinued operations. Financial information regarding the
other business segments is as follows:
Continued
F-8
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC. AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
__________
5. BUSINESS SEGMENTS, CONTINUED
----------------------------
MILITARY RETAIL
ENTERTAINMENT SALES AMUSEMENT OTHER TOTAL
------------- ---------- ----------- ----------- -----------
THREE MONTHS ENDED
DECEMBER 31, 1999:
Revenues $ 766,171 $295,688 $ 9,227 $ -- $1,071,086
Income (loss) from
operations 29,933 35,597 (174,778) (33,330) (142,578)
Total assets 2,935,881 183,737 1,203,401 733,452 5,056,471
Interest expense 20,323 13,948 22,688 68,216 125,175
Depreciation expense 101,662 846 79,705 10,106 192,319
Capital expenditures 81,055 -- 8,539 84,386 173,980
THREE MONTHS ENDED
DECEMBER 31, 1998:
Revenues $ 774,346 $215,213 $ 199,244 $ -- $1,188,803
Income (loss) from
operations 59,484 (28,563) (183,598) (72,809) (225,486)
Total assets 1,808,009 415,133 2,244,001 1,807,073 6,274,216
Interest expense 5,245 3,754 31,567 9,762 50,328
Depreciation and
amortization expense 62,168 846 33,006 20,599 116,619
Effect of change in
accounting -- -- 111,000 -- 111,000
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. All intersegment sale prices
are market based. The Company evaluates performance based on operating
earnings of the respective business units.
6. PRIOR PERIOD ADJUSTMENT
-----------------------
During the three months ended December 31, 1998 the Company did not properly
change its method of accounting for organization costs to conform to the
requirements of Statement of Position 98-5, Reporting on the Costs of Start-
Up Activities ("SOP 98-5"). SOP 98-5 requires such costs to be expensed as
incurred rather than capitalized and subsequently amortized. The effect of
correcting this error in application of generally accepted accounting
principles on the Company's financial statements as of and for the three
months ended December 31, 1998 was as follows:
F-9
Decrease in total assets $ 170,611
==========
Increase in accumulated deficit $ 170,611
==========
Increase in net loss $ 170,611
==========
Change in net loss per common share $ (0.01)
==========
F-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS.
-------------
The following discussion should be read in conjunction with the Company's
unaudited consolidated interim financial statements and related notes thereto
included in this quarterly report and in the unaudited consolidated Financial
Statements and Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") contained in the Company's 10-KSB for the year
ended September 30, 1999. Certain statements in the following MD&A are forward
looking statements. Words such as "expects", "anticipates", "estimates" and
similar expressions are intended to identify forward looking statements. Such
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those projected.
RESULTS OF OPERATIONS
---------------------
Revenues for the quarter ended December 31, 1999 decreased by $117,717 from
$1,188,803 for the quarter ended December 31, 1998 to $1,071,086 for the quarter
ended December 31, 1999 primarily due to Hero's Entertainment Center being
closed for building renovations during the quarter ended December 31, 1999.
General and administrative expenses decreased $227,036 from $667,255 for the
quarter ended December 31, 1998 to $430,654 for the quarter ended December 31,
1998. This decrease is primarily a result of a reduction in personnel costs.
Depreciation expense for the quarter ended December 31, 1999 increased
$75,700 from $116,619 for the quarter ended December 31, 1998 to $192,319 for
the quarter ended December 31, 1999. This increase is due to the purchase of
additional equipment required to convert from video cassette players to digital
videodiscs at each of its entertainment facilities and the purchase and
renovation of the Waterpark in May 1999.
Interest expense increased by $74,847 from $50,328 for the quarter ended
December 31, 1998 to $125,175 for the quarter ended December 31, 1999. This
increase is a result of the increase in the Company's debt and the higher costs
associated with this debt.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
During the year ended September 30, 1999, the Company experienced negative
financial results which have continued during the three months ended December
31, 1999 as follows:
THREE MONTHS
ENDED YEAR ENDED
DECEMBER 31, SEPTEMBER 30,
1999 1999
------------- --------------
Net loss $ (267,753) $(3,830,948)
Negative working capital (5,141,364) (2,221,853)
Accumulated deficit (6,433,669) (6,165,916)
F-11
In addition to negative financial results, the Company has also experienced
operational problems as follows:
. Redfish Management, Inc. ("RMI"), a wholly owned subsidiary of the Company,
filed for Chapter 11 bankruptcy protection to allow the Company to limit
future losses by its restaurant operations.
. The Company has been delinquent on payments of principal for a significant
portion of its note payable and capital lease obligations.
. The Company is in violation of various financial and non-financial covenants
included in certain of its notes payable and capital lease agreements for
which waivers have not been obtained. Accordingly, debt under those
agreements has been classified as current in the accompanying financial
statements and could be called by the creditors.
Management has developed specific plans to address its current financial
situation as follows:
. The Company has signed a letter of intent with an investment company under
which the investment company will use its best efforts to raise from $3.0
million to $4.7 million on behalf of the Company. The Company will use the
proceeds from this new debt financing, if received, to repay existing
delinquent debt and to support its continuing operations.
. The Company has obtained extensions on the maturity of $2,600,000 of its
notes payable ("Investor Notes") to October 1, 2000.
. The Company has adopted plans to discontinue its restaurant operations
because those operations require significant amounts of debt financing and
have contributed significantly to the Company's financial problems. Seeking
Chapter 11 bankruptcy for Redfish Management, Inc. was a step necessary to
allow the Company to eliminate those operations without increasing risk to
its more profitable operations.
Management of the Company believes that with the extension of its Investor
Notes and with its current business plans that it will ultimately achieve
adequate profitability and cash flow from operations in order to meet its
current obligations and fund the continuation of its business operations.
F-12
INFORMATION REGARDING AND FACTORS AFFECTING FORWARD LOOKING STATEMENTS
----------------------------------------------------------------------
The Company is including the following cautionary statement in this Quarterly
Report on Form 10-Q to make applicable and take advantage of the safe harbor
provision of the Private Securities Litigation Reform Act of 1995 for any
forward-looking statements made by, or on behalf of the Company. Forward-
looking statements include statements concerning plans, objectives, goals,
strategies, future events or performance and underlying assumptions and other
statements which are other than statements of historical facts. Certain
statements contained herein are forward-looking statements and, accordingly,
involve risks and uncertainties which could cause actual results or outcomes to
differ materially from those expressed in the forward-looking statements. The
Company's expectations, beliefs and projections are expressed in good faith and
are believed by the Company to have a reasonable basis, including without
limitations, management's examination of historical operating trends, data
contained in the Company's records and other data available from third parties,
but there can be no assurance that management's expectation, beliefs or
projections will result, or be achieved, or be accomplished.
F-13
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
--------------------------------
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
Report dated February 11, 2000
F-14
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC.
Date: March 21, 2000 By: /s/ James D. Butcher
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James D. Butcher, Chairman & CEO
Date: March 21, 2000 By: /s/ V. J. Farmer
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V. J. Farmer, Controller
F-15