U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE OF
1934
For the transition period from _______________ to ____________
Commission File No. 0-23914
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ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC.
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(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 87-0521389
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
16055 Space Center Blvd., Ste. 230
Houston, Texas 77062
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICERS)
ISSUER'S TELEPHONE NUMBER: (281) 486-6115
Not applicable
--------------
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter periods 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 X No (2) Yes X No
--- --- --- ---
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the Registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court.
Not applicable
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date:
October 24, 1996
Common stock: 20,507,821
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
The Financial Statements of the Registrant required to be filed with
this 10-QSB Quarterly Report were prepared by management and commence on the
following page, together with Related Notes. In the opinion of management, the
Financial Statements fairly present the financial condition of the Registrant.
2
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
ASSETS 1996 1995
- ------- ------------- -------------
(Unaudited) (Note)
Current Assets:
Cash $ 50,278. $ 62,277.
Accounts Receivable 552,314. 455,766.
Retail Inventories 118,314. 133,683.
Other Current Assets 333,729. 307,430.
------------ ------------
1,054,635. 959,156.
Property and Equipment 4,227,935. 3,641,044.
Less Accumulated Depreciation (1,518,001.) (1,082,201.)
------------ ------------
2,709,934. 2,558,843.
Other Assets 17,789. 248,594.
------------ ------------
Total Assets $ 3,782,358. $ 3,766,593.
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
Accounts Payable and Accrued Expenses $ 703,774. $ 586,792.
Notes Payable and Current Portion of Long-Term Debt 612,643. 366,215.
Other Current Liabilities 90,192. 15,350.
------------ ------------
1,406,609. 968,357.
Long-Term Debt 127,531. 8,626.
Deferred Income Taxes 75,028. 75,028.
Stockholders' Equity
Common Stock 20,508. 20,231.
Additional Paid-In Capital 2,448,268. 2,470,990.
Unearned Compensation -0- (67,269.)
Retained Earnings (295,586.) 290,630.
------------ ------------
2,173,190. 2,714,582.
------------ ------------
Total Liabilities And Stockholders' Equity $ 3,782,358. $ 3,766,593.
============ ============
See Notes To Condensed Consolidated Financial Statements.
Note: The Balance Sheet at December 31, 1995, has been derived from the Audited
Financial Statements at that date.
3
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30,
1996 1995
---- ----
Revenues $ 1,872,858. $ 1,839,574.
Cost Of Goods Sold 926,746. 777,657.
------------ ------------
Gross Profit 946,112. 1,061,917.
General and Administrative Expenses 817,250. 828,813.
Depreciation 162,165. 94,464.
Amortization 269,397. 51,157.
Interest Expense 43,959. 32,062.
------------ ------------
Income (Loss) Before Income Taxes (346,428.) 55,421.
Income Taxes --0-- --0--
------------ ------------
Net Income (Loss) ($346,428.) $ 55,421.
============ ============
Net Income (Loss) Per Share ($0.02) $ 0.00
============ ============
Weighted Average Shares Outstanding 20,287,416. 20,051,528.
============ ============
See Notes To Condensed Consolidated financial Statements.
4
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
1996 1995
-------- --------
Revenues $5,493,924. $5,245,388.
Cost Of Goods Sold 2,744,569. 2,445,275.
----------- ------------
Gross Profit 2,749,355. 2,800,113.
General and Administrative Expenses 2,197,380. 2,432,763.
Depreciation 453,864. 319,464.
Amortization 584,592. 67,776.
Interest Expense 99,735. 96,098.
----------- ------------
(Loss) Before Income Taxes (586,216.) (115,988.)
Income Taxes --0-- --0--
----------- ------------
Net (Loss) ($586,216.) ($115,988.)
============ ============
Net (Loss) Per Share ($0.03) ($0.01)
============ ============
Weighted Average Shares Outstanding 20,242,991. 19,671,344.
============ ============
See Notes To Condensed Consolidated financial Statements.
5
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
1996 1995
---- ----
Cash From (Used In) Operations $ (44,505.) $ 126,712.
Investing Activities
Purchase of Property and Equipment (604,956.) (627,987.)
Sale of Note Receivable\Sale of Harpers 192,900. (192,900.)
Other 34,405. (3,696.)
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(377,651.) (824,583.)
Financing Activities
Borrowing and Repayment of Debt 365,333. (66,807.)
Unearned Compensation ---0--- (46,200.)
Issuance of Common Stock 44,824. 995,307.
---------- ----------
410,157. 882,300.
Increase (Decrease) In Cash ($ 11,999.) $ 184,429.
=========== ==========
See Notes To Condensed Consolidated Financial Statements.
6
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1996
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10Q and Item 10 of
Regulation S-B. Accordingly, they do not include all of the information for
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 the three and nine month period ended
September 30, 1996, are not necessarily indicative of the results that may be
expected for the year ended December 31, 1996.
NOTE 2 - FACTORING AGREEMENT
- ----------------------------
In July, the Company entered into a factoring agreement with Celtic
Capital Corporation whereby Celtic purchases, with full recourse, up to $500,000
of the Company's accounts receivable. Interest, at prime plus 6%, is paid to
Celtic based on Celtic's investment in the purchased receivables.
NOTE 3 - NOTE PAYABLE
- ---------------------
On September 30, 1996, the Company entered into Promissory Note
Agreements with three individuals to borrow a total of $100,000, discounted
$5,000. The notes mature in twelve months and bear interest at 14.75% and are
secured by the assets of the Company and the personal guarantee of the Chairman
of the Board/Chief Executive Officer of the Company. The $95,000 was received
by the Company on October 2, 1996. These notes may be converted into a total of
300,000 shares of the Company's unregistered and restricted Common Stock at any
time from May 15, 1997, until maturity.
Concurrently, the Company entered into Installment Purchase Agreements with
these three individuals whereby they may purchase, at their sole discretion, a
total of 300,000 shares of the Company's unregistered and restricted Common
Stock for a total consideration of $95,000. These shares may be purchased at
any time from May 15, 1997, until September 30, 1997. In consideration for
these agreements, the three individuals will pay interest quarterly, at 5%, on
the $95,000 purchase price.
7
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1996
NOTE 4 - ISSUANCE OF COMMON STOCK
- ---------------------------------
In September, the Company granted 60,000 shares of the Company's
unregistered and restricted Common Stock to a Division President/Director of the
Company for personally guaranteeing equipment lease obligations of the Company.
The Company also granted 50,000 shares of the Company's unregistered and
restricted Common Stock to several employees, including 30,000 shares to an
officer of the Company.
Also in September , the Company granted 180,000 shares of its unregistered
and restricted common stock to a financial public relations firm as payment for
a twelve month consulting agreement. Additionally, the Company granted 17,231
shares of its unregistered and restricted common stock as payment for a
financial research report on the Company.
NOTE 5 - ACQUISITION OF NATIONAL VIDEO SUBSCRIPTION, INC.
- ---------------------------------------------------------
On June 17, the Company signed a definitive agreement to acquire
National Video Subscription, Inc. of Anaheim, California, for $3.1 million in a
combination of stock and cash. The acquisition was contingent on completing a
private placement of $3.5 million. The Company was unable to obtain the
financing and the agreement expired on August 31, 1996, with no further
obligations on either party.
8
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC.
ITEM 2.--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
- ----------------------
Three Months Ended September 30, 1996 Compared To Three Months Ended
September 30,1995
Revenues for the third quarter of 1996 increased by $33,283 or 1.8% over the
comparable period for 1995. This increase was due to increases in NiteLife, Inc.
of $44,609 or 3.4% and Just Games, Inc. of $34,307 or 8.3% partially offset by a
decrease in Performance Sound and Light of $45,633 or 40%. The increase in Just
Games, Inc. was primarily due to the completion of a design and construction
contract for a nightclub at a Navy base in Sasebo, Japan. The decrease in
Performance Sound and Light, is partially attributable to the sale of Harper's
Music Store in August 1995, which contributed $33,682 in revenues in the third
quarter of 1995.
Gross profit for the third quarter of 1996 decreased $115,805 or 10.9% over the
third quarter of 1995 primarily as a result of the increase in revenue from
construction contracts with lower profit margins.
General and administrative expenses decreased $11,563 or 1.4% from the same
period in 1995. This decrease is due to reduction in expenses in most areas.
Also, in July, the Company completed the relocation of its corporate offices
from San Diego, California to Houston, Texas. All expenses related to the move
were expensed in the third quarter.
Depreciation increased $67,701. or 71.7% during the current quarter over the
same period in 1995 due to increases in purchases of property and equipment.
Amortization increased $218,240 or 426.6% over the same period in 1995. This
increase is due primarily to increases in deferred installation costs related to
new clubs, stock promotion costs, and the discount on the note receivable sold
in the second quarter and other deferred expenses.
Interest expense increased $11,666. or 36.4% over the similar period in 1995.
This increase reflects higher short-term borrowing with associated higher
interest costs.
Nine Months Ended September 30,1996 Compared To Nine Months Ended September 30,
1995
Revenues for the nine months of 1996 increased $248,536 or 4.7% over the same
period in 1995. This increase was due to increases in NiteLife, Inc. of
$406,566 or 12.7% and Just Games, Inc. of $61,722 or 4.5% partially offset by a
decrease in Performance Sound and Light of $219,752 or 32.5%. The decrease in
Performance Sound and Light is partially due to the sale of Harper's Music Store
in August 1995, which contributed $180,331 in revenues for the first nine months
of 1995.
General and administrative expenses decreased $235,383 or 9.7% from the same
period in 1995. This decrease is due to reductions in expenses in most areas.
Depreciation increased $134,400 or 42.1% in the current period compared to 1995.
this increase reflects increases in purchases of property and equipment.
9
Amortization increased $516,816 or 762.5% over the comparable period in 1995.
This increase is due to increases in deferred installation costs related to new
clubs, stock promotion costs, the discount on the note receivable sold in the
second quarter and other deferred expenses.
Interest expense increased $3,637 or 3.8% in 1996 over the similar period in
1995. This increase is due to higher short-term borrowing and associated higher
interest costs.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At September 30, 1996, the Company had a working capital deficit of $351,974
compared to a deficit of $9,201 at December 31, 1995. This increase is due
primarily to increases in accounts payable and accrued expenses and other
current liabilities. Capital expenditure requirements for the remainder of the
year will require the Company to seek additional financing. The Company is
currently exploring various opportunities for outside financing although there
can be no assurances that these efforts will be successful.
As described in Note 5, the Company had signed a definitive agreement to acquire
National Video Subscription, Inc. for $3.1 million in a combination of stock and
cash. The acquisition was contingent on completing a private placement for $3.5
million. The closing of the acquisition had been extended to August 31, 1996
from July 31, 1996. The Company was unable to obtain the financing and the
agreement expired on August 31, 1996, with no further obligation on either
party.
10
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
-----------------
None: not applicable.
ITEM 2. CHANGES IN SECURITIES.
----------------------
None: not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
None: not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
----------------------------------------------------
The Company held its Annual Shareholders' meeting on June 10, 1996, in
San Diego, California. The only matter voted upon was the election of
Directors. All nominees submitted by management as listed in the
Company's proxy statement were elected. The following directors were
elected for a term of one year:
Name For Withheld
-------------- ---------- ----------
James D. Butcher 14,665,595 793,395
Leonida Butcher 14,655,808 803,182
Lawrence Kelly 14,665,595 793,395
William Grasberger 14,665,595 793,395
Jeffrey Thornton 14,665,595 793,395
Mark Madamba 14,665,595 793,395
Total Votes Cast 15,458,990
Broker non-votes 444,716
Abstentions 4,326,884
----------
Total outstanding shares
as of record date 20,230,590
==========
ITEM 5. OTHER INFORMATION
-----------------
On September 10, 1996, Lawrence Kelly, Division President and a
Director of the Company, terminated his employment with the Company and resigned
from the Board of Directors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
---------------------------------
(a) Exhibits
None
(b) Reports on Form 8-K
None
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1939, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENTERTAINMENT TECHNOLOGIES &
PROGRAMS, INC.
Date : November 13, 1996 By James D. Butcher /s/
----------------- --------------------
James D. Butcher, Chairman & CEO
Date: November 13, 1996 By Bernard J. Prem /s/
----------------- -------------------
Bernard J. Prem, CFO
12