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 May 31, 1996
-------------
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 0-19817
Creative Programming and Technology Ventures, Inc.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 84-1236669
------------------------------ ----------------------
(State or other jurisdiction of (I.R.S. Employer I.D. #)
incorporation or organization)
(303) 694-5324
(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 or 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 report(s), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS.
Indicate by check mark 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.
YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 3,210,079 common shares as of
July 11, 1996.
Index
===============================================================================
Part I. Part 1, Item 1: Financial Statements
Consolidated Balance Sheet As Of May 31, 1996 (Unaudited)..................... 3
Consolidated Statements Of Operations For Three
Months Ended May 31, 1996 And 1995 (Unaudited)................................ 5
Consolidated Statements Of Operations For Nine
Months Ended May 31, 1996 And 1995 (Unaudited)................................ 6
Consolidated Statements Of Shareholders' Equity
For Nine Months Ended May 31, 1996 (Unaudited)................................ 7
Consolidated Statements Of Cash Flows For Nine
Months Ended May 31, 1996 And 1995 (Unaudited)................................ 8
Notes To Consolidated Financial Statements (Unaudited)....................... 10
Part 1, Item 2: Management's Discussion And Analysis........................ 11
Part II. Other Information
Items 1 Through 6................................................... 15
Consolidated Balance Sheet (Unaudited)
May 31, 1996
Assets
Current assets:
Cash and cash equivalents ................................ $ 502,116
Accounts receivable ...................................... 25,520
Prepaid expenses ......................................... 76,543
Note receivable under sale of
discontinued operations ................................. 79,320
---------
Total current assets .................................. 683,499
---------
Property and equipment, net .................................. 867,202
---------
Other assets:
Certificate of deposit .................................... 281,000
Investment ................................................ 35,000
Project costs ............................................. 1,752,345
Note receivable under sale of
discontinued operations, net
of current portion ...................................... 50,837
Organization costs and other .............................. 106,238
---------
Total other assets .................................... 3,092,622
---------
Total assets .......................................... $ 3,776,121
=========
(continued)
3
Consolidated Balance Sheet (Unaudited) (Continued)
May 31, 1996
Liabilities And Shareholders' Equity
Current liabilities:
Current portion of long-term debt:
Financial institution .................................. $ 119,410
Obligations under capital leases ....................... 19,905
Accounts payable, trade .................................. 174,340
Accrued expenses and other ............................... 84,193
---------
Total current liabilities ............................. 397,848
---------
Notes payable financial institution,
net of current portion .................................. 127,901
Obligations under capital leases,
net of current portion .................................. 5,495
---------
Total long-term liabilities .......................... 133,396
---------
Shareholders' equity:
Preferred stock, par value $0.01; authorized 10,000,000
shares, issued and outstanding 1,000,000 (aggregate
liquidation preference $10,000) ......................... 10,000
Common stock, par value $0.01; authorized 50,000,000
shares, issued 3,321,200 shares ......................... 33,212
Capital in excess of par .................................. 8,284,337
Deficit ................................................... (5,020,161)
Less 111,121 shares common stock in treasury, at cost ..... (62,511)
---------
Total shareholders' equity ............................ 3,244,877
---------
Total liabilities and shareholders' equity ........... $ 3,776,121
=========
See notes to consolidated financial statements.
4
Consolidated Statements Of Operations (Unaudited)
Three Months Ended May 31, 1996 and May 31
1996 1995
---------- ----------
Revenues ................................. $ $ 172,259
Cost of sales ............................ 572,477 348,754
---------- ----------
Gross profit (loss) ...................... (572,477) (176,495)
Selling, general and administrative
expenses ............................... 650,558 478,538
Impairment loss ........................... 73,732
---------- ----------
Loss from operations ...................... (1,296,767) (655,033)
Other credits (charges):
Investment income ...................... 17,621 82,015
Interest expense ....................... (5,314) (5,589)
---------- ----------
Loss from continuing operations-- before
income taxes ........................... (1,284,460) (578,607)
Income tax benefit ....................... 57,890
---------- ----------
Loss from continuing operations ........... (1,284,460) (520,717)
Discontinued operations:
Income from operations of divested
subsidiary net of income tax expense
of $19,000 in 1995 ...................... 22,240
Gain on disposal of divested subsidiary
net of income tax expense $29,820 ....... 76,020
---------- ----------
Net loss .................................. $(1,284,460) $ (422,457)
========== ==========
Income (loss) per common share:
Loss from continuing operations ......... $ (0.40) $ (0.15)
Income from discontinued operations ..... 0.01
Gain on disposal of divested subsidiary.. 0.02
---------- ----------
Net loss .................................. $ (0.40) $ (0.12)
========== ==========
Weighted average number of common shares... 3,210,079 3,408,424
See notes to consolidated financial statements.
5
Consolidated Statements Of Operations (Unaudited)
Nine Months Ended May 31, 1996 and May 31
1996 1995
---------- ----------
Revenues ................................. $ 80,560 $ 537,505
Cost of sales ............................ 893,628 675,708
---------- ----------
Gross profit (loss) ...................... (813,068) (138,203)
Selling, general and administrative
expenses ............................... 1,939,475 1,117,115
Impairment loss ........................... 73,732
---------- ----------
Loss from operations ...................... (2,826,275) (1,255,318)
Other credits (charges):
Investment income ...................... 101,489 196,940
Interest expense ....................... (18,033) (2,035)
---------- ----------
Loss from continuing operations-- before
income taxes ........................... (2,742,819) (1,060,413)
Income tax benefit ....................... 63,625
Minority interests in loss of
consolidated subsidiaries .............. 26,720
---------- ----------
Loss from continuing operations ........... (2,742,819) (970,068)
Discontinued operations:
Income from operations of divested
subsidiary net of income tax expense
of $95,100 in 1995 ...................... 294,760
Gain on disposal of divested subsidiary.. 76,020
---------- ----------
Net loss .................................. $(2,742,819) $ (599,288)
========== ==========
Income (loss) per common share:
Loss from continuing operations ......... $ (0.83) $ (0.29)
Income from discontinued operations ..... 0.09
Gain on disposal of divested subsidiary.. 0.02
---------- ----------
Net loss .................................. $ (0.83) $ (0.18)
========== ==========
Weighted average number of common shares... 3,307,896 3,380,499
See notes to consolidated financial statements.
6
Consolidated Statement Of Shareholders' Equity (Unaudited)
Nine Months Ended May 31, 1996
Preferred stock Common stock Capital in Treasury Stock
------------------- ------------------ excess ----------------
Shares Amount Shares Amount of par Deficit Shares Amount Total
------ ------ ------ ------ ------------- ------- ------ ------ ------
Balances as of
September 1, 1995 .......... 1,000,000 $ 10,000 3,425,000 $ 34,250 $ 8,355,641 $(2,277,342) $ $ 6,122,549
Purchase of
treasury stock (Note 2) .... 111,121 (62,511) (62,511)
Repurchase and retirement
of common stock (Note 3) ... (103,800) (1,038) (71,304) (72,342)
Net loss ..................... (2,742,819) (2,742,819)
--------- --------- --------- ------- ---------- ---------- -------- ------- ----------
1,000,000 $ 10,000 3,321,200 $ 33,212 $ 8,284,337 $(5,020,161) 111,121 $(62,511)$ 3,244,877
========= ========= ========= ======= ========== ========== ======== ======= ==========
See notes to consolidated financial statements.
7
Consolidated Statements Of Cash Flows (Unaudited)
Nine Months Ended May 31, 1996 and 1995
1996 1995
----------- ------------
Cash flows from operating activities:
Net Loss ........................................ $(2,742,819) $ (599,288)
----------- -----------
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization ............... 260,586 149,981
Loss on investments ......................... 36,065
Minority interest in loss of consolidated
subsidiaries .............................. (26,720)
Impairment losses ........................... 705,902 46,000
Gain on sale of discontinued operations ..... (76,020)
(Increase) decrease in assets:
Accounts receivable ....................... 29,944 227,333
Work-in-progress .......................... 24,440 42,372
Prepaid expenses .......................... (40,010) (38,330)
Other current assets ...................... (3,910)
Other assets .............................. 4,232 (79,777)
Increase (decrease) in liabilities:
Accounts payable .......................... (152,183) 110,414
Other current liabilities ................. (30,117) 21,784
Noncash charges and working capital changes
-- discontinued operations .............. (126,815)
----------- -----------
Total adjustments ......................... 838,859 246,312
----------- -----------
Net cash used in operating activities ........... (1,903,960) (352,976)
----------- -----------
Cash flows from investing activities:
Capital expenditures .......................... (230,439) (120,887)
Cost incurred to acquire minority interest
in Alexandria, Inc. ......................... (7,354)
Purchase of treasury bills .................... (1,504,511)
Proceeds from maturity of treasury bills ...... 900,000 2,158,163
Proceeds from sales of treasury bills ......... 1,449,560
Purchase of certificate of deposit ............ (412,000)
Proceeds from maturity of certificates of
deposit ..................................... 131,000
Payment received on note receivable ........... 53,575 185,000
Project costs ................................. (925,951) (1,474,283)
Cash used for discontinued operations ......... (6,761)
----------- -----------
Net cash provided by (used in)
investing activities ................... 1,377,745 (1,182,633)
----------- -----------
(continued)
8
Consolidated Statements Of Cash Flows (Unaudited) (Continued)
Nine Months Ended May 31, 1996 and 1995
1996 1995
----------- ------------
Cash flows from financing activities:
Principal payments of capital lease
obligations ................................. (28,692) (26,680)
Proceeds from issuance of common stock in
KG Squared and OffWorld ..................... 1,204
Proceeds from issuance of note payable ........ 50,000
Payment of notes payable ...................... (110,416) (32,626)
Purchase of treasury stock .................... (62,511)
Purchase and retirement of common stock ....... (72,342)
Cash used for discontinued operations ......... (185,000)
----------- -----------
Net cash used for financing activities .......... (273,961) (193,102)
----------- -----------
Net decrease in cash and cash equivalents ....... (800,176) (1,728,711)
Cash and cash equivalents, beginning ............ 1,302,292 2,835,220
----------- -----------
Cash and cash equivalents, ending ............... $ 502,116 $ 1,106,509
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest ........................ $ 18,033 $ 2,035
=========== ===========
Supplemental schedule of non-cash investing and financing activities:
A receivable in the amount of $1,000 was recorded in September, 1994, for common
stock subscribed in the formation of KG Squared.
In November 1994, the Company acquired the minority interests of Alexandria,
Inc. by issuing 100,000 shares of restricted common stock with a market value of
approximately $2.00 per share.
In December 1995, the Company acquired $32,322 in fixed assets through capital
lease obligations.
Notes payable in the amount $412,000 were incurred in March 1995 for the
acquisition of equipment.
See notes to consolidated financial statements.
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NINE MONTHS ENDED MAY 31, 1996 AND 1995
1. The interim financial statements:
--------------------------------
These interim financial statements have been prepared by Creative
Programming and Technology Ventures, Inc. ("CPTV," the "Company") and,
in the opinion of management, reflect all material adjustments which
are necessary to a fair statement of results for the interim period
presented. Certain information and footnote disclosures made in the
Company's Form 10KSB have been condensed or omitted for the interim
statements. Certain costs are estimated for the full year and allocated
to interim periods based on activity associated with the interim
period. Accordingly, such costs are subject to year-end adjustment. It
is the Company's opinion that, when the interim statements are read in
conjunction with the Company's financial statements for the year ended
August 31, 1995 included in Form 10KSB, the disclosures are adequate to
make the information presented a fair presentation of the Company's
financial condition. The results of operations for the nine months
ended May 31, 1996 are not necessarily indicative of the results to be
expected for the full year.
2. Purchase of treasury stock:
--------------------------
On November 30, 1995, CPTV repurchased 111,121 shares of its
restricted common stock for $62,511 from certain members of the
management of Alexandria Studios, Inc. ("Alexandria") under the terms
of a written agreement executed in connection with the end of their
employment relationships with Alexandria. These shares have been
recorded as treasury stock and are carried at cost.
3. Repurchase and retirement of common stock:
-----------------------------------------
On December 19, 1995, the Board of Directors of CPTV adopted a
resolution to implement a share repurchase program. Under the share
repurchase program the Company may repurchase shares of its restricted
common stock in the open market. These shares are subsequently
canceled. As of February 29, 1996, CPTV had repurchased 103,800 shares
of its restricted common stock for $72,342.
4. Impairment losses:
-----------------
The management of CPTV periodically assesses whether there has been an
impairment in the carrying value of project costs, property and
equipment and intangible assets, primarily by comparing current and
projected sales, operating income, and annual cash flows on an
undiscounted basis, with the assets carrying value. Based on its
review, management recognized impairment losses totaling $705,902 for
the nine months ended May 31, 1996. Of this amount $73,732 related to
goodwill and the remaining $632,170 represented project costs. The
impairment losses for project costs have been recognized in cost of
goods sold and selling, general and administrative expenses in the
amounts of $570,477 and $61,693, respectively.
5. Subsequent Events
-----------------
On June 28, 1996 the Company accepted the potential for an extension of
credit from its majority shareholders. These funds may be made
available in increment of $250,000, up to a potential maximum of
$500,000. It is the Company's intention to make these funds available
to OddWorld for working capital purposes in order to further develop
OddWorld's SoulStorm project, until such time that a third party
publishing transaction can be consummated to market, distribute or
acquire the OddWorld project or interest. Currently, OddWorld has not
accepted the final terms and conditions under which the Company is
willing to loan the aforesaid funds.
10
PART I, ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS
Overview
- --------
Creative Programming and Technology Ventures, Inc. ("CPTV" or the "Company") has
been participating in providing services and products to the entertainment
industry since August 1993. In this Discussion and Analysis, the Company updates
the detailed financial information about its interactive entertainment software
industry participation and financial results.
Financial Condition, Liquidity and Capital Resources
- ----------------------------------------------------
The Company's primary source of liquidity and working capital derives from the
Initial Public Offering completed in November 1993, which provided net proceeds
to CPTV of approximately $7,700,000. Since then, the Company has used proceeds
to provide substantial working capital and project development financing both in
the form of debt and preferred and common stock equity financing for several
interactive game related business ventures, including the development of its
OddWorld subsidiary's SoulStorm title. SoulStorm is an advanced 32-bit game with
pre-rendered 3D graphics which is initially targeted at the Sony PSX 32-bit game
console platform. The Company also wholly acquired and operated Alexandria, Inc.
("Alexandria") for approximately two years but, it has substantially ceased
operations and contract work at Alexandria due to the difficult market
conditions currently inherent in the developer for hire position of the
interactive game business. In addition, the Company has used a portion of its
net proceeds to finance its administrative and legal obligations at CPTV.
Since the completion of the public offering, the Company's total working
capital, or unencumbered cash and cash equivalents less current liabilities, has
decreased to approximately $286,000, as of May 31, 1996, both as a result of the
Company's use of its cash for operations and its capital investments.
CPTV Consolidated
- -----------------
Through May 31, 1996, CPTV has advanced approximately $2.961 million to OddWorld
of which approximately $709,000 is debt which represents a large portion of two
Promissory Notes secured by a priority pledge of OddWorld's future revenue
stream from its SoulStorm title. The majority of the aforesaid debt has been
advanced to cover project cost overages that OddWorld has incurred (see
OddWorld) on its SoulStorm game publishing and development effort. CPTV
anticipates that further advances will be made for the development of its next
11
generation video game until product release, which has substantially slipped and
is now tentatively estimated for the first quarter of 1997. The Company is
considering various proposals from interested third parties for funding the
remaining estimated cost of its game and its related distribution and marketing
costs, in excess of CPTV's commitment. These options include internal debt or
equity financing from or through CPTV, external financing from third-parties, or
monetary advances from publishers and distributors to be recouped from future
revenues from the SoulStorm project. CPTV's founding principals are also
prepared and have committed to make a $500,000 loan available to the company in
the form of a convertible note since OddWorld principal shareholders and
founders have been unable to secure independent third party financing. (See
OddWorld)
Sales, general and administrative expenses ("SG&A") on a consolidated basis
increased to $1,939,475 for the nine months ended May 31, 1996 as compared to
$1,117,115 for the nine months ended May 31, 1995. SG&A expenses for the three
months ended May 31, 1996 were $650,558 as compared to $478,533 for the three
months ended May 31, 1995.
As a consequence of these operating outcomes, CPTV recorded a loss of
$1,284,460, or $0.40 per share for the three months ended May 31, 1996, compared
to a loss of $422,457 or $0.12 per share for the three months ended May 31,
1995. For the nine months ended May 31, 1996 the Company recorded a loss of
$2,742,819 or $0.83 per share, as compared with a loss of $599,288 or $0.18 per
share for the same period in the prior year. This large disparity in comparative
operating results stems from the fact that the Company is funding money to build
the SoulStorm title and has substantially curtailed all revenue derived from
providing service work for the nine months ended May 31, 1996. The broad
majority of the aforesaid loss represents components of CPTV's cost associated
with carrying the escalating cost on the SoulStorm project as well as increased
legal and administrative costs.
As was discussed in recent filings, in light of the Company's historical stage
of development on its current projects, CPTV continues to adhere to its plan as
follows:
- - Continued investing in the SoulStorm production with OddWorld, which now
represents the Company's primary business prospect.
- - Completion of its negotiations with third party investors, in an attempt to
secure additional financing for the world wide distribution and marketing
for OddWorld's SoulStorm title.
- - Protection of its rights and interest in SoulStorm and OddWorld in light of
OddWorld's non-compliance with its Agreement with CPTV and its
subsidiaries.
Alexandria Studios, Inc.
- ------------------------
For the nine months ended May 31, 1996, Alexandria's revenues were substantially
unchanged from the previous quarter as they have now curtailed all outside
contract services. This is compared to the nine months ending May 31, 1995.
Alexandria's stand-alone gross operating loss (revenue less direct costs) for
the nine months ended May 31, 1996 was $796,450 as compared to a gross operating
loss of $244,963 for the same period last year. For the three months ended May
31, 1996 revenues were substantially non-existent as compared to $172,259 for
the same period last year. For the three months ended May 31, 1996, Alexandria's
gross operating loss was $555,859 as compared to a gross operating loss of
$176,495 for the same period last year.
As previously disclosed in the Company's last two Quarterly reports,
Alexandria's operations have been brought to a minimal status as to work and
12
employees. Alexandria subcontracted the remaining contract work to be done on
the Interplay Frankenstein Contract to to an outside software development
studio. Under the terms of this contract, the outside studio has assumed all
liability to finish the Frankenstein game.
Off World Entertainment, Inc. d.b.a. OddWorld Inhabitants
- ---------------------------------------------------------
For the nine months ended May 31, 1996, OddWorld continued to operate without
revenues as it continues to extend its resources into the production of its
32-bit game SoulStorm. OddWorld's stand alone net operating loss (revenue less
direct cost) for the nine months ended May 31, 1996 was $550,613 as compared to
a loss of $200,704 for the same period last year. For the three months ended May
31, 1996 operating losses were $236,580 as compared to $101,595 for the same
period last year. The increasing losses represent the expanded staff and
production efforts currently taking place at OddWorld as its SoulStorm
production matures. To date, all of OddWorld's financing has been provided by
CPTV.
As previously announced, CPTV has been evaluating additional financing options
to cover anticipated costs associated with the completion of OddWorld's
SoulStorm interactive software title and to assist in funding the marketing and
promotional program related to the product's launch.
As of the third quarter ended May 31, 1996, CPTV had extended $2,961,278 plus
additional credits to OddWorld in the form of deferred salary and software tool
licensing fees. With the product release date now projected to slip into or
beyond the first quarter of 1997, due to production problems at OddWorld, CPTV
has been informed by OddWorld that it expects the total budget of the SoulStorm
project to surpass $5 million dollars, substantially more than previous
estimates. As a result, CPTV has taken several major steps in an attempt to
protect its investment in the project. CPTV has notified OddWorld that it is in
non-compliance with the Purchase Agreement by and between OddWorld and KG
Squared, a wholly-owned subsidiary of CPTV, and CPTV has acted on its rights
under said Agreements by: 1) demanding an immediate redemption (repayment) of
all of its principal investment and creating a creditor equity preference
therein; and 2) acting on its rights to place a majority representation on
OddWorld's board of directors until such time as its Preferred Stock is redeemed
and additional capital arrangements for the future are secured. In light of the
product release slippage, production problems and associated budgetary
constraints, CPTV has also informed OddWorld that it no longer has sufficient
funds to unilaterally continue funding the SoulStorm project and OddWorld's day
to day operations.
13
Due to the decision by CPTV to lend its support to the development program for
SoulStorm above and beyond the initial Preferred Stock Funding Commitment, CPTV
believes that its remaining cash resources will only be adequate to provide
sufficient funds for its own operations for another 60 to 90 days, unless an
extension of credit or financing from outside sources is obtained. Furthermore,
until another financing agreement can be achieved, CPTV is not able to predict
whether it will be able to obtain sufficient working capital necessary to
complete the development of SoulStorm. Since OddWorld has not been able to
secure its own third party financing to cover its continuing operation, CPTV has
been proactive in securing and submitting additional financing options for
OddWorld independent of OddWorld's principals and shareholders.
Subsequent Events
- -----------------
On June 28, 1996 CPTV accepted a partial extension of credit from Kim Magness,
Gary Magness and Gary Vickers, affiliates of CPTV, which included a first
installment of $250,000 and a potential second installment of another $250,000
for a potential total of $500,000. CPTV's intention is to make these loan monies
plus potentially some of its own capital available in OddWorld for additional
working capital to further development on OddWorld's SoulStorm project until
such time that a third party publishing transaction can be consummated to
market, distribute or acquire the OddWorld project or interest.
As of this date, OddWorld has not accepted the final terms and conditions under
which CPTV is willing to loan the aforesaid funds. CPTV believes its financing
proposal is the only currently available and viable interim funding source for
OddWorld. Should OddWorld not accept said financing and does not present an
acceptable alternative third party financing solution, then CPTV may further
proceed to act on its rights and remedies with respect to its investment in
OddWorld.
14
PART II: OTHER INFORMATION
Items 1 Through 6: None
15
Signature Page
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Creative Programming and Technology Ventures, Inc.
By: /s/Gary R. Vickers
----------------------------------------
Gary R. Vickers, President, CPTV
Date: July 12, 1996