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 March 31, 2002
------------------------
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
- --------------------------------------------------------------------------------
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 87-0521389
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17300 Saturn Lane, Suite 111, Houston, TX 77058
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(281) 486-6115
- --------------------------------------------------------------------------------
(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 March 31, 2002, the Registrant had outstanding 71,057,545 shares of
common stock, par value $0.001 per share.
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC.
TABLE OF CONTENTS
FORM 10-QSB FOR THE QUARTER ENDED MARCH 31, 2002
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-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings F-14
Item 6. Exhibits and Reports on Form 8-K F-14
Signature Page F-14
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
- ------ --------------------
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC. AND SUBSIDIARIES
------------------------
UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND SIX MONTHS ENDED MARCH 31, 2002 AND 2001
F-1
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
-----------
PAGE(S)
-------
Unaudited Consolidated Condensed Financial
Statements:
Unaudited Consolidated Condensed Balance Sheet
as of March 31, 2002 and September 30, 2001 F-3
Unaudited Consolidated Condensed Statement of
Operations for the three months and six months
ended March 31, 2002 and 2001 F-4
Unaudited Consolidated Condensed Statement of
Cash Flows for the six months ended March 31,
2002 and 2001 F-5
Unaudited Consolidated Condensed Statement of
Stockholders Deficit for the six months
ended March 31, 2002 F-6
Notes to Unaudited Consolidated Condensed Financial
Statements F-7
F-2
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
-------------
MARCH 31,
2002 SEPTEMBER 30,
ASSETS (UNAUDITED) 2001
------ ------------ ---------------
Current assets:
Cash and cash equivalents $ 66,062 $ 30,288
Accounts receivable, net 300,986 266,334
Inventory 110,341 39,340
Prepaid expenses 78,703 57,017
------------ ---------------
Total current assets 556,092 392,979
Property and equipment, net 803,414 1,740,155
Assets held for sale 897,720 -
Other assets 40,983 43,800
------------ ---------------
Total assets $ 2,298,209 $ 2,176,934
============ ===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
Current liabilities:
Current portion of notes payable to stockholder $ 132,500 $ 15,500
Current maturities of notes payable 896,892 853,633
Current portion of capital lease obligation - 568,430
Accounts payable and accrued liabilities 460,929 920,272
------------ ---------------
Total current liabilities 1,490,321 2,357,835
Notes payable to stockholders, net of current portion 580,875 370,000
Notes payable, net of current portion 389,442 15,017
Capital lease obligation, net of current portion - 675,599
Debt settlement trust obligation 1,015,194 876,433
------------ ---------------
Total liabilities 3,475,832 4,294,884
------------ ---------------
Commitments and contingencies
Stockholders' deficit:
Common stock, $.001 par value, 200,000,000 shares
authorized, 71,457,545 and 54,333,455 shares issued
and 71,057,545 and 53,933,455 shares outstanding at
March 31, 2002 and September 30, 2001, respectively 71,457 54,333
Additional paid-in capital 8,739,714 7,688,384
Unissued common stock - 155,200
Stock subscription receivable (10,000) -
Accumulated deficit (9,828,794) (9,865,867)
Treasury stock: 400,000 shares at cost (150,000) (150,000)
------------ ---------------
Total stockholders deficit (1,177,623) (2,117,950)
------------ ---------------
Total liabilities and stockholders' deficit $ 2,298,209 $ 2,176,934
============ ===============
Note: The balance sheet at September 30, 2001 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.
See accompanying notes.
F-3
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
-------------
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
-------------------------- --------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Total revenue $ 831,242 $ 770,370 $ 1,682,086 $ 1,510,605
------------ ------------ ------------ ------------
Cost of sales and services, excluding
depreciation and amortization 384,918 377,456 814,694 731,869
Depreciation and amortization 76,200 124,100 162,900 232,210
------------ ------------ ------------ ------------
Total cost of sales and services 461,118 501,566 977,594 964,079
------------ ------------ ------------ ------------
Gross margin 370,124 268,804 704,492 546,526
General and administrative expenses 380,250 457,814 740,347 859,095
------------ ------------ ------------ ------------
Loss from operations (10,126) (189,010) (35,855) (312,569)
------------ ------------ ------------ ------------
Other income (expenses):
Interest expense (170,285) (69,391) (279,981) (127,652)
Gain on disposal of property and
equipment - - 5,017 -
Severance pay to former employee
and related costs (15,500) - (50,176) -
------------ ------------ ------------ ------------
Total other income (expenses), net (185,785) (69,391) (325,140) (127,652)
------------ ------------ ------------ ------------
Net loss before extraordinary item (195,911) (258,401) (360,995) (440,221)
Extraordinary gain on extinguishment
of debt, net 432,088 - 398,068 -
------------ ------------ ------------ ------------
Net income (loss) $ 236,177 $ (258,401) $ 37,073 $ (440,221)
============ ============ ============ ============
Basic and diluted net loss per
common share:
Before extraordinary item $ - $ (0.01) $ (0.01) $ (0.01)
Extraordinary item - - 0.01 -
------------ ------------ ------------ ------------
Net loss $ - $ (0.01) $ - $ (0.01)
============ ============ ============ ============
Weighted average shares outstanding 70,308,033 45,201,537 65,619,655 43,664,148
============ ============ ============ ============
See accompanying notes.
F-4
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
-------------
SIX MONTHS ENDED
MARCH 31,
-----------------------
2002 2001
---------- -----------
Cash flows from operating activities:
Net income (loss) $ 37,071 $ (440,221)
Adjustments to reconcile net loss to net cash
used in operating activities (234,545) 301,956
---------- -----------
Net cash used in operating activities (197,474) (138,265)
---------- -----------
Cash flows from investing activities:
Capital expenditures (125,863) (212,720)
---------- -----------
Net cash used in investing activities (125,863) (212,720)
---------- -----------
Cash flows from financing activities:
Increase in book overdrafts - 24,541
Proceeds from sale of common stock 77,500 153,000
Proceeds from notes payable 320,000 183,048
Payments on notes payable and capital lease
obligations (38,389) -
---------- -----------
Net cash provided by financing activities 359,111 360,589
---------- -----------
Increase (decrease) in cash and cash equivalents 35,774 (9,604)
Cash and cash equivalents, beginning of period 30,288 9,604
---------- -----------
Cash and cash equivalents, end of period $ 66,062 $ -
========== ===========
See accompanying notes.
F-5
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE SIX MONTHS ENDED MARCH 31, 2002
-------------
ADDITIONAL UNISSUED STOCK
COMMON STOCK PAID-IN COMMON SUBSCRIPTION ACCUMULATED TREASURY
SHARES AMOUNT CAPITAL STOCK RECEIVABLE DEFICIT STOCK
------------ -------- ----------- -------------- ------------- ------------ ----------
Balance at September 30, 2001 54,333,455 $ 54,333 $ 7,688,384 $ 155,200 $ - $(9,865,867) $(150,000)
Common stock issued for services 101,750 102 4,986 - - - -
Common stock issued for employee
compensation 350,000 350 10,150 - - - -
Common stock issued for interest 270,000 270 9,705 - - - -
Common stock issued for cash 2,527,778 2,528 84,973 - (10,000) - -
Common stock issued for prepaid
assets 171,429 171 8,400 - - - -
Capital lease obligations conver-
ted to common stock 10,423,133 10,423 719,196 - - - -
Common stock issued for rent ob-
ligation 150,000 150 11,850 - - - -
Issuance of unissued stock 2,130,000 2,130 153,070 (155,200) - - -
Common stock issued for trust
liability 1,000,000 1,000 49,000 - - - -
Net income for the six months
ended March 31, 2002 - - - - - 37,073 -
------------ -------- ----------- -------------- ------------- ------------ ----------
Balance at March 31, 2002 71,457,545 $ 71,457 $ 8,739,714 $ - $ (10,000) $(9,828,794) $(150,000)
============ ======== =========== ============== ============= ============ ==========
TOTAL
------------
Balance at September 30, 2001 $(2,117,950)
Common stock issued for services 5,088
Common stock issued for employee
compensation 10,500
Common stock issued for interest 9,975
Common stock issued for cash 77,501
Common stock issued for prepaid
assets 8,571
Capital lease obligations conver-
ted to common stock 729,619
Common stock issued for rent ob-
ligation 12,000
Issuance of unissued stock -
Common stock issued for trust
liability 50,000
Net income for the six months
ended March 31, 2002 37,073
------------
Balance at March 31, 2002 $(1,177,623)
============
See accompanying notes.
F-6
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
-------------
1. GENERAL
-------
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, 2001. 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:
- The development, management and operation of entertainment systems
within nightclub venues, located on U.S. military bases throughout the
world, and the designing, planning, promotion and production of live
performances and other entertainment bookings in both the military and
the civilian markets.
- The design, installation and retail sale of professional sound and
lighting equipment through mail order catalogs, the internet and
direct sales targeting the military market through AFNAF purchase
agreements and civilian consumer markets.
- The ownership of amusement equipment in company-owned and operated
facilities.
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.
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 six months ended March 31, 2002 and 2001.
Continued
F-7
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
-------------
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. LITIGATION
----------
On February 12, 2002, the Company filed suit against James Douglas Butcher,
former Chairman and Chief Executive Officer of the Company to recover an
unspecified amount of damages due to Mr. Butcher's alleged violation of a
covenant not to compete, breach of fiduciary duty, breach of contract and
conversion relating to his employment agreement dated November 10, 1995 and
effective as of May 11, 1995. On February 27, 2002, Mr. Butcher filed
counterclaims against the Company. The Company intends to vigorously
prosecute this matter to a conclusion, though the Company cannot predict
with any certainty the eventual outcome of this litigation.
6. BUSINESS SEGMENTS
------------------
During the three months ended December 31, 2001 and 2000, the Company
operated primarily in three strategic business units that offer different
products and services: providing military entertainment services, retail
sale of sound and lighting equipment and design and operation of amusement
facilities and equipment. Financial information regarding business segments
is as follows:
MILITARY RETAIL
ENTERTAINMENT SALES AMUSEMENT TOTAL
-------------- ---------- ----------- -----------
THREE MONTHS ENDED MARCH 31, 2002:
Revenues $ 615,124 $ 106,531 $ 109,587 $ 831,242
Net income (loss) before income
taxes and extraordinary items 88,732 (12,960) (10,381) 65,391
Total assets 1,325,369 74,406 311,205 1,710,980
THREE MONTHS ENDED MARCH 31, 2001:
Revenues $ 588,777 $ 77,514 $ 104,079 $ 770,370
Net income (loss) before income
taxes and extraordinary items 57,040 (22,486) (104,375) (69,821)
Total assets 1,080,966 (158,635) 1,074,823 1,997,154
SIX MONTHS ENDED MARCH 31, 2002:
Revenues $ 1,140,454 $ 315,705 $ 225,927 $1,682,086
Net income (loss) before income
taxes and extraordinary items 149,945 (12,029) (65,434) 72,482
Total assets 1,325,369 74,406 311,205 1,710,980
Continued
F-8
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
-------------
6. BUSINESS SEGMENTS, CONTINUED
------------------------------
SIX MONTHS ENDED MARCH 31, 2001:
Revenues $1,179,866 $ 131,729 $ 199,010 $1,510,605
Net income (loss) before income
taxes and extraordinary items 107,415 (73,334) (172,105) (138,024)
Total assets 1,080,966 (158,635) 1,074,823 1,997,154
Intersegment receivables and payables have been shown net in total assets
for each segment. The Company evaluates performance based on operating
earnings of the respective business units.
Following are reconciliations of net income or loss and total assets for
reportable segments to the consolidated totals of the Company:
THREE MONTHS ENDED
MARCH 31,
2002 2001
----------- -----------
Net income or loss
- ------------------
Total net income or loss for reportable segments
before extraordinary gain $ 65,391 $ (69,821)
Unallocated amounts:
Corporate management fees charged to segments 46,650 46,457
Other corporate expenses (307,952) (235,037)
----------- -----------
Total consolidated loss before income taxes
and extraordinary loss $ (195,911) $ (258,401)
=========== ===========
SIX MONTHS ENDED
MARCH 31,
2002 2001
----------- -----------
Net income or loss
- ------------------
Total net income or loss for reportable segments
before extraordinary gain $ 72,482 $ (138,024)
Unallocated amounts:
Corporate management fees charged to segments 95,701 90,871
Other corporate expenses (529,178) (393,068)
----------- -----------
Total consolidated loss before income taxes
and extraordinary loss $ (360,995) $ (440,221)
=========== ===========
MARCH 31, MARCH 31,
2002 2001
----------- -----------
Assets
- ------
Total assets for reportable segments $1,710,980 $1,997,154
Elimination of receivables/payables from corporate
headquarters 466,725 332,832
Other unallocated assets 120,504 15,534
----------- -----------
Total consolidated assets $2,298,209 $2,345,520
=========== ===========
Continued
F-9
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
-------------
7. DEBT SETTLEMENT TRUST OBLIGATION
-----------------------------------
In December 2000, the Company entered into an agreement (the "Trust
Agreement") with the holders of the Investor Notes. Under the terms of the
Trust Agreement, the Company placed certain of its amusement properties
with an appraised value of $2,495,000 (the "Properties) into a trust (the
"Trust") that was established to (i) consolidate the ownership interests of
the individual holders of the Investor Notes into beneficial interests in
the Trust, (ii) liquidate the Properties that were placed into the Trust,
and (iii) distribute the proceeds from liquidation of the Properties to the
beneficial interests in the Trust. The Trust ultimately seeks to fully
retire the Investor Notes plus accrued interest through the date of
retirement. At the inception of the Trust, the Investor Notes had a face
value of $2,600,000 and accrued interest of $320,487. An extension fee of
10% of the outstanding note balance is due to the beneficial holders
quarterly and is to be paid by the Trust. The Company has also agreed to
place shares of its restricted common stock and certain other amusement
properties into the Trust if the Properties prove insufficient for the
purposes of the Trust, which include payment of trust expenses and
extension fees.
Following is an analysis of the debt settlement trust obligation at
September 30, 2001 and a roll forward of the obligation to March 31, 2002:
Investor notes to be repaid by the Trust $2,600,000
Accrued interest at the date the Trust was
established 320,487
-----------
Liability transferred to the Trust 2,920,487
Net book value of the property transferred
to the Trust 1,957,949
Fair market value of common stock transferred
to the Trust as collateral 108,000
-----------
Assets transferred to the Trust 2,065,949
Net liability after transfer 854,538
Common stock of the Company issued for accrued
interest (172,182)
Extension fees earned by the note holders and
due to the Trust 195,000
Other Trust activity (923)
-----------
Debt settlement trust obligation at September 30,
2001 876,433
Additional expenses of the trust 93,761
Extension fees earned by the note holders and
due to the Trust 130,000
Common stock of the Company issued for collateral (50,000)
Cash payment to the Trust (35,000)
-----------
Debt settlement trust obligation at March 31, 2002 $1,015,194
===========
Continued
F-10
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
-------------
7. DEBT SETTLEMENT TRUST OBLIGATION, CONTINUED
-----------------------------------------------
The Company remains primarily responsible for approximately $3,000,000 of
debt to the extent that assets in the Trust are not sufficient to settle
the debt. Under terms of the Trust, certain additional assets and shares of
the Company's common stock will be used to settle any remaining liability
after current Trust assets are liquidated.
8. CAPITAL LEASE SETTLEMENT AGREEMENT
-------------------------------------
During the year ended September 30, 1997, the Company entered into a
capital lease agreement (the "1997 Lease") to acquire $700,000 of games for
use in its amusement facilities. As of February 18, 2002, the Company was
approximately $882,088 past due on required payments under the lease
obligation. Such past due payments included accrued interest expense of
$256,783, accrued sales tax expense of $56,875 and principal payments of
$568,430. Effective February 18, 2002, the Company settled all outstanding
liabilities owed under the 1997 Lease for a note payable in the amount of
$450,000 due in forty-five equal monthly installments. The settlement
resulted in an extraordinary gain of $432,088.
If the Company fails to make any of the scheduled payments under the
settlement agreement, the Company will be in default of the settlement
agreement. If the default remains uncured for sixteen days after actual
notice of default is given to the Company, the Company will be liable for
the agreed judgment in case of default of approximately $992,000, less
payments already made on the settlement obligation.
F-11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------ -----------------------------------------------------------------------
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, 2001. 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 March 31, 2002 increased by $60,872 from
$770,370 for the quarter ended March 31, 2001 to $831,242 for the quarter ended
March 31, 2002 primarily due to an increase in rates charged for military
entertainment and an increase in retail sales of professional sound and lighting
equipment to the military market during the quarter ended March 31, 2002.
General and administrative expenses decreased by $77,564 from $457,814 for
the quarter ended March 31, 2001 to $380,250 for the quarter ended March 31,
2002 primarily due to a reduction in corporate personnel.
Interest expense increased by $100,894 from $69,391 for the quarter ended
March 31, 2001 to $170,285 for the quarter ended March 31, 2002. This increase
is a result of extension fees recorded as interest on the Company's trust
obligation during the quarter ended March 31, 2002 and an increase in the
average interest rate on outstanding debt.
LIQUIDITY AND CAPITAL RESOURCES
----------------------------------
During the year ended September 30, 2001, the Company experienced negative
financial results which have continued during the six months ended March 31,
2002 as follows:
SIX MONTHS
ENDED YEAR ENDED
MARCH 31, SEPTEMBER 30,
2002 2001
------------ ---------------
Net loss before extraordinary items $ (360,995) $ (1,473,462)
Negative working capital (934,229) (1,964,856)
Negative cash flows from operations (197,474) (325,819)
Accumulated deficit (9,828,794) (9,865,867)
Stockholders' deficit (1,177,623) (2,117,950)
In addition to its negative financial results, the Company is also
delinquent on payments of accrued interest for a portion of its notes payable.
Additionally, at March 31, 2002 and September 30, 2001, the Company is in
violation of certain financial and non-financial covenants included in such
notes payable agreements for which waivers have not been obtained. Debt under
those agreements has been classified as current in the accompanying financial
statements and certain balances could be called by the creditors.
F-12
Management has developed specific current and long-term plans to address
its viability as a going concern as follows:
- During 2001 the Company began a multi-step debt reduction plan (the
"Plan"). In the first phase of the Plan, the Company agreed to
exchange certain of its assets to ultimately repay approximately
$2,900,000 of long-term debt and accrued interest. In the second phase
of the Plan, in December 2001, the Company completed an exchange offer
to retire capital lease obligations with a face value of $806,000 in
exchange for shares of the Company's common stock. In the third phase
of the Plan, the Company settled a portion of its obligation under the
1997 Lease (See Note 8) resulting in a reduction of the Company's
obligation and an extraordinary gain of $432,088. In addition to the
three phases, management is currently exploring additional ways to
extinguish debt in exchange for assets or through issuances of common
stock and to concentrate on its core business.
- During 2002 and 2001, the company took steps to restructure its
management team and board of directors.
There can be no assurance that the Company will have the ability to
implement its business plan and ultimately attain profitability. The Company's
long-term viability as a going concern is dependent upon three key factors, as
follows:
- The Company's ability to obtain adequate sources of debt or equity
funding to meet current commitments and fund the continuation of its
business operations in the near term.
- The ability of the Company to control costs and expand revenues from
existing or new businesses.
- The ability of the Company to ultimately achieve adequate
profitability and cash flows from operations to sustain its
operations.
As a result of the going concern issues facing the Company, the Company's
independent auditors included an emphasis paragraph in their report on the
Company's financial statements for the year ended September 30, 2001.
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 1. LEGAL PROCEEDINGS
- ------- ------------------
No. 2002 - 08825; Entertainment Technologies & Programs, Inc. vs. James
Douglas Butcher, in the District Court of Harris County, Texas; 151st
Judicial District.
On February 12, 2002, the Company filed suit against James Douglas Butcher,
former Chairman and Chief Executive Officer of the Company to recover an
unspecified amount of damages due to Mr. Butcher's alleged violation of a
covenant not to compete, breach of fiduciary duty, breach of contract and
conversion relating to his employment agreement dated November 10, 1995 and
effective as of May 11, 1995. On February 27, 2002, Mr. Butcher filed
counterclaims against the Company. The Company intends to vigorously
prosecute this matter to a conclusion, though the Company cannot predict
with any certainty the eventual outcome of this litigation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- -------------------------------------
(a) Exhibits
None
(b) Reports on Form 8-K
1. Report dated January 10, 2002
Events reported include Exchange Offering and Resignation of the
Company's Directors.
2. Report dated March 4, 2002
Events reported include a settlement agreement with Verizon
Capital and a Form of Lawsuit filed against James Douglas
Butcher, former Chairman and Chief Executive Officer.
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: May 6, 2002 By: /s/ George C. Woods
-------------------- -----------------------------------
George C. Woods, Interim CEO, Director
Date: May 6, 2002 By: /s/ Mark E. Stutzman
-------------------- -----------------------------------
Mark E. Stutzman, Director
Date: May 6, 2002 By: /s/ Gabriel A. Martin
-------------------- -----------------------------------
Gabriel A. Martin, Director
Date: May 6, 2002 By: /s/ Kevin P. Regan
-------------------- -----------------------------------
Kevin P. Regan, Director
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