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 June 30, 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 June 30, 2002, the Registrant had outstanding 71,260,045 shares of
common stock, par value $0.001 per share.
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC.
TABLE OF CONTENTS
FORM 10-QSB FOR THE QUARTER ENDED JUNE 30, 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-15
Item 6. Exhibits and Reports on Form 8-K F-15
Signature Page F-16
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
- ------ --------------------
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC. AND SUBSIDIARIES
-----------
UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 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 June 30, 2002 and September 30, 2001 F-3
Unaudited Consolidated Condensed Statement of
Operations for the three months and nine months
ended June 30, 2002 and 2001 F-4
Unaudited Consolidated Condensed Statement of
Cash Flows for the nine months ended June 30,
2002 and 2001 F-5
Unaudited Consolidated Condensed Statement of
Stockholders' Deficit for the nine months
ended June 30, 2002 F-6
Notes to Unaudited Consolidated Condensed Financial
Statements F-7
F-2
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
-----------
JUNE 30,
2002 SEPTEMBER 30,
ASSETS (UNAUDITED) 2001
------ ============= ===============
Current assets:
Cash and cash equivalents $ 10,337 $ 30,288
Accounts receivable, net 496,224 266,334
Inventory 119,638 39,340
Assets held for sale 406,939 -
Prepaid expenses 43,758 57,017
------------- ---------------
Total current assets 1,076,896 392,979
Property and equipment, net 751,387 1,740,155
Assets held for sale 493,930 -
Other assets 40,983 43,800
------------- ---------------
Total assets $ 2,363,196 $ 2,176,934
============= ===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
Current liabilities:
Current portion of notes payable to stockholder $ 288,750 $ 15,500
Current maturities of notes payable 1,019,935 853,633
Current portion of capital lease obligation - 568,430
Accounts payable and accrued liabilities 438,279 920,272
------------- ---------------
Total current liabilities 1,746,964 2,357,835
Notes payable to stockholders, net of current portion 446,500 370,000
Notes payable, net of current portion 372,635 15,017
Capital lease obligation, net of current portion - 675,599
Debt settlement trust obligation 1,216,195 876,433
------------- ---------------
Total liabilities 3,782,294 4,294,884
------------- ---------------
Commitments and contingencies
Stockholders' deficit:
Common stock, $.001 par value, 200,000,000 shares
authorized, 71,660,045 and 54,333,455 shares issued
and 71,260,045 and 53,933,455 shares outstanding at
June 30, 2002 and September 30, 2001, respectively 71,660 54,333
Additional paid-in capital 8,745,055 7,688,384
Unissued common stock - 155,200
Accumulated deficit (10,085,813) (9,865,867)
Treasury stock: 400,000 shares at cost (150,000) (150,000)
------------- ---------------
Total stockholders' deficit (1,419,098) (2,117,950)
------------- ---------------
Total liabilities and stockholders' deficit $ 2,363,196 $ 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 NINE MONTHS ENDED
JUNE 30, JUNE 30,
========================== ==========================
2002 2001 2002 2001
============ ============ ============ ============
Total revenue $ 894,826 $ 1,024,707 $ 2,576,912 $ 2,535,312
------------ ------------ ------------ ------------
Cost of sales and services, excluding
depreciation and amortization 440,551 530,953 1,255,245 $ 1,262,822
Depreciation and amortization 57,330 54,752 220,230 286,962
------------ ------------ ------------ ------------
Total cost of sales and services 497,881 585,705 1,475,475 1,549,784
------------ ------------ ------------ ------------
Gross margin 396,945 439,002 1,101,437 985,528
General and administrative
expenses 385,547 353,049 1,125,894 1,212,144
------------ ------------ ------------ ------------
Income (loss) from operations 11,398 85,953 (24,457) (226,616)
Other income (expenses):
Interest expense (158,583) (73,732) (438,564) (201,384)
Gain on disposal of property and
equipment 4,855 - 9,872 -
Severance pay to former employee
and related costs (12,160) - (62,336) -
Impairment of assets placed in
trust (136,000) - (136,000) -
------------ ------------ ------------ ------------
Total other income (expenses), net (301,888) (73,732) (627,028) (201,384)
------------ ------------ ------------ ------------
Net income (loss) before extraordin-
ary items (290,490) 12,221 (651,485) (428,000)
Extraordinary gains on extinguishment
of debt, net 33,471 - 431,539 -
------------ ------------ ------------ ------------
Net income (loss) $ (257,019) $ 12,221 $ (219,946) $ (428,000)
============ ============ ============ ============
Basic and diluted net income (loss)
per common share:
Before extraordinary items $ 0.00 $ 0.00 $ (0.01) $ (0.01)
Extraordinary items 0.00 0.00 0.01 0.00
------------ ------------ ------------ ------------
Net income (loss) $ 0.00 $ 0.00 0.00 $ (0.01)
============ ============ ============ ============
Weighted average shares outstanding 71,126,529 48,310,400 67,455,280 47,245,769
============ ============ ============ ============
See accompanying notes.
F-4
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
-----------
NINE MONTHS ENDED
JUNE 30,
======================
2002 2001
========== ==========
Cash flows from operating activities:
Net loss $(219,946) $(428,000)
Adjustments to reconcile net loss to net
cash used in operating activities 66,256 170,778
---------- ----------
Net cash used in operating activities (153,690) (257,222)
---------- ----------
Cash flows from investing activities:
Capital expenditures (139,665) (357,374)
---------- ----------
Net cash used in investing activities (139,665) (357,374)
---------- ----------
Cash flows from financing activities:
Increase in book overdrafts - 6,262
Proceeds from sale of common stock 78,000 205,400
Proceeds from notes payable and capital
lease obligations 320,000 393,330
Payments on notes payable and capital
lease obligations (124,596) -
---------- ----------
Net cash provided by financing activities 273,404 604,992
---------- ----------
Decrease in cash and cash equivalents (19,951) (9,604)
Cash and cash equivalents, beginning of period 30,288 9,604
---------- ----------
Cash and cash equivalents, end of period $ 10,337 $ -
========== ==========
See accompanying notes.
F-5
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS= DEFICIT
FOR THE NINE MONTHS ENDED JUNE 30, 2002
__________
ADDITIONAL UNISSUED STOCK
COMMON STOCK PAID-IN COMMON SUBSCRIPTION ACCUMULATED TREASURY
SHARES AMOUNT CAPITAL STOCK RECEIVABLE DEFICIT STOCK TOTAL
---------- ------- ---------- ---------- ---------- ------------- ---------- ------------
Balance at September 30, 2001 54,333,455 $54,333 $7,688,384 $ 155,200 $ - $( 9,865,867) $(150,000) $(2,117,950)
Common stock issued for services 101,750 102 4,986 - - - - 5,088
Common stock issued for
employee compensation 532,500 533 15,011 - - - - 15,544
Common stock issued for interest 270,000 270 9,705 - - - - 9,975
Common stock issued for cash 2,547,778 2,548 85,453 - - - - 88,001
Common stock issued for
prepaid assets 171,429 171 8,400 - - - - 8,571
Capital lease obligations
converted to common stock 10,423,133 10,423 719,196 - - - - 729,619
Common stock issued for rent
obligation 150,000 150 11,850 - - - - 12,000
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 - - - - 50,000
Net loss for the nine months
ended June 30, 2002 - - - - - (219,946) - (219,946)
---------- ------- ---------- ---------- ---------- ------------- ---------- ------------
Balance at June 30, 2002 71,660,045 $71,660 $8,745,055 $ - $ - $(10,085,813) $(150,000) $(1,419,098)
========== ======= ========== ========== ========== ============= ========== ============
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. Management intends to discontinue this business segment.
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 nine months ended June 30, 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.
A suit has been filed against the Company by Vincent Schappell
("Schappell") for the principal amount due of $40,000 resulting from a
settlement agreement dated May of 2001 between Schappell and the Company
and it is likely that the plaintiff will prevail. The Company has
established an accrued liability as of June 30, 2002, to cover the
Company's exposure.
A suit has been filed against the Company and a former employee of the
Company alleging sexual harassment. The suit alleges no specific monetary
damage and, in the opinion of management and the Company's legal counsel,
is without merit.
The Company is currently a party to certain other litigation arising in the
normal course of business. Management believes that such litigation will
not have a material impact on the Company.
6. BUSINESS SEGMENTS
------------------
During the nine months ended June 30, 2002 and 2001, 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 JUNE 30, 2002:
Revenues $ 533,911 $217,680 $ 143,235 $ 894,826
Net income before income taxes
and extraordinary items 38,512 31,084 44,337 113,933
Total assets 1,398,658 204,578 301,960 1,905,196
Continued
F-8
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
-----------
6. BUSINESS SEGMENTS, CONTINUED
------------------------------
THREE MONTHS ENDED JUNE 30, 2001:
Revenues $ 598,565 $327,898 $ 98,244 $1,024,707
Net income (loss) before income
taxes and extraordinary items 60,449 81,138 (40,858) 100,729
Total assets 1,207,680 223,210 1,033,578 2,464,468
NINE MONTHS ENDED JUNE 30, 2002:
Revenues $1,674,365 $533,385 $ 369,162 $2,576,912
Net income (loss) before income
taxes and extraordinary items 188,457 19,055 (21,097) 186,415
Total assets 1,398,658 204,578 301,960 1,905,196
Revenues $1,768,431 $459,627 $ 307,254 $2,535,312
Net income (loss) before income
taxes and extraordinary items 167,864 7,804 (212,963) (37,295)
Total assets 1,207,680 223,210 1,033,578 2,464,468
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
JUNE 30,
2002 2001
========== =========
Net income or loss
- ------------------
Total net income for reportable segments before
extraordinary items $ 113,933 $ 100,729
Unallocated amounts:
Corporate management fees charged to segments 50,075 60,540
Other corporate expenses (318,498) (149,048)
Impairment of assets transferred to trust (136,000) -
---------- ----------
Total consolidated income (loss) before
income taxes and extraordinary items $(290,490) $ 12,221
========== ==========
Continued
F-9
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
-----------
6. BUSINESS SEGMENTS, CONTINUED
------------------------------
NINE MONTHS ENDED
JUNE 30,
2002 2001
=========== ===========
Net income or loss
- ------------------
Total net income or loss for reportable segments
before extraordinary items $ 186,415 $ (37,295)
Unallocated amounts:
Corporate management fees charged to segments 145,776 151,411
Other corporate expenses (847,676) (542,116)
Impairment of assets transferred to trust (136,000) -
----------- -----------
Total consolidated loss before income taxes
and extraordinary items $ (651,485) $ (428,000)
=========== ===========
JUNE 30, JUNE 30,
2002 2001
=========== ===========
Assets
- ------
Total assets for reportable segments $1,905,196 $2,464,468
Elimination of receivables/payables from corporate
headquarters 413,748 257,515
Other unallocated assets 44,252 78,328
----------- -----------
Total consolidated assets $2,363,196 $2,800,311
=========== ===========
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 a book value, which approximates the appraised value, of $1,957,949
(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. In addition to the amusement properties, the Company has placed
2,200,000 shares with a value of $22,000 at June 30, 2002, into 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.
Continued
F-10
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
-----------
7. DEBT SETTLEMENT TRUST OBLIGATION, CONTINUED
-----------------------------------------------
Following is an analysis of the debt settlement trust obligation at June
30, 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
Cash transferred in 2002 35,000
Fair market value of common stock transferred to the
Trust as collateral 108,000
Additional common stock transferred in 2002 50,000
-----------
Assets transferred to the Trust 2,150,949
-----------
Net liability after transfer 769,538
Common stock of the Company issued to beneficial holders
for accrued interest (172,182)
Extension fees earned by the note holders and due to
the Trust 390,000
Impairment of assets placed in Trust 136,000
Other Trust activity 92,839
-----------
Debt settlement trust obligation at June 30, 2002 $1,216,195
===========
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. The Company is currently in
discussions with the Trust to limit its total exposure to Trust
liabilities.
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
-----------------------
THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THE THREE MONTHS ENDED JUNE
30, 2001:
Revenues for the quarter ended June 30, 2002 decreased by $129,881 from
$1,024,707 for the quarter ended June 30, 2001 to $894,826 for the quarter ended
June 30, 2002. This decrease was primarily due to a reduction in military
entertainment revenue and a decrease in retail sales of professional sound and
lighting equipment to the military market during the quarter ended June 30,
2002.
General and administrative expenses increased by $32,498 from $353,049 for
the quarter ended June 30, 2001 to $385,547 for the quarter ended June 30, 2002
primarily due to expenses for litigation during the quarter ended June 30, 2002.
Interest expense increased by $84,851 from $73,732 for the quarter ended
June 30, 2001 to $158,583 for the quarter ended June 30, 2002. This increase is
a result of extension fees recorded as interest on the Company's trust
obligation during the quarter ended June 30, 2002 and an increase in the average
interest rate on outstanding debt. The Company is currently in discussions
regarding the possible elimination going forward of the annual 10% extension
fee.
Impairment of assets placed into the trust of $136,000 during the nine
months ended June 30, 2002 resulted from a decline in the value of the stock
placed into the Trust (Note 7).
NINE MONTHS ENDED JUNE 30, 2002 COMPARED TO THE NINE MONTHS ENDED JUNE 30,
2001:
Revenues for the nine months ended June 30, 2002 increased by $41,600 from
$2,535,312 for the nine months ended June 30, 2001 to $2,576,912 for the nine
months ended June 30, 2002. This increase was primarily due to an increase in
the first and second quarters of 2002 of retail sales of professional sound and
lighting equipment to the military markets and an increase in amusement revenue,
and was partially offset by a decline in sales of live entertainment to the
military markets.
General and administrative expenses decreased $86,250 from $1,212,144 for the
nine months ended June 30, 2001 to $1,125,894 for the nine months ended June 30,
2002. This decrease is primarily a result of a reduction in common stock issued
as compensation for services.
Depreciation expense for the nine months ended June 30, 2002 decreased
$66,732 from $286,962 for the nine months ended June 30, 2001 to $220,230 for
the nine months ended June 30, 2002. This decrease is due to the movement of
certain assets, with a net book value of $900,869, to assets held for sale and
elimination of depreciation charges on those assets during the nine months ended
June 30, 2002.
F-12
Interest expense increased by $237,180 from $201,384 for the nine months
ended June 30, 2001 to $438,564 for the nine months ended June 30, 2002. This
increase is a result of extension fees recorded as interest on the Company's
trust obligation during the nine months ended June 30, 2002 and an increase in
the average interest rate on outstanding debt.
The severance pay to our former chairman and chief executive officer and
related costs of $62,336 during the nine months ended June 30, 2002 related to
our former chairman and chief executive officer who was terminated for cause
from the Company during the nine months ended June 30, 2002. Impairment of
assets placed into the trust during the nine months ended June 30, 2002 resulted
from a decline in the value of the stock placed into the Trust (Note 7).
LIQUIDITY AND CAPITAL RESOURCES
----------------------------------
During the year ended September 30, 2001, the Company experienced negative
financial results which have continued during the nine months ended June 30,
2002 as follows:
NINE MONTHS
ENDED YEAR ENDED
JUNE 30, SEPTEMBER 30,
2002 2001
============= ===============
Net loss before extraordinary items $ (651,485) $ (1,473,462)
Negative working capital (670,068) (1,964,856)
Negative cash flows from operations (153,690) (325,819)
Accumulated deficit (10,085,813) (9,865,867)
Stockholders' deficit (1,419,098) (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 June 30, 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.
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. Currently, the
Company is in discussions with the ETPI 2000 Trust to cap its maximum
liability and eliminate approximately $260,000 in annual interest
expense in the form of the 10% annual extension fee discussed in
Footnote 7 of the financial statements included in this quarterly
report. 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 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 refinance
existing debt at lower rates and to concentrate on its core business.
Please see General Discussion and Prospective Information below.
- During 2002 and 2001, the company took steps to restructure its
management team and board of directors.
F-13
- The Company plans to discontinue its amusement operating segment to
focus on its segments in which the Company believes it possesses core
competencies.
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.
GENERAL DISCUSSION AND PROSPECTIVE INFORMATION
--------------------------------------------------
This year has been a continuation of our restructuring efforts under our
new management and Board of Directors. We have focused our efforts on our two
core businesses: NiteLife Military Entertainment, Inc. ("NiteLife") and
Performance Sound & Light, Inc. ("PS&L"). We intend to further expand our
products and services for each of these businesses in order to increase the
revenues from our primary customer, the Unites States Department of Defense.
We have made great strides in our organizational and operational
restructuring and in rebuilding our reputation with various military bases that
had been our customers in prior years. After losing several contracts due to
poor performance at several military bases in the Far East in the late 1990's,
we have now been invited to submit proposals to several of these bases which, if
accepted, would significantly increase NiteLife's sales and, we believe, provide
PS&L with additional product sales opportunities. Furthermore, we have made
significant in-roads in the provision of our services and product sales to
several military bases in Europe, an area long since ignored by our previous
management.
After visits by our new management to several of our large customers in the
Far East and at industry trade shows and conventions, we are very encouraged by
the revitalized image of our company with our customers, as well as in the
prospects for greater sales volume.
Furthermore, we have begun preliminary investigations into acquiring
businesses that provide a strategic fit with our core operations and serve our
core military customer. Primarily, these businesses would increase the range of
products and services we could provide to our current and new military
customers. However, we will only make acquisitions that will be or in the near
future would be accretive to our bottom-line profitability. Moreover, our
ability to fund such acquisitions is limited and would very likely result in our
issuance of either preferred securities or additional debt or a combination of
both. Nevertheless, we intend to take such actions prudently and with an
abundance of caution.
Unfortunately, our ability to grow revenues and profitability organically
by capitalizing on new NiteLife contract opportunities or bids to our military
customers has been hampered by continued non-operational costs and expenses,
which we estimated to exceed over $400,000 this year. These costs and expenses
have placed a tremendous burden on our financial resources and limited our
ability to bid on new business with the military. In addition, we believe that
these non-operational costs and expenses, along with our former chairman and
chief executive officer's public announcement to sell several million shares of
our stock at depressed prices, has severely negatively affected our stock price,
which in turn, affects our ability to finance growth.
F-14
Despite the economic impact of the items discussed above and the burden
placed on management in dealing with these non-operational issues, we have
reduced our net loss for the nine months ended June 30, 2002 by approximately
49%, 71% and 90% for the comparable periods for 2001, 2000 and 1999,
respectively. Management felt it was prudent to mention the financial burdens
currently faced by the company in order to help our shareholders understand the
challenges that exist for management and the Board of Directors. Management and
the Board of Directors firmly believes in the immense yet-to-be realized
potential of our company and is also fully committed to utilizing all of their
efforts and resources in fighting for what it believes to be in the best
interest of the shareholders.
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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- ------- ------------------
No. 773241; Vincent Schappell vs. Entertainment Technologies & Programs, in
County Court #3, Harris County, Texas.
The principal amount due is $40,000 and it is likely that the plaintiff
shall prevail. The Company has established an accrued liability as of June
30, 2002, to cover the Company's exposure.
No. 2002-08825; Entertainment Technologies & Programs, Inc. vs. James
Douglas Butcher, in the District Court of Harris County, Texas; 151st
Judicial District. See Form 10-QSB filed for the quarterly period ended
March 31, 2002.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(a) Exhibits
Exhibit 99.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) Reports on Form 8-K
F-15
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: August 14, 2002 By: /s/ George C. Woods
------------------------------ ----------------------------
George C. Woods, Interim CEO,
CFO and Director
Date: August 14, 2002 By: /s/ Mark E. Stutzman
------------------------------ ----------------------------
Mark E. Stutzman, Director
Date: August 14, 2002 By: /s/ Gabriel A. Martin
------------------------------ ----------------------------
Gabriel A. Martin, Director
Date: August 14, 2002 By: /s/ Kevin P. Regan
------------------------------ ----------------------------
Kevin P. Regan, Director
Date: August 14, 2002 By: /s/ Richard D. Gittin
------------------------------ ----------------------------
Richard D. Gittin, Director
F-16