<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q/A NO. 1
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED FEBRUARY 29, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
------------------ TO
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COMMISSION FILE NUMBER 0-27046
QUINTEL ENTERTAINMENT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
DELAWARE 22-3322277
<S> <C>
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
<TABLE>
<CAPTION>
ONE BLUE HILL PLAZA
PEARL RIVER, NEW YORK 10965
<S> <C>
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (914) 620-1212
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 reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No______
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The number of shares outstanding of the Registrant's common stock is
15,225,000 (as of 4/12/96).
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<PAGE> 2
QUINTEL ENTERTAINMENT, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q/A NO. 1
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
QUARTER ENDED FEBRUARY 29, 1996
ITEMS IN FORM 10-Q/A NO. 1
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements............................................ 3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................. N/A
PART II OTHER INFORMATION
Item 1. Legal Proceedings............................................................ N/A
Item 2. Changes in Securities........................................................ N/A
Item 3. Defaults Upon Senior Securities.............................................. N/A
Item 4. Submission of Matters to a Vote of Security Holders.......................... N/A
Item 5. Other Information............................................................ 8
Item 6. Exhibits and Reports on Form 8-K............................................. N/A
SIGNATURES
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS:
<TABLE>
<CAPTION>
FEBRUARY 29, NOVEMBER 30,
1996 1995
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(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................... $ 15,968,372 $ 3,570,468
Accounts receivable, trade...................................... 13,975,411 10,097,629
Deferred tax asset.............................................. 2,486,501 39,957
Due from related parties........................................ 637,205 67,162
Prepaid expenses and other current assets....................... 2,141,931 381,292
----------- -----------
Total current assets.................................... 35,209,420 14,156,508
Property and equipment, at cost, net of accumulated
depreciation.................................................... 184,622 142,369
Investment in joint venture, at equity............................ 1,532,334 1,345,304
Other assets...................................................... 44,313 1,325,775
----------- -----------
$ 36,970,689 $ 16,969,956
=========== ===========
LIABILITIES:
Current liabilities:
Accounts payable................................................ $ 2,857,441 $ 1,269,647
Accrued expenses................................................ 2,017,329 2,351,644
Reserve for customer chargebacks................................ 6,253,110 4,025,130
Loans payable................................................... 3,293,806 2,643,522
Due to related parties.......................................... 949,400 354,751
Income taxes payable............................................ 2,354,058 294,187
Note payable.................................................... 2,101,340
----------- -----------
Total liabilities....................................... 19,826,484 10,938,881
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock -- $.001 par value; 1,000,000 shares authorized;
none issued and outstanding
Common stock -- $.001 par value; authorized 50,000,000 shares;
issued and outstanding 15,225,000 and 12,000,000 shares,
respectively.................................................... 15,225 12,000
Additional paid-in capital........................................ 14,415,108 441,258
Retained earnings................................................. 2,713,872 5,597,817
Less subscriptions receivable..................................... (20,000)
----------- -----------
Total stockholders' equity.............................. 17,144,205 6,031,075
----------- -----------
$ 36,970,689 $ 16,969,956
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
Net revenue....................................................... $ 16,018,571 $ 8,214,999
Cost of sales..................................................... 12,677,980 6,809,201
----------- -----------
Gross profit............................................ 3,340,591 1,405,798
Selling, general and administrative expenses...................... 2,073,374 496,247
----------- -----------
1,267,217 909,551
Interest expense.................................................. (139,961) (18,685)
Other income, net................................................. 366,110
Equity in earnings of joint venture............................... 2,437,030 157,788
----------- -----------
3,930,396 1,048,654
Provision (benefit) for income taxes.............................. (371,793) 2,135
----------- -----------
Net income.............................................. $ 4,302,189 $ 1,046,519
=========== ===========
Pro Forma Data (Note 1):
Income before pro forma adjustments............................. $ 3,390,396 $ 1,048,654
Pro Forma income tax provision (benefit)........................ (371,793) 406,414
----------- -----------
Pro Forma net income............................................ $ 4,302,189 $ 642,240
=========== ===========
Pro Forma net income per share.................................. $ 0.28 $ 0.05
=========== ===========
Weight average common shares outstanding........................ 15,446,043 12,000,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net income...................................................... $ 4,302,189 $ 1,046,519
Items not affecting cash:
Depreciation and amortization................................ 9,639 2,676
Reserve for customer chargebacks............................. 2,227,980 965,126
Deferred income taxes........................................ (2,446,544) (15,061)
Equity in net earnings of joint venture, net of dividends
received.................................................... (187,030) (157,788)
Changes in assets and liabilities:
Accounts receivable.......................................... (3,877,782) (3,102,994)
Prepaid expenses and other current assets.................... (1,760,639) (1,080,227)
Accounts payable............................................. 1,587,794 606,216
Income tax payable........................................... 2,059,871 (41,891)
Due to related parties....................................... 24,606 647,479
Other, principally accrued expenses.......................... 945,485 (878,091)
----------- -----------
Net cash provided by (used in) operating activities..... 2,885,569 (2,008,036)
----------- -----------
Cash flows from investing activities:
Investment in joint venture..................................... (25,000)
Capital expenditures............................................ (50,229)
----------- -----------
Net cash used in investing activities................... (50,229) (25,000)
----------- -----------
Cash flows from financing activities:
Proceeds from collection of common stock subscription........... 20,000
Proceeds from issuance of common stock, net..................... 13,402,075
Distributions to shareholders................................... (3,000,000)
Principal payments on notes payable to shareholders............. (1,509,795)
Loans payable, net.............................................. 650,284 2,082,289
----------- -----------
Net cash provided by financing activities............... 9,562,564 2,082,289
----------- -----------
Net increase in cash and cash equivalents......................... 12,397,904 49,253
Cash and cash equivalents, beginning of period.................... 3,570,468 981,073
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Cash and cash equivalents, end of period.......................... $ 15,968,372 $ 1,030,326
=========== ===========
Non-cash financing activities:
Notes payable to shareholders of undistributed S corporation
earnings..................................................... $ 3,611,135
Contribution of capital from S corporation...................... 575,000
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL:
The consolidated financial statements for the three month periods ended
February 29, 1996 and February 28, 1995 are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the financial
position and operating results for the interim period. The consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto, together with management's discussion
and analysis of financial condition and results of operations, contained in the
Company's Annual Report on Form 10-K for the fiscal year ended November 30,
1995. The results of operations for the three months ended February 29, 1996 are
not necessarily indicative of the results for the entire fiscal year ending
November 30, 1996.
2. EARNINGS PER SHARE:
Pro forma net earnings per share have been computed by dividing net
earnings by the weighted average number of common and common equivalent shares
outstanding during the period, computed in accordance with the treasury stock
method.
3. ADVERTISING EXPENSES:
The Company expenses all advertising costs during the year in which they
are incurred, except for certain media and telemarketing costs. For interim
purposes, telemarketing expenses are deferred and charged to operations over a
four month period, while media costs are expensed as the advertising occurs,
resulting in deferred telemarketing expense and prepaid advertising expenses.
Included in prepaid expenses and other current assets is approximately
$1,335,000 relating to deferred telemarketing and prepaid advertising at
February 29, 1996. All costs will be expensed prior to year end. Total
advertising expense incurred for the three months ended February 29, 1996 and
February 28, 1995 were $5,552,249 and $1,175,329, respectively.
4. STOCKHOLDERS' EQUITY:
On December 5, 1995, the Company completed an initial public offering ("the
Offering") of 3,225,000 shares of common stock with a $.001 par value. Net
proceeds received were approximately $13,402,000.
In connection with the terms of the Offering, a $3,000,000 S corporation
distribution was made on December 4, 1995 and shareholder promissory notes were
issued for the balance of the aggregate undistributed earnings of the former S
corporation, except for $575,000. During the quarter ended February 29, 1996,
payments of approximately $1,510,000 were made on these notes. As of February
29, 1996, approximately $2,100,000, plus accrued interest at 9% per annum,
remains outstanding on these notes.
6
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QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of the changes in stockholders' equity for the three months ended
February 29, 1996 is as follows:
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED SUBSCRIPTIONS
STOCK CAPITAL EARNINGS RECEIVABLE TOTAL
------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance, November 30, 1995.......... $12,000 $ 441,258 $ 5,597,817 $ (20,000) $ 6,031,075
Collections on subscriptions
receivable........................ 20,000 20,000
Distributions to shareholders....... (3,000,000) (3,000,000)
Issuance of shareholder promissory
notes............................. (3,611,134) (3,611,134)
Issuance of common stock............ 3,225 13,398,850 13,402,075
Contributed capital................. 575,000 (575,000)
Net income.......................... 4,302,189 4,302,189
------- ----------- ----------- -------- -----------
$15,225 $14,415,108 $ 2,713,872 $ -- $17,144,205
======= =========== =========== ======== ===========
</TABLE>
5. NEW LAUDERDALE:
On January 17, 1996, the Company entered into a letter of intent to acquire
the remaining 50% interest of New Lauderdale, L.C. from PRN. In payment for the
interest being acquired, the Company has agreed to issue to PRN 3,200,000 shares
of its common stock. Shares totalling up to 1,200,000 shall be subject to
forfeiture in the event New Lauderdale's programs do not achieve certain
agreed-upon pre-tax earning levels for 1996 or the first and second quarters of
that year.
In addition, the Company may make available to PRN's shareholders an
interest-bearing loan secured by the shares issued to cover a portion of their
tax liability attributable to the transaction in the event that the Company's
stock trades below certain levels. The loan shall be due and payable no later
than two years from the date it is made, or sooner, if the Company's stock
trades at certain levels.
Consummation of this transaction is subject to the parties completing due
diligence, securing requisite corporate and other approvals and the execution of
definitive acquisition agreements.
The following is condensed financial data for New Lauderdale:
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
Net revenues............................... $ 22,246,546 $1,298,539
Gross profit............................... 5,845,062 385,186
Net income................................. 4,874,060 315,576
</TABLE>
6. NEWLY ISSUED ACCOUNTING STANDARDS:
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," ("SFAS No. 123"). SFAS No. 123, which becomes effective in fiscal
1997, allows companies to measure compensation cost in connection with employee
stock compensation plans using a fair value based method or to continue to use
an intrinsic value based method, which generally does not result in compensation
cost. The Company has not yet decided which method it will utilize relating to
its stock-based employee plans.
7
<PAGE> 8
PART II -- OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The Company is amending its Quarterly Report on Form 10-Q for the quarter
ended February 29, 1996 to include pro forma information showing the results of
operations for the quarter ended February 28, 1995, as if the Company had been
taxed as a C corporation for such quarter.
SIGNATURES
In accordance with the Exchange Act, the registrant caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
QUINTEL ENTERTAINMENT, INC.
(Registrant)
/s/ Jeffrey L. Schwartz
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Jeffrey L. Schwartz
Chairman and Chief
Date: July 19, 1996 Executive Officer
/s/ Raymond J. Richter
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Raymond J. Richter
Date: July 19, 1996 Chief Financial Officer
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE QUINTEL
ENTERTAINMENT, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS
PRESENTED IN THE COMPANY'S FORM 10Q/A NO. 1 FOR THE QUARTER ENDED FEBRUARY 29,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-1-1995
<PERIOD-END> FEB-29-1996
<CASH> 15,968,372
<SECURITIES> 0
<RECEIVABLES> 13,975,411
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 35,209,420
<PP&E> 209,000
<DEPRECIATION> 24,378
<TOTAL-ASSETS> 36,970,689
<CURRENT-LIABILITIES> 19,826,484
<BONDS> 0
0
0
<COMMON> 15,225
<OTHER-SE> 17,128,980
<TOTAL-LIABILITY-AND-EQUITY> 36,970,689
<SALES> 16,018,571
<TOTAL-REVENUES> 16,018,571
<CGS> 12,677,980
<TOTAL-COSTS> 12,677,980
<OTHER-EXPENSES> 2,073,374
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 139,961
<INCOME-PRETAX> 3,930,396
<INCOME-TAX> (371,793)
<INCOME-CONTINUING> 1,267,217
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,302,189
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.28
</TABLE>
