U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
(Mark One)
/ / Annual report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee required)
For the fiscal year ended _______________
/x/ Transition report under Section 13 or 15(d) of the
Securities Exchange Act of 1934 (No fee required)
For the transition period from January 1, 1996 to June 30, 1996
--------------- -------------
Commission file number 33-80935
NETWORK EVENT THEATER, INC.
(Name of Small Business Issuer in Its Charter)
Delaware 13-3864111
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
149 Fifth Avenue, New York, New York 10010
(Address of Principal Executive Offices) (Zip Code)
(212) 779-2740
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 par value
(Title of Class)
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Warrants, each to purchase one share of Common Stock
(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter 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
----- -----
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB. ___
The issuer's revenues for the fiscal year ended June 30, 1996 were $4,041.
The aggregate market value of the voting stock held by non-affiliates based
on the last sale price as quoted by Nasdaq as of November 15, 1996 was
$11,561,375.
At November 15, 1996 there were 8,654,440 shares of the issuer's Common
Stock outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
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ITEM 1. BUSINESS
Network Event Theater, Inc. (the "Company") was incorporated under the laws of
the State of Delaware in December 1995 to be the successor to the business of
Universal Access Network, LP (the "Partnership"), a Delaware limited partnership
organized in August 1993. In April 1996, the Partnership effected a
reorganization pursuant to which it assigned all of its assets to the Company in
exchange for 6,354,440 shares of the Company's common stock, and distributed
those shares to its partners. On April 9, 1996, the Company sold 2.3 million
shares of its common stock and 2,645,000 warrants to purchase shares of its
common stock in a public offering in which the Company received approximately
$10.2 million of net proceeds.
The Company was organized to develop, own and operate a network of theaters on
college campuses (the "Network") and to develop or acquire businesses active in
collegiate marketing to complement and enhance the Network. The Network is
designed to deliver entertainment and educational events and programming via
satellite to a nationwide network of electronically linked campus theaters for
display through high resolution video projectors on movie theater sized screens
and thereby to reach a geographically dispersed audience of college students,
faculty, administrators and community residents.
The Company is currently in the development stage and its activities so far with
respect to the Network have focused primarily on financial planning, raising
capital, entering into contracts with schools, hiring personnel, acquiring and
installing equipment and undertaking the commencement of operations.
On September 13, 1996, American Passage Media, Inc. ("American Passage"), a
newly organized wholly owned subsidiary of the Company, acquired from American
Passage Media Corporation ("APMC") substantially all of APMC's assets relating
to its college and high school media and marketing business. The acquired
businesses included APMC's college newspaper placement operations, college
campus postering operations, high school focused GymBoardTM operations and
various other advertiser and event sponsorship related activities. APMC has been
involved in the young adult marketing business since 1976.
According to the 1995 Digest of Education Statistics prepared by the United
States Department of Education, the college market consists of more than 3,600
colleges and universities in the United States with enrollments of approximately
14 million students. This represents a target market with significant personal
spending power. In addition, growth in enrollment at colleges and universities
is expected to continue into the next century because (i) the children of baby
boomers are reaching college age and beginning to attend college, (ii) a higher
percentage of young adults are attending college after completing high school
and (iii) more adults are returning to college for advanced degrees. This market
is particularly attractive to certain advertisers, such as entertainment
companies, telecommunications companies, computer and software companies,
automobile manufacturers, fashion and athletic equipment companies and financial
services companies because young adults are receptive to new ideas and products
and have significant disposable income.
NETWORK EVENT THEATER
The Company intends to build and expand its Network into selected colleges and
universities throughout the United States and to create and develop a steady
stream of programming and events for the Network. The Company intends for the
Network to become a useful tool to programmers, sponsors and advertisers because
it provides them an opportunity to reach the important but geographically
dispersed and difficult to access college market. Installing a Network theater
on campus is also attractive to school administrators because it provides the
college with a state-of-the-art satellite signal receiving system and high
resolution audio/video projection system which it can use at no charge for
educational and other non-commercial and non-competitive purposes. This can be a
cost effective way to enhance the quality of campus life in an era of budgetary
austerity.
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The Company also anticipates that American Passage's full-time sales force will
assist the Network in selling such integrated programs to sponsors and
advertisers and that its extensive field force of independent representatives
can be used to place posters on college campuses and otherwise augment the
Network's own field force to publicize events being shown on the Network's
screens.
Installations and School Contracts
The Company has focused its initial marketing efforts with respect to installing
its Network theaters at one hundred of the largest colleges and universities. In
determining which schools to add to its Network, the Company considers factors
such as school size, geographic location and the extent to which the school
would enhance the Network's appeal to programmers, sponsors and advertisers. The
Company markets its Network principally by contacting and making presentations
to school administrators and student organizations responsible for promoting and
coordinating campus events and by attending key college conferences. The
company's marketing efforts relating to its Network are currently made through
its three full-time regional marketing coordinators and the Company's executive
officers.
As of October 31, 1996, the Company had completed installations in 30 colleges
and universities. Installations are as follows:
Arizona State University Southeast Missouri State University
Central Michigan University SUNY-Albany
College of William and Mary SUNY-Oneonta
Connecticut College University of Alabama-Birmingham
Eastern Michigan University UCLA
Emory University University of Houston
Georgia Southern University University of Idaho
Georgia Tech University University of Kansas
Louisiana State University University of Minnesota
Mankato State University University of North Carolina-Charlotte
Michigan State University University of Rhode Island
New Mexico State University University of Rochester
Ohio State University University of Southern Mississippi
Oklahoma State University Washington State University
Old Dominion University Western Kentucky University
The average theater has a seating capacity of approximately 520 persons. The
typical Network installation package consists of a steerable satellite dish and
attendant satellite signal receiving equipment, a high resolution projection
system with commercial quality movie sized screen and state-of-the-art digital
audio system. The cost of this equipment for a typical installation is
approximately $90,000 which is paid for by the Company. In addition, the Company
maintains this equipment at its own expense. This equipment enables the Company
to offer Network events to most areas of the contiguous United States and
Alaska. Presently, the Company owns all of the equipment at its installations,
but may seek to lease all or a portion of its presently installed and newly
acquired equipment to reduce its up-front capital costs. The Company believes
that satellite technology is the most cost-effective technology for achieving
rapid and complete market coverage in that a single up-link signal can be
broadcast simultaneously and at a fixed cost to all installations. Satellite
transmission is also able to provide the Company with the flexibility to deliver
programming to a single school or group of schools depending upon the time day
or program offered.
The Company has entered into agreements with each of the schools listed above to
install and maintain satellite transmission, projection and audio equipment at
no cost to the school. These schools have granted the Company the exclusive
right to exhibit, promote and sell commercial programming and promotional
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merchandise through its Network, as well as the exclusive use of school venues
for a minimum number of dates per month. Pursuant to its agreements with
colleges and universities, the Company has agreed to install, service and
maintain all equipment necessary for the display of Network events. Under the
terms of such agreements, schools are generally responsible for public access
and security staffing and are required to use their best efforts to provide the
Company with reasonable access to on-campus media and key campus locations for
promotional purposes and to otherwise assist in the promotion, coordination and
staffing of Network events (including printing and selling tickets,
disseminating promotional materials and providing technical support).
The Company's school contracts provide for the Company to present a schedule of
events prior to each school semester or quarter to be agreed upon by the school.
Schools are required to use their best efforts to reserve campus theaters for
additional dates to accommodate special events or replays. Schools are permitted
to use the Company's high-resolution projection equipment for non-commercial,
educational and academic purposes at no cost. School contracts generally have
terms ranging from two to five years and provide for automatic renewals unless
terminated by either party by notice prior to the end of the initial or any
renewal term. Most contracts provide that in the event of termination for any
reason other than a material breach by the Company, the school may not enter
into an agreement with a competitor of the Company for a period of two years
after termination.
Programming
The Company has commenced initial regular operations of the Network and
anticipates that it will broadcast three to four events each month during the
1996-97 academic year. Eventually, the Company anticipates that it will
broadcast at least six events per month. The Network can be used to broadcast
both live and pre-recorded events. In addition, the Network has audio/video
interactive capabilities which allow audiences to interact with performers and
participants before and after live performances.
Since January 1996, the Company has entered into a number of licensing
agreements with content providers such as Miramax Films, Don King Productions,
Mercury Records, Warner Brothers and ABC for individual programs and has
broadcast both live and pre-recorded events including concerts, motion pictures
and sneak previews of yet to be released motion pictures, comedy shows,
documentaries, sporting events, special pay-per-view events and educational
seminars. In particular, the Company believes that there are significant
opportunities for it to preview movies for movie studios on campuses and to show
feature films of independent and foreign film makers which appeal to college
audiences. The Company also believes that recording artists and record companies
will be attracted to the Network because college students are highly receptive
to rock, country and other popular music and that successful music groups often
establish an initial following among college students.
The Network also offers the ability to perform market testing and analytical
services to industry participants seeking to target college audiences. Also, the
Network has shown several boxing matches during this period and anticipates that
promoters of a wide variety of sports events will find the Network attractive,
including football, basketball, baseball and other sports. The Company believes
that many televised sports events are available only in particular regions or in
sports bars which may not be accessible to college students. By making a variety
of sports events available over its Network, the Company will seek to capitalize
on the current popularity of sports events among college students.
In August 1996, the Company entered into an agreement with HBO to preview one
HBO program per month during the 1996-1997 academic year on its Network. In
April, the Network showed three programs concerning admissions to medical and
business schools and issues in career management. In addition, the Network has
shown educational and special events which are of interest to college audiences.
During the next twelve months, the Company intends to develop additional
relationships with these and other content providers to premier other special
events. It should be noted, however, that there can be no assurance that the
Company will attract and retain a sufficient number of schools and obtain the
programming necessary to generate meaningful revenues or achieve profitable
operations from its Network.
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The Company has entered into a consulting agreement with an entity owned by
Freddie Fields and Jerome Hellman, prominent figures in the entertainment
industry, pursuant to which Messrs. Fields and Hellman serve as Chairman and
President, respectively, of the Company's Programming Division. The Company
expects that Messrs. Fields and Hellman will continue to use their extensive
contacts in the entertainment industry to establish relationships with
programmers and to identify and obtain quality programming on behalf of the
Company. This agreement terminates on December 31, 1997.
Marketing and Event Promotion
The Company has initiated significant marketing activities relating to growth of
its Network and intends to substantially increase its marketing efforts in order
to create awareness and demand by programmers, sponsors and advertisers. The
Company will also seek to create event promotions that will maximize student
interest and involvement. The Company has a field force of three campus
coordinators whose job it is to work with local college and student personnel to
facilitate the promotion and the presentation of network events on each campus.
It is anticipated that students will generally be informed of Network events
through advertisements in school newspapers, and on posters, flyers and other
promotional activities.
The Company believes that the acquisition of American Passage will significantly
enhance its marketing and promotional efforts with respect to programs
distributed via its Network. First, the Company plans to utilize the knowledge
and experience of American Passage's marketing and media placement professionals
to gain access to and to develop relationships with both advertisers and school
administrators and to facilitate the promotions of the Network's events. And
second, the Company believes that American Passage's businesses will allow it to
provide an integrated and comprehensive program of marketing opportunities for a
broad array of content providers, sponsors and advertisers who are targeting the
college and young adult markets. For example, a motion picture studio which is
previewing a major motion picture through the Network could launch a
simultaneous and comprehensive marketing program (including college newspapers,
on-campus postering and other marketing vehicles and tools in the Company's
portfolio) at campuses nationwide and which extends far beyond the Company's
installed Network of theaters. The Company believes that this significant added
reach will enable it to build more lucrative long term relationships with these
companies.
The Company also anticipates that American Passage's full-time sales force could
assist the Network in selling such integrated programs to sponsors and
advertisers and that its extensive field force of independent representatives
can be used to place posters on college campuses and otherwise augment the
Network's own field force to publicize events being shown on the Network's
screens.
The Company anticipates that the Network's principal sources of revenues will be
from fees paid by content providers and from sponsorship of Network events. The
Company also anticipates earning revenues from ticket sales to selected events.
When students are charged for admission to events, ticket prices are set by the
Company and ticket receipts are collected by student organizations and remitted
to the Company after the deduction of small amounts to reimburse the costs of
collection.
Network Competition
The Company believes that the Network is the only one of its kind currently
installed on college campuses. The Company believes that its existing
installations are an important competitive factor in the marketing of its
Network to prospective colleges and universities and its value to sponsors and
content providers. The Network will, however, face competition for a finite
amount of student discretionary spending from numerous other media and
businesses in the entertainment industry. The Company will compete with various
forms of entertainment which provide similar value, both on and off campus, such
as music groups an other entertainers who tour colleges and universities, movies
video and audio cassettes, broadcast television, cable programming, special
pay-per-view event, sporting events and other forms of entertainment which may
be less expensive or provide other advantages to college students. The Company
will also compete for advertising dollars with traditional media. The Company is
aware that certain closed-circuit
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television operators are delivering music videos, current events, sports and
campus news in student cafeterias. If the Network is successful, the Company
expects that other companies may seek to enter or capitalize on college markets
and compete directly with the Company. The Network is not dependent on any
single school, advertiser, sponsor or program provider.
AMERICAN PASSAGE
American Passage is active in a number of businesses including the placement of
print advertising in college newspapers, postering of campus bulletin boards,
postering on distribution racks that contain college newspapers on campus
(AdRaX), its high school focused GymBoards message centers and other advertising
and event sponsorship related activities.
American Passage represents on a non-exclusive basis virtually every college
newspaper that accepts national advertising. The college newspapers that
American Passage represents have a combined circulation of over six million and
enrollment at these schools totals over ten million students. American Passage's
national advertising customers include, among others, American Express, AT&T,
TIAA/CREF, The Wall Street Journal, Nike and Microsoft. American Passage's
resources also include a database of all major college newspapers and
demographic and consumer data that enable it to create customized targeted media
programs for its advertising clients. In addition to providing marketing and
research assistance to advertisers, American Passage assists in the development
and distribution of advertising materials to college newspapers. American
Passage's revenues are generated principally from sales of advertisements to be
run in college newspapers.
American Passage's campus postering service entails the placement of posters and
other advertising messages on bulletin boards on college campuses throughout the
country. Through a network of approximately 250 full-time and student
representatives, American Passages' postering service covers more than 1,250
college campuses with enrollment totaling over ten million students. Advertisers
pay American Passage a fee for these postering services. American Passage's
AdRaX location media are college newspaper distribution racks with large
advertising display spaces above the newspaper bin. American Passage has placed
over 1,250 AdRaX units at prime locations at over 200 college campuses. Revenues
are generated from monthly advertisements appearing on each unit. GymBoards
are gender specific message and information centers that are installed in boys'
and girls' high school locker rooms at no cost to the school and are customized
with each school's colors and mascot or nickname. GymBoards consist of a coach's
message board and two advertising panels which are protected by acrylic covers.
GymBoards are posted in more than 4,500 highs schools nationwide with more than
four million students representing about one-third of the total high school
market. Advertising is sold on a monthly basis from September through May.
In connection with its acquisition of assets from APMC, American Passage entered
into an agreement to serve as the exclusive representative for the sale of
national advertising for APMC's Directory of Classes publication. Directory of
Classes is the official class guide and registration manual at approximately
eighty college campuses with total enrollments of over 1.3 million students.
This agreement, under which American Passage will receive specified sales
commissions for as long as it achieves certain minimum sales levels, has enabled
American Passage to retain the right to sell national advertising for the
Directory of Classes without assuming responsibility for publishing it. Other
American Passage activities include serving as the exclusive representative for
consumer advertising for the National Association of Colleges and Employers
(NACE) Job Choices publication and marketing and executing Spring Break programs
and promotions at the six resort properties operated by Paradise Found Resorts &
Hotels, in Panama City Beach, Florida.
The Company believes that there are other companies engaged in similar
activities as American Passage which are focused on the college and young adult
markets. Some of these companies may be larger than American Passage or have
more employees. However, the Company believes that the combination of the
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Network with American Passage's resources represents the most complete range of
marketing, media and promotional services serving the college and young adult
markets.
EMPLOYEES
As of October 31, 1996, the Company had 18 employees including four executive
officers, three regional marketing coordinators, three campus coordinators and
eight administrative employees, one of whom was part-time. As of the same date,
American Passage had 36 employees, two of whom are part-time. None of the
Company's nor American Passage's employees is represented by a collective
bargaining unit, and the Company believes that relations with those employees
are good.
TRADEMARKS
The Company has registered with the United States Patent and Trademark Office
the names "Network Event Theater"TM and "NET"TM, as well as the NET logo. The
Company's rights in these marks may be a significant part of its business. The
Company is not aware of any claims of infringement or other challenges to its
rights to use these marks, although the Company is aware of numerous other
registrations of the mark "NET". There can be no assurance that the Company's
marks do not or will not infringe the proprietary rights of others, that the
Company's marks would be upheld if challenged, or that the Company would not be
prevented from using its marks. Neither the Company nor American Passage holds
any patents or copyrights.
ITEM 2. PROPERTIES
The Company's principal executive offices are located in approximately 5,000
square feet of leased space in New York, New York pursuant to a lease expiring
on February 28, 1998. Annual rent payable under that lease is $65,000. The
Company also rents office space in Los Angeles, California pursuant to its
arrangement with Messrs. Fields and Hellman.
In connection with American Passage's Acquisition of the young adult marketing
business of APMC, American Passage and APMC entered into a transition agreement
pursuant to which American Passage is permitted to use the office space
previously used by those businesses in Seattle, Washington, New York, New York
and Rosement, Illinois for specified periods (all less than one year). American
Passage pays APMC a fee based on its square footage of each site. American
passage has entered into temporary short-term leases for new office space in
Seattle, Washington and Rosement, Illinois and is negotiating for new office
space for its New York office.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor American Passage is a party to any pending legal
proceeding, and the Company is not aware of any contemplated proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during the
quarter ended June 30, 1996.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded in the over-the-counter market and is
quoted on the NASDAQ SmallCap Market under the symbol "NETS". The high and low
bids for the common stock for the quarter ended June 30, 1996 as furnished by
NASDAQ were $5.375 and $3.25, respectively. Those quotations reflect
inter-dealer prices and do not include retail mark-up, mark-down or commission,
and may not represent actual transactions. As of October 28, 1996, there were
approximately 35 holders of record of the Company's common stock.
To date, the Company has not declared or paid any dividends on its common stock.
The payment by the Company of dividends, if any, is within the discretion of the
Board of Directors and will depend on the Company's earnings, if any, its
capital requirements and its general financial condition, as well as other
relevant factors. The Board of Directors does not intend to declare any
dividends in the foreseeable future, but instead intends to retain any earnings
for use in the Company's business operations.
ITEM 6. PLAN OF OPERATION
The Company is engaged principally in organizational activities relating to the
development of its Network and in developing or acquiring marketing or marketing
services businesses that are complementary to the Network that focus on the
college and young adult market.
The Company believes that the acquisition of American Passage will allow it to
provide an integrated and comprehensive program of marketing opportunities for a
broad array of content providers, sponsors and advertisers which are targeting
the college and young adult markets. For example, a motion picture studio which
is previewing a major motion picture through the Network could launch a
simultaneous and comprehensive marketing program (including college newspapers,
on-campus postering and other marketing vehicles and tools in the Company's
portfolio) at campuses nationwide and which extends far beyond the Company's
installed network of theaters. The Company believes that this significant added
reach will enable it to build more lucrative long term relationships with
companies targeting the college and young adult markets. The Company also
anticipates that American Passage's full-time sales force could assist the
Network in selling such integrated programs to sponsors and advertisers and that
its extensive field force of independent representatives can be used to place
posters on college campuses and otherwise augment the Network's own field force
to publicize events being shown on the Network's screens.
The Company has not generated any material operating revenues from its Network.
Because of expenses required to install equipment at colleges for the Network
and to obtain programming for these theaters, the Company is still generating
operating losses. These losses may continue and may remain significant unless
the Network begins to generate significant sponsorship, advertising and ticket
sales revenues sufficient to offset the Network's development costs. For the
period August 27, 1993 (inception) to June 30, 1996, the Company incurred a
cumulative net loss of approximately $5.4 million.
The Company's proposed plan of operations for its Network will be largely
dependent upon the Company's ability to enter into agreements with a significant
number of colleges and universities, establish and maintain satisfactory
relationships with college administrators and student organizations,
successfully obtain and install satellite transmission projection and audio
equipment on a timely and cost effective basis and successfully expand its
Network to attract programmers which can provide currently popular programming
suitable for college student audiences on commercially reasonable terms and
provide integrated marketing plans that are attractive to program providers and
advertisers. The Company currently has three full-time employees engaged in
marketing the Company's Network to colleges and universities and is focusing its
initial marketing efforts on installing its equipment at one hundred of the
largest colleges and universities.
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As of September 30, 1996, the Company had installed Network equipment at thirty
campus theaters. The Company will seek to install equipment at approximately
twenty-five additional campus theaters in the next twelve months. The number of
installations will be dependent upon the number of school contracts the Company
is able to enter into.
Since January 1996, the Company has entered into a number of licensing
agreements with content providers such as Miramax Films, Don King Productions,
Mercury Records, Warner Brothers and ABC for individual productions. In August,
the Company entered into an agreement with HBO to preview one HBO program per
month during the 1996-1997 academic year on its Network. During the next twelve
months, the Company intends to develop additional relationships with these and
other content providers to acquire rights to special events. It should be noted,
however, there can be no assurance that the Company will attract and retain a
sufficient number of schools and obtain the programming necessary to generate
meaningful revenues or achieve profitable operations from its Network.
Over the next twelve months the Company will continue to make significant
capital investments as it continues to install theaters on college campuses.
There are no plans to increase staff significantly with regard to either the
Network or any of American Passage's operations other than incremental increases
in sales and administrative staff to generate and accommodate increased
business.
Liquidity and Capital Resources
The Company consummated an initial public offering of its common stock and
warrants on April 9, 1996 (the "Offering"), pursuant to which it raised net
proceeds of approximately $10.2 million of which $0.5 million was used to repay
previously existing Company indebtedness. As of June 30, 1996, the Company had
cash (and cash equivalents and investments) in the amount of approximately $0.3
million and $7.9 million, respectively. Since the Offering, the Company has
purchased approximately $1.0 million of Network theater equipment and invested
approximately $0.5 million in the acquisition of American Passage. The balance
of the proceeds have otherwise been used to fund Company operations.
The Company's primary capital requirement with respect to its Network has been
to fund the purchase and installation of theater equipment on college campuses.
Based on current plans, the Company anticipates that it has sufficient resources
to enable it to install theater equipment in 25 additional campus theaters at an
estimated cost of $90,000 per theater and to otherwise satisfy its contemplated
cash requirements for the next twelve months. In order to reduce the Company's
up-front capital requirements associated with the expansion of its Network, the
Company may seek to lease rather than purchase a portion of its Network
equipment. There can be no assurance that the Company will be able to obtain
satisfactory equipment leasing arrangements.
In connection with its acquisition of certain assets of APMC's young adult
marketing business, (i) American Passage paid APMC approximately $3.5 million in
cash (representing a $4.0 million base price adjusted in accordance with the
terms of the purchase agreement), (ii) American Passage issued to APMC a
two-year subordinated promissory note for $750,000, (iii) the Company issued to
APMC a contingent option to purchase up to 100,000 shares of the Company's
common stock pursuant to an option agreement, (iv) American Passage engaged APMC
for a two-year consulting agreement for a total compensation of $273,600 and (v)
American Passage assumed certain of APMC's contractual liabilities. The cash
portion of the purchase price and related transaction costs were funded by a
$500,000 equity contribution from the Company to American Passage and a five
year $3,500,000 loan to American Passage from Signet Bank. The loan is secured
by all of America Passage's assets and is guaranteed by the Company. American
Passage is anticipated to be able to fund its cash and debt service requirements
out of its own operations.
Any implementation of the Company's business plan beyond the next twelve months
may require financial resources substantially greater than the proceeds of the
Offering or otherwise currently available to the Company. In the event that the
Company's plans and assumptions with respect to the Network change or prove to
be inaccurate or if the proceeds of the Offering otherwise prove to be
insufficient to implement its
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business plan with respect to the Network (due to unanticipated expenses or
technical or other problems), or if its assumptions with respect to American
Passage being able to fund its operations and make required debt service
payments prove to be inaccurate, then the Company could be required to seek
additional financing. The inability to obtain additional financing will have a
material adverse effect on the Company, including possibly requiring the Company
to significantly curtail or cease its operations. The Company may also
determine, depending upon the opportunities available to it, to seek additional
debt or equity financing to fund the cost of additional expansion of its Network
or to develop or acquire college marketing businesses complementary to the
Network. To the extent that the Company finances its requirements through the
issuance of additional equity securities, any such issuance would result in
dilution to the interests of the Company's stockholders. Additionally, to the
extent that the Company incurs indebtedness or issues debt securities in
connection with financing activities, the Company will be subject to all of the
risks associated with incurring substantial indebtedness including the risk that
interest rates may fluctuate and cash flow may be insufficient to pay principal
and interest on any such indebtedness. The Company has no current arrangements
with respect to, or sources of, additional financing. There can be no assurance
that any additional financing will be available to the Company on acceptable
terms, if at all.
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ITEM 7. FINANCIAL STATEMENTS
Network Event Theater, Inc.
(A Development Stage Company)
Financial Statements
Six months ended June 30, 1996
and the two years ended December 31, 1995
CONTENTS
Report of Independent Auditors.............................................. 11
Balance Sheets as of June 30, 1996, December 31, 1995 and 1994.............. 12
Statements of Operations for the six months ended June 30, 1996 and
1995 (unaudited), the years ended December 31, 1995 and 1994
and the period from inception to June 30, 1996.......................... 13
Statements of Cash Flows for the six months ended June 30, 1996 and
1995 (unaudited), the years ended December 31, 1995 and 1994
and the period from inception to June 30, 1996........................... 14
Statements of Changes in Stockholders' Equity for period from inception
to June 30, 1996......................................................... 15
Notes to Financial Statements............................................... 16
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Report of Independent Auditors
Board of Directors
Network Event Theater, Inc.
We have audited the accompanying balance sheets of Network Event Theater, Inc.
(A Development Stage Company), as of June 30, 1996, December 31, 1995 and 1994,
and the related statements of operations, cash flows and changes in
stockholders' equity for the two years and six months in the period ended June
30, 1996 and the period from inception to June 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Network Event Theater, Inc. (A
Development Stage Company) at June 30, 1996, December 31, 1995 and 1994, and the
results of its operations and its cash flows for the two years and six months in
the period ended June 30, 1996 and the period from inception to June 30, 1996,
in conformity with generally accepted accounting principles.
Ernst & Young LLP
New York, New York
October 17, 1996
11
<PAGE>
Network Event Theater, Inc.
(A Development Stage Company)
Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31
1996 1995 1994
---------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 266,806 $ 790,705 $ 922,312
Investments 7,882,570 - 987,100
Accounts receivable 236 - -
Deposits 26,169 9,426 11,736
---------------------------------------------------------------
Total current assets 8,175,781 800,131 1,921,148
Property and equipment, at cost, less accumulated
depreciation of $654,724 in 1996, $346,110 in 1995
and $33,452 in 1994 3,081,620 2,531,205 299,066
Organization costs, at cost, less accumulated
amortization of $58,633 in 1996, $46,906 in 1995
and $23,453 in 1994 58,634 70,361 93,814
Deferred offering costs - 207,164 -
---------------------------------------------------------------
Total assets $ 11,316,035 $ 3,608,861 $ 2,314,028
===============================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 462,634 $ 541,762 $ 34,807
---------------------------------------------------------------
Total liabilities 462,634 541,762 34,807
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, no shares issued and outstanding - - -
Common stock, $.01 par value, 17,000,000
shares authorized, 8,654,440, 6,354,440
and 4,732,554 shares issued and outstanding
in 1996, 1995 and 1994, respectively 86,544 63,544 47,325
Additional paid-in capital 16,177,302 6,461,466 3,552,685
Deficit accumulated during the development
stage (5,380,355) (3,457,911) (1,320,789)
Unrealized depreciation on marketable debt
securities (30,090) - -
---------------------------------------------------------------
Total stockholders' equity 10,853,401 3,067,099 2,279,221
---------------------------------------------------------------
Total liabilities and stockholders' equity $ 11,316,035 $ 3,608,861 $ 2,314,028
===============================================================
</TABLE>
See notes to financial statements.
12
<PAGE>
Network Event Theater, Inc.
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
Period from
Six Months Ended June 30 Year Ended December 31 Inception To
1996 1995 1995 1994 June 30, 1996
---------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues $ 4,041 $ - $ - $ - $ 4,041
Expenses:
Selling, general and
administrative expenses 1,738,241 757,483 1,927,374 1,222,643 4,938,258
Depreciation and amortization 320,341 173,084 336,111 56,905 713,357
---------------------------------------------------------------------------------------
Total expenses 2,058,582 930,567 2,263,485 1,279,548 5,651,615
---------------------------------------------------------------------------------------
Loss from operations (2,054,541) (930,567) (2,263,485) (1,279,548) (5,647,574)
Interest and other income 132,097 79,089 126,363 8,759 267,219
---------------------------------------------------------------------------------------
Net loss $ (1,922,444) $ (851,478) $ (2,137,122) $ (1,270,789) $ (5,380,355)
=======================================================================================
Net loss per common share $(.22) $(.13) $(.34) $(.20) $(.62)
=======================================================================================
Weighted average common shares
outstanding 8,654,440 6,354,440 6,354,440 6,354,440 8,654,440
=======================================================================================
</TABLE>
See notes to financial statements.
13
<PAGE>
Network Event Theater, Inc.
(A Development Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION>
Period From
Inception
Six Months Ended June 30 Year Ended December 31 To June
1996 1995 1995 1994 30, 1996
-----------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities
Net loss $ (1,922,444) $ (851,478) $ (2,137,122) $ (1,270,789) $ (5,380,355)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 320,341 173,084 336,111 56,905 713,357
Fair value of common stock issued
for services - 60,000 60,000 150,000 210,000
Changes in assets and liabilities:
(Increase) decrease in deposits (16,743) - 2,310 (11,736) (26,169)
Increase in accounts receivable (236) - - - (236)
(Decrease) increase in accounts
payable and accrued expenses (79,128) 78,324 506,955 34,807 462,634
Decrease (increase) in deferred
offering costs 207,164 - (207,164) - -
-----------------------------------------------------------------------------
Total adjustments 431,398 311,408 698,212 229,976 1,359,586
-----------------------------------------------------------------------------
Net cash used in operating activities (1,491,046) (540,070) (1,438,910) (1,040,813) (4,020,769)
Cash Flows From Investing Activities
Purchase of property, plant and equipment (859,029) (95,729) (2,544,797) (332,518) (3,736,344)
Organization costs - - - (117,267) (117,267)
Purchase of investments (7,882,570) - - (987,100) (8,869,670)
Proceeds from sale or gain (loss) in
value of investments (30,090) 987,100 987,100 - 957,010
-----------------------------------------------------------------------------
Net cash (used in) provided by investing
activities (8,771,689) 891,371 (1,557,697) (1,436,885) (11,766,271)
Cash Flows From Financing Activities
Net proceeds from sale of common stock 9,508,836 1,958,422 2,865,000 3,400,000 15,823,846
Proceeds from sale of warrants 230,000 - - - 230,000
-----------------------------------------------------------------------------
Net cash provided by financing activities 9,738,836 1,958,422 2,865,000 3,400,000 16,053,846
-----------------------------------------------------------------------------
Net (decrease) increase in cash
and cash equivalents (523,899) 2,309,723 (131,607) 922,302 266,806
Cash and cash equivalents at
beginning of period 790,705 1,909,412 922,312 10 -
-----------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 266,806 $ 4,219,135 $ 790,705 $ 922,312 $ 266,806
=============================================================================
</TABLE>
See notes to financial statements.
14
<PAGE>
Network Event Theater, Inc.
(A Development Stage Company)
Statements of Changes in Stockholders' Equity
Period from inception to June 30, 1996
<TABLE>
<CAPTION>
Common Stock Additional
-------------------------- Paid-in
Shares Amount Capital
----------------------------------------------
<S> <C> <C> <C>
Inception--August 1993 ($.02 per share) 2,755,743 $ 27,557 $ 22,453
Net loss - - -
----------------------------------------------
Balance at December 31, 1993 2,755,743 27,557 22,453
Issuance of common stock--January 1994 ($2.43 per share) 576,589 5,766 1,394,234
Fair value of stock issued for consulting services--October 1994
($2.65 per share) 56,713 567 149,433
Issuance of common stock--December 1994 ($1.49 per share) 1,343,509 13,435 1,986,565
Net loss - - -
----------------------------------------------
Balance at December 31, 1994 4,732,554 47,325 3,552,685
Issuance of common stock--January 1995 ($1.49 per share) 1,252,823 12,528 1,852,472
Fair value of stock issued as severance--February 1995 ($3.15
per share) 19,063 191 59,809
Issuance of common stock--December 1995 ($2.86 per share) 350,000 3,500 996,500
Net loss - - -
----------------------------------------------
Balance at December 31, 1995 6,354,440 63,544 6,461,466
Issuance of Common Stock upon the Initial Public Offering--April
1996 ($5.00 per share) 2,300,000 23,000 9,485,836
Issuance of warrants upon the Initial Public Offering--April
1996 ($.10 per share) - - 230,000
Unrealized depreciation on marketable equity securities - - -
Net loss - - -
----------------------------------------------
Balance at June 30, 1996 8,654,440 $ 86,544 $16,177,302
=============================================
<CAPTION>
(Deficit) Unrealized
Accumulated Depreciation
During The On Marketable
Development Debt
Stage Securities Total
----------------------------------------------------
<S> <C> <C> <C>
Inception--August 1993 ($.02 per share) $ - $ - $ 50,010
Net loss (50,000) - (50,000)
----------------------------------------------------
Balance at December 31, 1993 (50,000) 10
Issuance of common stock--January 1994 ($2.43 per share) - - 1,400,000
Fair value of stock issued for consulting services--October 1994
($2.65 per share) - - 150,000
Issuance of common stock--December 1994 ($1.49 per share) - - 2,000,000
Net loss (1,270,789) - (1,270,789)
-----------------------------------------------------
Balance at December 31, 1994 (1,320,789) 2,279,221
Issuance of common stock--January 1995 ($1.49 per share) - - 1,865,000
Fair value of stock issued as severance--February 1995 ($3.15
per share) - - 60,000
Issuance of common stock--December 1995 ($2.86 per share) - - 1,000,000
Net loss (2,137,122) - (2,137,122)
-----------------------------------------------------
Balance at December 31, 1995 (3,457,911) - 3,067,099
Issuance of Common Stock upon the Initial Public Offering--April
1996 ($5.00 per share) - - 9,508,836
Issuance of warrants upon the Initial Public Offering--April
1996 ($.10 per share) - - 230,000
Unrealized depreciation on marketable equity securities - (30,090) (30,090)
Net loss (1,922,444) - (1,922,444))
-----------------------------------------------------
Balance at June 30, 1996 $ (5,380,355) $ (30,090) $ 10,853,401
=====================================================
</TABLE>
See notes to financial statements.
15
<PAGE>
Network Event Theater, Inc.
(A Development Stage Company)
Notes to Financial Statements
June 30, 1996
1. Organization and Basis of Presentation
Network Event Theater, Inc. (the "Company") was incorporated under the laws of
the State of Delaware in December 1995 to become the successor to the business
of Universal Access Network, L.P. (the "Partnership"), a Delaware limited
partnership organized in August 1993. Pursuant to a reorganization of the
Company, the general and limited partners of the Partnership exchanged their
partnership interests for 6,354,440 shares of common stock in April 1996. The
accompanying financial statements of the Company retroactively reflect the
reorganization with respect to the capitalization of the Company. References to
the Company include the activities of its predecessor, the Partnership.
The Company was organized to develop, own and operate Network Event Theater(TM)
a satellite entertainment network for college campuses. Network Event Theater is
designed to deliver entertainment programming events via satellite to a
nationwide network of electronically-linked campus theaters for display through
high-resolution projection on large screens. The Company intends to offer a
variety of programming events through its network, consisting primarily of music
concerts, motion pictures, sports, special pay-per-view events and educational
seminars, targeting college student audiences.
The Company is currently in the development stage. As such, operations have
focused on financial planning, raising capital, developing markets, evaluating
complementary acquisitions and commencing principal operations. At June 30,
1996, the Company had signed contracts with 31 schools. Each contract sets
forth, among other items, (1) the term of the contract, (2) the Company's
obligations with regard to the installation and maintenance of equipment at a
specific campus venue, (3) the Company's obligation to broadcast events at the
venue, (4) the school's obligation to provide the Company exclusive broadcast
rights at the venue, (5) the school's obligation to set aside a certain number
of dates for the Company's exclusive use of the campus venue, and 6) the
school's overall obligation to provide marketing, promotional and technical
assistance in support of the Company's programs.
As described further in Note 4, on September 13, 1996, the Company acquired
through its wholly-owned subsidiary, American Passage Media, Inc., substantially
all the assets of American Passage Media Corporation ("American Passage")
relating to its college and high school media and marketing businesses.
16
<PAGE>
Network Event Theater, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
2. Significant Accounting Policies
Fiscal Year End
On August 21, 1996, the Company's board of directors elected to change the
fiscal year end of the Company to a June 30th year end.
Cash Equivalents
Highly liquid investments with a maturity of three months or less when purchased
are generally considered to be cash equivalents.
Investments in Marketable Securities
The Company records its investment in marketable securities in accordance with
Financial Accounting Standards Board Statement No. 115 ("SFAS No. 115"),
"Accounting for Certain Investments in Debt and Equity Securities." SFAS No. 115
requires management to determine the appropriate classification of debt
securities at the time of purchase and to reevaluate such designation as of each
balance sheet date.
The Company's securities are classified as available-for-sale and are carried at
fair value, with the unrealized gains and losses, net of tax, reported as a
separate component of stockholders' equity. Realized gains are included in gain
on sale of investments reflected in the consolidated statements of operations.
The cost of securities sold is based on the specific identification method.
Property and Equipment
Property and equipment is recorded at cost. Depreciation of property and
equipment is provided for by the straight-line method over the estimated useful
lives of five years. Expenditures for maintenance and repairs are charged to
operations as incurred.
17
<PAGE>
Network Event Theater, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
Organization Costs
Organizations costs are being amortized using the straight-line method over five
years.
Revenue Recognition
The Company's primary source of revenue will be revenue from the sale of
sponsorships of network events, fees collected for showing certain events on the
network, and the sale of tickets to its program events. Revenue is recorded when
the events are broadcast.
Advertising Costs
The Company expenses advertising costs related to its programming events as
incurred. Advertising expense for the six months ended June 30, 1996 and 1995
and the years ended December 31, 1995 and 1994 were $62,213, $0, $7,968 and $0,
respectively.
Income Taxes
The Company, which operated as a partnership until its Initial Public Offering
in April 1996 (see Note 3), had incurred losses since its inception. Those
losses were utilized by the individual partners in prior periods and were not
available to the Company. Commencing with the Initial Public Offering, the
Company began accounting for income taxes in accordance with Financial
Accounting Standards Board Statement No. 109 "Accounting for Income Taxes."
Under this method, deferred income taxes are provided for differences between
the carrying amounts of the Company's assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
18
<PAGE>
Network Event Theater, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
Earnings Per Share
The calculation of earnings per share assumes that all common stock issued
within a one year period prior to the initial public offering of the Company's
stock (see Note 3) was outstanding for all periods. Loss per common share is
based on the net loss for the period divided by the weighted average number of
shares of common stock outstanding for the period. Shares issuable upon the
exercise of all common stock equivalents and other potentially dilutive
securities are not included in the computations for 1996, 1995 and 1994 since
their effect is not dilutive.
Use Of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. Initial Public Offering
In April 1996, the Company completed its initial public offering (the "Initial
Public Offering") of 2,300,000 shares of common stock for $5.00 per share,
including the issuance of 2,645,000 warrants at $.10 per warrant. The warrants
are exercisable to purchase one share of common stock commencing one year after
the effective date of the Initial Public Offering and expire five years after
such effective date. The Company realized net proceeds of approximately $9.7
million from the Initial Public Offering.
19
<PAGE>
Network Event Theater, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
4. Acquisition
On September 13, 1996, the Company through its newly created wholly owned
subsidiary American Passage Media, Inc. ("American Passage") acquired from
American Passage Media Corporation ("APMC") substantially all of APMC's assets
relating to its college and high school media, marketing, and service
businesses. The businesses acquired include APMC's college newspaper placement
operations, college campus postering operations, high school focused gymboards
operations and various other advertiser and event sponsorship related
activities. APMC is a Washington Corporation which has been involved in the
young adult marketing business since 1976.
As consideration for the assets, the Company: (1) paid APMC approximately $3.5
million in cash, (2) issued to APMC a two-year subordinated promissory note for
$750,000, (3) issued to APMC a contingent option to purchase up to 100,000
shares of the Company's common stock pursuant to an option agreement, (4)
entered into a two-year consulting agreement with APMC for $273,600 and (5)
assumed certain of the contractual obligations of APMC. The acquisition will be
accounted for under the purchase method of accounting.
The following unaudited supplemental pro forma information is presented as if
the Company had completed the acquisition as of January 1, 1995:
Six Months Ended June Year Ended December 31,
30, 1996 1995
--------------------- -----------------------
Net revenue $ 3,082,739 $ 5,523,433
Net loss applicable to common stock (1,908,237) (2,179,322)
Net loss per common share (.22) (.34)
Common shares outstanding 8,654,440 6,354,440
The pro forma information is not necessarily indicative either of the results of
operations that would have occurred had this transactions been made at the
beginning of the period or of future results of operations.
20
<PAGE>
Network Event Theater, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
5. Property and Equipment
Property and equipment consists of the following at:
<TABLE>
<CAPTION>
June 30, December 31
1996 1995 1994
-----------------------------------------------------
<S> <C> <C> <C>
Equipment $ 3,685,823 $ 2,852,655 $ 310,702
Furniture and fixtures 11,387 8,031 8,031
Computer equipment 26,822 10,719 10,719
Office equipment 12,312 5,910 3,066
-----------------------------------------------------
3,736,344 2,877,315 332,518
Less accumulated amortization and depreciation
(654,724) (346,110) (33,452)
-----------------------------------------------------
$ 3,081,620 $ 2,531,205 $ 299,066
=====================================================
</TABLE>
6. Income Taxes
At June 30, 1996, the Company had a net operating loss carryforward for income
tax purposes of approximately $1,104,000 that will expire in the year 2011. For
financial reporting purposes, a valuation allowance of $375,320 has been
recognized to offset the deferred tax asset related to those carryforwards. The
net operating loss carryforward at June 30, 1996 is subject to limitations
brought about by the Company's change of the tax year end. Accordingly, only
one-sixth of the approximately $1,104,000 net operating loss may be used per
year for the next six years to offset income.
21
<PAGE>
Network Event Theater, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
6. Income Taxes (continued)
Deferred income taxes reflect the net 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. Significant components of
the Company's deferred tax assets as of June 30, 1996 are as follows:
Deferred tax assets:
Net operating loss carryforwards $ 375,320
---------------
Total deferred tax assets 375,320
Valuation allowance (375,320)
---------------
Net deferred tax $ -
===============
No federal or state tax provision has been provided for at June 30, 1996 due to
significant losses incurred.
7. Related Party Transactions
Programming Services Agreement
During 1995, the Company entered into an agreement with the Fields & Hellman
Company ("Fields & Hellman") for programming acquisition services which
terminates on December 31, 1997. This agreement was amended in December 1995.
Fields & Hellman is entitled to receive royalties of 10% of the pre-tax income
of the Company until December 1999.
Fields & Hellman will also receive an annual fee for its services. For the six
months ended June 30, 1996 and 1995 and the year ended December 31, 1995, such
fees totaled $225,000, $150,000 and $300,000, respectively, and were fully
expensed. The annual fees for the years ended June 30, 1997 and 1998 are
$500,000 and $275,000, respectively.
22
<PAGE>
Network Event Theater, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
7. Related Party Transactions (continued)
Additionally, Fields & Hellman receives an annual fee for overhead (primarily
relating to the Company's office in Los Angeles, California) paid in equal
monthly installments. The annual overhead fee for the six months ended June 30,
1996 and 1995 and the year ended December 31, 1995 of $131,250, $125,000 and
$250,000, respectively, was fully expensed. Such fees for the years ended June
30, 1997 and 1998 are $269,000 and $138,000, respectively. The Company believes
that these overhead fees are comparable to terms which could have been obtained
from an unrelated third party.
The Company has also granted Fields & Hellman an option to purchase 552,560
shares of common stock at an exercise price of $1.58 per share.
Management Services
In accordance with the Partnership's partnership agreement, Universal Access
Network, Inc., the General Partner, was entitled to receive annual compensation
and additional bonus compensation. Compensation paid to the General Partner for
the six months ended June 30, 1996 and 1995 was approximately $113,000 and for
the years ended December 31, 1995 and 1994 was $220,000 and $104,000,
respectively. This compensation represents the salaries of the Company's Chief
Executive Officer and President. This agreement was canceled upon the effective
date of the reorganization described in Note 1.
23
<PAGE>
Network Event Theater, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
8. Commitments
Leases
The Company leases office space for its corporate headquarters in New York. In
January 1996, the Company entered into a new sublease agreement for office
space. The minimum annual rental commitments for the term of this sublease are
as follows:
1997 $ 65,000
1998 43,333
=============
Total minimum lease payments $ 108,333
=============
Rent expense for the six months ended June 30, 1996 and 1995 and the years ended
December 31, 1995 and 1994 was $32,118, $15,000, $30,139 and $20,417,
respectively.
Consulting Agreement
On September 22, 1995, the Company entered into a one year consulting agreement
related to new business development in the programming area. The agreement
provided for a consulting fee of $4,000 per month and also granted an option to
purchase a 1% equity interest in the Company (93,000 shares of common stock) for
$200,000 at any time prior to October 31, 1996. The agreement was terminated in
November of 1995; however, the equity purchase option remained open until
October 31, 1996 when it expired unexercised.
9. Capital Contributions
On January 18, 1995, the Company received additional capital contributions in
the amount of $1,865,000, pursuant to a Subscription Agreement dated December 7,
1994. The amount represents the second payment of $2 million less expenses
incurred related to this financing transaction. The first payment of $2 million
was received prior to December 31, 1994. In accordance with the subscription
agreement, the $1,865,000 was deposited into an escrow account to be drawn upon
as the Company entered into additional school contracts. As of June 30, 1996,
the Company had entered into the required 20 school contracts and therefore the
balance of the escrow account, $3,418, was available to the Company without
restriction and is included in the cash balances at that date.
24
<PAGE>
Network Event Theater, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
10. Stock Option Plan
Upon the effective date of the Initial Public Offering, the Company adopted a
Stock Option Plan (the "Plan") in order to grant employees and others providing
services to the Company incentive stock options. The Plan allows for the
granting of options to purchase up to 400,000 shares of the Company's stock. The
exercise price of the options granted in 1996 were at the fair market values at
the date of grant.
The following table summarizes the Plan's transactions for the six months ended
June 30, 1996:
Options granted 845,560
Options canceled or expired -
Options exercised -
--------------
Options outstanding at June 30, 1996 845,560
==============
Average price of options exercised $ -
Weighted average exercise price at June 30, 1996 $ -
Options exercisable at June 30, 1996 845,560
Options available for future grant 200,000
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees", and related interpretations in accounting for the
Plan. Accordingly, no compensation expense has been recognized for the Plan to
date. Had compensation cost for the Company's Plan been determined based upon
the fair value at the grant date for awards under the Plan consistent with the
methodology prescribed under Financial Accounting Standards Board Statement No.
123, "Accounting for Stock-Based Compensation", the Company's net loss and loss
per share would have been increased by approximately $169,000, or $.02 per share
and $34,000, or $.01 per share for the six months ended June 30, 1996 and the
year ended December 31, 1995, respectively. The fair value of the options
granted during the six months ended June 30, 1996 and the year ended December
31, 1995 is estimated at $606,000 and $784,000 on the date of grant using the
Black-Scholes option-pricing model with the following assumptions: dividend
yield of 0%, volatility of 1.368, risk-free interest rate of 5.26% and an
expected life of 3 years.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
25
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Harlan D. Peltz........................ 31 Chairman of the Board and Chief Executive Officer
Don Leeds.............................. 45 President; Director
Bruce L. Resnik........................ 50 Executive Vice President and Chief Financial Officer
Steven M. Flanders..................... 32 Senior Vice President-Strategic Alliances
Freddie Fields......................... 72 Director
George Lindemann....................... 60 Director
Jeffrey Berg........................... 49 Director
Jan Miller............................. 46 Director
Metin Negrin........................... 30 Director
Joseph Tahl............................ 34 Director
</TABLE>
Harlan D. Peltz has been Chairman of the Board, Chief Executive Officer and
Secretary of the Company since its inception. From September 1991 to July 1993,
Mr. Peltz was an associate at Veronis, Suhler & Associates Inc., an investment
banking firm specializing in the media industry. From July 1990 to May 1991, Mr.
Peltz worked for Home Box Office in the area of international business
development in Eastern Europe and South America. From September 1987 to August
1989, Mr. Peltz managed a family food service distribution business. Mr. Peltz
received an MBA from the Stern School of Business at New York University in
1991.
Don Leeds has been a director of the Company since December 1994. He was
elected Executive Vice President-Strategic Planning and Business Development of
the Company in June 1996 and then President in September 1996. From 1989 to June
1996, Mr. Leeds was a Managing Director at Veronis, Suhler & Associates Inc.
Bruce L. Resnik has been Executive Vice President and Chief Financial
Officer of the Company since October 1996. From August 1992 to September 1996,
Mr. Resnik was the Director of Finance of the International Division of Grey
Advertising. From January 1991 to August 1992, Mr. Resnik worked as an
independent consultant to equipment leasing companies.
Steven M. Flanders has been Senior Vice President-Strategic Alliances of
the Company since September 1996. From May 1995 to September 1996, Mr. Flanders
was the Vice President of Business Development at EMCI, Ltd., a leading
entertainment and marketing company. From October 1993 to May 1995, Mr. Flanders
was the President of Entertainment Management Corp., a sports and entertainment
marketing and consulting firm. From May 1991 to October 1993, Mr. Flanders was a
marketing executive at International Management Group, a leading sports
management and marketing agency.
Freddie Fields has been a director of the Company since February 1996 and a
consultant to the Company since January 1995. Since September 1993, Mr. Fields
has been the Chairman of Fields & Hellman Company, a motion picture and
television production company. Mr. Fields has also been the Executive
<PAGE>
Producer of "The Montel Williams Show" since September 1991. In 1990, Mr. Fields
produced the motion picture "Glory". Mr. Fields has also served as the President
and Chief Executive Officer of the talent agency, Creative Management Associates
(now known as International Creative Management), and as the President of Metro
Goldwyn Mayer and United Artists motion picture studios. Mr. Fields is a member
of the Board of Directors of The Sports and Entertainment Commission of the City
of Los Angeles. Mr. Fields is also a director of Dove Audio, Inc.
Jeffrey Berg has been a director of the Company since March 1996. Since
1985, Mr. Berg has been the Chairman and Chief Executive Officer of
International Creative Management, Inc.
Jan Miller has been a director of the Company since February 1996. Since
January 1980, Ms. Miller has been the Chief Executive Officer of Dupree, Miller
& Associates, a literary agency whose clients include Anthony Robbins, Stephen
Covey, Les Brown and Maria Shriver.
George Lindemann has been a director of the Company since August 1996.
Since February 1990, Mr. Lindemann has been the Chairman and Chief Executive
Officer of Southern Union Company, one of the largest natural gas distributors
in the United States, and since May 1982, has been the President of Cellular
Dynamics, Inc., the general partner of Activated Communications, L.P., a
diversified communications firm. Mr. Lindemann founded Metro Mobile CTS, Inc., a
cellular telephone company, in 1982 and served as its Chairman and Chief
Executive Officer until it merged with Bell Atlantic Corporation in 1992. Mr.
Lindemann also served as President of Vision Cable Communications, a pioneer in
the cable television industry, from 1972-1981.
Metin Negrin has been a director of the Company since December 1994. Since
August 1993, Mr. Negrin has been the Chief Operating Office and a Manager
Director of The Athena Group, a real estate investment firm. From July 1990 to
July 1993, Mr. Negrin was an associate in the New York office of LaSalle
Partners, a Chicago-based real estate firm.
Joseph Tahl has been a director of the Company since December 1995. Since
November 1995, Mr. Tahl has been the Executive Vice President and General
Counsel of The Athena Group. From November 1990 to November 1995, Mr. Tahl was
Associate General Counsel of The Trump Organization, a real estate acquisition,
finance and development firm.
All directors hold office until the next annual meeting of stockholders and
the election and qualification of their successors. Directors receive no cash
compensation for serving on the Board of Directors other than reimbursement of
reasonable expenses incurred in attending meetings. Officers are elected
annually by the Board of Directors and serve at the discretion of the Board,
subject to the provision of certain employment agreements. See "Executive
Compensation -- Employment and Consulting Agreements."
The Company has obtained key man life insurance on the life of Mr. Peltz in
the amount of $2 million.
In connection with the Offering, the Company agreed, for a period of three
years following the date of the Offering, if so requested by Whale Securities
Co., L.P., the underwriter of the Offering (the "Underwriter"), to nominate and
use its best efforts to elect a designee of the Underwriter as a director of the
Company or, at the Underwriter's option, as a non-voting advisor to the
Company's Board of Directors. The Underwriter has not exercised its rights to
designate such a person.
Harlan Peltz and a group of stockholders of the Company have agreed to vote
their shares in favor of the other's nominees to the Company's Board of
Directors. See "Certain Relationships and Related Transactions."
<PAGE>
Compliance with Section 16(A) of The Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors and persons who own more than 10% of the
outstanding common stock of the Company (collectively, "reporting persons") to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission. Based solely on the Company's review of the copies of these
reports received by it, and written representations received from certain
reporting persons, the Company believes that all filings required to be made by
the reporting persons for the fiscal year ended June 30, 1996 were timely made,
except that (i) the Company has not received copies of any reports or written
representations from Jeffrey Berg and (ii) since the Company's Board of
Directors elected to change its fiscal year to June 30 more than 45 days after
June 30, 1996, Harlan Peltz and Don Leeds have not timely filed Forms 5 relating
to the granting of stock options by Mr. Peltz and the Company to Mr. Leeds. See
"Certain Relationships and Related Transactions."
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to Harlan D. Peltz,
the Company's Chief Executive Officer, and Lawrence Kieves, the Company's
President at June 30, 1996, for the fiscal years ended June 30, 1994, 1995 and
1996. No other executive officer received compensation in any of those fiscal
years that exceeded $100,000.
Summary Compensation Table
Annual Compensation
--------------------------------------
Name And Other Annual
Principal Position Year Salary ($) Bonus ($) Compensation ($)
- --------------------------------- ------ ---------- --------- ----------------
Harlan D. Peltz, 1994 $ 16,667 $ -- $ --
Chief Executive Officer....... 1995 $ 78,846 $ -- $ --
1996 $112,500 $ --
Lawrence Kieves, 1994 $ 25,000 $ -- $ --
President..................... 1995 $ 92,308 $ -- $ --
1996 $112,500 $ -- $ --
Prior to the Offering and related Reorganization, the salaries of Harlan
Peltz and Lawrence Kieves were paid by the Partnership through its general
partner.
Employment and Consulting Agreements
On April 2, 1996, the Company entered into a three-year employment
agreement with Harlan Peltz, its Chairman of the Board and Chief Executive
Officer. The agreement requires Mr. Peltz to devote substantially all of his
business time to the management and operations of the Company and provides for a
base annual salary of $110,000 during the term of the agreement, subject to
increase as determined by the Board of Directors. Mr. Peltz also may be granted
annual bonuses at the discretion of the Board of Directors. The agreement
provides that if Mr. Peltz is terminated without cause, he will continue to
receive the base salary during the remainder of the contract term. The agreement
also provides that the Company will continue to pay the base salary to Mr. Peltz
or his legal representative in the event of his termination due to disability or
death, for a period ending on the earlier of the one-year anniversary of such
termination or the end of the employment term. The agreement contains provisions
prohibiting Mr. Peltz from competing with the Company during the term of
employment and for a period of one year thereafter.
<PAGE>
The Company also entered into a two-year employment agreement with Lawrence
Kieves, its President, in April 1996. Mr. Kieves resigned as President and a
director of the Company on August 21, 1996 and, except for a provision
prohibiting Mr. Kieves from competing with the Company for a period of one year
from that date, his employment agreement terminated.
On June 17, 1996, the Company entered into a three-year employment
agreement with Don Leeds to serve as its Executive Vice President-Strategic
Planning and Business Development. (Mr. Leeds was elected President in September
1996.) The agreement requires Mr. Leeds to devote substantially all of his
business time to the management and operations of the Company and provides for a
base annual salary of $200,000 during the term of the agreement, subject to
increase as determined by the Board of Directors. Mr. Leeds may also be granted
annual bonuses at the discretion of the Board of Directors. The agreement
requires the Company to provide and maintain certain insurance benefits for Mr.
Leeds. The agreement provides that in the event of Mr. Leeds' termination due to
disability or death, the Company will continue to pay the base salary to him or
his estate for a period ending on the earlier of the one-year anniversary of
such termination or the end of the contract term. The agreement also provides
that Mr. Leeds may terminate his employment for Good Reason (as defined), in
which event he will be entitled to receive his base salary for the remainder of
the contract term. The agreement contains provisions prohibiting Mr. Leeds from
competing with the Company during the term of employment and, upon the
satisfaction of certain conditions, for a period of one year thereafter. In
connection with his employment by the Company, Mr. Leeds also received a $50,000
fee for consulting services he rendered to the Company prior to his employment,
and options from the Company and Harlan Peltz. See "Certain Relationships and
Related Transactions."
The Company has entered into a consulting agreement with an entity owned by
Freddie Fields and Jerome Hellman pursuant to which the Company has engaged
Messrs. Fields and Hellman to acquire rights to programming. See "Certain
Relationships and Certain Transactions."
On September 9, 1996, the Company entered into a three-year employment
agreement with Steven Flanders to serve as its Senior Vice President-Strategic
Alliances. The agreement provides for a base annual salary of $120,000 during
the term of the agreement, subject to increase as determined by the Board of
Directors. Mr. Flanders may also be granted annual bonuses at the discretion of
the Board of Directors. The agreement provides that in the event of Mr.
Flanders' termination due to disability or death, the Company will continue to
pay the base salary to him or his estate for a period ending on the earlier of
the six-month anniversary of such termination or the end of the contract term.
The agreement contains provisions prohibiting Mr. Flanders from competing with
the Company during the term of employment and for a period of one year
thereafter. In connection with his hiring, Mr. Flanders was granted options
pursuant to the Company's 1996 Employee Stock Option Plan to purchase up to
40,000 shares of the Company's common stock at the fair market value of the
stock on the date of grant.
On September 26, 1996, the Company entered into a three-year employment
agreement with Bruce L. Resnik to serve as its Executive Vice President-Cheif
Financial Officer. The agreement provides for a base annual salary of $175,000
during the term of the agreement, subject to increase as determined by the
Board of Directors. Mr. Resnik may also be granted annual bonuses at the
discretion of the Board of Directors. The agreement provides that in the event
of Mr. Resnik's termination due to disability or death, the Company will
continue to pay the base salary to him or his estate for a period ending on the
earlier of the six-month anniversary of such termination or the end of the
contract term. The agreement contains provisions prohibiting Mr. Resnik from
competing with the Company during the term of employment and for a period of one
year thereafter. In connection with his hiring, Mr. Resnik was granted options
pursuant to the Company's 1996 Employee Stock Option Plan to purchase up to
50,000 shares of the Company's common stock at the fair market value of the
stock on the date of grant.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Common Stock of the Company as of November 15, 1996 by (i) each
person known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock, (ii) each of the Company's executive
officers and directors and (iii) all executive officers and directors of the
Company as a group.
Amount And Nature
Name And Address of Beneficial Percent of
of Beneficial Owner(1) Ownership(2) Class
- ---------------------- ------------ -----
Harlan D. Peltz 2,392,813 27.6%
A. Alfred Taubman(3) 788,889 9.1
200 East Long Lake Road
Bloomfield Hills, MI 48304
George Lindemann(4) 630,757 7.3
c/o Cellular Dynamics, Inc.
767 Fifth Avenue
New York, NY 10153
Crescent International Holdings 563,060 6.5
c/o Reid & Priest
40 West 57th Street
New York, NY 10019
<PAGE>
Amount And Nature
Name And Address of Beneficial Percent of
of Beneficial Owner(1) Ownership(2) Class
- ---------------------- ------------ -----
Roy F. Zurkowski(5) 450,448 5.2
451 Goodhue Road
Bloomfield Hills, MI 48304
Freddie Fields(6) 332,587 3.7
c/o The Fields & Hellman Company
8899 Beverly Boulevard
Los Angeles, CA 90048
Don Leeds(7) 187,045 2.1
Metin Negrin 75,276 .9
Joseph Tahl -- --
Jeffrey Berg -- --
Jan Miller -- --
Bruce L. Resnik -- --
Steven M. Flanders -- --
All executive officers and directors as a 3,618,478(4)(6)(7) 40.0
group (10 individuals)
- -----------------------
(1) Unless otherwise indicated, the address of each beneficial owner identified
is 149 Fifth Avenue, New York, New York 10010.
(2) Unless otherwise indicated, the Company believes that all persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock beneficially owned by them. A person is deemed to be the
beneficial owner of securities that can be acquired by such person with 60
days from the date of this Form 10-KSB upon the exercise of options,
warrants or convertible securities. Each beneficial owner's percentage
ownership is determined by assuming that convertible securities, options or
warrants that are held by such person (but not those held by any other
person) and which are exercisable within 60 days of the date of this Form
10-KSB have been exercised.
(3) As trustee of the A. Alfred Taubman Restated Revocable Trust.
(4) All shares owned by Activated Communications Limited Partnership ("ACLP"),
which is entirely owned, directly or indirectly, by Mr. Lindemann and his
family members. Mr. Lindemann is the President, and he and his family
members are the sole shareholders, of the general partner of ACLP.
(5) As trustee of the Roy F. Zurkowski Trust.
(6) Includes 276,280 shares issuable upon exercise of an option owned by a
family trust of which Freddie Fields is a trustee.
(7) Includes 125,332 shares issuable upon exercise of options.
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reorganization
Prior to the Offering, the Company's business was conducted by the
Partnership. In connection with the Offering, the Partnership effected a
reorganization (the "Reorganization") pursuant to which (i) the Partnership
assigned all of its assets to the Company and the Company assumed all of the
Partnership's liabilities, (ii) in exchange for those assets, the Company issued
6,354,440 shares of Common Stock to the Partnership, (iii) the Partnership
distributed those shares to its partners in proportion to their interests in the
Partnership, and (iv) the Partnership dissolved. In connection with that
Reorganization, Harlan Peltz, Chairman and Chief Executive Officer of the
Company, received 2,392,813 shares; NET Portfolio Investors, L.P. ("NET
Portfolio") received 2,771,332 shares; Fields & Hellman Company, of which
Freddie Fields, a director of the Company, is a beneficial owner, received an
option to purchase 552,560 shares; and Don Leeds, President and a director of
the Company, received 56,713 shares.
Transactions With Directors And Stockholders
Upon its formation, the Partnership issued to Mr. Peltz a 99% limited
partnership interest and to Universal Access Network, Inc., a Delaware
corporation wholly-owned by Mr. Peltz (the "General Partner"), a 1% general
partnership interest, for aggregate consideration of $50,010. Mr. Peltz's
interest in the Partnership was subsequently diluted by Partnership financings
and transfers by Mr. Peltz. In October 1994, Mr. Peltz transferred a portion of
his interest in the Partnership to Don Leeds in consideration of investment
banking services provided to the Partnership. Mr. Peltz received 2,392,813
shares of Common Stock in the Reorganization. Mr. Peltz may be deemed a
"promoter" of the Company, as such term is defined in the Securities Act.
Pursuant to the Partnership's partnership agreement, the General Partner
was paid compensation for managing the Partnership of approximately $104,000 and
$220,000 in 1994 and 1995, respectively. The salaries of Harlan Peltz and
Lawrence Kieves were paid by the General Partner from those proceeds. See
"Executive Compensation."
In December 1994, the Partnership issued a limited partnership interest
(exchanged for 2,596,332 shares of Common Stock in the Reorganization) to NET
Portfolio in consideration of $4,100,000. NET Portfolio entered into an
agreement with the Company pursuant to which NET Portfolio was granted the right
to require the Company to include the 2,596,332 shares in any registration
statement filed by the Company on behalf of any of the Company's other
shareholders (the "NET Portfolio Registration Rights"). In December 1995, the
Partnership issued an additional limited partnership interest (exchanged for
175,000 shares of Common Stock in the Reorganization) to NET Portfolio in
consideration of $500,000. The Company included those shares in the Offering
registration statement. NET Portfolio and Harlan Peltz entered into a
shareholders agreement (the "Shareholders Agreement"), pursuant to which Mr.
Peltz agreed to vote all shares of Common Stock owned by him in favor of the
election of nominees of NET Portfolio so that NET Portfolio would be entitled to
designate at least one-third of the directors of the Company, and NET Portfolio
agreed to vote all shares of Common Stock owned by it in favor of the election
of Mr. Peltz and his nominees so that Mr. Peltz would be entitled to designate
at least a majority of the directors of the Company. The agreement provided,
however, that upon the death or disability of Mr. Peltz, his estate or personal
representative would vote all of his shares so that NET Portfolio would be
entitled to designate at least a majority of the Company's directors. The
Shareholders Agreement also provided that Mr. Peltz would not vote any of his
shares of Common Stock in favor of any sale of all or substantially all of the
Company's assets or any merger of the Company unless NET Portfolio also voted in
favor of such transaction. In addition, the Shareholders Agreement provided that
Mr. Peltz would give NET Portfolio notice of any proposed sales by him of shares
of Common Stock (other than sales in a public market), and NET Portfolio would
then have the right to include certain of its own shares of Common Stock for
sale to the prospective purchaser.
<PAGE>
Following consummation of the Offering, NET Portfolio dissolved and
distributed its shares of Common Stock to its partners, including an entity
controlled by George Lindemann, a director of the Company (630,757 shares),
Freddie Fields, a director of the Company (56,307 shares), Metin Negrin, a
director of the Company (75,276 shares), and all of the other 5% shareholders
listed in Item 11 (other than Harlan Peltz). In connection with that dissolution
(i) NET Portfolio assigned the NET Portfolio Registration Rights to its partners
and (ii) Harlan Peltz and those partners (who collectively own approximately
32.0% of the outstanding Common Stock and together with Harlan Peltz own
approximately 59.6% of the outstanding Common Stock) have agreed to enter into a
new shareholders agreement in substitution of the Shareholders Agreement
pursuant to which the partners will exercise their rights by majority vote.
Metin Negrin and Joseph Tahl are the designees of NET Portfolio's partners on
the Company's Board of Directors.
In connection with the Company's hiring of Don Leeds as Executive Vice
President in June 1996, the Company granted to Mr. Leeds an option under the
Company's 1996 Employee Stock Option Plan to purchase, at a price of $3.875 per
share, up to 66,666 shares of Common Stock immediately, up to an additional
66,667 shares of Common Stock on and after June 17, 1997, and up to an
additional 16,667 shares of Common Stock on and after June 17, 1998. In
addition, Harlan Peltz granted to Mr. Leeds an option to purchase up to 176,000
shares of his Common Stock at the same price and in equal proportions over the
same vesting periods.
In connection with its acquisition of the young adult marketing businesses
of APMC, the Company paid a $150,000 fee to Veronis, Suhler and Associates Inc.
("VS&A"). Don Leeds participated in the transaction on behalf of VS&A prior to
joining the Company as its Executive Vice President, and was paid $45,000 by
VS&A on account of that participation.
Transactions with Fields and Hellman
Effective January 1995, the Company entered into a consulting agreement
with Fields & Hellman Company, a corporation owned by Freddie Fields and Jerome
Hellman. In December 1995, the Company and Fields & Hellman Company amended and
restated the consulting agreement to provide, among other things, that Fields &
Hellman Company will be entitled to receive annual consulting fees of $450,000
and $550,000 in 1996 and 1997, respectively, annual overhead expense
reimbursements (primarily relating to the Company's office in Los Angeles,
California) of $262,500 and $275,625 in 1996 and 1997, respectively, and 10% of
the Company's pre-tax income through 1999. The Company has also granted Fields &
Hellman Company an option to purchase 552,560 shares of Common Stock at an
exercise price of $1.58 per share. For the fiscal year ended June 30, 1996, the
Company paid consulting fees of $375,000 and overhead expenses of $256,249 under
such agreement. To date, Fields & Hellman Company has facilitated the Company's
school contracting and programming efforts. Each of Freddie Fields and Jerome
Hellman owned a limited partnership interest in NET Portfolio and received
56,307 shares of Common Stock upon the dissolution of NET Portfolio.
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K.
(a) Exhibits.
3.1 Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to
the Registrant's Registration Statement on Form SB-2, Registration No.
33-80935, filed on March 6, 1996).
3.2 Certificate of Amendment of Certificate of Incorporation (incorporated by
reference to Exhibit 3.2 to the Registrant's Registration Statement on
Form SB-2, Registration No. 33-80935, filed on March 6, 1996).
3.3 Bylaws (incorporated by reference to Exhibit 3.3 to the Registrant's
Registration Statement on Form SB- 2, Registration No. 33-80935, filed on
March 6, 1996).
4.1 Warrant Agreement (incorporated by reference to Exhibit 4.1 to the
Registrant's Registration Statement on Form SB-2, Registration No.
33-80935, filed on March 6, 1996).
<PAGE>
4.2 Underwriter's Warrant (incorporated by reference to Exhibit 4.2 to the
Registrant's Registration Statement on Form SB-2, Registration No.
33-80935, filed on March 6, 1996).
10.1 Employee Stock Option Plan of Registrant (incorporated by reference to
Exhibit 10.1 to the Registrant's Registration Statement on Form SB-2,
Registration No. 33-80935, filed on March 6, 1996).
10.2 Employment Agreement between Registrant and Harlan D. Peltz (incorporated
by reference to Exhibit 10.2 to the Registrant's Registration Statement
on Form SB-2, Registration No. 33-80935, filed on March 6, 1996).
10.3 Employment Agreement between Registrant and Don Leeds (incorporated by
reference to Exhibit 1 to the Registrant's Form 10-QSB for the quarterly
period ended June 30, 1996).
10.4 Employment Agreement between Registrant and Steven Flanders (incorporated
by reference to Exhibit 1 to the Registrant's Form 10-QSB for the
quarterly period ended September 30, 1996).
10.5 Employment Agreement between Registrant and Bruce L. Resnik (incorporated
by reference to Exhibit 2 to the Registrant's Form 10-QSB for the
quarterly period ended September 30, 1996).
10.6 Agreement dated December 19, 1995 between Registrant and Fields & Hellman
Company (incorporated by reference to Exhibit 10.4 to the Registrant's
Registration Statement on Form SB-2, Registration No. 33-80935, filed on
March 6, 1996).
10.7 NET Portfolio Investors Agreement dated December 21, 1995 between
Registrant and NET Portfolio Investors, L.P. (incorporated by reference
to Exhibit 10.5 to the Registrant's Registration Statement on Form SB-2,
Registration No. 33-80935, filed on March 6, 1996).
10.8 Form of Shareholders Agreement between Harlan Peltz and NET Portfolio
Investors, L.P. (incorporated by reference to Exhibit 10.6 to the
Registrant's Registration Statement on Form SB-2, Registration No.
33-80935, filed on March 6, 1996).
10.9 Registration Rights Agreement dated December 21, 1995 between Registrant
and NET Portfolio Investors, L.P. (incorporated by reference to Exhibit
10.7 to the Registrant's Registration Statement on Form SB-2,
Registration No. 33-80935, filed on March 6, 1996).
10.10 Standard Form of School Contract (incorporated by reference to Exhibit
10.8 to the Registrant's Registration Statement on Form SB-2,
Registration No. 33-80935, filed on March 6, 1996).
10.11 Warrant Agreement dated March 5, 1996 between Registrant and Merv Adelson
(incorporated by reference to Exhibit 10.12 to the Registrant's
Registration Statement on Form SB-2, Registration No. 33- 80935, filed on
March 6, 1996).
10.12 Registration Rights Agreement dated March 5, 1996 between Registrant and
Merv Adelson (incorporated by reference to Exhibit 10.13 to the
Registrant's Registration Statement on Form SB-2, Registration No.
33-80935, filed on March 6, 1996).
10.13 Asset Purchase Agreement dated September 13, 1996 among American Passage
Media Corporation, Gilbert Scherer, the Registrant and American Passage
Media, Inc. (incorporated by reference to Exhibit 2 to the Registrant's
Form 8-K filed on September 28, 1996).
10.14 $750,000 Subordinated Promissory Note from American Passage Media, Inc.
to American Passage Media Corporation (incorporated by reference to
Exhibit 32 to the Registrant's Form 8-K filed on September 28, 1996).
10.15 Guaranty by the Registrant in favor of American Passage Media Corporation
(incorporated by reference to Exhibit 4 to the Registrant's Form 8-K
filed on September 28, 1996).
10.16 Option Agreement between the Registrant and American Passage Media
Corporation (incorporated by reference to Exhibit 5 to the Registrant's
Form 8-K filed on September 28, 1996).
10.17 Consulting and Non-Competition Agreement between American Passage Media,
Inc. and American Passage Media Corporation (incorporated by reference to
Exhibit 6 to the Registrant's Form 8-K filed on September 28, 1996).
10.18 Transition Agreement between American Passage Media, Inc. and American
Passage Media Corporation (incorporated by reference to Exhibit 7 to the
Registrant's Form 8-K filed on September 28, 1996).
10.19 Directory of Classes Representation Agreement between American Passage
Media, Inc. and American Passage Media Corporation (incorporated by
reference to Exhibit 8 to the Registrant's Form 8-K filed on September
28, 1996).
10.20 Business Loan Agreement between American Passage Media, Inc. and Signet
Bank (incorporated by reference to Exhibit 9 to the Registrant's Form 8-K
filed on September 28, 1996).
<PAGE>
10.21 Promissory Note from American Passage Media, Inc. to Signet Bank
(incorporated by reference to Exhibit 10 to the Registrant's Form 8-K
filed on September 28, 1996).
10.22 Commercial Security Agreement between American Passage Media, Inc. and
Signet Bank (incorporated by reference to Exhibit 11 to the Registrant's
Form 8-K filed on September 28, 1996).
10.23 Commercial Guaranty from the Registrant in favor of Signet Bank
(incorporated by reference to Exhibit 12 to the Registrant's Form 8-K
filed on September 28, 1996).
10.24 Commercial Pledge and Security Agreement from the Registrant in favor of
Signet Bank (incorporated by reference to Exhibit 13 to the Registrant's
Form 8-K filed on September 28, 1996).
21 Subsidiaries of the Registrant.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
<PAGE>
SIGNATURES
In accordance with section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
November 19, 1996 NETWORK EVENT THEATER, INC.
By:/s/ Harlan D. Peltz
-------------------------
Harlan D. Peltz
Chairman of the Board and
Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
November 19, 1996 /s/ Harlan D. Peltz
-------------------
Harlan D. Peltz
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
November 19, 1996 /s/ Bruce L. Resnik
-------------------
Bruce L. Resnik
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
November 19, 1996 /s/ Don Leeds
----------------------
Don Leeds
President and Director
November 19, 1996 /s/ Freddie Fields
----------------------
Freddie Fields
Director
November 19, 1996 /s/ George Lindemann
----------------------
George Lindemann
Director
November 19, 1996 /s/ Joseph Tahl
----------------------
Joseph Tahl
Director
<PAGE>
EXHIBIT INDEX
Exhibit No.
3.1 Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to
the Registrant's Registration Statement on Form SB-2, Registration No.
33-80935, filed on March 6, 1996).
3.2 Certificate of Amendment of Certificate of Incorporation (incorporated by
reference to Exhibit 3.2 to the Registrant's Registration Statement on Form
SB-2, Registration No. 33-80935, filed on March 6, 1996).
3.3 Bylaws (incorporated by reference to Exhibit 3.3 to the Registrant's
Registration Statement on Form SB-2, Registration No. 33-80935, filed on
March 6, 1996).
4.1 Warrant Agreement (incorporated by reference to Exhibit 4.1 to the
Registrant's Registration Statement on Form SB-2, Registration No.
33-80935, filed on March 6, 1996).
4.2 Underwriter's Warrant (incorporated by reference to Exhibit 4.2 to the
Registrant's Registration Statement on Form SB-2, Registration No.
33-80935, filed on March 6, 1996).
10.1 Employee Stock Option Plan of Registrant (incorporated by reference to
Exhibit 10.1 to the Registrant's Registration Statement on Form SB-2,
Registration No. 33-80935, filed on March 6, 1996).
10.2 Employment Agreement between Registrant and Harlan D. Peltz (incorporated
by reference to Exhibit 10.2 to the Registrant's Registration Statement on
Form SB-2, Registration No. 33- 80935, filed on March 6, 1996).
10.3 Employment Agreement between Registrant and Don Leeds (incorporated by
reference to Exhibit 1 to the Registrant's Form 10-QSB for the quarterly
period ended June 30, 1996).
10.4 Employment Agreement between Registrant and Steven Flanders (incorporated
by reference to Exhibit 1 to the Registrant's Form 10-QSB for the quarterly
period ended September 30, 1996).
10.5 Employment Agreement between Registrant and Bruce L. Resnik (incorporated
by reference to Exhibit 2 to the Registrant's Form 10-QSB for the quarterly
period ended September 30, 1996).
10.6 Agreement dated December 19, 1995 between Registrant and Fields & Hellman
Company (incorporated by reference to Exhibit 10.4 to the Registrant's
Registration Statement on Form SB-2, Registration No. 33-80935, filed on
March 6, 1996).
10.7 NET Portfolio Investors Agreement dated December 21, 1995 between
Registrant and NET Portfolio Investors, L.P. (incorporated by reference to
Exhibit 10.5 to the Registrant's Registration Statement on Form SB-2,
Registration No. 33-80935, filed on March 6, 1996).
10.8 Form of Shareholders Agreement between Harlan Peltz and NET Portfolio
Investors, L.P. (incorporated by reference to Exhibit 10.6 to the
Registrant's Registration Statement on Form SB-2, Registration No.
33-80935, filed on March 6, 1996).
10.9 Registration Rights Agreement dated December 21, 1995 between Registrant
and NET Portfolio Investors, L.P. (incorporated by reference to Exhibit
10.7 to the Registrant's Registration Statement on Form SB-2, Registration
No. 33-80935, filed on March 6, 1996).
10.10 Standard Form of School Contract (incorporated by reference to Exhibit
10.8 to the Registrant's Registration Statement on Form SB-2, Registration
No. 33-80935, filed on March 6, 1996).
10.11 Warrant Agreement dated March 5, 1996 between Registrant and Merv Adelson
(incorporated by reference to Exhibit 10.12 to the Registrant's
Registration Statement on Form SB-2, Registration No. 33-80935, filed on
March 6, 1996).
10.12 Registration Rights Agreement dated March 5, 1996 between Registrant and
Merv Adelson (incorporated by reference to Exhibit 10.13 to the
Registrant's Registration Statement on Form SB-2, Registration No.
33-80935, filed on March 6, 1996).
10.13 Asset Purchase Agreement dated September 13, 1996 among American Passage
Media Corporation, Gilbert Scherer, the Registrant and American Passage
Media, Inc. (incorporated by reference to Exhibit 2 to the Registrant's
Form 8-K filed on September 28, 1996).
<PAGE>
10.14 $750,000 Subordinated Promissory Note from American Passage Media, Inc. to
American Passage Media Corporation (incorporated by reference to Exhibit
32 to the Registrant's Form 8-K filed on September 28, 1996).
10.15 Guaranty by the Registrant in favor of American Passage Media Corporation
(incorporated by reference to Exhibit 4 to the Registrant's Form 8-K filed
on September 28, 1996).
10.16 Option Agreement between the Registrant and American Passage Media
Corporation (incorporated by reference to Exhibit 5 to the Registrant's
Form 8-K filed on September 28, 1996).
10.17 Consulting and Non-Competition Agreement between American Passage Media,
Inc. and American Passage Media Corporation (incorporated by reference to
Exhibit 6 to the Registrant's Form 8-K filed on September 28, 1996).
10.18 Transition Agreement between American Passage Media, Inc. and American
Passage Media Corporation (incorporated by reference to Exhibit 7 to the
Registrant's Form 8-K filed on September 28, 1996).
10.19 Directory of Classes Representation Agreement between American Passage
Media, Inc. and American Passage Media Corporation (incorporated by
reference to Exhibit 8 to the Registrant's Form 8-K filed on September 28,
1996).
10.20 Business Loan Agreement between American Passage Media, Inc. and Signet
Bank (incorporated by reference to Exhibit 9 to the Registrant's Form 8-K
filed on September 28, 1996).
10.21 Promissory Note from American Passage Media, Inc. to Signet Bank
(incorporated by reference to Exhibit 10 to the Registrant's Form 8-K
filed on September 28, 1996).
10.22 Commercial Security Agreement between American Passage Media, Inc. and
Signet Bank (incorporated by reference to Exhibit 11 to the Registrant's
Form 8-K filed on September 28, 1996).
10.23 Commercial Guaranty from the Registrant in favor of Signet Bank
(incorporated by reference to Exhibit 12 to the Registrant's Form 8-K
filed on September 28, 1996).
10.24 Commercial Pledge and Security Agreement from the Registrant in favor of
Signet Bank (incorporated by reference to Exhibit 13 to the Registrant's
Form 8-K filed on September 28, 1996).
21 Subsidiaries of the Registrant.
27 Financial Data Schedule.
SUBSIDIARIES OF NETWORK EVENT THEATER, INC.
American Passage Media, Inc.
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<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 266,806
<SECURITIES> 0
<RECEIVABLES> 236
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<CURRENT-ASSETS> 8,175,781
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<COMMON> 86,544
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<TOTAL-LIABILITY-AND-EQUITY> 11,316,035
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