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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number: 0-27556
NETWORK EVENT THEATER, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 13-3864111
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
529 Fifth Avenue, New York, New York 10017
(Address of Principal Executive Offices) (Zip Code)
(212) 622-7300
(Registrant's Telephone Number, Including Area Code)
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the
preceding 12 months (or such shorter period that the registrant was required to
file such reports), and (2) has been subject of such filing requirements for the
past 90 days.
Yes _ X_ No ___
At October 30, 1998 there were 11,353,546 shares of Common Stock, $.01 par value
outstanding.
Transitional Small Business Disclosure Format (check one):
Yes ___ No _X_
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<PAGE>
Network Event Theater, Inc.
Form 10-QSB
Index
Page
PART I--FINANCIAL INFORMATION Number
------
Item 1 Financial Statements
Consolidated balance sheets - September 30, 1998
(unaudited) and June 30, 1998................................... 1
Consolidated statements of operations - three months
ended September 30, 1998 and 1997 (unaudited).................. 2
Consolidated statements of cash flows - three months ended
September 30, 1998 and 1997 (unaudited)......................... 3
Consolidated statement of stockholders' equity - three
months ended September 30, 1998 (unaudited)..................... 4
Notes to consolidated financial statements......................... 5
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 7
PART II--OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K................................... 9
Signatures ................................................................ 10
<PAGE>
PART I
FINANCIAL STATEMENTS
Item 1. Financial Statements
Network Event Theater, Inc
Consolidated Balance Sheets
(In thousands)
September 30, June 30,
1998 1998
----------- --------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents .......................... $ 3,433 $ 2,271
Accounts receivable, net of allowance for doubtful
accounts of $148 and $137 at September 30, 1998
and June 30, 1998, respectively .................. 4,104 1,539
Prepaid expenses ................................... 1,346 348
Deposits and other current assets .................. 265 181
-------- --------
Total current assets .................................. 9,148 4,339
Property and equipment, net of accumulated
amortization of $3,024 and $2,664 at
September 30, 1998 and June 30, 1998, respectively . 4,842 4,861
Deferred financing costs, net of accumulated
amortization of $74 and $12 at September 30, 1998
and June 30, 1998, respectively .................... 1,068 77
Intangible assets, net of accumulated amortization
of $981 and $857 at September 30, 1998 and
June 30, 1998, respectively ........................ 6,275 6,399
-------- --------
Total assets .......................................... $ 21,333 $ 15,676
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ................................... $ 1,223 $ 914
Accrued employee compensation ...................... 442 520
Accrued professional fees .......................... 145 225
Other accrued expenses ............................. 2,392 537
Deferred revenues .................................. 229 689
Current portion of long-term debt .................. 842 789
-------- --------
Total current liabilities ............................. 5,273 3,674
Long-term debt ........................................ 8,239 3,459
Commitments and contingencies ......................... -- --
Stockholders' Equity:
Preferred stock, $.01 par value, 1,000 shares
authorized, no shares issued and outstanding ..... -- --
Common stock, $.01 par value, 32,000 shares
authorized, 11,347 shares issued and outstanding
at September 30, 1998 and June 30, 1998 .......... 113 113
Additional paid-in capital ......................... 27,938 27,198
Accumulated deficit ................................ (20,230) (18,768)
-------- --------
Total stockholders' equity ............................ 7,821 8,543
-------- --------
Total liabilities and stockholders' equity ............ $ 21,333 $ 15,676
======== ========
See notes to consolidated financial statements.
1
<PAGE>
Network Event Theater, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
Three months ended
September 30,
------------------------
1998 1997
-------- --------
Net Revenues .................................. $ 3,425 $ 2,953
Operating Expenses:
Selling, general and administrative expenses 3,356 3,268
Corporate expenses ......................... 774 634
Depreciation and amortization .............. 484 394
-------- -------
Total operating expenses ...................... 4,614 4,296
-------- -------
Loss from operations .......................... (1,189) (1,343)
Interest income ............................... 58 40
Interest expense .............................. (294) (155)
-------- -------
Loss before provision for income taxes ........ (1,425) (1,458)
Provision for income taxes .................... 37 46
-------- -------
Net loss ...................................... $ (1,462) $(1,504)
======== =======
Net loss per basic and diluted common share ... $ (0.13) $ (0.15)
======== =======
Weighted average basic and diluted common
shares outstanding ......................... 11,347 9,861
======== =======
See notes to consolidated financial statements.
2
<PAGE>
Network Event Theater, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three months ended
September 30,
---------------------
1998 1997
---- ----
Cash Flows From Operating Activities
Net loss ............................................. $(1,462) $(1,504)
Adjustments to reconcile net loss to
net cash used in operating activities:
Provision for bad debts ........................... 11 9
Depreciation and amortization ..................... 484 394
Amortization of deferred financing costs .......... 62 --
Changes in assets and liabilities:
Increase in prepaid expenses .................... (998) (1,061)
(Increase) decrease in deposits and
other current assets ......................... (84) 39
Increase in accounts receivable ................. (2,576) (2,942)
Increase in accounts payable .................... 309 141
Decrease in accrued employee compensation ....... (78) (27)
Decrease in accrued professional fees ........... (80) (157)
(Decrease) increase in deferred revenues ........ (460) 1,237
Increase in other accrued expenses .............. 1,855 1,794
------- -------
Net cash used in operating activities ................ (3,017) (2,077)
Cash Flows From Investing Activities
Capital expenditures .............................. (341) (556)
Notes receivable .................................. -- (1)
------- -------
Net cash used in investing activities ................ (341) (557)
Cash Flows From Financing Activities
Sale of warrants .................................. 188 --
Proceeds from long-term debt ...................... 4,499 125
Repayment of long-term debt ....................... (167) (169)
------- -------
Net cash provided by financing activities ............ 4,520 (44)
------- -------
(Decrease) increase in cash and cash equivalents ..... 1,162 (2,678)
Cash and cash equivalents at beginning of period ..... 2,271 4,185
------- -------
Cash and cash equivalents at end of period ........... $ 3,433 $ 1,507
======= =======
Supplemental cash flow information;
Cash paid for interest ............................ $ 99 $ 105
======= =======
Cash paid for income taxes ........................ $ 37 $ 42
======= =======
Issuance of warrants in connection with
long-term debt ................................. $ 552 $ --
======= =======
See notes to consolidated financial statements.
3
<PAGE>
Network Event Theater, Inc.
Consolidated Statement of Stockholders' Equity
For the period July 1, 1998 to September 30, 1998
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
---------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C>
Balances at June 30, 1998.............. 11,347 $113 $27,198 $(18,768) $ 8,543
Issuance of warrants in connection
with long-term debt................. -- -- 740 -- 740
Net loss............................... -- -- -- (1,462) (1,462)
------ ---- ------- ------- -------
Balances at September 30, 1998......... 11,347 $113 $27,938 $(20,230) $ 7,821
====== ==== ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
Network Event Theater, Inc.
Notes to Consolidated Financial Statements
September 30, 1998
(Unaudited)
1. Organization and Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Network Event Theater, Inc. ("NET"), and its wholly-owned subsidiaries American
Passage Media, Inc. ("American Passage"), Campus Voice, Inc. ("Campus Voice"),
Beyond the Wall, Inc. ("Beyond the Wall") and Pik:Nik Media, Inc. ("Pik:Nik")
(collectively, the "Company"). All significant intercompany transactions have
been eliminated.
The Company owns and operates a proprietary national network of theaters
on college campuses (the "Network"). The Network delivers entertainment and
educational events via satellite for display through high resolution video
projectors on movie theater sized screens. Additionally, the Company owns and
operates collegiate media and marketing service businesses, which complement and
enhance the reach of its Network. The Company operates in one industry segment,
which provides media and marketing services to advertisers who want to reach
young adults.
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310 of Regulation
S-B. Accordingly, they do not include all the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for an interim period are not necessarily indicative of the
results that may be expected for the year ended June 30, 1999. Because the
Company earns most of its revenues during the academic year (September through
May), the Company's second and third quarters generally reflect higher levels of
revenues than are earned in the first and fourth quarters. For further
information, refer to the consolidated financial statements and footnotes
thereto included in Company's Form 10-KSB for the fiscal year ended June 30,
1998.
2. Reclassifications
Certain June 30, 1998 amounts in the consolidated balance sheet have been
reclassified to conform to the current period's presentation.
3. Pro Forma Financial Data
The effect of the On the House, Inc. acquisition in May 1998 was not
material to the reported net loss or net loss per share.
4. Long-Term Debt
A summary of long-term debt is as follows:
September 30, June 30,
1998 1997
---------- ----------
Note Payable to Bank (A).................... $2,905,000 $3,072,000
Note Payable to Finance Company (B)......... 1,000,000 1,000,000
Note Payable - Private Placement (C)........ 5,000,000 --
Other....................................... 176,000 176,000
---------- ----------
9,081,000 4,248,000
Less current portion........................ (842,000) (789,000)
---------- ----------
$8,239,000 $3,459,000
========== ==========
(A) This loan is secured by all of the assets of Campus Voice, Beyond the
Wall and American Passage (the "Borrowers") and is guaranteed by NET. This loan
is payable in equal monthly installments, commencing in February 1998, over a
maximum of six years (as defined). Interest is payable monthly at a rate of
interest of 275 basis points above LIBOR for U.S. dollar deposits of one month
maturity.
5
<PAGE>
Network Event Theater, Inc.
Notes to Consolidated Financial Statements (Continued)
September 30, 1998
(Unaudited)
The Borrowers are also party to an interest rate exchange agreement
converting $3.0 million of the aforementioned floating rate debt to a fixed
rate. The balance of the interest rate agreement at September 30, 1998 was
$2,556,000. Under the interest rate exchange agreement, the Borrowers are
required to pay interest at a fixed rate of 9.11% on the notional amount covered
by the interest rate exchange agreement. In return, the Company receives
interest payments on the same notional amount at the prevailing LIBOR rate plus
275 basis points. The interest rate exchange agreement terminates in June 2002.
The bank has also made available to the Borrowers a revolving line of
credit with a maximum principal amount of $1.0 million. All amounts borrowed
under this facility must be repaid by July 1999. The revolving line of credit
facility bears interest at the rate of the bank's prime rate plus 25 basis
points and interest is due monthly. Borrowings under the revolving line of
credit are secured by the Borrower's eligible accounts receivable (as defined)
and are also guaranteed by NET. As of September 30, 1998 the Borrowers have not
borrowed any amounts under this facility.
(B) Interest on this note is payable monthly at a rate of 12% per annum,
with the principal due in June 2000. The note is secured by all of the assets of
Pik:Nik and is guaranteed by NET.
(C) In July 1998, the Company realized net proceeds of approximately $4.7
million from the sale of $5,000,000 of 11% Subordinated Notes (the "Notes") and
375,000 warrants (see note 5). The Notes are due in July 2003. Interest at the
rate of 11% per annum is due semi-annually.
5. Stockholders' Equity
In July 1998, in connection with the sale of the Notes (see Note 4), NET
sold 375,000 warrants for approximately $188,000. Each warrant entitles the
holder to purchase one share of the Company's common stock for $4.125 and
expires in July 2003.
In connection with the sale of the Notes and warrants, the Company issued
150,000 warrants to the placement agent. Each warrant entitles the holder to
purchase one share of the Company's common stock for $4.125 and expires in July
2003.
The 525,000 warrants described above were valued at $740,000 based on a
valuation from an independent third party.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the consolidated
financial statements and related notes thereto. The following discussion
contains certain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, the ability to obtain financing, integration of
acquisitions, the management of growth, changing consumer tastes and general
economic conditions. The Company undertakes no obligation to publicly release
the results of any revisions to these forward-looking statements that may be
made to reflect any future events or circumstances.
The following financial analysis compares the three months ended September
30, 1998 (unaudited) to the three months ended September 30, 1997 (unaudited).
Results of Operations
For the three months ended September 30, 1998, net revenues were
$3,425,000 as compared to $2,953,000 for the three months ended September 30,
1997. The increase of $472,000 is primarily due to increased sales efforts as a
result of an increase in sales staff.
For the three months ended September 30, 1998, selling, general and
administrative expenses were $3,356,000 as compared to $3,268,000 for the three
months ended September 30, 1997. The increase of $88,000 is primarily due to
increased sales staff.
For the three months ended September 30, 1998, corporate expenses were
$774,000 as compared to $634,000 for the three months ended September 30, 1997.
The increase of $140,000 is primarily due to increased corporate personnel and
related overhead expenses required to support the Company's growth.
For the three months ended September 30, 1998, depreciation and
amortization was $484,000 as compared to $394,000 for the three months ended
September 30, 1997. The increase of $90,000 is primarily due to additional
equipment purchases during the period from October 1997 through September 1998.
For the three months ended September 30, 1998, operating expenses were
$4,614,000 as compared to $4,296,000 for the three months ended September 30,
1997. The increase of $318,000 is due to increased personnel and depreciation
relating to additional equipment purchases during the period from October 1997
through September 1998.
For the three months ended September 30, 1998, interest income was $58,000
as compared to $40,000 for the three months ended September 30, 1997. The
increase of $18,000 was due to higher cash balances.
For the three months ended September 30, 1998, interest expense was
$294,000 as compared to $155,000 for the three months ended September 30, 1997.
The increase of $139,000 primarily related to $5,000,000 of debt issued in July
1998.
For the three months ended September 30, 1998, net loss was $1,462,000 as
compared to $1,504,000 for the three months ended September 30, 1997. The
decrease of $42,000 was due to increased revenues that were offset by selling,
general and administrative expenses, corporate expense and interest expense.
Impact of Year 2000
The Company believes that its computer programs and systems are year 2000
compliant.
Liquidity and Capital Resources
In July 1998, the Company realized net proceeds of approximately $4.7
million from the sale of $5,000,000 of 11% Subordinated Notes and 375,000
warrants.
The Company used approximately $3.0 million in its operating activities in
1998 as compared to $2.1 million in 1997. The increase of approximately $0.9
million represents the decrease in short-term liabilities and the increase
7
<PAGE>
in accounts receivable and long term assets offset by the increase in
depreciation and amortization. Cash used in investing activities in 1998 of
approximately $0.3 million is composed primarily of capital expenditures. Cash
provided by financing activities in 1998 of approximately $4.5 million is
primarily attributable to the issuance of long term debt and related warrants.
The Company's primary capital requirements with respect to its operations
have been to fund corporate overhead and the operation of its Network of campus
theaters. In the event that the Company's plans and assumptions with respect to
its Network change or prove to be inaccurate, if its assumptions with respect to
American Passage, Campus Voice, Beyond the Wall and Pik:Nik being able to fund
their operations and to make debt service payments out of their own cash flow in
the future prove to be inaccurate, or if the working capital or capital
expenditure requirements of American Passage, Campus Voice, Beyond the Wall or
Pik:Nik prove to be greater than anticipated, 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.
As of September 30, 1998, the Company had approximately $3.4 million in
cash and cash equivalents. The Company believes that such amount will be
sufficient to fund working capital, including debt service and interest
requirements, at least through the fiscal year ended June 30, 1999. The
Company's ability to improve its operations will be subject to prevailing
economic conditions and to legal, financial, business, regulatory, industry and
other factors, many of which are beyond the Company's control.
The Company may also seek additional debt or equity financing to fund the
cost of additional expansion of its Network and the cost of developing,
acquiring additional media and marketing services businesses or to fund its
operations. To the extent that the Company finances its requirements through the
issuance of additional equity securities, including the exercise of warrants
issued in the Initial Public Offering, any such issuance would result in
dilution to the interests of the Company's shareholders.
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.
8
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
9
<PAGE>
SIGNATURES
In accordance with the requirements 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 16, 1998
BY: /S/ HARLAN D. PELTZ
------------------------------
Harlan D. Peltz
Chairman of the Board
and Chief Executive Officer
BY: /S/ BRUCE L. RESNIK
------------------------------
Bruce L. Resnik
Executive Vice President
Chief Financial Officer and
Chief Accounting Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,433,000
<SECURITIES> 0
<RECEIVABLES> 4,252,000
<ALLOWANCES> 148,000
<INVENTORY> 0
<CURRENT-ASSETS> 9,148,000
<PP&E> 7,866,000
<DEPRECIATION> 3,024,000
<TOTAL-ASSETS> 21,333,000
<CURRENT-LIABILITIES> 5,273,000
<BONDS> 0
0
0
<COMMON> 113,000
<OTHER-SE> 7,708,000
<TOTAL-LIABILITY-AND-EQUITY> 21,333,000
<SALES> 0
<TOTAL-REVENUES> 3,425,000
<CGS> 0
<TOTAL-COSTS> 4,614,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 294,000
<INCOME-PRETAX> (1,425,000)
<INCOME-TAX> (37,000)
<INCOME-CONTINUING> (1,462,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,462,000)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
