<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 March 31, 1996 or
Transition report pursuant to Section 13 or 15(d) of the
- - ----- Securities Exchange Act of 1934.
For the transition period from to
----------------- ----------------------------
Commission file number 0-12193
----------
AFFINITY TELEPRODUCTIONS, INC.
- - -----------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 22-2473403
- - ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15436 North Florida Avenue, Suite 103, Tampa, Florida 33613
- - ---------------------------------------------------- ------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (813) 264-1778
---------------
Not Applicable
- - --------------------------------------------------------------------------------
(Former name, address and fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Registrant had 8,688,723 shares of common stock outstanding as of March 31, 1996
IN ACCORDANCE WITH RULE 201 OF REGULATION S-T, THIS QUARTERLY REPORT ON
FORM 10-QSB IS BEING FILED IN PAPER PURSUANT TO A TEMPORARY HARDSHIP EXEMPTION.
<PAGE>
AFFINITY TELEPRODUCTIONS, INC.
AS OF MARCH 31, 1996
<PAGE>
AFFINITY TELEPRODUCTIONS, INC.
-----------------------------
AND SUBSIDIARY
--------------
FINANCIAL STATEMENTS
--------------------
AS OF MARCH 31, 1996
--------------------
<PAGE>
AFFINITY TELEPRODUCTIONS, INC. AND SUBSIDIARY
CONTENTS
---------------------------------------------
PAGE 1 - ACCOUNTANTS' REVIEW REPORT
PAGE 2 - CONSOLIDATED BALANCE SHEETS AS OF MARCH 31,
1996 AND SEPTEMBER 30, 1995
PAGE 3 - CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY FOR THE SIX MONTHS
ENDED MARCH 31, 1996 AND FOR THE YEAR
ENDED SEPTEMBER 30, 1995
PAGE 4 - CONSOLIDATED STATEMENTS OF OPERATIONS FOR
THE THREE AND SIX MONTHS ENDED MARCH 31,
1996 AND 1995
PAGE 5 - 6 - CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE SIX MONTHS ENDED MARCH 31, 1996 AND
1995
PAGE 7 - 14 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1996 AND SEPTEMBER 30,
1995
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
-------------------------------
To the Board of Directors of:
Affinity Teleproductions, Inc. and Subsidiary
We have reviewed the accompanying consolidated balance sheet of Affinity
Teleproductions, Inc. and Subsidiary as of March 31, 1996 and the related
consolidated statements of operations for the three and six months ended March
31, 1996 and 1995, consolidated changes in stockholders' equity for the six
months ended March 31, 1996 and consolidated cash flows for the six months ended
March 31, 1996 and 1995. All information included in these consolidated
financial statements is the representation of the management of Affinity
Teleproductions, Inc. and Subsidiary.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements in order for them
to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of September 30, 1995 and the
related consolidated statements of operations, consolidated statement of
stockholders' equity and consolidated cash flows for the year then ended (not
presented herein), and in our report dated November 30, 1995, we expressed an
unqualified opinion on those consolidated financial statements, but have not
performed any auditing procedures since that date. In our opinion, the
information set forth in the accompanying consolidated balance sheet as of
September 30, 1995 is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
WEINBERG, PERSHES & COMPANY, P.A.
Boca Raton, Florida
May 20, 1996
<PAGE>
AFFINITY TELEPRODUCTIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1996 AND SEPTEMBER 30, 1995
-----------------------------------------------
ASSETS
-------
MARCH 31, SEPTEMBER 30,
1996 1995
---------- ------------
Cash $ 4,291,098 $ 146,834
Accounts receivable (less allowance for
doubtful amounts of $20,875) 1,046,438 547,994
Television broadcast airtime - 4,657,062
Program cost inventories 1,498,360 1,647,581
Investment in joint venture 500,000 486,893
Loan receivable 600,000 -
Due from officer and employee 92,603 -
Property and equipment - at cost (less
accumulated depreciation of $984,978
and $909,827) 495,345 468,609
Prepaid expenses and other assets 164,879 77,088
------------ -----------
TOTAL ASSETS $ 8,688,723 $ 8,032,061
- - ------------ ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Notes payable - related parties $ - $ 680,526
Notes payable - others 31,292 291,069
Accounts payable 549,447 292,893
Accrued liabilities 331,169 343,688
Deferred revenue 41,666 206,277
------------ -----------
Total Current Liabilities 953,574 1,814,453
------------ -----------
STOCKHOLDERS' EQUITY
Convertible preferred stock, $.0001
par value, $50 stated value, 2,000,000
shares authorized, -0- shares and
100,000 shares issued and outstanding - 5,000,000
Convertible preferred stock, $1 par value;
$10 stated value; 500,000 shares
authorized, 48,734 shares issued
and outstanding 487,340 487,340
Common stock, $.10 par value; 10,000,000
shares authorized; 8,284,217 shares and
5,999,220 shares issued and outstanding 828,422 599,922
Capital in excess of par value 14,686,034 4,636,617
Capital in excess of par value - stock
options 393,750 -
Deficit ( 2,312,119) (1,725,768)
------------ -----------
14,083,427 8,998,111
Less: Stock subscriptions receivable ( 5,862,278) (2,780,503)
Deferred Compensation ( 486,000) -
------------ --------
Total Stockholders' Equity 7,735,149 6,217,608
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,688,723 $ 8,032,061
- - ------------------------------------------ ============ ===========
Read accountants' review report
and notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
AFFINITY TELEPRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED MARCH 31, 1996 AND FOR THE YEAR ENDED SEPTEMBER 30, 1995
---------------------------------------------------------------------------------
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
$50.00 STATED VALUE $10.00 STATED VALUE $.10 STATED VALUE
------------------- ------------------- -----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - OCTOBER 1, 1994 100,000 $5,000,000 48,734 $487,340 4,024,217 $402,422
Issuance of common stock
- stock options - - - - 400,000 40,000
- private placement - - - - 1,575,000 157,500
Net (loss) - - - - - -
-------- ---------- ------ -------- ---------- --------
BALANCE - SEPTEMBER 30, 1995 100,000 5,000,000 48,734 487,340 5,999,217 599,922
Cancellation of preferred
stock (100,000) (5,000,000) - - - -
Stock options issued - - - - - -
Issuance of common stock
- stock options exercised - - - - 285,000 28,500
- private placement - - - - 2,000,000 200,000
Net (loss) - - - - - -
-------- ---------- ------ -------- --------- --------
BALANCE - MARCH 31, 1996 - $ - 48,734 $487,340 8,284,217 $828,422
======== ========== ====== ======== ========= ========
CAPITAL
CAPITAL IN EXCESS
IN EXCESS OF PAR -
OF PAR STOCK OPTION DEFICIT
--------- ------------ -------
<S> <C> <C> <C>
BALANCE - OCTOBER 1, 1994 $ 579,867 $ - $ (840,134)
Issuance of common stock
- stock options 276,750 - -
- private placement 3,780,000 -
Net (loss) - - (885,634)
----------- ----------- ----------
BALANCE - SEPTEMBER 30, 1995 4,636,617 - (1,725,768)
Cancellation of preferred
stock - - -
Stock options issued - 540,000 -
Issuance of common stock
- stock options exercised 582,750 (146,250) -
- private placement 9,466,667
Net (loss) - - (586,351)
----------- ------------- -----------
BALANCE - MARCH 31, 1996 $14,686,034 $ 393,750 $(2,312,119)
=========== ============= ===========
</TABLE>
Read accountants' review report
and notes to consolidated financial statements.
<PAGE>
AFFINITY TELEPRODUCTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1996 1995 1996 1995
---------- ---------- ---------- ---------
Revenues $ 337,856 $ 178,900 $1,803,091 $ 417,796
Costs and expenses
Costs of revenues 623,083 71,069 1,460,441 256,205
Selling, general and
administrative 320,074 392,394 863,423 671,060
Depreciation and
amortization 41,470 40,522 75,607 81,240
Acquisition costs 175,000 - 175,000 -
---------- ---------- ---------- ---------
Loss from operations ( 821,771) (325,085) ( 771,380) (590,709)
Dividend and interest income
(expense) - net 99,212 (11,834) 185,029 (31,439)
--------- ---------- ---------- ---------
Net Loss $(722,559) $ (336,919) $ (586,351) $(622,148)
========= ========== ========== =========
Loss per common share $ (.10) $ (.08) $ (.09) $ (.15)
========= ========== ========== =========
Weighted average number of
common shares outstanding 7,089,404 4,313,106 6,546,239 4,189,052
========= ========== ========== =========
Read accountants' review report
and notes to consolidated financial statements.
<PAGE>
AFFINITY TELEPRODUCTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1996 AND 1995
------------------------------------------------
1996 1995
--------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $( 586,351) $( 622,148)
Adjustments to reconcile to net cash
(used in) operating activities:
Depreciation and amortization 75,607 80,784
Changes in assets - (increase) decrease:
Accounts receivable (498,444) 46,365
Program cost inventories 149,221 (89,839)
Other prepaid expenses and assets (88,247) (10,171)
Television broadcast airtime 78,637 118,750
Loan receivable (600,000)
Changes in liabilities - increase (decrease):
Accounts payable and accrued liabilities (77,540) 235,488
Deferred revenue (164,611) (4,700)
--------- --------
Net Cash (Used In) Operating
Activities (1,711,728) (245,471)
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (72,789) (10,033)
---------- ---------
Net Cash (Used In) Investing Activities (72,789) (10,033)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock 6,617,392 253,059
Proceeds from notes payable 145,004 215,000
Repayment of notes payable (833,615) (207,862)
---------- ---------
Net Cash Provided By Financing Activities 5,928,781 260,197
--------- --------
NET INCREASE IN CASH 4,144,264 4,693
CASH - BEGINNING 146,834 3,199
---------- ---------
CASH - ENDING $4,291,098 $ 7,892
- - ------------- ========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 23,452 $ 31,439
========== =========
Income taxes $ $
========== =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITY
- - --------------------------------------------------------------------
In the quarter ended December 31, 1995, the Company issued 25,000
shares of the Company's common stock to officers of the subsidiary for
payment of salaries in the amount of $100,000.
Read accountants' review report
and notes to consolidated financial statements.
<PAGE>
AFFINITY TELEPRODUCTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1996 AND 1995
------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITY
(CONTINUED)
- - -------------------------------------------------------------------
The Company issued an additional 1,000,000 shares of common stock at
$5.00 per share. These shares are evidenced by a one year, 10% interest
bearing note in the amount of $5 million. Unless the note is paid in
full, these shares carry no voting rights or any other rights normally
associated with beneficial ownership. Further, upon maturity, the
Company has the option, at its sole discretion, to acquire the shares
in exchange for the cancellation of the note. By agreement of the
parties, the shares are subject to a "stop transfer" order and may not
be transferred without the express written consent of the Company.
In April, 1996, the Company rescinded the agreement upon which the
Company's television broadcast airtime was based resulting in a
cancellation of 100,000 shares of preferred stock and a reduction of
$5,000,000 in stockholders' equity. This is reflected in the quarter
ended March 31, 1996
In the quarter ended March 31, 1996, the President and another
executive exercised stock options totalling 250,000 shares of the
Company's common stock. The consideration paid was a cancellation of
indebtedness due to the optionees.
In the quarter ended March 31, 1996, the Company acquired equipment
incurring a capital lease obligation of $29,098.
In the quarter ended March 31, 1996, under a contract with an
individual, the individual exercised stock options totalling 10,000
shares of the Company's common stock at an exercise price of $3.25 per
share. Subsequent to March 31, 1996, the $32,500 stock subscription
receivable was paid.
Read accountants' review report
and notes to consolidated financial statements.
<PAGE>
AFFINITY TELEPRODUCTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1996 AND SEPTEMBER 30, 1995
--------------------------------------------
NOTE 1 - HISTORY AND ORGANIZATION
- - ----------------------------------
On February 23, 1994, CBNI Development, Inc., ("Company"),
incorporated in the State of Delaware acquired all of the
issued and outstanding common stock of Affinity
Teleproductions, Inc., a corporation organized in the State of
Florida in a transaction accounted for as a reverse
acquisition. Subsequently, the Company changed its name to
Affinity Teleproductions, Inc.
On August 31, 1994, the Company acquired Broadcast Edit, Inc.,
a California corporation for 50,000 shares of common stock in
a transaction accounted for as a pooling of interests.
The Company produces, sells and edits television programs,
commercials, informercials, and videos for the home and
industrial markets domestically and internationally.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- - ----------------------------------------------------
Principles of Consolidation
---------------------------
The consolidated financial statements as of March 31, 1996 and
September 30, 1995 include the accounts of the Company and its
wholly-owned subsidiary, Broadcast Edit, Inc. All significant
intercompany accounts, transactions, and profits have been
eliminated.
Revenue Recognition
-------------------
Television programs are produced or acquired for domestic and
foreign distributions in the pay-per-view, basic cable
television markets, home video, and sells merchandise for its
programs. Revenues are recognized as the programs are telecast
and videos and merchandise are sold.
Film editing and production package service revenues are
recognized as the services are rendered.
Television broadcast airtime was available to be used on its
own programs to be sold. Revenues were recognized as the
broadcast airtime was sold or utilized. In April, 1996, the
Company rescinded the agreement for television broadcast
airtime and cancelled the related preferred stock. The
rescission is reflected in the quarter ended March 31, 1996.
<PAGE>
AFFINITY TELEPRODUCTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1996 AND SEPTEMBER 30, 1995
--------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- - ---------------------------------------------------------------
Program Cost Inventories
------------------------
Program cost inventories are stated at the lower of cost,
amortized cost or net realizable value. Costs include direct
production and acquisition costs and production overhead.
Individual programs and series are amortized, and the related
participations and residuals are accrued, based on the
proportion that current revenues from the program or series
bear to an estimate of total revenues anticipated from all
markets. These estimates are reviewed periodically.
The Company estimates that all of the unamortized program
costs at March 31, 1996, will be amortized by September 30,
1998.
Television Broadcast Airtime
----------------------------
In May 1993, the Company issued 100,000 shares of preferred
stock valued at $5,000,000 to a previously unrelated party for
$5,000,000 of net television broadcast airtime. The Company
utilized the airtime either internally for its own programs or
sold the airtime to outside parties. The television broadcast
airtime was expensed when utilized or sold to outside parties.
During the six months ended March 31, 1996 and 1995, the
Company recorded revenues of $ -0- and $125,000, respectively,
from the sale of television airtime and charged $ -0- and
$111,950, respectively, to expense.
The Company incurred costs of $50,000 regarding negotiations
for the purchase of the broadcast airtime rights. These costs
were being amortized based on the related utilization of the
television broadcast airtime rights.
In April 1996, the Company exercised its right to effectuate a
rescission of the agreement upon which the television airtime
is based, due to the fact that the Company could not obtain
the use of the airtime when requested and believes the value
of the broadcast airtime has been impaired. This rescission
has been reflected in the quarter ended March 31, 1996. As a
result of this rescission, 100,000 shares of preferred stock
issued to acquire the broadcast time rights were cancelled and
stockholders' equity was decreased by $5,000,000, and an
accounts payable of $421,575 representing reimbursements for
broadcast airtime that had been sold to outside parties has
been recorded. In addition, due to the rescission, the
commission paid to acquire the airtime was fully amortized as
of March 31, 1996.
<PAGE>
AFFINITY TELEPRODUCTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1996 AND SEPTEMBER 30, 1995
-------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- - ---------------------------------------------------------------
Reclassifications
-----------------
Reclassifications to the March 31, 1995 consolidated statement
of operations were made to conform to the March 31, 1996
presentation.
Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation is
provided on accelerated and straight-line methods over the
estimated useful lives of the respective assets. Maintenance
and repairs are charged to expense as incurred; major renewals
and betterments are capitalized. When items of property or
equipment are sold or retired, the related cost and
accumulated depreciation are removed from the accounts and any
gain or loss is included in the results of operations.
Statement of Cash Flows
-----------------------
For purposes of this statement, the Company considers all
liquid investments purchased with an original maturity of
three months or less to be cash equivalent.
(Loss) Per Common Share
-----------------------
(Loss) per common share is calculated by dividing net (loss)
applicable to common stock by the weighted average shares of
common stock and common stock equivalents outstanding during
the period. Common stock equivalents include shares issuable
upon conversion of the Company's convertible preferred stock
and exercise of the Company's outstanding warrants and stock
options. For the three and six months ended March 31, 1996 and
1995, the preferred stocks, warrants and common stock options
were anti-dilutive and were not included in the calculation of
the weighted average common shares outstanding.
Significant Concentration of Credit Risk
----------------------------------------
The Company has concentrated its credit risk for cash by
maintaining deposits in banks and brokerage accounts located
within the same geographic region. The maximum loss that would
have resulted from risk totalled $933,273 and $144,000 at
March 31, 1996 and September 30, 1995, respectively, for the
excess of the deposit liabilities reported in the accounts
over the amounts that would have been covered by federal
insurance.
<PAGE>
AFFINITY TELEPRODUCTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1996 AND SEPTEMBER 30, 1995
NOTE 3 - PROPERTY AND EQUIPMENT
- - --------------------------------
Property and equipment consist of the following at March 31,
1996 and September 30, 1995
MARCH 31, SEPTEMBER 30,
1996 1995
----------- -------------
Equipment $ 1,337,613 $ 1,236,385
Furniture and fixtures 42,851 42,192
Transportation equipment 38,009 38,009
Leasehold improvements 61,850 61,850
----------- ------------
Total 1,480,323 1,378,436
Less: Accumulated depreciation 984,978 909,827
----------- ------------
Total property and equipment $ 495,345 $ 468,609
=========== ============
Depreciation expense for the six months ended March 31, 1996
and 1995 is $75,151 and $80,784, respectively.
NOTE 4 - NOTES PAYABLE
- - -----------------------
MARCH 31, SEPTEMBER 30,
1996 1995
----------- -------------
STOCKHOLDERS
------------
Notes payable to stockholders/
officers, with interest at 6% per
annum, due in monthly payments
of $2,917 through August 1995. This
note was paid in October 1995. - 35,000
Notes payable - stockholders,
due on demand with varying
interest rates. These amounts
were repaid in October, 1995 -
March, 1996. - 645,526
------------ -------------
$ - $ 680,526
============ =============
OTHER
-----
Notes payable, unsecured, due on
demand no stated interest.
Repaid in October, 1995. $ - $200,000
Loan payable, with no fixed due
date and interest, and without
collateral 12,400 37,400
Notes payable, collateralized by
equipment, payable in monthly
Installments of $1,012, including
interest ranging from 10% to 13%,
<PAGE>
AFFINITY TELEPRODUCTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1996 AND SEPTEMBER 30, 1995
NOTE 4 - NOTES PAYABLE (CONTINUED)
- - -----------------------------------
MARCH 31, SEPTEMBER 30,
1996 1995
-------- -------------
through April 1996. These amounts
were repaid in October, 1995 -
March, 1996. - 8,498
Capitalized lease obligations
collateralized by equipment,
due in monthly installments
of $1,349 to $4,712 until
July 1997, with per annum
interest from 10% to 16% a
year 18,892 45,171
------------ -------------
$ 31,292 $ 291,069
============ =============
Principal payments are due in the years ended March 31, as
follows:
March 31, 1996 $ 23,312
March 31, 1997 7,980
--------
$ 31,292
========
NOTE 5 - STOCKHOLDERS' EQUITY
- - ------------------------------
Convertible Preferred Stock
---------------------------
In May, 1993, 100,000 shares of $.0001 par value, $50 stated
value, convertible preferred stock were issued to a previously
unrelated party to acquire net broadcast airtime rights. The
rights were valued at $5,000,000. The preferred shares were
convertible after May 20, 1996, after extension, into common
stock at the prevailing market price not to exceed 9% of total
common stock issued and outstanding at date of conversion. At
the Company's option, the preferred shares were redeemable at
any time prior to conversion for the amount of $5,500,000 in
cash. The preferred stock carried a dividend which was
calculated as the first $200,000 in annual net earnings and 5%
of annual net earnings thereafter starting after May 20, 1996.
The preferred stock was cancelled due to the Company's
inability to obtain the use of the airtime when requested. The
Company believes this has impaired the value of the broadcast
airtime.
The Company has also outstanding voting convertible preferred
stock, $1 par value with a stated value of $10 per share,
which is redeemable at $487,340.
<PAGE>
Other Stock Transactions
------------------------
In January 1995, the President of the Company and another
executive exercised certain of their options for common shares
for a total of 400,000 common shares at per share exercise
prices of $.63 (225,000 shares), and $1.00 (175,000 shares).
Part of the consideration paid for the options was the
cancellation of indebtedness due to the optionees.
In January 1996, the President and another executive exercised
a total of 250,000 shares of the Company's common stock at an
exercise price of $1.33, for a total of $332,500. The
consideration paid for the options was the cancellation of
indebtedness due to the optionees.
The Company, through a private placement, issued 1,575,000
shares of its common stock at $2.50 per share, an aggregate of
$3,937,500, evidenced by a one year 10% interest bearing
note. As of March 31, 1996, the Company received $3,107,722
from these notes. In addition, the Company issued warrants to
purchase up to 1,575,000 shares of its common stock at $5.00
per share. The warrants are exercisable after payment of the
note and all accrued interest. The expiration date is the
earlier of July 27, 1997 or upon a 50% change in stock
ownership due to a sale or merger.
Effective with the acquisition of the Company's subsidiary,
the Company issued to the officers of the subsidiary stock
options to purchase up to an aggregate of 100,000 shares at a
price of 75% of the fair market value of the stock on the date
exercised. Effective November 27, 1995, the Company issued
25,000 shares of the Company's common stock for $4.00 per
share in payment for salaries in the amount of $100,000.
Pursuant to a private placement dated January 24, 1996, the
Company issued 1,000,000 shares of common stock at $5.00 per
share for a total of $5,000,000. The Company received these
funds on February 26, 1996.
In addition, the company issued an additional 1,000,000 shares
of common stock at $5.00 per share to the same entity. These
shares are evidenced by a one year, 10% interest bearing note
in the amount of $5 million. Unless the note is paid in full,
these shares carry no voting rights or any other rights
normally associated with beneficial ownership. Further, upon
maturity, the Company has the option, at its sole discretion,
to acquire the shares in exchange for the cancellation of the
note. By agreement of the parties, the shares are subject to a
"stop transfer" order and may not be transferred without the
express written consent of the Company.
Pursuant to a contract, on March 8, 1996 an individual
exercised stock options totalling 10,000 shares of the
Company's common stock at an exercise price of $3.25 per share
for a total of $32,500.
<PAGE>
AFFINITY TELEPRODUCTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1996 AND SEPTEMBER 30, 1995
NOTE 6 - INCOME TAXES
- - ----------------------
The Company provides for the tax effects of transactions
reported in the consolidated financial statements. The
provision, if any, consists of taxes currently due plus
deferred taxes related primarily to differences between the
basis of assets and liabilities for financial and income tax
reporting. The deferred tax assets and liabilities, if any,
represent the future tax return consequences of those
differences, which will either be taxable or deductible when
the assets and liabilities are recovered or settled. As of
March 31, 1996 and September 30, 1995, the Company had no
material current tax liability, deferred tax assets, or
liabilities.
As of March 31, 1996, the Company had available, for income
tax purposes, net operating loss carryforwards expiring as
follows:
September 30, 2007 $ 24,500
September 30, 2008 $ 27,000
September 30, 2009 $ 558,000
September 30, 2010 $1,100,000
Deferred income tax provisions, resulting from differences
between accounting for financial statement purposes and
accounting for tax purposes were as follows:
MARCH 31, SEPTEMBER 30,
1996 1995
-------- ------------
Tax benefit from
net operating losses $(780,240) $(581,000)
Valuation allowance (780,240) (581,000)
Tax effects of timing
differences - -
========= =========
NOTE 7 - COMMITMENTS AND CONTINGENCIES
- - ---------------------------------------
Employment Contracts
--------------------
On October 19, 1995, the Company entered into new employment
contracts with two key employees. The contracts provide for
base salaries plus new stock options to purchase 775,000
shares of common stock. These key employees also have
additional outstanding options to purchase 975,000 shares of
common stock in which compensation in the amount of $540,000
was recorded and is being amortized over a five year period.
The 1,750,000 aggregate stock options are exercisable from
October 1, 1995 to 1999 at prices ranging from $1.33 to $2.00
per share.
<PAGE>
AFFINITY TELEPRODUCTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1996 AND SEPTEMBER 30, 1995
---------------------------------------------
NOTE 8 - JOINT VENTURE AND LOAN RECEIVABLE
- - -------------------------------------------
During the year ended September 30, 1995, the Company
commenced negotiations to form a limited partnership with the
Krofft Entertainment Group to generate revenues from the
distribution of certain Krofft motion pictures and television
projects. As of March 31, 1996, the Company's investment in
the limited partnership was $500,000. In addition, the Company
has loaned the Krofft Entertainment Group $600,000 as of March
31, 1996.
<PAGE>
PART I - FINANCIAL INFORMATION (Cont.)
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION
Results of Operation
The consolidated revenues of Affinity Teleproductions, Inc. increased
89% from $178,900 for the quarter ended March 31, 1995 compared to $337,856 for
the quarter ended March 31, 1996. Cost of revenues increased 777% compared to
the same period in 1995. As a result, gross profit as a percentage of revenues
decreased from 60% in the period ending March 31, 1995 to (84%) in the current
quarter.
Selling, General, and Administrative Expenses decreased 18% for the
three month period ending March 31, 1966 from the same period in 1995. As a
result of increase in Costs of Revenue and Selling, General, and Administrative
Expenses, the Company suffered a net loss for the three months ended March 31,
1996 of $722,559 or $(.10) per share compared to a net loss of $336,919 or
$(.08) per share for the three months ended March 31, 1995.
For the six months ended March 31, 1996, the consolidated revenues of
the Company increased 332% as compared with the six months ended March 31, 1995.
The cost of revenues during this period increased 470% over the corresponding
period in 1995. As a result, gross profit as a percentage of revenues decreased
from 39% for the six month period ending March 31, 1995 to 19% for the six
months ended March 31, 1996.
Selling, General, and Administrative Expenses increased 29% for the
six month period ending March 31, 1996 as compared with the same period 1995.
This increase is attributed to the costs associated with the production of both
television projects incurred by the Company during the three months ended
December 31, 1995. As a result of the increase in expenses described above, the
Company suffered a net loss of $586,351 or $(.09) per share for the six month
period ending March 31, 1996, up from $622,148 or $(.15) per share for the
corresponding period 1995.
For the three month period and six month periods ended March 31, 1996,
the increase in revenues can generally be attributed to revenues generated by
the company's television project, "EdenQuest," and all of its ancillary sources
of income. The Company has produced three original episodes, and a compilation
("best of") of its popular television series. The third and fourth episodes have
not yet been telecasted on free television or basic cable, as the Company is
currently negotiating with
<PAGE>
several major networks for the licensing of the entire series. The Company
currently derives income for this project from five different sources: 1)
domestic syndication, 2) foreign sales, 3) pay-per-view, 4) merchandising, and
5) foreign sales.
The significant increase in costs of revenues over the three month
period ending March 31, 1996 can be attributed to several factors. First, the
Company pays its television distributors a commission based on sales of
"EdenQuest." Therefore, as sales in "EdenQuest" increase so will the commissions
paid. Second, the Company delayed the launch of the second season of its
"Contemporary Collectibles Show," due to a variety of factors, including the
uncertainty involving the availability of its satellite air time. This resulted
in a one-time, non-recurring charge of approximately $125,000 that the Company
had committed to the Lifetime Channel. Further, the Company paid off all of its
equipment leases at Broadcast Edit, Inc. its wholly-owned subsidiary, with
pre-payment penalties present on many of the leases. Finally, the Company has
experienced exceptionally high professional expenses during this period as it
seeks to position itself to make acquisitions and expand its operations into
feature films over the next six months.
Additionally, the Company terminated its merger talks with Sid & Marty
Krofft Productions, Inc. during this three month period. After completing its
due diligence, management decided that it was not in the best interests of the
Company's shareholders to move forward with the merger as originally outlined.
Management did offer the Krofft's an alternative proposal that would have better
protected Affinity shareholders. The Krofft's declined this revised offer.
Consequently, the Company is taking a one-time charge of $175,000, which are
costs the Company expended in association with the contemplated merger.
In March of 1995, the Company entered into an agreement to form a
strategic alliance with Krofft Entertainment, Inc. for the possible development
of "Land of the Lost," one of their flagship series, into a theatrical film by
Disney, a home video series, and two children's series for major television
networks. The Company has contributed $500,000 towards this limited partnership.
In addition, the Company loaned the Kroffts $600,000 on an unsecured basis
during the due diligence process. The Company expects that this amount will be
repaid in full.
The strategic alliance with Krofft will continue. The net revenues
generated will be distributed 80% to the Company and 20% to the Kroffts until
the Company receives a 12% per year return on its investment. After this return,
the remaining net revenues generated will be distributed 25% to the Company and
75% to the Kroffts. The Kroffts have the right within the first eighteen months
to terminate the agreement and reimburse the Company its initial investment plus
a call premium. Disney has signed an
<PAGE>
option to develop "Land of the Lost" into a film, and a second draft of the
script has been completed. The Company does not expect to derive any significant
revenues from this project for at least one year.
Under the terms of the Agreement of Sale dated May 8, 1993 (the
"Agreement") between Thoro-Cap, Inc., now Affinity, and Access America, Inc.,
the Company sold one hundred thousand shares of convertible preferred stock to
Access America, an unrelated third party, in return for five million dollars
($5,000,000) worth of satellite broadcast air time. The Company has carried the
satellite time as an asset on its books since it became a reporting Company in
February of 1994.
In April 1996, the Company exercised its right to rescind the Agreement
due to the fact that the Company could not obtain use of the satellite time when
requested and therefore believes that the value of such air time has been
impaired. As a result of the recission, the one hundred thousand shares of
preferred stock held by Access America were immediately cancelled by the
Company. This has resulted in a decrease in shareholder equity in the amount of
$5,000,000. Assets have decreased in the amount of $4,657,062 as a result of the
rescission. Moreover, in reliance on Access America's contractual undertaking,
Affinity has sold broadcast time which it now cannot produce. As a result, the
Company is obligated to deliver refunds to purchasers of the satellite time.
Such obligations account for $421,575 of the $549,447 of accounts payable as of
March 31, 1996.
Liquidity and Capital Resources
- - -------------------------------
The significant increase in cash flow for the three months ended March
31, 1996 as compared with the same period ending December 31, 1994 is primarily
attributable to the proceeds of the sale of common stock of the Company.
Pursuant to a private placement dated January 24, 1996, the Company sold
1,000,000 shares of common stock at $5.00 per share for a total of $5,000,000.
The Company received these funds on February 26, 1996.
In addition the Company issued an additional 1,000,000 shares of common
stock at $5.00 per share. These shares are evidenced by a one year, 10% interest
bearing note in the amount of $5 million (the "Note"). Unless the Note described
above is paid in full, these shares carry no voting rights or any other rights
normally associated with beneficial ownership. Further, upon maturity, the
Company has the option, at is sole discretion, to acquire the shares in exchange
for the cancellation of the note. By agreement of the parties, the shares are
subject to a "stop transfer" order and may not be transferred for a period of
twelve months from the closing of the transaction without the express written
consent of the Company. The Company does not
<PAGE>
foresee any circumstances under which such consent would be forthcoming.
The completion of this private placement has increased the Company's
cash position from $146,834 at September 30, 1995 to $4,291,098 as of March 31,
1996. As a result of the Company's better cash standing and the outstanding
notes that it holds, the Company's interest income has increased to $99,212 for
the period ending March 31, 1996 as compared to an interest expense $11,834 in
the corresponding period of 1995.
The Company anticipates that cash flow from operations, supplemented by
sales of restricted common stock via private placements and loans will be
adequate to meet the Company's expected needs for fiscal 1996.
In January 1996, the president of the Company and another executive
each exercised certain of their options to purchase 250,000 shares of common
stock at a per share exercise price of $1.33. The exercise of the stock options
resulted in a reduction of notes payable in the amount of $332,500.
Other than as discussed above, the Company is not aware of any known
trends or uncertainties that have or are reasonably likely to have a material
effect on the Company's liquidity, capital resources, or operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
None.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on May 3, 1996
containing disclosure related to Item 2 of Form 8-K
(Acquisition of Disposition of Assets): 1)
1) Impairment of Satellite Broadcast Air Time
2) Common Stock Transactions
No financial statements were included in this report.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the Registrant caused this report to be signed on its behalf
by the undersigned thereunto duly authorized on this 20th day
of May 1996.
AFFINITY TELEPRODUCTIONS, INC.
BY: s/ William J. Bosso
------------------------------------
William J. Bosso, President
In accordance with the Exchange, this Report has been signed
below by the following persons on behalf of the Registrant,
and in the capacities and on the date indicated.
SIGNATURE DATE
--------- ----
s/ William J. Bosso
-----------------------------------
William J. Bosso May 20, 1996
President, Secretary, Director
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<PERIOD-START> OCT-01-1995
<PERIOD-END> MAR-31-1996
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