UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1995
Commission file Number 0-15435
First Entertainment, Inc.
(Exact name of registrant as specified in its charter.)
Colorado 84-0974303
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1380 Lawrence Street, Suite 1400 80204
(Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code:
(303) 592-1235
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 [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practical
date:
Common Stock, $1 Par Value - 10,362,570 shares as of
September 30, 1995.
<TABLE>
PART I. - FINANCIAL INFORMATION
FIRST ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(Unaudited)
<CAPTION>
Three months ended Nine months ended
September 30 September 30
1995 1994 1995 1994
<S> <C> <C> <C> <C>
REVENUE:
Live Entertainment $ 236,642 $ 389,318 $ 752,931 $ 1,190,824
Copyrighted properties 322,753 0 1,096,768 0
Radio 177,877 157,839 498,603 461,006
Video 25,947 0 30,967 74,426
Other 12,667 8,490 34,515 36,970
________ ________ _________ _________
775,886 555,647 2,413,784 1,763,226
COSTS AND EXPENSES:
Cost of sales-live
entertainment 215,956 356,841 653,120 1,094,860
Cost of sales-copyrighted
properties 132,597 0 498,668 0
Cost of products sold-
radio 132,145 128,266 369,147 351,867
Cost of products sold-
video 163 11,438 112,691 173,768
Depreciation and
amortization 89,201 80,315 290,743 254,633
Selling,general and
administration 708,596 266,052 2,112,377 574,062
_________ _________ ___________ _________
1,278,658 842,912 4,036,746 2,449,190
LOSS FROM OPERATIONS (502,772) (287,265) (1,622,962) (685,964)
OTHER INCOME (EXPENSE)
Interest expense (50,780) (45,054) (105,287) (140,964)
Gain on restructuring
of debt 0 0 0 7,045
Other 2,138 806 3,738 1004
________ _______ _________ ________
NET LOSS BEFORE MINORITY
INTEREST (551,414) (331,513) (1,723,298) (818,879)
MINORITY INTEREST IN NET-
LOSS OF SUBSIDIARY 20,900 0 78,950 0
_________ _________ ___________ _________
NET LOSS (530,514) (331,513) (1,643,135) (818,879)
DIVIDEND REQUIREMENTS ON
PREFERRED STOCK (10,500) 0 (31,500) 0
_________ _________ ___________ _________
NET LOSS APPLICABLE TO $(541,014) $(331,513)$(1,674,635) $(818,879)
COMMON STOCK
NET LOSS PER COMMON SHARE $(.05) $(.05) $(.17) $(.13)
WEIGHTED-AVERAGE NUMBER OF
SHARES OUTSTANDING 9,995,510 6,377,018 9,995,510 6,049,465
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
FIRST ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
September 30, 1995 December 31, 1994
______________ ______________
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 258,687 $ 185,888
Trade accounts receivable,
net of allowance 326,811 549,834
Accounts receivable,
employees 0 6,088
Accounts receivables other 14,542 18,995
Notes receivable, related
parties 275,590 200,000
Inventories 1,737,785 1,881,964
Other current assets 107,077 108,869
_________ _________
2,720,492 2,951,638
PROPERTY AND EQUIPMENT
Master Tape Library 1,497,399 1,506,414
Machinery, production and
other equipment 1,084,779 855,687
Furniture and equipment 303,547 280,058
Leasehold improvement 245,274 245,274
Film cost inventory 95,928 96,532
_________ _________
3,226,927 2,983,965
Less Accumulated Depreciation (2,598,187) (2,369,651)
__________ _________
628,740 614,314
OTHER ASSETS
License and goodwill, net
amortization 1,086,441 1,150,169
Investment and other 125,000 125,000
Other noncurrent assets 30,314 117,076
__________ __________
1,241,755 1,392,245
__________ __________
TOTAL ASSETS $4,590,987 $4,958,197
========== ==========
</TABLE>
<TABLE>
FIRST ENTERTAINMENT, INC.
BALANCE SHEET, CONTINUED
(Unaudited)
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities
Notes payable and current
portion of long term debt $ 1,700,467 $ 1,929,838
Notes payable, related
parties 0 13,167
Bank Overdraft 0 40,039
Accounts payable 536,480 875,723
Accrued interest 340,747 341,069
Accrued liabilities 215,927 231,075
Accrued liabilities, related
parties 71,553 34,496
_________ _________
Total Current Liabilities 2,865,174 3,465,407
Long Term Debt, net of
current portion 17,197 51,763
MINORITY INTEREST 0 78,950
Stockholder's Equity
Preferred stock, $.001 par value;
authorized 5,000,000 shares;
Class A preferred stock, 10,689
shares issued 10 13
Class B preferred stock, 231,975
shares issued 232 232
Common stock, $.008 par value;
authorized 50,000,000 shares;
10,362,570 shares issued 82,900 61,436
Additional Paid in Capital 11,124,673 8,822,999
Accumulated deficit (8,383,997) (6,709,362)
Deferred compensation (312,378) (10,417)
Investment in Polton (318,000) (318,000)
Treasury stock, at cost (484,824) (484,824)
_________ _________
1,708,616 1,300,641
_________ _________
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 4,590,987 $ 4,958,197
=========== ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
FIRST ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED September 30, 1995 AND 1994
(Unaudited)
<CAPTION>
1995 1994
<S> <C> <C>
Cash Flow From Operating Activities:
Net Income (loss) $ (1,643,135) $ (818,879)
Adjustments To Reconcile Net
Loss to Net Cash from Operations
Loss on sale of Investments 118,310
Minority interest (78,950)
Depreciation and amotization 292,264 254,633
Common Stock options and
Common Stock issued for service 561,610 26,764
Changes in operating assets and
liabilities (increase) decrease in
Receivables 233,564 (237,638)
Inventories 144,179 (70,886)
Other current assets 1,792 (32,954)
Other assets 0 53,048
Increase (decrease) in
Accounts payable (146,867) 158,994
Accrued Liabilities (81,466) (80,973)
Bank Overdraft (40,039)
_________ _________
Net Cash Used In Operating
Activities (757,048) (467,325)
_________ _________
Cash Flow From Investing Activities:
Proceeds from sale of investment 500,000
Capital expenditures-net (156,202) (227,739)
_________ __________
Net Cash Provided By (used in)
Investing Activities (156,202) (272,261)
Cash Flow From Financing Activities:
Advances to affiliates (75,590)
Principal payments on debt (50,261) (105,451)
Proceeds from issuance of
common stock 1,111,900 433,051
__________ _________
Net Cash Provided by (used in)
Financing Activities 986,049 327,600
__________ __________
Net Increase (Decrease) in Cash 72,799 132,536
Cash and Cash Equivalents,
beginning of period 185,888 18,874
__________ __________
Cash and Cash Equivalents,
End of Period $ 258,687 $ 151,320
========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
FIRST ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1995
1.General:
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and in accordance with instructions to Form 10-QSB and
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The accompanying financial information is unaudited
but includes all adjustments (consisting of normal recurring accruals) which,
in the opinion of management, are necessary to present fairly the information
set forth. The consolidated financial statements should be read in
conjunction with the notes to the consolidated financial statements which are
included in the Annual Report on Form 10-KSB of the Company for the fiscal
year ended December 31, 1994.
The results for the interim period are not necessarily indicative of results
to be expected for the fiscal year of the Company ending December 31, 1995.
The Company believes that the nine month report filed on Form 10-QSB is
representative of its financial position and its results of operations and
changes in cash flows for the periods ended September 30, 1995 and 1994.
2. Stockholders Equity
In January, 1995, the Company sold 500,000 shares of its resticted common
stock in a private placement, resulting in net proceeds of $134,500.
During the nine months ended September 30, 1995 the Company granted stock
options for 1,500,000 shares of common stock at exercise prices ranging from
$.50 to $1.50.
During the nine months ended September 30, 1995, the Company issued 550,000
shares of common stock for consulting services valued at approximately
$530,320.The common stock issued for consulting services were registered in
S-8 registration statements and were free trading upon issuance.
During the nine months ended September 30, 1995, common stock options were
exercised resulting in a issuance of 1,350,000 shares of common stock and
proceeds to the Company of $977,500.
During the nine months ended September 30, 1995, the Company issued 133,800
shares of common stock in settlement of account payable of one of its
subsidiaries.
During the nine months ended September 30, 1995 the Company issued 146,500
shares of common stock in settlement of notes payable and accrued interest.
3. Licensing Agreement
In February, 1995, the Company obtained world wide licensing and
merchandising rights for the Milwaukee based Indian Motorcycle Company from
Australian businessman Maurtis Haymin-Langridge. The licensing and
merchandising rights were for a period of five years with an option period for
an additional three years. In July 1995, the Company received permission from
the bankruptcy trustee to commence licensing as a result of Indian Motorcycle
Company obtaining financing in accordance with the bankruptcy settlement, the
Company agreed to guarantee payments of up to $2.3 million to bankruptcy
creditors.
On October 23, 1995 in a hearing before Bankruptcy Court Judge Henry Boroff, in
Worcester, Massachusetts, Indian Motocycle Manufacturing Company Inc.(IMMCI,
the Chapter 11 Debtor) was converted to a Chapter 7 bankruptcy and all of its
assets, including the trademark assets, were transfered to the property of
the Chapter 7 estate. The effect of this decision was to put into question the
Company's previous licensing agreements.
The Chapter 7 trustee, now in control of the trademark rights, has entered
into a contract of sale of the Chapter 7 estate with MBL, Investements, Inc.
This sale is awaiting approval of the Court pursuant to Section 363 of the
Bankruptcy Act.
MBL Investments, Inc. has reached an agreement with the Company that if MBL
is successful in the purchase of the Trademark Assets from the Bankruptcy
Trustee, MBL will convey the licensing rights to the Company, previously
entered into with IMMCI and IMC.
4. Kodak Video Trips
In January, 1995 the Company was informed that Woodknapp and Company, the
Company's exclusive U.S. distributor of Video Trips, had ceased operations
and would no longer honor its contract with the Company. The Company has
negotiated the terms of a new licensing agreement with Kodak for use of Kodak
name and logo.
On July 11, 1995 the Company sighned a three year distribution agreement with
Fox Lorber whereby Fox Lorber will test the distribution of 12 video trip
titles in the North America. The Company will receive advance royalties of
$25,000 and will receive royalties of 7.5% of gross sales. Fox Lorber will
have the right to acquire the remaining 28 video trip titles and extend the
term of the agreement from three years to seven years with an additional
advance royalty payment of $58,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND PLAN OF OPERATION
For the three months ended and the nine months ended September 30, 1995 the
Company incurred losses of approximately $530,500 and $1,643,100,
respectively, compared to a loss of $331,500 and $818,900 for the three months
and nine months ended September 30, 1994, respectively. The increase in the
net loss in each quarter of 1995 as compared to 1994 is due to inclusion of
Image Marketing, a new majority owned subsidiary, and increased general and
administrative costs resulting from compensation expense recorded in
connection with the issuance of common stock and common stock options of
approximately $484,000. Image Marketing was acquired in September, 1994
therefore the quarter ended September 30, 1994 does not include any results of
operations of Image Marketing and for the nine months ended September 30,
1995, Image had a net loss of approximately $542,000.
Overall, revenues increased by approximately $650,000, from $1.8 million in
1994 to $2.4 million in 1995. Substantially all of the increase is from
copyrighted properties revenue which increased by approximately $1.1 million
as compared to the period ended September 30, 1994. Although radio sales
increased by approximately $37,000 and video sales decreased by approximately
$34,000. The reduction in video sales is due to the loss of the Company's
exclusive U.S. distributor in January, 1995. The decrease in live enter-
tainment revenues was due to the closure of the Tampa Comedy Works at the end
of January, 1995. The Tampa club was closed due to declining attendance.
Overall the industry has seen a decline in comedy club attendance over the past
two years across the country. The Denver Comedy Club though has been able to
retain attendance even in lieu of the industry decline.
As a result of the decline in video sales and live entertainment sales in
1995, cost of goods sold for video and live entertainment also declined
proportionate to the decline in revenues.
Cost of goods sold radio, increased only slightly comparing 1995 to 1994.
Depreciation and amortization expense increased comparing 1995 to 1994 due
to shortening the amortization period of goodwill to ten years and the
inclusion of Image Marketing which had depreciation of $38,500 for the nine
months ended September 30, 1995.
General and administrative costs increased $1.5 million in 1995 as compared
to 1994. The major reason for the increase is due to compensation expense
recorded in the nine months of 1995 in the amount $484,000 in connection with
common stock and common stock options granted and inclusion of Image
Marketing which increased general and administration costs by $1 million. The
Company is continuing in its efforts to reduce over-head costs wherever
possible.
Interest expense is decreased slightly in 1995 over 1994 as a result of a
reduction in notes payable and long term debt.
Liquidity and Capital Resources
As of September 30, 1995, the Company had a working capital deficit of
approximately $144,700, an improvement of $369,100 over the working capital
deficit at December 31, 1994 of $513,800. The Company has current maturities
of long term debt and notes payable totaling $1.7 million that are due in 1995
and the Company is currently negotiating with the lenders to refinance the
loans with extended payment terms. The improvement in the working capital
deficit is the result of proceeds from sale of common stock of $1.1 million in
1995.
Net cash used in operations for 1995 was $757,048 as compared to $467,325 in
1994. The increase in cash used inoperating activities is primarily the
result of losses incurred by Image which was not included in results of
operations for the nine months ended September 30, 1994 because it was not
acquired until September 6, 1994. In the first nine months of 1995 the
Company has been successful in raising approximately $1.1 million in equity
financing which was used primarily to finance the net cash used in operations
and advances to affiliates of $75,000. In addition the Company has been able
to issue common stock for services thereby reducing the need for cash.
The Company's ability to continue as a going concern will largely depend
on its ability to generate working capital through debt or equity financing
and profitable operations. Working capital deficiencies have hindered the
Companies ability to fund certain business segments. Currently the Company
has bank debt of $1.7 million which is currently due and due later in 1995.
Working capital is needed to further develop the Kodak Video Trips and the
copyrighted properties lines of business. The copyrighted properties line of
business continues to loss money despite the Companys continued funding
efforts. The Company must decide if continued funding is appropriate or if
some other course of action is necessary. The creation and development of the
new Indian Motorcycle art, publishing, food, beverage, snacks, toys,
collectible and fashion products will require a significant capital infusion.
The likelihood of obtaining the necessary equity financing is uncertain at
this time.
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
None
Item 2: Changes in Securities
None
Item 3 Defaults upon Senior Securities
None
Item 4: Submission of Matters to a Vote of Security Holders
None
Item 5: Other Information
None
Item 6: Exhibits and Reports on Form 8-K
(A) Exhibits
None
(B) Reports on Form 8-K dated January 17, 1995 and February 27, 1995
were filed during the period ended September 30, 1995.
FIRST ENTERTAINMENT, INC.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of
1934, the registrant has duly cause this report to be signed on its
behalf by the undersigned thereunto duly authorized.
FIRST ENTERTAINMENT, INC.
Registrant
November 10, 1995 A.B. Goldberg
Date A.B. Goldberg
Principal Executive Officer
