SECURITIES AND EXCHANGE COMMISSION
Washington ,D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1996
Commission File Number 0-15435
FIRST ENTERTAINMENT, INC.
(Exact name of Company as specified in its charter)
COLORADO 84-0974303
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1380 Lawrence Street, Suite 1400, Denver, Colorado 80204
(Address of principal executive offices) (Zip code)
Company's telephone number, including area code
(303) 592-1235
(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check whether the Company
(1) has filed all reports required to be 1) Yes X
filed by Section 13 or 15(d) of the __
Securities Exchange Act of 1934
during the preceding 12 months 2) Yes X
(or for such shorter period that
the Company was required to file
such reports), and(2) has been subject
to such filing requirements for
the past 90 days.
Indicate the number of shares outstanding of each of the
issuer's classes of stock, as of the latest practicable
date.
Number of Shares
Class Outstanding at May 3, 1996
Common stock, $.008 par value 3,790,044 shares
Class A Preferred Stock, $.001 par value 10,689 shares
Class B Preferred Stock, $.001 par value 231,976 shares
Class C Preferred Stock, $.001 par value 575,000 shares
FIRST ENTERTAINMENT, INC.
FORM 10-QSB QUARTERLY REPORT
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
Consolidated Balance Sheet as of March 31,1996
(Unaudited) and December 31, 1995
Consolidated Statements of Operations (Unaudited)
for three months ended March 31, 1996 and 1995
Consolidated Statements of Cash Flows (Unaudited)
for the three months ended March 31, 1996 and 1995
Notes to Consolidated Financial Statements (Unaudited)
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Items 1 through 6
SIGNATURE
<TABLE>
<CAPTION>
FIRST ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
1996 1995
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 79,923 $ 71,488
Trade accounts receivable,
net of allowance 83,413 89,203
Accounts receivables other 160,538 145,778
Note receivable, related party 0 100,000
Inventories 1,023,762 22,234
Other current assets 16,579 18,911
--------- ------
1,364,215 447,614
PROPERTY AND EQUIPMENT
Master tape library 1,497,399 1,497,399
Machinery, production and
other equipment 519,505 519,505
Radio station land and
building 425,000 0
Furniture and equipment 167,646 168,449
Leasehold improvement 170,213 170,213
Film cost inventory 103,428 103,428
Condominium 57,626 57,626
Transportation 37,370 37,370
--------- --------
2,978,187 2,553,990
Less accumulated depreciation 2,215,608 2,162,103
---------- ---------
762,579 391,887
OTHER ASSETS
Licensing and
distribution rights 1,700,000 0
Goodwill, net of
amortization 876,811 892,441
Other noncurrent assets 0 956
--------- --------
2,576,811 893,397
TOTAL ASSETS $4,703,605 $1,732,898
========== ==========
</TABLE>
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
LIABILITIES AND STOCKHOLDERS' EQUITY (Deficit):
<S> <C> <C>
CURRENT LIABILITIES
Notes payable and current
portion of long term debt $ 1,043,950 $ 923,048
Notes payable, related parties 0 13,167
Accounts payable 55,189 63,268
Accrued interest 299,240 325,185
Accrued liabilities 76,757 122,830
Net liabilities of
discontinued operations 0 297,565
--------- ---------
Total current liabilities 1,475,136 1,745,063
LONG TERM DEBT, NET OF
CURRENT PORTION 836,042 54,281
------- ------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.001 par value;
authorized 5,000,000 shares;
Class A preferred stock,
10,689 shares issued 10 10
Class B preferred stock,
231,976 shares issued 232 232
Class C preferred stock,
575,000 shares issued 575 0
Common stock, $.008 par value;
authorized 6,250,000 shares;
3,790,044 and 2,361,544
shares issued 30,320 21,052
Capital in excess of
par value 13,429,988 11,227,696
Accumulated deficit (10,355,120) (10,567,547)
Deferred compensation (228,754) (263,065)
Treasury stock, at cost (484,824) (484,824)
----------- ----------
2,392,427 (66,446)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY (DEFICIT) $4,703,605 $1,732,898
</TABLE>
"See accompanying notes to consolidated financial
statements."
<TABLE>
<CAPTION>
FIRST ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months For the three months
ended March 31, ended March 31,
1996 1995
<S> <C> <C>
REVENUE:
Live Entertainment $ 330,225 $ 275,422
Radio 177,940 160,469
Video 583 3,920
Other 6,136 15,199
--------- --------
514,884 455,010
COSTS AND EXPENSES:
Cost of sales
live entertainment 263,364 254,204
Cost of products sold
radio 143,982 118,617
Cost of products sold
video 166 4,244
Depreciation and
amortization 71,634 89,648
Selling, general and
administrative 273,999 371,634
-------- --------
753,145 838,347
OPERATING LOSS FROM
CONTINUING OPERATIONS (238,261) (383,337)
OTHER INCOME (EXPENSE)
Interest expense (28,114) (40,769)
Other 22,059 492
LOSS FROM CONTINUING
OPERATIONS (244,316) (423,614)
DISCONTINUED OPERATIONS
Loss from operations of
discontinuance of Image (28,570) 238,967
Gain on disposal of Image 485,313 0
------- -------
NET INCOME (LOSS) $ 212,427 $ (662,581)
========= ===========
GAIN (LOSS) APPLICABLE TO COMMON STOCK
PER SHARE DATA:
Net income (loss) per share
continuing operations $ (.09) $ (.20)
Net income (loss) per share,
discontinued operations .17 $ (.12)
---------- ----------
Net income (loss) per
common share $ .08 $ (.32)
========= ==========
WEIGHTED-AVERAGE NUMBER OF
SHARES OUTSTANDING $2,660,794 $2,084,958
========== ==========
</TABLE>
"See accompanying notes to consolidated financial
statements."
FIRST ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
For the For the
three months three months
ended March 31, ended March 31,
1996 1995
<S> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income (loss) $ 212,427 $ (662,581)
Adjustments to
reconcile net income
(loss) to net cash
from operations
Depreciation and
amortization 71,634 91,362
Common stock
options issued 0 94,841
Common stock
issued for services 71,446 117,250
Gain on disposal of Image (435,307) 0
Gain on debt extinquishment (21,341) 0
Changes in operating
assets and liabilities
(Increase)
decrease in
Receivables 91,030 21,249
Inventories 1,528 (2,508)
Other current
assets 2,332 (2,614)
Other assets 956 (183,621)
Increase (decrease) in
Accounts payable (8,079) (45,539)
Accrued Liabilities (11,998) 173
Bank Overdraft 0 (18,100)
------ ------
Cash provided by
discontinued
operations 72,168 0
------ ------
NET CASH PROVIDED BY (USED)
IN OPERATING ACTIVITIES: 46,795 (360,694)
------ --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital
expenditures net 0 (15,669)
Investments
and other 803 (8,210)
Cash used in
discontinuing operations 0 0
--- ------
NET CASH PROVIDED BY
(USED IN) INVESTING
ACTIVITIES 803 (23,879)
--- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments
on debt (39,163) (60,715)
Proceeds from
issuance of common
stock 0 259,400
Cash used in
discontinuing
operations 0 0
------- -------
NET CASH PROVIDED BY
(USED IN) FINANCING
ACTIVITIES (39,163) 198,685
-------- -------
NET INCREASE
(DECREASE) IN CASH 8,435 (185,888)
CASH AND CASH
EQUIVALENTS, BEGINNING
OF PERIOD 71,488 185,888
CASH AND CASH
EQUIVALENTS,
END OF PERIOD $ 79,923 $ 0
========= ========
</TABLE>
"See accompanying notes to consolidated financial
statements."
FIRST ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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,
1995.
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, 1996. The Company believes
that the three 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
March 31, 1996 and 1995.
2. Stockholders Equity
On March 31, 1996 the Company has acquired certain assets
from Balzac, Inc. ("Balzac"), a private company which
manufactures and distributes toys, including a product line
of toy balls. These assets consist of inventory and contact
rights. These rights consist of the following 1. Atlanta
Distributorship for the Olympics; 2. Jason Carson Employment
Agreement; 3. Interest in the Joseph Gabriel Secrets of
Magic; 4. Distribution of Balzac Inc. in Japan (Per Mitsui
Agreement); %. The World of Balzac animated TV show, as
presently covered by the Second City Agreement; and 6. five
additional Balzac revenues, the locations to be determined
by Balzac over the next 18 months.
In exchange for the inventory and the above-named rights,
The Company has issued 1,100,000 shares of its restricted
common stock. Further, in consideration of the acquisition,
the Company agreed to grant: stock options to Balzac to
purchase 750,0000 common shares of the Company at a price of
$11.00, excercisable for a period of five years from the
date of grant; and, a stock option to Balzac to purchase
750,000 common shares of the Company at a price of $19.00,
exercisable for a period of five years from that date of the
grant. In addition, the Company and Balzac agreed to
negotiate additional stock options for Balzac to purchase
750,000 common shares of the Company at a price of $28.00
and to purchase 750,000 common shares of the Company at a
price of $38,00, at such time and upon such terms and
conditions as the parties may mutually agree. Company
agreed that it will not enter into any agreement, including
but not limited to the dilution of its common shares, or any
other action that may materially affect the common shares of
the Company without first obtaining the written consent of
Balzac, which consent shall not be unreasonable without
first attaining the written consent of Balzac, which consent
shall not be unreasonable withheld. If and whenever
additional common shares shall be issued by the Company,
then the number of common shares subject to the options
herein shall be proportionately adjusted so that Balzac's
relative position in the Company will not be diluted.
Finally, as a part of this Agreement, Balzac shall have the
right to name two persons to the Company's Board of
Directors as long as Balzac owns any common shares in the
Company. In addition, the Company acquired an exclusive
license agreement for the sale of Balzac products in
Australia for $800,000 which is payable over five years
based upon a formula of 60% of net profits from the sale of
Balzac products.
Effective March 31, 1996 the Company entered into a Purchase
Agreement with Scott Kajiya and Jamie Ruiz (the Sellers)
whereby the Company will acquire 55% of the issued and
outstanding common stock of Indian Motorcycle Company Japan,
a development stage company, and certain licensing rights in
exchange for 300,000 shares of the Company's Class C
Preferred Stock valued at $1.00 per share.
The licensing rights acquired allow the use of Indian
Motorcycle Trademark on various products including denim and
denim related products, shoes, boots, jewelry, accessories
and eyewear.
During the quarter ending March 31, 1996, the Company issued
58,500 shares of common stock for consulting services valued
at approximately 37,137. The common stock issued for
consulting services was registered in an S-8 registration
statement and were free trading upon issuance.
On April 9, 1996, the Board of Directors approved a one
share for four reverse stock split. Accordingly, all
references in the consolidated financial statements to
shares issued, shares outstanding, average number of shares
outstanding, and related per share amounts, prices, stock
option plan data have been restated to reflect the reverse
stock split.
3. Income Taxes
The tax effects of temporary differences and carryforward
amounts that give rise to significant portions of the
deferred tax assets and deferred tax liabilities as of
December 31, 1995 and 1994 are:
<TABLE>
<CAPTION>
Deferred tax assets: 1995 1994
<S> <C> <C>
Net operating loss
carryforwards $ 1,940,000 $ 985,000
Investments 25,000
Future deductible amounts for
stock issuance 74,000
Discontinued operations 322,000
Other 23,000 33,000
--------- -------
Total gross deferred tax assets 2,285,000 1,117,000
Less valuation allowance (2,229,000)(1,050,000)
----------------------
Deferred tax liabilities: 56,000 67,000
Property and equipment (56,000) (67,000)
-------- --------
Net deferred taxes $ -0- $ -0-
======== ==========
</TABLE>
A valuation allowance has been established to reflect
management's evaluation that it is more likely than not
that all of the deferred tax assets will not be realized.
The valuation allowance increased $1,179,000 in 1995 and
$172,000 in 1994.
As of December 31, 1995, net operating loss carryforwards
were approximately $9.7 million. Utilization of certain
portions of this amount is subject to limitations under the
Internal Revenue Code. Carryforward amounts expire at
various dates through 2010.
4. Discontinued Operations
On April 24, 1996 the Company and Harvey Rosenberg, a former
officer and director of the Company entered into a purchase
agreement for the sale of Image Marketing Group, Inc., the
Company majority owned subsidiary which had been accounted
for as discontinued operations.
Mr. Rosenberg purchased the Company's 1.986,376 share of
Image for $1,000. The sale resulted in a gain to the
Company in the amount of $485,313 since Image had negative
assets.
ITEM 2. MANAGEMENT DISCUSSION AND PLAN OF OPERATION.
Results of Operation
March, 1996 vs. March, 1995
For the quarter ended March 31, 1996 the Company incurred a
loss from continuing operations of $244,316 as compared to a
loss from continuing operations of $423,614 for the quarter
ended March 31, 1995. The decrease in the net loss for the
quarter ended March 31, 1996 as compared to March 31, 1995
is the result of an increase in live entertainment and
radio sales and a reduction of general and administrative
expenses. The overall gain from discontinued operations of
Image for the quarter ended March 31, 1996 is primarily the
result of the sale of Image which had negative assets at the
time of disposition.
Overall, revenues increased by approximately $59,000, from
$455,000 in 1995 to $515,000 in 1996. Substantially all of
the increase is from an increase in live entertainment
revenue of $55,000. Radio sales increased by approximately
$7,000, and video sales decreased by approximately $3,000.
The reduction in video sales is due to the loss of the
Company's exclusive U.S. distributor in January, 1995. The
increase in live entertainment revenues was due to increased
attendance as a result of big name acts in the first
quarter, some of whom performed on weeknights which boosted
revenues.
Cost of sales live entertainment increased as a result of an
increase in revenues but the percent of cost of sales to
sales decreased from 92% to 80% in the first quarter of
1996. Overall attendance increased substantially but the
labor cost remained the same which helped the overall gross
profit.
Cost of goods sold radio, increased approximately 25,000
comparing 1996 to 1995. The cost of sales radio increase
from 74% in 1995 to 81% in 1996. The Company is
aggressively pursuing additional advertising revenues in
1996 and increasing is promotions to obtain a larger market
share.
Depreciation and amortization have decreased comparing 1996
to 1995 due to a substantial portion of the Companies assets
were fully amortized at March 31, 1996. General and
administrative costs decreased, $100,000 in 1995 as compared
to 1994. The major reason for the decrease is due to a
reduction in the use of consultants and overall effort by
the Company to reduce costs. The Company is continuing in
its efforts to reduce overhead costs wherever possible.
Interest expense is decreased slightly in 1996 over 1995 as
a result of a reduction of long term debt in the fourth
quarter of 1995 and the first quarter of 1996.
Liquidity and Capital Resources
As of March 31, 1996, the Company had a working capital
deficit of approximately $110,900 , a decrease of $1,186,600
over the working capital deficit at December 31, 1995 of
$1,279,500. The primary reason for the decrease in the
working capital deficit is the acquisition of inventory of
$1,000,000 and the sale of the negative net assets of the
discontinued operations.
Net cash provided by operations for 1996 was $ 46,795 as
compared to net cash used in operations of $360,694 in 1995.
In the first quarter of 1995 the Company has been successful
in raising approximately $260,000 in equity financing which
was used primarily to finance the net cash used by
operations. 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 $1.9 million which is currently due
and due later in 1996. Working capital is needed to further
develop the Kodak Video Trips and the new acquired Balzac
lines of business. 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 24, 1996 and
February 9, 1996 were filed during the quarter ended March
31, 1996.
SIGNATURES
Pursuant to the requirements of the Exchange Act , the
Company has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
First Entertainment Inc.
DATE: May 15, 1996 A.B. Goldberg
A.B. Goldberg
President
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Mar-31-1996
<CASH> 79
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<PP&E> 2978
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0
1
<OTHER-SE> 2361
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</TABLE>
