SECURITIES AND EXCHANGE COMMISSION
FORM 10-QSB/A
Washington ,D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1996 Commission File Number 0-15435
FIRST ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
COLORADO 84-0974303
(State or other jurisdiction I.R.S. Employer Identification No.
of incorporation or organization)
1380 Lawrence Street, Suite 1400, Denver, Colorado 80204
(Address of principal executive offices) (Zip code)
Registrant'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 registrant (1) has filed 1) Yes X__
all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the 2) Yes X__
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.
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 June 30,1996
Common stock, $.008 par value 4,030,419 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 125,000 shares
<TABLE>
<CAPTION>
FIRST ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
1996 1995
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 67,774 $ 71,488
Trade accounts receivable,
net of allowance 79,382 89,203
Accounts receivables other 159,611 145,778
Notes receivable, related parties 0 100,000
Inventories 1,023,956 22,234
Other current assets 15,144 18,911
----------- --------
1,345,837 447,614
------------- ---------
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 167,568 168,449
Leasehold improvement 170,213 170,213
Film cost inventory 103,428 103,428
Condominium 57,626 57,626
Transportation 37,370 37,370
--------- ---------
2,978,109 2,553,990
Less Accumulated Depreciation 2,274,052 2,162,103
---------- ----------
704,057 391,887
---------- -----------
OTHER ASSETS
License and distribution rights,
net of amortization 1,611,181 892,441
Other noncurrent assets 0 956
---------- ----------
1,661,181 893,397
---------- ---------
TOTAL ASSETS $3,711,075 $1,732,898
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
<S> <C> <C>
CURRENT LIABILITIES
Notes payable and current
portion of long term debt $1,063,949 $ 923,048
Notes payable, related parties 0 13,167
Accounts payable 54,715 63,268
Accrued interest 327,755 325,185
Accrued liabilities 59,654 122,830
Net liabilities of discontinued
operations 0 297,830
------- ---------
Total current liabilities 1,506,073 1,745,063
---------- ---------
LONG TERM DEBT, NET OF CURRENT PORTION 808,800 54,281
---------- ---------
STOCKHOLDERS' EQUITY
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, 125,000
shares issued 125
Common stock, $.008 par value;
authorized 6,250,000 shares;
4,107,544 and 2,361,544 issued,
respectively 32,810 21,052
Capital in excess of par value 12,863,469 11,227,696
Accumulated deficit (10,794,204) (10,567,547)
Deferred compensation (194,443) (263,065)
Treasury stock, at cost (484,824) (484,824)
----------- -----------
1,396,202 (66,446)
------------ -----------
Total liabilities and
stockholders equity $3,711,075 $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 ended For the six months ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
REVENUE:
Live Entertainment $ 290,306 $ 235,981 $ 620,531 $ 511,403
Radio 155,107 160,256 333,047 320,725
Video 54,581 765 55,164 4,685
Other 20,532 11,494 26,668 26,693
--------- ------- ------- ----------
520,526 385,508 1,035,410 863,506
--------- ------- --------- ----------
COSTS AND EXPENSES:
Cost of sales -
live entertainment 262,376 181,042 525,740 435,246
sold - radio 111,131 119,057 255,113 237,674
Cost of products
sold - video 7,287 12,800 7,453 17,044
Depreciation and
amortization 74,447 82,729 146,081 171,502
Selling, general and
administrative 376,100 445,249 650,099 702,073
-------- -------- ------- --------
831,341 840,877 1,584,486 1,563,539
--------- -------- --------- ----------
OPERATING LOSS FROM CONTINUING
OPERATIONS (310,315) (455,369) (549,076) (700,033)
OTHER INCOME (EXPENSE)
Interest expense (25,036) (29,172) (53,150) (69,941)
Other 360 646 22,419 2,203
------- -------- ------- --------
LOSS FROM CONTINUING
OPERATIONS (335,491) (483,895) (579,807) (767,771)
DISCONTINUED OPERATIONS
Income (Loss) from
operations of
discontinuance of
Image 0 41,548 (28,570) (337,157)
Gain on disposal of
Image 0 381,720
--------- --------- ------- ----------
NET INCOME (LOSS) $ (335,491) $(442,347)$(226,657)$(1,104,928)
============ ========== ======== ===========
INCOME (LOSS) APPLICABLE
TO COMMON STOCK
PER SHARE DATA:
Net Income (loss)
per share, continuing
operations (.09) (.17) (.18) (.28)
Net Income (loss)
per share,
discontinued
operations .01 .11 (.13)
Net Income (loss)
per common share (.09) (.16) (.07) (.41)
WEIGHTED-AVERAGE
NUMBER OF SHARES
OUTSTANDING 3,895,877 2,814,348 3,244,210 2,725,284
</TABLE>
"See accompanying notes to consolidated financial statements"
<TABLE>
<CAPTION>
FIRST ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the six months For the six months
ended June 30, ended June 30,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss) $ (226,657) $ (1,104,928)
Adjustments to reconcile
net income (loss) to
net cash from operations
Minority interest (58,050)
Depreciation and
amortization 146,081 175,228
Common Stock options
issued 94,841
Common Stock issued
for services 310,712 228,408
Gain on disposal of
Image (381,720)
Gain on debt
extinquishment (21,341)
Changes in operating
assets and liabilities
(Increase) decrease in
Receivables 95,988 200,117
Inventories (1,722) 143,168
Other current assets 3,797 20,838
Other assets 956 (43,411)
Increase (decrease) in
Accounts payable (8,553) (146,785)
Accrued Liabilities (39,265) (20,401)
Bank Overdraft 0 (40,039)
Net liabilities of
discontinued operations 185,757
---------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES: 64,033 (446,802)
----------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Capital expenditures - net (16,370)
Investments and other (29)
----------- --------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (16,341)
----------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Advances to affiliates (86,000)
Principal payments on debt (67,747) (181,742)
Proceeds from issuance
of common stock 646,400
---------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (67,747) 378,658
----------- --------
NET INCREASE (DECREASE) IN CASH (3,714) (84,485)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 71,488 185,888
CASH AND CASH EQUIVALENTS,
END OF PERIOD 67,774 $ 101,403
</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 six
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 June 30, 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); 5. The World of Balzac
animated TV show, as presently covered by the Second City
Agreement; and 6. five additional Balzac venues, 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 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 , 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
Board of Directors as long as Balzac owns any common shares in
the . 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.
During 1996, a dispute arose between the Company and Balzac where Balzac
asserted a violation of the Purchase Agreement. Balzac seized the inventory
valued at $1 million, which was collateral on the fixed obligation due under
the Australian Licensing Agreement, to satisfy the $800,000 obligation under
the Licensing Agreement. The Company asserted that Balzac had no right under
the Purchase Agreement or License Agreement to seize the inventory and apply
the proceeds against the note obligation under the License Agreement.
In April 1997, Balac and the Company entered into an agreement whereby Balzac
will buy back the Australian Licensing Agreement for $800,000 and will repay
the Company $200,000 which was the difference between the value of the seized
inventory and the obligation under the licensing agreement. The $1,000,000
will be repaid over forty months at 8% annum.
Effective March 31, 1996 the 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 in Japan on various products including denim and denim
related products, shoes, boots, jewelry, accessories and eyewear.
In Feburary, 1997 the Company and the Receiver agreed to the terms of a
settlement. The proposed Settlement Agreement calls for the Company to
relinquish all rights or claims to the Indian Motorcycle Trademark or the use
of the Trademark and any licensing rights. In addition, all claims by the
Receiver and the Company shall be released and the Company shall pay to the
Receiver approximately $114,000. All rights acquired from Scott Kajiya and
Jamie Ruiz for the use of the Indian Motorcycle Trademark in Japan are also
assigned to the Receiver.
The transactions described above relating to Balzac rights and Indian
licensing have been rescinded in the accompanying financial statements effective
from the date the transactions were entered into as if the transactions did
not occur.
During the quarter ending March 31, 1996, the Company issued
58,500 shares of common stock for consulting services valued at
approximately $37,137. During the quarter ended June 30, 1996,
the Company issued 167,500 shares of common stock for consulting
services valued at approximately $205,000. 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 spilt. 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:
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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 though 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 subsidiaries which had been accounted for as
discontinued operations.
Mr. Rosenberg purchased the Company's 1,986,376 shares of Image
for $1,000. The sale resulted in a gain to the Company in the
amount of $485,313 since Image had negative net assets.
5. Subsequent Events
On July 10, 1996 the Company acquired 60% of the issued and
outstanding shares of common stock of Power Media Communications
International, Inc. (PMCII) in exchange for 770,000 shares of the
Company's restricted common stock valued at approximately
$400,000. PMCII is a development stage company with various
rights and properties, which is acquired from The Original As
Seen On TV Company. The acquisition has been accounted for as a
purchase.
The Company intends to develop kiosks in major retail malls
throughout the country which sells products currently advertised
on television through informercials. The benefit to the Company
is that customers will purchase products they have seen on TV but
the product manufacturer and not the Company provides
substantially all of the advertising. The Company intends to
raise capital in a private placement to obtain adequate financing
to develop the kiosks, aquire inventory and provide working
capital.
ITEM 2. MANAGEMENT DISCUSSION AND PLAN OF OPERATION.
Results of Operation
June, 1996 vs. June, 1995
For the period ended June 30, 1996 the Company incurred a loss
from continuing operations of $579,807 as compared to a loss from
continuing operations of $767,771 for the period ended June 30,
1995. The decrease in the net loss for the quarter ended June 30,
1996 as compared to June 30, 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 period ended June 30, 1996 is
primarily the result of the sale of Image which had negative net
assets at the time of disposition.
Overall, revenues increased by approximately $172,000, from
$863,000 in 1995 to $1,035,410 in 1996. Live entertainment
revenue increased $109,000, radio sales increased by
approximately $12,000 and video sales increased by $50,000. 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. The
second quarter of 1996 was not as successful for live
entertainment as the first quarter but was substantially higher
than for the same period last year. Radio sales decreased from
$178,000 in the first quarter of 1996 to $155,000 in the second
quarter of 1996. Radio sales for 1996 are still 5% ahead of 1995.
Video sales increased by $50,000 in 1996 over 1995 as a result of
receipt of royalties for foreign sales from its foreign
distribution. Subsequent to June 30,1996 the Company sold its
foreign distribution rights to its foreign distributor for
$50,000.
Cost of sales live entertainment increased as a result of an
increase in revenues but the percent of cost of sales to sales
remained level at 85%. Overall attendance increased
substantially but the labor cost increased also.
Cost of goods sold radio, increased approximately $ 25,000
comparing 1996 to 1995. The cost of sales radio increase from
74% in 1995 to 77% in 1996. The Company is aggressively pursuing
additional advertising revenues in 1996 and increasing its
promotions to obtain a larger market share.
Depreciation and amortization have increased only slightly
comparing 1996 to 1995. General and administrative costs
decreased $50,000 in 1996 as compared to 1995. The major reason
for the decrease is due to a reduction in the use of consultants,
the reduction in leased office space 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 June 30, 1996, the Company had a working capital deficit of
approximately $160,236 , a decrease of $1,137,200 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 $ 64,033 as compared
net cash used in operations of $446,802 in 1995. The net cash
provided by operations in 1996 is the result of increased
revenues, collection of a $100,000 note receivable and $50,000
from foreign royalties for its video's and the issuance of common
stock for services which reduces the Company's capital
requirements. In 1995, the Company had been successful in raising
approximately $646,000 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, the
new acquired Balzac lines of business and the Indian Japan
opportunities. The likelihood of obtaining the necessary equity
financing needed to develop these opportunities 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.
Reports on Form 8-K dated April 19,996 were filed during
the quarter ended June 30,1996
Report on Form 8-K dated April 26,1996 were filed during
the quarter ended June 30,1996.
SIGNATURES
Pursuant to the requirements of the Exchange Act , the
Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
First Entertainment Inc.
DATE: August 14, 1996 /S/ A.B. Goldberg
A.B. Goldberg
President
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<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Jun-30-1996
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