SECURITIES AND EXCHANGE COMMISSION
Washington ,D.C. 20549
FORM 10-QSB/A
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1997 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 Identification No.
of incorporation or organization)
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 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 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 1, 1997
Common stock, $.008 par value 5,951,038 shares
Class A Preferred Stock, $.001 par value 10,689 shares
Class C Preferred Stock, $.001 par value 125,000 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 31,1997
(Unaudited) and December 31, 1996
Consolidated Statements of Operations (Unaudited)
for three months ended March 31, 1997 and 1996
Consolidated Statements of Cash Flows (Unaudited)
for the three months ended March 31, 1997 and 1996
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,
1997 1996
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 109,748 $ 62,856
Trade accounts receivable, net
of allowance 77,901 105,357
Accounts receivables other 255,366 218,010
Note receivable, affiliate 10,000 10,000
Inventories 55,458 51,282
Other current assets 16,304 18,176
- ----------------------------------------------------------------
524,777 465,681
----------------------------------------------------------------
PROPERTY AND EQUIPMENT
Master tape library and film costs 1,600,827 1,600,827
Equipment and furniture 794,296 770,566
Building and leasehold improvement 528,257 528,257
Land 125,000 125,000
- ------------------------------------------------------------------
3,048,380 3,024,650
Less accumulated
depreciation 2,443,956 2,399,175
- ----------------------------------------------------------------
604,424 625,475
- -------------------------------------------------------------------
OTHER ASSETS
License, net of accumulated
amortization 1,614,292 1,629,921
Goodwill, net of amortization 498,246 511,712
Other noncurrent assets 0 0
- ----------------------------------------------------------------
2,112,538 2,141,633
- ----------------------------------------------------------------
TOTAL ASSETS $ 3,241,739 $ 3,232,789
===================================================================
</TABLE>
[CAPTION]
"See accompanying notes to consolidated financial statements."
<TABLE>
<CAPTION>
FIRST ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, continued
(Unaudited)
March 31, December 31,
1997 1996
LIABILITIES AND STOCKHOLDERS'
EQUITY (Deficit):
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 57,600 $ 115,711
Accrued interest 333,326 324,805
Accrued liabilities 165,405 166,927
Accrued Bonuses 0 257,600
Notes payable and current
portion of long term debt 849,970 861,392
- -------------------------------------------------------------
Total current liabilities 1,405,301 1,726,425
- -------------------------------------------------------------
LONG TERM DEBT, NET OF
CURRENT PORTION 202,128 199,484
- ----------------------------------------------------------------
MINORY INTEREST 247,329 163,787
- ----------------------------------------------------------------
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,
no shares issued
Class C preferred stock
125,000 shares issued 125 125
Common stock, $.008 par value;
authorized 6,250,000 shares;
5,912,438 and 5,292,238
shares issued 47,300 42,338
Capital in excess of
par value 14,005,171 13,460,958
Accumulated deficit (12,167,617) (11,829,707)
Deferred compensation (13,183) (45,807)
Treasury stock, at cost (484,824) (484,824)
- --------------------------------------------------------------
1,386,982 1,143,093
- -------------------------------------------------------------
TOTAL LIABILITIES
AND STOCKHOLDERS EQUITY
(DEFICIT) $ 3,241,739 $ 3,232,789
<CAPTION>
"See accompanying notes to consolidated financial statements."
</TABLE>
<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,
1997 1996
<S> <C> <C>
REVENUE:
Live Entertainment $ 427,915 $ 330,225
Radio 167,347 177,940
Video 37,402 583
Retail 9,253 0
Other 11,331 6,136
- ---------------------------------------------------------------
653,248 514,884
- ---------------------------------------------------------------
COSTS AND EXPENSES:
Cost of sales -
live entertainment 337,767 263,364
Cost of products sold -
radio 119,345 143,982
Cost of products sold -
video 1,537 166
Cost of sales- retail 35,174
Depreciation and
amortization 73,877 71,634
Selling, general and
administrative 454,754 273,999
- ---------------------------------------------------------------
1,022,454 753,145
- ---------------------------------------------------------------
OPERATING LOSS FROM
CONTINUING OPERATIONS (369,206) (238,261)
OTHER INCOME (EXPENSE)
Interest expense (24,807) (28,114)
Other 40,291 22,059
- ---------------------------------------------------------------
LOSS FROM CONTINUING
OPERATIONS BEFORE
MINORITY INTREST (353,206) (244,316)
MINOITY INTREST IN LOSS
OF SUBSIDIARY 15,811
- -----------------------------------------------------------------
LOSS FROM CONTINUING
OPERATIONS (337,910) (244,316)
</TABLE>
<TABLE>
<CAPTION>
FIRST ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS, Continued
(Unaudited)
<S> <C> <C>
DISCONTINUED OPERATIONS
Loss from operations of
discontinuance of Image (28,570)
Gain on disposal of Image 403,908
- -------------------------------------------------------------
NET INCOME (LOSS) (337,910) $ 131,022
=============================================================
INCOME (LOSS) APPLICABLE
TO COMMON STOCK
PER SHARE DATA:
Net Income (loss) per share
continuing operations (.06) $ (.09)
Net Income (loss) per share,
discontinued operations .14
- -------------------------------------------------------------
Net Income (loss) per
common share (.06) $ .05
=============================================================
WEIGHTED-AVERAGE NUMBER OF
SHARES OUTSTANDING 5,679,205 2,660,794
=============================================================
<CAPTION>
"See accompanying notes to consolidated financial statements."
</TABLE>
<TABLE>
<CAPTION>
FIRST ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the three months For the three months
ended March 31, ended March 31,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss) $ (337,910) $ 131,022
Adjustments to reconcile net
income (loss) to net cash
from operations
Depreciation and
amortization 73,877 71,634
Minority interest (15,811) 0
Common stock issued
for services 324,199 71,446
Gain on disposal of Image (353,902)
Gain on debt extinquishment (21,341)
Changes in operating assets
and liabilities
(Increase) decrease in
Receivables (9,900) 91,030
Inventories (4,176) 1,528
Other current assets 1,872 2,332
Other assets 956
Increase (decrease) in
Accounts payable (58,101) (8,079)
Accrued Liabilities 6,999 (11,998)
Cash provided by
discontinued operations 72,168
- --------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES: (12,671) (46,795)
- ----------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures - net (23,730) 0
Investments and other 803
Cash used in discontinuing
operations 0
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (23,730) 803
- ----------------------------------------------------------------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Principal payments on debt (8,778) (39,163)
Proceeds from issuance of
common stock of subsidiary 98,351 0
Cash used in discontinuing operations 0 0
- ---------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 89,573 (39,163)
- ----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FIRST ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(Unaudited)
<S> <C> <C>
NET INCREASE (DECREASE) IN CASH 46,892 8,435
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 62,856 71,488
- -------------------------------------------------------------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 109,748 $ 79,923
===================================================================
<CAPTION>
"See accompanying notes to consolidated financial statements."
</TABLE>
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, 1996.
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, 1997. 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, 1997 and 1996.
2. Stockholders Equity
Indian Licensing
Effective March 31, 996, the Company entered into a Purchase
Agreement with certain individuals whereby the Company would 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. In connection with a
settlement agreement entered into with the Receiver for Indian
Motorcycle Manufacturing, Inc. In February, 1997, the Company
relinquished the rights acquired and the 300,000 shares of Class C
Preferred stock were returned to the Company.
The transaction described above relating to Indian Licensing have
been rescinded in the accompanying financial statements effective
from the date the transaction were entered into as if the
transactions did not occur.
Balzac, Inc.
In April 1996, the Company acquired certain assets of Balzac, Inc.
(Balzac) a private company which manufactures and distributes toys,
including a product line of toy balls. The assets and rights
acquired consisted of: an exclusive license for Australia, inventory
of Balzac toys and various other rights.
The exclusive license agreement for Australia was acquired for
$800,000 and was payable within five years based upon a formula of
60% of net profits from the sale of Balzac products in Australia.
The inventory and other assets were acquired by issuing 1,100,000
shares of the Company's restricted common stock valued at $1.6
million.
During 1996, a dispute arose between the Company and Balzac and
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 payable under the Licensing Agreement.
In April 1997, Balzac 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.
During the quarter ending March 31, 1997, the Company issued 200,500
shares of common stock for consulting services valued at
approximately $292,000. The common stock issued for consulting
services was registered in an S-8 registration statement and were
free trading upon issuance. In addition, the Company issued 420,000
shares of common stock for payment of accrued bonuses to certain key
employees and consultants.
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, 1996 and 1995 are:
<TABLE>
Deferred tax assets: 1996 1995
<S> <C> <C>
Net operating loss carryforwards $ 4,195,000 $ 3,325,000
Property and Equipment 42,000
Stock Bonuses 95,000
Litigation Settlement 43,000
Discontinued operations 595,000
Other 25,000 24,000
Total gross deferred tax assets 4,400,000 3,944,000
Less valuation allowance (4,400,000) (3,840,000)
Deferred tax liabilities:
Property and equipment (104,000)
- ---------------------------------------------------------------------
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 $560,000 in 1996 and $1,158,000 in
1995.
As of December 31, 1996, net operating loss carryforwards were
approximately $11.3 million. Utilization of certain portions of this
amount is subject to limitations under the Internal Revenue Code.
Carryforward amounts expire at various dates though 2011.
4. Letter of Intent
In January, 1997, a non-binding letter of intent was signed with
Enternet Corporation, an international marketer of informercial
products. Enternet has successfully combined international
wholesaling as well as the franchising of its retail kiosk concept
under the name TV to You. In addition, Ethernet operates the most
prominent As Seen On TV internet shopping site under the name As
On TV, offering a complete array of informercial products. This
potential acquisition fits in well with the development of The Best
of As Seen on TV in retail locations in the United States, combined
with Enternet International expertise and an internet web site. The
Company would issue 300,000 shares of common stock of the Company and
100,000 shares of ASOTV for 60% of Enternet. Consummation of the
acquisition is subject to a number of conditions including the
negotiation of definitive agreements, completion of due diligence and
approval by the Board of Directors of both companies. Due to the
contingencies involved, the Company is unable to predict if or when
the transaction will be consummated.
ITEM 2. MANAGEMENT DISCUSSION AND PLAN OF OPERATION.
Results of Operation
March, 1997 vs. March, 1996
For the quarter ended March 31, 1997 the Company incurred a loss from
continuing operations of $337,910 as compared to a loss from
continuing operations of $244,316 for the quarter ended March 31,
1996. The increase in the net loss for the quarter ended March 31,
1997 as compared to March 31, 1996 is the result of an increase in
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 net
assets at the time of disposition.
Overall, revenues increased by approximately $138,000, from $515,000
in 1996 as compared to $653,000 in 1997. Most of the increase is
from an increase in live entertainment revenue of $98,000 and video
sales of 37,000. Radio sales decreased by approximately $10,000. 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 first
quarter of 1996 was exceptional strong for live entertainment as
compared to historical results. The first quarter of 1997 has
surpassed 1996 and is our most profitable quarter to date. Radio
sales decreased due to weakening economy in Gillette and video sales
increased $37,000 due to the sale of the U.S. marketing rights to the
Company's exclusive distributor.
Retail is a new line of business which commenced December 1996 and
represents the sales of infomercial products in unmanned kiosks
located in major retail outlets. As a start-up business the sales
volume has not yet reached a break even point. The Company expects
this new line of business to be profitable by the third or fourth
quarter in 1997.
Other income at March 31, 1997 represents a tax refund of $7,000 and T-shirt,
coupon books and cigarette sales of $4,000. At March 31, 1996 other income
consisted only of T-shirt, coupon books and cigarette sales.
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
80% in 1996 to 79% in the first quarter of 1997. Overall attendance
increased substantially but the labor cost remained the same which
helped the overall gross profit.
Cost of goods sold radio, decreased approximately $ 24,000 comparing
1997 to 1996. The cost of sales radio as compared to Radio sales was
71% in 1997 and 81% in 1996. The Company is aggressively pursuing
additional advertising revenues in 1997 and increasing is promotions
to obtain a larger market share.
Depreciation and amortization only a slight change comparing 1997 to
1996 there has been no substantial increase in property and
equipment.
General and administrative costs increased $181,000 in 1997 as
compared to 1996. The major reason for the increase is due to the use
of consultants, the addition of one staff and increased legal fees.
Interest expense decreased slightly in 1997 over 1996 as a result of
a reduction of long term debt in 1996.
Liquidity and Capital Resources
As of March 31, 1996, the Company had a working capital deficit of
approximately $880,500 , a decrease of $380,000 over the working
capital deficit at December 31, 1996. The primary reason for the
decrease is the issuance of common stock in settlement of accrued
bonuses of $258,000 and proceeds from the issuance of common stock of
a subsidiary of $98,000. Despite a loss of $338,000, net cash used
by operating activities was only $13,000. The Company has been able
to issue common stock for services thereby reducing the need for
working capital.
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 $1.1
million which is currently due and due later in 1997. Working
capital is needed to further develop. 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
None
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: August 20, 1997 /S/____________________
A.B. Goldberg
President
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Mar-31-1997
<CASH> 110
<SECURITIES> 0
<RECEIVABLES> 343
<ALLOWANCES> 0
<INVENTORY> 55
<CURRENT-ASSETS> 525
<PP&E> 3048
<DEPRECIATION> 2444
<TOTAL-ASSETS> 3242
<CURRENT-LIABILITIES> 1405
<BONDS> 0
<COMMON> 47
0
1
<OTHER-SE> 1339
<TOTAL-LIABILITY-AND-EQUITY>3242
<SALES> 653
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<CGS> 494
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</TABLE>
