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 September 30, 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 0-19196
CELEBRITY ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
(Formerly Celebrity Resorts, Inc.)
Delaware 11-2880337
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
214 Brazilian Avenue #400, Palm Beach, Florida 33480
(Address of principal executive offices)
(561) 659-3832
(Registrant's telephone number including area code)
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______
Class Outstanding at
November 19, 1996:
Common Stock, $.0001 par value 15,215,412
Preferred Stock, $.01 par value 589,000
CELEBRITY ENTERTAINMENT, INC.
INDEX
Page Number
PART I. FINANCIAL INFORMATION 2
Item 1. Financial Statements
Balance Sheet 3
Statement of Operations 4
Statement of Cash Flows 5
Statement of Stockholders' Equity 6
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis
or Plan of Operation 7
PART II. OTHER INFORMATION 9
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a
Vote of Security Holders 9
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures
PART I. FINANCIAL INFORMATION
The condensed financial statements for the periods ended September 30,
1996 and September 30, 1995 included herein have been prepared by Celebrity
Entertainment, Inc., (the "Company") without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (the "Commission"). In
the opinion of management, the statements include all adjustments necessary to
present fairly the financial position of the Company as of September 30, 1996
and the results of operations and cash flows for the three-month and nine-month
periods ended September 30, 1996 and 1995.
The Company's results of operations during the first nine months of the
Company's fiscal year are not necessarily indicative of the results to be
expected for the full fiscal year.
The financial statements included in this report should be read in
conjunction with the financial statements and notes thereto in the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1995.
Celebrity Entertainment, Inc.
Condensed Balance Sheet
September 30, 1996
Unaudited
ASSETS
Current Assets:
Cash $ 417,978
Prepaid expenses 17,974
Total current assets 435,952
Property and equipment, net 3,146,024
Other assets:
Note receivable 55,000
Note receivable - affiliates 1,005,000
Accounts receivable 603,001
Investment in stock 1,400,000
Debt issue costs 611,387
Total other assets 3,674,388
Total assets $ 7,256,364
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 127,747
Accrued expenses 120,222
Deferred revenue 62,697
Current maturities of long-term debt 30,087
Total current liabilities 340,753
Long-term debt 2,294,857
Stockholders' equity:
Preferred stock, $0.01 par value:
2,000,000 shares authorized
Designated as Class A 8% Convertible:
1,525,000 shares designated;
589,000 shares outstanding 5,890
Common stock, $0.0001 par value:
25,000,000 shares authorized;
5,396,923 shares outstanding 540
Additional paid-in capital 16,924,636
Accumulated deficit (12,018,138)
Less notes receivable arising from
issuance of preferred and common stock (292,174)
Total stockholders' equity 4,620,754
Total liabilities and stockholders' equity $ 7,256,364
See accompanying notes to financial statements.
<TABLE> Celebrity Entertainment, Inc.
Condensed Statement of Operations
For the Nine Months Ended September 30, 1996 and 1995
Unaudited
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Resort membership sales $ 1,372 $ 14,785 $ 28,818 $ 36,129
Resort operations 46,534 16,906 117,592 71,922
Forgiveness of debt - 24,186 -
Total revenues 47,906 31,691 170,596 108,051
Selling, general & administrative 522,049 189,194 2,393,356 811,541
Operating profit (loss) (474,143) (157,503) (2,222,760) (703,490)
Other income (expenses):
Interest income 58,748 1,001 66,120 4,075
Interest credit (expense) (18,924) (740,464) 201,937 (3,253,326)
Total other income (expenses) 39,824 (739,463) 268,057 (3,249,251)
Net loss (434,319) (896,966) (1,954,703) (3,952,741)
Per common share: $(0.12) $(0.55) $(0.55) $(2.42)
Weighted average number of
common shares outstanding 3,530,226 1,630,720 3,530,226 1,630,720
See accompanying notes to financial statements.
</TABLE>
Celebrity Entertainment, Inc.
Condensed Statement of Cash Flows
Unaudited
Nine months ended September 30, 1996 1995
Cash flows from operating activities:
Net loss $(1,954,704) $(3,952,742)
Adjustments to reconcile net loss to net
cash used by operating activities 85,360 3,576,713
Change in current assets and liabilities (4,364,890) 96,215
Net cash (used for) operating (6,234,234) (279,814)
activities
Cash flows from investing activities:
Capital expenditures (41,240) -
Investment in stock (1,400,000) -
Net cash used for investing activities (1,441,240) -
Cash flows from financing activities:
Increase (decrease) in notes payable (277,589) 188,729
Payment of notes receivable 500,000 (196,968)
Additions (payments) of long-term debt (27,697) (21,394)
Proceeds from issuance of debentures 3,794,300 -
Proceeds from sale of stock 4,093,186 363,050
Net cash provided by financing activities 8,082,200 333,417
Increase in cash and cash equivalents 406,726 53,603
Cash and cash equivalents, beginning of 11,252 2,278
period
Cash and cash equivalents, end of period $ 417,978 $ 55,881
Supplemental disclosure of cash paid for:
Interest $ 18,924 $ 38,659
Income taxes $ - $ -
See accompanying notes to financial statements.
<TABLE>
Celebrity Entertainment, Inc.
Statement of Shareholders' Equity
Nine Months Ended September 30, 1996
Unaudited
Notes
Receivable
Arising from
Additional Issuance of
Preferred Stock Common Stock Paid-In Accumulated Preferred &
Shares Amount Shares Amount Capital Deficit Common Stock
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 1,064,000 $10,640 2,366,753 $237 $12,827,004 ($10,063,435) (792,174)
Issuance of stock (475,000) (4,750) 1,318,000 $131 4,097,804 - 500,000
Net loss - - - - - (1,954,703) -
Balance at September 30, 1996 589,000 $ 5,890 5,396,923 $540 $16,924,636 ($12,018,138) (292,174)
</TABLE>
See accompanying notes to financial statements.
CELEBRITY ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying financial statements have been prepared by the Company without
audit, pursuant to the rules and regulations of the Commission. In the opinion
of management, these financial statements include all adjustments necessary to
present fairly the financial position of the Company as of September 30, 1996
and the results of operations and cash flows for the three-month and nine-month
periods ended September 30, 1996 and 1995. The Company's results of operations
during the first nine months of the Company's fiscal year are not necessarily
indicative of the results to be expected for the full fiscal year. The
financial statements included in this report should be read in conjunction with
the financial statements and notes thereto in the Company's 1995 Form 10-KSB and
any amendments thereto.
2. Net Loss Per Common Share
Net loss per common share is computed using the weighted average number
of shares outstanding during each period. Common stock equivalents have not
been included since the effect of such inclusion would be antidilutive.
3. Acquisition and Discontinued Operations
On June 15, 1993, the Company acquired the outstanding common stock of
Production Services International, Inc. ("PSI") in exchange for 402,672 shares
of the Company's common stock. The acquisition of PSI was accounted for using
the purchase method of accounting. Accordingly, (a) the results of PSI's
operations were included in the statement of operations from the date of
acquisition and (b) the total acquisition cost has been allocated to the assets
and liabilities of PSI based on their relative estimated fair values at the
date of purchase. At June 15, 1993, PSI's liabilities exceeded its
assets (at their fair market value) by $150,558, and accordingly, the excess
of the purchase price over the deficiency in the net assets acquired equaled
$553,230. This goodwill amount was being amortized over seven years.
Operations of PSI Discontinued
On March 1, 1995, certain creditors of PSI filed a petition with the United
States Bankruptcy Court in the middle district of Florida in Orlando, requesting
an order for relief under Chapter 11 of the Bankruptcy Code. The petition
asserted claims of amounts owed as a result of a television series which ceased
production in November 1994. Such claims are for amounts in excess of the
accounts payable and PSI is negotiating with the three creditors who initiated
the filing toward a settlement of their claims. This petition was withdrawn in
favor of a workout plan developed by the Company.
During the year ended December 31, 1995, the Company, at the advice of counsel,
entered into a settlement agreement with PSI's three major creditors to satisfy
$225,000 of existing PSI liabilities. The Company has also agreed to satisfy
liabilities to other creditors of PSI of approximately $207,000. No other
liabilities are expected to be paid on behalf of PSI.
On March 6, 1995, the Company's Board of Directors approved a formal plan to
discontinue the operations and settle the liabilities of PSI by liquidating the
assets of PSI. As a result of the petition for bankruptcy against PSI and the
Company's related inability to maintain control over PSI, the Company abandoned
its investment in PSI and deconsolidated the assets, liabilities and operations
of the PSI subsidiary on its financial statements in 1994.
4. Management Plans
The Company is in negotiations with a privately-held company which, during the
nine months ended September 30, 1996, has signed a letter of intent with the
Company to complete a merger of such company with CEI. Based on the historical
performance of the subject company's operations, such a business combination
could result in an increase in annual revenues and net income to CEI. Upon the
completion of the proposed business combination, it is anticipated that a public
offering of securities would be completed, the proceeds from which, in part,
would be used to reduce the liabilities of CEI and expand CEI's resort
operations. However, there can be no assurance that any proposed acquisition
will be effected. Any such acquisition and public offering is subject to the
acquiring entity's acceptance of the financial statements, the completion of
due diligence procedures satisfactory to the Company, the state of the general
securities markets and of the specific market for the Company's securities, and
any necessary regulatory review of the securities to be issued in connection
with the merger. The Company has sold certain of its securities in a private
sale through an exemption to registration in order to reduce its obligations
and facilitate the proposed acquisition. The Company is considering selling
additional securities in order to complete the acquisition.
During the three months ended September 30, 1996, during the due diligence
process for the proposed acquisition, the Company invested capital which had
been raised through the sale of its securities in short term loans to an entity
related by common directorship, the purchase of certain securities of said
entity, and loans to two unrelated entities which provided ownership interest
in assets as secured collateral. Subsequent to the nine months ended September
30, 1996, substantially all of the short term loans were repaid to the Company
and, subsequently, the Company made additional secured short term loans. As a
result of the continuing negotiations with the proposed merger candidate as
well as negotiations with the borrowing entities, the Company may consider
converting certain of its short term loans to an ownership position in one or
more of the borrowing entities. Subsequent to the nine months ended September
30, 1996, one of the borrowing entities has purchased a substantial number of
the Company's common shares and, together with another principal shareholder,
have provided the Company with their consents to cause the Company to effect a
combination of its common stock and, accordingly, the Company has filed an
information statement with the Securities and Exchange Commision and is
currently anticipating the completion of the review process in order that the
information statement be forwarded to shareholders.
5. Forgiveness of Debt
Certain creditors and note holders have informed the Company that the
obligations of the Company to pay them may be exchanged for a number of the
Company's securities. In addition, the Company completed an arrangement with
a financing group (the "Group") and, consequently, the Company cancelled a
promissory note obligation in the amount of $500,000 from the Group in exchange
for Group's return to the Company 475,000 of the Company's class A convertible
preferred shares together with 505,000 of the Company's common shares. As a
result of this transaction, the Company reported a credit to interest expense
during the nine months ended September 30, 1996 in the amount of $282,346.
6. Issuance of Securities
During the nine months ended September 30, 1996, the Company issued common
shares in payment of consulting fees and for services. In addition,
the Company issued in a private offering $3,794,300 of 8% convertible
debentures, receiving $3,170,273 in cash. These debentures are due in two
years and are convertible into common shares at a rate based on a discount
from the bid price of the Company's common shares. Using the bid
prices of the Company's common stock at the dates the debentures were issued,
approximately 2 million shares would have been issued if the debentures were
immediately converted. Original issue discount of $1.9 million associated
with the debentures has been credited to additional paid-in capital. The
amortization of the original issue discount, debt issue costs and the accrual
of the 8% interest due on the debentures will materially affect future interest
costs over the term of these debentures.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
General
The Company is principally engaged in the development, ownership,
marketing and operation of a destination resort community and fishing camp
located on Orange Lake near Ocala, Florida.
The Company recognizes revenues related to sales of memberships on the
date that the membership contract is paid in full. Until such time, all partial
payments received on memberships are recorded as deferred membership revenues on
the Company's balance sheet. Any receivable related to the original membership
agreement is netted against the deferred membership revenues. Buyers have a
five day right of rescission with respect to Membership Agreements.
Results of Operations
Nine-month Period Ended September 30, 1996 Compared to Nine-month Period Ended
September 30, 1995
Revenues for the nine-month period ended September 30, 1996 amounted to
$170,596 compared to $108,051 for the nine-month period ended September 30,
1995, reflecting an increase of $62,545. Revenues are comprised of memberships
paid in full, dues and resort operations. The increase in revenues reflected
for the nine-month period ended September 30, 1996 is a result of improved
marketing and use of the Company's resort facilities, together with a
non-recurring recognition of forgiveness of debt in exchange for the Company's
securities. See "Liquidity and Capital Resources."
Selling, general and administrative expenses were $2,393,356 for the nine
months ended September 30, 1996 compared to $811,541 for the nine-month period
ended September 30, 1995, representing an increase of $1,581,815. The increase
is due principally to sales commissions together with consulting fees paid with
the Company's common stock issued at substantially below market price.
During the nine-month period ended September 30, 1996, $201,937 in
interest expense was credited to operations compared to $3,253,326 charged to
interest expense for the nine-month period ended September 30, 1995, reflecting
a decrease of $3,455,263. The decrease was due principally to the issuance in
1995 of the Company's common stock to a financing group at substantially below
market price and the return to the Company of a substantial portion of the
common stock in 1996.
Net loss for the nine-month period ended September 30, 1996 was
$1,954,703, which represents a decrease of $1,998,038 below the net loss of
$3,952,741 for thenine-month period ended September 30, 1995. The decrease is
due principally to interest expenses and credits thereto related to the sale of
the Company's common stock issued at substantially below market price, as
described above.
Liquidity and Capital Resources
The Company intends to complete the development of the Resort Property
during the 1996-97 resort seasons at a total cost of approximately $100,000.
Commencing in 1995, the Company pursued a marketing plan which focuses on the
destination use of the Resort and rallies and other group functions. It is
anticipated that revenues will continue to increase as a result of
sales and facilities use, and that such increase will generate cash flow from
operations sufficient to finance approximately one-half of the completion of the
Resort. While there can be no assurance, the Company is confident that
additional capital that may be obtained from operations and from the planned
financing activities initiated during 1996 will facilitate the completion
of RV sites and additional Resort facilities and amenities, which the Company
believes will provide increasing revenue growth through increased sales and
Resort facilities use fees.
Liquidity and capital resources are hereinafter discussed in three broad
categories: operating activities, investing activities and financing
activities.
Cash increased $406,726 to $417,978 at September 30, 1996 from $11,252 at
December 31, 1995. Net cash used for operating activities was $6,234,234 during
the nine-month period ended September 30, 1996 compared to cash used for
operating activities of $279,814 during the nine-month period ended September
30, 1995. The change in cash used for operating activities resulted primarily
from costs related to the sale of the Company's convertible debentures.
During the nine-month period ended September 30, 1996, there was
$1,441,240 used for investing activities in the purchase of certain securities
of an entity related through common directorship and for office and Resort
maintenance equipment, compared with no net cash used for investing activities
during the nine-month period ended September 30, 1995.
During the nine-month period ended September 30, 1996, net cash provided
by financing activities was $8,082,200, representing an increase of $7,748,783
over net cash provided by financing activities of $333,417 during the nine-month
period ended September 30, 1995. The increase is a result primarily of proceeds
realized from the sale of the Company's debentures and common stock.
Income from the resort is seasonal and on an annual basis the Company is
required to seek additional financing in order to pay long-term debt obligations
and the resort's ongoing operations, including payroll, creditors and taxes.
Income from the resort operations is not sufficient to sustain the Company's
operations. Consequently, the Company has been experiencing a liquidity problem
and must obtain financing in addition to expected revenues from operations in
order to pay its past due obligations and meet its current obligations as they
come due.
The Company is in negotiations with a privately-held company which,
subsequent to the nine months ended September 30, 1996, has signed a letter of
intent with the Company to complete a merger of such company with CEI. Based on
the historical performance of the subject company's operations, such a business
combination could result in an increase in annual revenues and net income to
CEI. Upon the completion of the proposed business combination, it is
anticipated that a public offering of securities would be completed, the
proceeds from which, in part, would be used to reduce the liabilities of CEI and
expand CEI's resort operations. However, there can be no assurance that any
proposed acquisition will be effected. Any such acquisition and public offering
is subject to the acquiring entity's acceptance of the financial statements, the
completion of due diligence procedures satisfactory to the Company, the state of
the general securities markets and of the specific market for the Company's
securities, and any necessary regulatory review of the securities to be issued
in connection with the merger. The Company has sold certain of its securities
in a private sale through an exemption to registration in order to reduce its
obligations and facilitate the proposed acquisition. The Company is considering
selling additional securities in order to complete the acquisition.
During the three months ended September 30, 1996, during the due diligence
process for the proposed acquisition, the Company invested capital which had
been raised through the sale of its securities in short term loans to an entity
related by common directorship, the purchase of certain securities of said
entity, and loans to two unrelated entities which provided ownership interest
in assets as secured collateral. Subsequent to the nine months ended September
30, 1996, substantially all of the short term loans were repaid to the Company
and, subsequently, the Company made additional secured short term loans. As a
result of the continuing negotiations with the proposed merger candidate as
well as negotiations with the borrowing entities, the Company may consider
converting certain of its short term loans to an ownership position in one or
more of the borrowing entities. Subsequent to the nine months ended September
30, 1996, one of the borrowing entities has purchased a substantial number of
the Company's common shares and, together with another principal shareholder,
have provided the Company with their consents to cause the Company to effect a
combination of its common stock and, accordingly, the Company has filed an
information statement with the Securities and Exchange Commision and is
currently anticipating the completion of the review process in order that the
information statement be forwarded to shareholders.
Certain creditors and note holders have informed the Company that the
obligations of the Company to pay them may be exchanged for a number of the
Company's securities. In addition, the Company completed an arrangement with a
financing group (the "Group") and, consequently, the Company cancelled a
promissory note obligation in the amount of $500,000 from the Group in exchange
for Group's return to the Company 475,000 of the Company's class A convertible
preferred shares together with 505,000 of the Company's common shares. As a
result of this transaction, the Company reported a credit to interest expenses
during the nine months ended September 30, 1996 in the amount of $201,937.
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 Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 19, 1996
CELEBRITY ENTERTAINMENT, INC.
By: /s/ J. William Metzger
J. William Metzger,
Executive Vice-President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS INCLUDED IN FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 417,978
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 435,952
<PP&E> 3,754,771
<DEPRECIATION> 608,747
<TOTAL-ASSETS> 7,256,364
<CURRENT-LIABILITIES> 340,753
<BONDS> 2,294,857
<COMMON> 540
0
5,890
<OTHER-SE> 16,924,808
<TOTAL-LIABILITY-AND-EQUITY> 7,256,364
<SALES> 146,410
<TOTAL-REVENUES> 170,596
<CGS> 0
<TOTAL-COSTS> 2,393,356
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (201,937)
<INCOME-PRETAX> (1,954,703)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,954,703)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,954,703)
<EPS-PRIMARY> (0.55)
<EPS-DILUTED> (0.55)
</TABLE>
