U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-QSB
(mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-19196
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CELEBRITY ENTERTAINMENT, INC.
(Name of Small Business Issuer in its Charter)
Delaware 11-2880337
(State of or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
214 Brazilian Avenue, Suite 400, Palm Beach, Florida 33480 561/659-3832
(Address of principal executive offices. Issuer's telephone number.)
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the issuer was required to file such reports), and
(2)has been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
The number of shares outstanding of the issuer's Common Stock, $ 0.0001 par
value, as of November 14, 1998 was 262,690.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
CELEBRITY ENTERTAINMENT, INC.
FORM 10-QSB
For the Quarter Ended September 30, 1998
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
Balance Sheet
Statement of Operations
Statement of Cash Flows
Statement of Stockholders' Equity
Notes to Financial Statements
Item 2. Management's Discussion and Analysis
PART II. OTHER INFORMATION
Item 2. Changes in Securities
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Celebrity Entertainment, Inc. and Subsidiary
Consolidated Balance Sheet
September 30, 1998
(Unaudited)
Assets
Current assets:
Cash $ 1,434
Accounts receivable 18,724
Prepaid expenses 2,673
Total current assets 22,831
Property and equipment, net 2,924,978
Other assets:
Deposit 2,685
Note receivable - related party 696,919
Accrued interest receivable - related party 40,961
Investment in warrants - related party 29,200
Investment in oil and gas lease,
net of allowance for impairment of $465,000 1,201,221
Total assets $ 4,918,795
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 335,663
Accrued expenses 192,445
Notes payable - related parties 970,403
Note payable 275,000
Note payable - affiliate 60,880
Notes payable - debenture settlements 881,534
Accrued interest 345,703
Convertible debentures payable 1,640,000
Total current liabilities 4,701,628
Long-term debt 350,000
Stockholders' equity:
Preferred stock, $0.01 par value: 2,000,000 shares authorized
Designated as Class A 8% convertible:
1,525,000 shares designated; 1,064,000 shares issued
($5,320,000 total liquidation preference) 10,640
Common stock, $0.0001 par value: 25,000,000 shares authorized;
262,690 shares issued 26
Additional paid-in capital 18,312,117
Accumulated deficit (17,984,816)
Less treasury stock, 10,100 shares common
and 475,000 shares preferred, at cost (500,000)
Unrealized gain on investment 29,200
Total stockholders' deficit (132,833)
Total liabilities and stockholders' equity $ 4,918,795
See accompanying notes to financial statements.
<TABLE>
Celebrity Entertainment, Inc.
Consolidated Statement of Operations
and Changes in Accumulated Deficit
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
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Revenues:
Resort revenue $ 28,932 $ 32,093 $ 169,287 $ 156,219
Oil and gas revenue 23,848 - 47,275 -
Total revenues 52,780 32,093 216,562 156,219
Selling, general & administrative 269,406 490,744 923,820 1,669,855
Operating loss (216,626) (458,651) ( 707,258) (1,513,636)
Other income (expense):
Interest income 15,311 1,491 42,134 9,485
Dividend income - 86,802 - 86,802
Forgiveness of debt - - 9,897 3,221
Loss on disposition of stock - - ( 4,982) -
Interest expense (50,410) (10,025) ( 225,720) (32,195)
Total other income (expense) (35,099) 78,268 ( 178,671) 67,313
Net loss (251,725) (380,383) ( 885,929) (1,446,323)
Accumulated deficit -
beginning of period (17,733,091) (17,375,423) (17,098,887)(16,309,483)
Accumulated deficit -
end of period $(17,984,816) $(17,755,806)$(17,984,816)$(17,755,806)
Basic and diluted loss per share:
Loss before extraordinary item $(1.57) $(1.87) $(5.23) $(5.24)
Extraordinary income - - .04 .01
Net loss per common share $(1.57) $(1.87) $(5.19) $(5.23)
See accompanying notes to the financial statements.
</TABLE>
<TABLE>
Celebrity Entertainment, Inc.
Statement of Cash Flows
Unaudited
For the Nine Months Ended September
30,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net loss $( 885,929) $(1,446,323)
Adjustments to reconcile net loss to net
cash used for operating activities: -
Depreciation and amortization 85,316 94,345
Loss on disposition of stock 4,982 -
Gain on forgiveness of debt ( 9,897) -
Stock issued in payment of finder's fee
for debt - 78,680
Stock issued in payment of consulting fees - 108,780
Change in current assets and liabilities:
(Increase) decrease in:
Prepaid expenses and accounts receivable 10,668 ( 6,447)
Notes receivable - 266,000
Deposits ( 2,685) -
Accrued interest receivable ( 40,961) -
Increase (decrease) in:
Note payable - 425,817
Accounts payable and accrued expenses 43,609 90,226
Deferred membership revenues - 6,479
Due to affiliate - 70,129
Accrued interest payable 150,432 -
Net cash used in operating activities (644,465) ( 312,314)
Cash flows from investing activities:
Purchase of property and equipment (1,644) ( 9,947)
Advances on note receivable - related party (224,419) -
Investment in joint venture - oil & gas lease - (1,102,221)
Proceeds on redemption of stock - 1,253,180
Net cash (used in) provided by
investing activities (226,063) 141,012
Cash flows from financing activities:
Proceeds from note 709,315 -
Proceeds from notes - other 679,581 -
Payments on mortgage (419,910) -
Payments on long-term debt (218,560) -
Proceeds from the sale of common stock - -
Settlement of convertible debentures - ( 113,000)
Net cash (used in) provided by
financing activities 750,426 ( 113,000)
Increase (decrease) in cash and cash equivalents (120,102) ( 284,302)
Cash and cash equivalents, beginning of period 121,536 444,510
Cash and cash equivalents, end of period $ 1,434 $ 160,208
Supplemental disclosures of cash flow information:
Interest $ 85,486 $ 32,195
Income taxes - -
Noncash investing and financing activities:
Stock issued in payment of finder's fee
for debt $ - $ 94,345
Stock issued in payment of consulting fees $ - $ 108,780
See accompanying notes to financial statements.
</TABLE>
<TABLE>
Celebrity Entertainment, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
(Unaudited)
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Treasury Stock
Preferred Stock Common Stock Common Preferred
Shares Amount Shares Amount Shares Shares Amount
Balance
January 1, 1998 1,064,000 $ 10,640 262,690 $ 26 10,100 475,000 $500,000
Net loss - - - - - - -
Balance at
September 30, 1998 1,064,000 $ 10,640 262,690 $ 26 10,100 475,000 $500,000
<S> <C> <C> <C>
Additional
Paid in Accumulated Unrealized Gain
Capital Deficit On Investment
Balance
January 1, 1998 $18,312,117 $ (17,098,887) $29,200
Net loss - ( 885,929) -
Balance at
September 30, 1998 $18,312,117 $ (17,984,816) $29,200
See accompanying notes to the financial statements.
</TABLE>
CELEBRITY ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying financial statements have been prepared by the Company
without audit, pursuant to the rules and regulations of the Securities and
Exchange 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, 1998 and the results of operations and cash
flows for the three-month period and for the nine month period ended September
30, 1998 and 1997. 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 1997 Form 10-KSB.
The Company's wholly-owned subsidiary manages the development of an oil and
gas lease in Texas. Operations of the subsidiary began during the second
quarter of 1998 and, accordingly, the Company is presenting consolidated
financial statements including the assets, liabilities and results of
operations of the subsidiary.
2. Basic and Diluted Loss Per Common Share
Basic and diluted 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.
The following table sets forth the computation of basic and diluted loss per
share for the nine months ended September 30, 1998 and 1997:
1998 1997
Loss before extraordinary item $( 895,826) $(1,449,544)
Preferred dividends ( 477,488) ( 477,488)
Loss to common shareholders
before extraordinary income (1,373,314) (1,927,032)
Extraordinary income - forgiveness of debt 9,897 3,221
Net loss to common shareholders $(1,363,417) $(1,923,811)
Weighted average common shares outstanding 262,690 367,891
Basic and diluted loss per share:
Loss per share before extraordinary income $( 5.23) $( 5.24)
Extraordinary income .04 .01
Net loss $( 5.19) $( 5.23)
3. Property and equipment
Property and equipment as of September 30, 1998 consisted of the following:
Land $ 670,780
Buildings and improvements 2,885,593
Equipment 157,804
Furniture and fixtures 61,888
Total property and equipment, cost 3,776,065
Less: accumulated depreciation and amortization ( 851,087)
Total property and equipment, net $ 2,924,978
4. Subsequent Events
On November 3, 1998, the Company sold the resort property for $1.2 million.
Proceeds were used to satisfy mortgage liens of $625,000 and in settlement of
other liens and claims of approximately $800,000. The property had a basis of
approximately $2.9 million. The Company incurred a loss on sale of
approximately $1.7 million.
Item 2. Management's Discussion and Analysis
FORWARD-LOOKING STATEMENTS
Statements contained in this Form 10-QSB regarding the Company's future
prospects or profitability constitute forward-looking statements and as such,
must be considered with caution and with the understanding that various
factors could cause actual results to differ materially from those in such
forward-looking statements. Such factors include but are not limited to (i)
the inability of the Company to complete a business combination or acquisition
as anticipated, (ii) the securing of financing sufficient to fund such
business combination, acquisition, settlement of outstanding debt and
litigation, and/or (iii) change in operating results provided by the Resort
or any newly-acquired operations due to economic or competitive conditions or
otherwise.
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 and the operation, through its
subsidiary, of an oil and gas well in Texas. As detailed in Note 4 of the
financial statements, the resort was sold on November 3, 1998.
Year 2000 Reporting
On August 4, 1998, the SEC issued expanded requirements for disclosure
regarding the international computer programming problems whereby certain
computer programs will not be able to properly recognize the date in the year
2000. Management believes the Company has no material exposure from the year
2000 problem. The Company's management information systems advisor reports
that because the Company's system was originally designed to be unaffected by
year 2000 problem, the Company has no exposure to the problem within its own
system. The Company has consulted major vendors and suppliers whose
non-compliance with correction of the problem could cause material damage to
the Company and has determined that such vendors and suppliers have plans in
place that will circumvent year 2000 problems that could affect the Company.
Results of Operations
Nine-month Period Ended September 30, 1998 Compared to Nine-month Period Ended
September 30, 1997:
Revenues for the nine-month period ended September 30, 1998 amounted to
$216,562 compared to $156,219 for the nine-month period ended September 30,
1997, reflecting an increase of $60,343. Revenues are comprised of resort
memberships paid in full, dues and resort operations together with subsidiary
operations. The increase in revenues reflected for the nine-month period
ended September 30, 1998 is a result of improved marketing and use of the
Company's resort facilities combined with revenues from the Company's
subsidiary.
Selling, general and administrative expenses were $923,820 for the nine
months ended September 30, 1998 compared to $1,669,855 for the nine-month
period ended September 30, 1997, representing a decrease of $746,035. The
decrease is due principally to expenses related to consulting activities in
connection with business acquisitions in the prior-year period.
During the nine-month period ended September 30, 1998, $225,720 in interest
expense was charged to operations compared to $32,195 charged to interest
expense for the nine-month period ended September 30, 1997, reflecting an
increase of $193,525. The increase is due principally to the amounts incurred
pursuant to notes issued in connection with settlements of liabilities related
to convertible securities of the Company issued in 1996.
Net loss for the nine-month period ended September 30, 1998 was $885,929,
which represents a decrease in loss of $560,394 compared to the net loss of
$1,446,323 for the prior-year period. The decrease is due principally to
reduction of expenses related to consulting activities in connection with
business acquisitions in the prior-year period.
Liquidity and Capital Resources
Liquidity and capital resources are hereinafter discussed in three broad
categories: operating activities, investing activities and financing
activities.
Operating Activities
The revised marketing and sales approach, initiated in 1995 in response to
changing interests of the public away from memberships in favor of destination
and special interest resort amenities, has resulted in an increase in cash
flows from operations for the current year, which trend is expected to
continue.
Cash decreased $120,102 to $1,434 at September 30, 1998 from $121,536 at
December 31, 1997. Net cash used for operating activities was $644,465 during
the nine-month period ended September 30, 1998 compared to cash used in
operating activities of $312,314 during the nine-month period ended September
30, 1997. The increase is primarily due to payments made relating to the oil
and gas operations of the subsidiary and for costs associated with the
refinancing and sale of the Resort.
Investing Activities
During the nine-month period ended September 30, 1998, there was $226,063 used
for investing activities, compared with $141,012 provided by investing
activities during the nine-month period ended September 30, 1997. In 1998
funds were used primarily for advances on a note receivable - related party
(See Item 5, Other Information - Certain Relationships and Related
Transactions.) In the same period of the prior year funds were provided by
proceeds on redemption of stock and primarily used for an investment in an oil
and gas lease and related operations.
Financing Activities
During the nine-month period ended September 30, 1998, net cash provided by
financing activities was $750,426, representing an increase of $863,426 over
net cash used in financing activities of $113,000 during the nine-month period
ended September 30, 1997. The increase is a result primarily of the proceeds
derived from a note issued to a related party. (See Item 5, Other Information
- - Certain Relationships and Related Transactions.)
During the second quarter of 1998 the Company completed the refinancing of the
resort property which prevented the foreclosure sale that had been scheduled
for April 28, 1998. Pursuant to the terms of the refinancing, the Company
accepted offers for purchase of the resort property and entered into a
contract of sale with one party. On November 3, 1998, the Company sold the
resort property for $1.2 million. Proceeds were used to satisfy mortgage
liens of $625,000 and in settlement of other liens and claims of approximately
$800,000. The Company continues to seek the acquisition of additional
business activities in order to increase operating revenues.
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.
PART II. OTHER INFORMATION
Item 5: Other Information.
Certain Relationships and Related Transactions
During the third quarter of 1998, the Company was loaned a total of $83,401
by Princeton Media Group, Inc. ("PMG"), whose Chairman and a director
is James J. McNamara, Chairman and President of the Company. This amount was
in addition to funds loaned to the Company by PMG during the first two
quarters of 1998 totaling $602,986 and during 1997 totaling $284,017. All of
such amounts loaned remain outstanding. The total amount outstanding as of
September 30, 1998 was $970,404. Accrued interest as of September 30, 1998,
totaled $44,247. The loan to the Company accrues interest at prime rate,
which was 8.5% as of September 30, 1998, and is payable on demand. The loan
was unsecured as of September 30, 1998. The Company has agreed to secure the
repayment of the loan by a mortgage on oil and gas operations owned by
Celebrity in Texas with a book value of approximately $1,200,000. The
mortgage would be subordinate to prior obligations owing to others, including
approximately $300,000 payable over the next 18 months. There is a
substantial question whether the Company would be able to repay the loan.
Moreover, there is no assurance that a foreclosure proceeding on the oil and
gas operations would render sufficient proceeds to repay the loan in full. In
addition, there is no assurance the Company will retain its ownership of the
oil and gas lease. The loan has been guaranteed to PMG by Mr. McNamara to the
extent of amounts owing by Mr. McNamara to the Company.
During the third quarter of 1998, the Company loaned a total of $10,806 to
Mr. McNamara. The Company had previously loaned an aggregate of $686,112 to
Mr. McNamara during 1997 and the first two quarters of 1998, most of which
amounts remain outstanding. The total amount owed by Mr. McNamara to the
Company as of September 30, 1998 was $696,918. The loan from the Company to
Mr. McNamara accrues interest at prime rate, which was 8.5% as of September
30, 1998 and is payable on demand. The loan to Mr. McNamara is unsecured.
The funds used by the Company to make the above-described loan were the
proceeds from the exercise of stock options issued by PMG to an entity
wholly controlled by J. William Metzger, the only other director of the
Company, as compensation for consulting services rendered by Mr. Metzger
during the nine months ended September 30, 1998.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
Date: November 23, 1998
CELEBRITY ENTERTAINMENT, INC.
By: /s/ J. William Metzger
J. William Metzger
Executive Vice President
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<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> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,434
<SECURITIES> 0
<RECEIVABLES> 18,724
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22,831
<PP&E> 3,776,065
<DEPRECIATION> 851,087
<TOTAL-ASSETS> 4,918,795
<CURRENT-LIABILITIES> 4,701,628
<BONDS> 350,000
26
0
<COMMON> 10,640
<OTHER-SE> ( 143,499)
<TOTAL-LIABILITY-AND-EQUITY> 4,918,795
<SALES> 216,562
<TOTAL-REVENUES> 258,696
<CGS> 0
<TOTAL-COSTS> 923,820
<OTHER-EXPENSES> 4,982
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 225,720
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> ( 895,826)
<DISCONTINUED> 0
<EXTRAORDINARY> 9,897
<CHANGES> 0
<NET-INCOME> ( 885,929)
<EPS-PRIMARY> (5.19)
<EPS-DILUTED> (5.19)
</TABLE>
