United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to ___________
Commission file number 0-19049
WOW Entertainment, Inc.
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(Exact name of small business issuer as specified in its charter)
Delaware 74-2504501
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Bank One Tower, 111 Monument Circle, Suite 4600, Indianapolis, Indiana 46204
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(Address of principal executive offices)
(317) 974-1969
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(Issuer's telephone number, including area code)
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(Former name, former address and former fiscal year, if
changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
--- ---
On January 11, 2001, the aggregate market value of the voting stock of the
Company held by non-affiliates of the Company was approximately $1,131,000.
On January 11, 2001 there were 62,509,164 shares of the Company's Common Stock
outstanding.
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements.
WOW ENTERTAINMENT, INC. AND SUBSIDIARY
(FORMERLY AMERICAN GAMING & ENTERTAINMENT, LTD. AND SUBSIDIARIES)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
(Unaudited) (Audited)
November 30, August 31,
2000 2000
<S> <C> <C>
CURRENT ASSETS
Cash $ 148,000 $ 294,000
Restricted cash -- 80,000
Accounts receivable 97,000 --
Merchandise inventory 38,000 --
Prepaid insurance 86,000 135,000
Prepaid distribution fee 990,000 970,000
Other current assets -- 9,000
----------- -----------
Total Current Assets 1,359,000 1,488,000
PRODUCTION COSTS 44,000 60,000
OFFICE EQUIPMENT 31,000 27,000
WEB-SITE DEVELOPMENT COSTS 147,000 98,000
----------- -----------
TOTAL ASSETS $ 1,581,000 $ 1,673,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Line of credit payable to a stockholder $ 2,000,000 $ --
Accounts payable 469,000 164,000
Due to escrow agent -- 80,000
Deferred revenue 13,000 --
Accrued payroll and related expenses 43,000 118,000
Other accrued expenses -- 40,000
----------- -----------
Total Current Liabilities 2,525,000 402,000
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock 2,000,000 1,300,000
Preferred stock subscribed (7000 shares at August 31, 2000) -- 700,000
Common stock 625,000 624,000
Additional paid-in capital and warrants outstanding 191,000 158,000
Accumulated deficit since July 21, 2000, when
a deficit of $60,099,000 was eliminated (3,760,000) (811,000)
----------- -----------
(944,000) 1,971,000
Less: Preferred stock subscribed (7000 shares at August 31, 2000) -- (700,000)
----------- -----------
Total Stockholders' Equity (Deficit) (944,000) 1,271,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 1,581,000 $ 1,673,000
=========== ===========
</TABLE>
See Accompanying Summary of Accounting Policies and Notes to Unaudited Interim
Consolidated Financial Statements.
1
<PAGE>
WOW ENTERTAINMENT, INC. AND SUBSIDIARY
(FORMERLY AMERICAN GAMING & ENTERTAINMENT, LTD. AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
November 30,
2000 1999
<S> <C> <C>
OPERATING REVENUE
Revenue $ 92,000 $ --
Equity interests in gaming projects -- 11,743,000
------------ ------------
Total Revenue 92,000 11,743,000
------------ ------------
OPERATING COSTS AND EXPENSES
Operating costs 2,641,000 --
Selling, general and administrative expenses 366,000 145,000
------------ ------------
Total Operating Costs and Expenses 3,007,000 145,000
------------ ------------
Operating Income (Loss) (2,915,000) 11,598,000
------------ ------------
OTHER INCOME (EXPENSE)
Interest income 1,000 17,000
Interest expense (7,000) (1,164,000)
Net gain on sale of assets -- 7,000
------------ ------------
Total Other Income (Expense) (6,000) (1,140,000)
------------ ------------
Net Income (Loss) before Provision for Income Taxes (2,921,000) 10,458,000
PROVISION FOR INCOME TAXES -- --
------------ ------------
NET INCOME (LOSS) $ (2,921,000) $ 10,458,000
============ ============
BASIC INCOME PER SHARE $ (0.05) $ 0.14
============ ============
DILUTED INCOME PER SHARE $ (0.05) $ 0.03
============ ============
</TABLE>
See Accompanying Summary of Accounting Policies and Notes to Unaudited Interim
Consolidated Financial Statements.
2
<PAGE>
WOW ENTERTAINMENT, INC. AND SUBSIDIARY
(FORMERLY AMERICAN GAMING & ENTERTAINMENT, LTD. AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
November 30,
2000 1999
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (2,921,000) $ 10,458,000
Adjustments to reconcile net income (loss) to
net cash (used) by operating activities:
Equity interests in gaming projects -- (11,743,000)
Depreciation 1,000 1,000
Changes in certain operating assets
and liabilities:
Accounts receivable (97,000) 420,000
Merchandise inventories (38,000) --
Production costs 16,000 --
Other current assets 38,000 28,000
Accounts payable, accrued expenses and other
current liabilities 203,000 1,152,000
------------ ------------
Net Cash (Used) by Operating Activities (2,798,000) 316,000
------------ ------------
INVESTING ACTIVITIES
Purchases of office equipment (5,000) --
Web-site development costs incurred (49,000) --
Restricted cash -- (420,000)
------------ ------------
Net Cash (Used) by Investing Activities (54,000) (420,000)
------------ ------------
FINANCING ACTIVITIES
Issuance of common stock 34,000 --
Dividends paid to preferred stockholders (28,000) --
Proceeds from issuance of preferred stock 700,000 --
Borrowings on line of credit 2,000,000 --
------------ ------------
Net Cash Provided by Financing Activities 2,706,000 --
------------ ------------
NET DECREASE IN CASH (146,000) (104,000)
CASH
Beginning of Period 294,000 1,466,000
------------ ------------
End of Period $ 148,000 $ 1,362,000
============ ============
</TABLE>
See Accompanying Summary of Accounting Policies and Notes to Unaudited Interim
Consolidated Financial Statements.
3
<PAGE>
WOW ENTERTAINMENT, INC. AND SUBSIDIARY
(FORMERLY AMERICAN GAMING & ENTERTAINMENT, LTD AND SUBSIDIARIES).
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
In the opinion of the management of WOW Entertainment, Inc. (the Company),
the accompanying unaudited consolidated financial statements contain all
adjustments (consisting of only normal, recurring adjustments) necessary
to present fairly the financial position of WOW Entertainment, Inc. and
Subsidiary as of November 30, 2000, and the results of their operations
and their cash flows for the three-month periods ended November 30, 2000
and 1999. The results of operations for any interim period are not
necessarily indicative of the results for the year. These interim
unaudited consolidated financial statements should be read in conjunction
with WOW Entertainment, Inc.'s annual consolidated financial statements
and the related footnotes included in WOW Entertainment, Inc.'s Annual
Report on Form 10-KSB for the year ended August 31, 2000.
The unaudited consolidated financial statements include the accounts of
WOW Entertainment, Inc. and its wholly-owned subsidiary, Women of
Wrestling, Inc., as well as the accounts of the Company's predecessor. All
intercompany balances and transactions have been eliminated from the
unaudited consolidated financial statements.
Prior to 2000, WOW Entertainment, Inc., formerly known as American Gaming
& Entertainment, Ltd., operated various gaming enterprises, including the
Gold Coast Barge, through wholly-owned subsidiaries. On September 1, 2000,
the Company purchased, for nominal consideration, all of the common stock
of Women of Wrestling, Inc. (WOW), a company owned by the Control Group
(Note 3). The acquisition was accounted for in a manner similar to a
pooling of interest. Based in Indianapolis, Indiana, WOW develops and
produces sports entertainment programming. WOW's first run syndicated
television series, WOW-Women of Wrestling, premiered in the fall of 2000.
Principles of Consolidation: The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany accounts and transactions have
been eliminated.
Estimates: Management uses estimates and assumptions in preparing
financial statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and
liabilities and the reported revenues and expenses. Actual results could
vary from the estimates that were used.
Revenues: The Company recognizes revenue from the direct distribution,
exploitation and licensing of film and television programs before
deduction for any of the Company's direct costs of distribution. For
markets and territories in which the Company's fully or jointly-owned
films and television programs are distributed by third parties, revenue is
the net amounts payable to the Company by third party distributors.
Revenue is reduced by appropriate allowances, estimated returns, price
concessions, and similar adjustments, as applicable.
In 1999, revenue was derived primarily from the charter of the Gold Coast
Barge.
4
<PAGE>
NOTE 1 - BASIS OF PRESENTATION (CONTINUED)
Inventory and Production Costs: The Company has implemented AICPA
Statement of Position (SOP) 00-2, "Accounting by Producers or Distributors
of Films", which requires special accounting for production costs relating
to episodic television series. Specifically, SOP 00-2 requires that a
company must demonstrate through its experience and industry norms that
the number of episodes already produced, plus those for which a firm
commitment exists and the entity expects to deliver, can be licensed in
the secondary market before an episodic television series can implement
the individual-film-forecast-computation method to amortize production
costs. SOP 00-2 further stipulates that until an entity can establish
estimates of secondary market revenue, capitalized costs for each episode
produced should not exceed an amount equal to the amount of revenue
contracted for that episode; the entity should expense as incurred
production costs in excess of this limitation on an episode-by-episode
basis; and, the entity should expense all capitalized costs for each
episode as it recognizes the related revenue for each episode. The Company
as of the quarter-end continues to follow the more conservative
episode-by-episode basis versus the individual-film-forecast-computation
method. As such, the Company's capitalized production costs as of November
30, 2000 were all considered in process and will all be expensed in the
upcoming operating cycle as episodic revenue is recognized. As of November
30, 2000 the Company had capitalized $44,000 of production costs.
Production costs expensed for the three months ended November 30, 2000 and
1999 were $1,969,000 and $-0-, respectively.
Advertising and Exploitation Costs including marketing, advertising,
publicity, promotion and other distribution costs are expensed as incurred
and totaled $633,000 and $-0- for the three months ended November 30, 2000
and 1999, respectively.
Stock-based Compensation: The Company accounts for all stock based
compensation under the provision of Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation", which
uses the term compensation in its broadest sense to refer to consideration
paid for goods and services, regardless of whether the supplier is an
employee or not. In connection with a certain distribution agreement, the
Company's distributor was granted a warrant to purchase 1% of the common
stock owned by the Control Group at an aggregate exercise price of
$1,000,000. The warrant is exercisable immediately and expires in 2005.
The Company values stock options and warrants issued based upon an
option-pricing model and recognized this value as an expense over the
period in which the option vests.
NOTE 2 - ABILITY TO CONTINUE AS A GOING CONCERN
As shown in the accompanying unaudited consolidated financial statements,
the Company incurred a net loss of $2.9 million during the three-month
period ended November 30, 2000, had current liabilities in excess of
current assets of $1.2 million, and total liabilities in excess of total
assets of $.9 million. In addition, management estimates that the Company
needs additional financing to continue to implement its current business
plan. The Company is negotiating with a stockholder for an additional $3
million line of credit; however, no formal documentation has been executed
and there can be no assurance that this additional loan commitment will be
obtained. If the Company is successful in obtaining this additional
funding, management believes that this financing will enable it to
continue operations through August 31, 2001 without any significant
modification to its business plan. In addition, management is exploring
other financing opportunities. These factors, and possible others, create
a reasonable doubt about the Company's ability to continue as a going
concern. The unaudited consolidated financial statements do not include
any adjustments that might be necessary if the Company is unable to
continue as a going concern.
5
<PAGE>
NOTE 3 - CHANGE IN CONTROL
On September 1, 2000, Messrs. David B. McLane, John F. Fisbeck and Carter
M. Fortune (collectively, the Control Group) and their assigns
collectively purchased 61,318,563 shares of the Company's common stock
pursuant to two stock purchase agreements dated July 28, 2000. One
agreement was with Richard C. Breeden, who is the bankruptcy trustee (the
Trustee) for Bennett Funding Group, Inc. et al. (the Estate) in a
bankruptcy proceeding pending in the United States Bankruptcy Court for
the Northern District of New York (the Bankruptcy Court). This agreement
provided for the purchase of 60,348,060 shares (the Estate Stock) of
common stock from the Estate for $98,200 in cash. The Estate Stock
included 60,098,060 shares of common stock that were converted from the
Company's Series C cumulative preferred stock, Series D cumulative
preferred stock and Series E preferred stock owned by the Estate pursuant
to a notice of conversion delivered to the Company dated July 21, 2000.
The other agreement was with Shamrock Holdings Group, Inc. (Shamrock),
collectively with the Estate, the (Sellers) and provided for the purchase
of 970,503 shares of common stock, of which 233,261 shares were converted
from the Company's Series A preferred stock owned by Shamrock pursuant to
a notice of conversion delivered to the Company dated July 21, 2000, for
$1,800 in cash.
The source of funds for both purchases was from personal funds.
Collectively, the stock purchased from the Estate and Shamrock represents
98.1% of the outstanding common stock of the Company.
NOTE 4 - CREDIT FACILITIES
At November 30, 2000, the Company had a $4 million line of credit with a
stockholder. The line of credit is secured by all of the assets of WOW,
the operating subsidiary of the Company, and interest is payable monthly
at a rate of LIBOR plus 1%. At November 30, 2000, $2,000,000 was borrowed
and outstanding under the line of credit. The line of credit is subject to
renewal in November 2001.
The Company is negotiating with the same stockholder for an additional $3
million line of credit; however, no formal documentation has been executed
and there can be no assurance that this additional loan commitment will be
obtained.
NOTE 5 - STOCKHOLDERS' EQUITY
The following are the details of the preferred and common stock as of
November 30, 2000:
<TABLE>
<CAPTION>
Number of Shares
Authorized Issued Outstanding Amount
November 30, 2000
-----------------
<S> <C> <C> <C> <C>
Common stock, $0.01 par
Value (1)(2) 150,000,000 62,509,164 62,509,164 $ 625,000
===========
Series A Preferred stock
of subsidiary, $100 par
value 5,000,000 20,000 20,000 $ 2,000,000
===========
August 31, 2000
---------------
Common stock, $0.01 par
Value (1)(2) 150,000,000 62,424,946 62,424,946 $ 624,000
===========
Series A Preferred stock
of subsidiary, $100 par
value 5,000,000 13,000 13,000 $ 1,300,000
===========
</TABLE>
(1) The principal stockholder of the distributor of the Company's
television program owns approximately 1,875,000 shares of the
Company's common stock. The
6
<PAGE>
distributor was also granted a warrant to purchase 1% of the
common stock owned by the Control Group.
(2) The Board of Directors authorized a 1 for 6 reverse stock split
effective in September, 2000. The share information presented has
been adjusted to reflect the reverse stock split.
7
<PAGE>
NOTE 5 - STOCKHOLDERS' EQUITY (CONTINUED)
On May 5, 2000 the Company authorized 5,000,000 shares of cumulative
voting Series A preferred stock. Dividends are payable quarterly at the
rate of LIBOR plus 1%. Preferred stockholders have preference over common
stockholders in dividends and liquidation rights. The preferred stock has
voting rights similar to those of the common stockholders. At the
Company's option, the Series A preferred stock may be redeemed at a
purchase price of $100 per share plus any unpaid dividends. The
outstanding and subscribed preferred stock was purchased by a member of
the Control Group. As of November 30, 2000, 20,000 shares of the Series A
Preferred Stock was issued and outstanding.
NOTE 6 - STOCK OPTIONS, WARRANTS AND OTHER COMPENSATION
The Company sponsored a stock option plan for employees that provided for
the issuance of both incentive and nonqualified stock options to purchase
shares of the Company's common stock at exercise prices not less than the
fair market value of the common stock on the date of grant. The stock
option plan terminated as a result of the purchase of substantially all of
the common stock by the Control Group on September 1, 2000 (Note 3). All
options granted under the Plan that were not exercised prior to such
purchase were terminated. Transactions related to the stock option plan
were as follows:
<TABLE>
<CAPTION>
Three Months Eight Months
Ended Weighted Average Ended Weighted Average
November 30, Exercise Price August 31, Exercise Price
2000 Per Share 2000 Per Share
<S> <C> <C> <C> <C>
Options outstanding at
beginning of period $ 83,334 $0.42 $ 238,482 $16.44
Options exercised (83,334) (0.42) (5,000) (.36)
Options canceled -- (150,148) (1) (25.92)
--------- --------- --------- -------
Options outstanding
at end of period -- $ 83,334 (1) $ 0.42
========= ========= ========= =======
</TABLE>
(1) The Company's former President and CEO was the only option holder
to advise the Company that he would exercise certain of his
options, granted in 1996, prior to the purchase of substantially
all of the common stock by the Control Group. Such options, at an
exercise price range of $0.375 to $0.48, were exercised on
September 1, 2000, immediately prior to such purchase.
The Company periodically issues warrants on a one-for-one basis for
the purchase of shares of its common stock. The exercise prices of the
warrants are no less than the fair market value of the common stock on
the dates of grant. The estimated fair market value of the warrants is
measured on the date of grant (measurement date), and accounted for as
part of the related transaction. In connection with the change in
control discussed in Note 3, the Company has agreed to grant 50,000
new warrants to the Company's former CEO on June 30, 2000. Each new
warrant is convertible into one share of common stock at an exercise
price of $1.00 per share exercisable from June 30, 2002 through June
30, 2008.
In connection with a certain distribution agreement, the Company's
distributor was granted a warrant to purchase 1% of the common stock owned
by the Control Group at an aggregate exercise price of $1,000,000. The
warrant is exercisable immediately and expires in 2005 (Note 1).
8
<PAGE>
NOTE 7 - PER SHARE DATA
The following presents the computation of basic earnings per share and
diluted earnings per share.
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
November 30, November 30,
2000 1999
<S> <C> <C>
Net Income (Loss) $ (2,921,000) $ 10,458,000
------------ ------------
Dividends on Preferred Stock (28,000) --
------------ ------------
Net Income Available for Common Stockholders $ (2,949,000) $ 10,458,000
============ ============
Basic Income Per Share $ (0.05) $ 0.14
============ ============
Diluted Income Per Share $ (0.05) $ 0.03
============ ============
Shares Outstanding
Basic weighted average number of common shares
Outstanding 62,509,164 75,192,612
Dilutive effect of conversion of preferred stock
Series A, C, D & E -- 302,751,375
------------ ------------
Total Shares Outstanding 62,509,164 377,943,987
============ ============
</TABLE>
At November 30, 2000, all outstanding options and warrants were
anti-dilutive.
The Board of Directors authorized a 1 for 6 reverse stock split effective in
September, 2000.
NOTE 8 - QUASI-REORGANIZATION
Effective July 21, 2000, the Company's Board of Directors approved a
quasi-reorganization. The effect of the quasi-reorganization was to
eliminate the accumulated deficit of $60,099,000 by application of the
Company's paid-in capital. The quasi-reorganization had no impact on the
Company's cash flows, total stockholders' equity or the tax basis of its
assets, but resulted in a consolidated balance sheet which better reflects
the Company's current financial position.
NOTE 9 - SEGMENT INFORMATION
Prior to 2000, the Company operated various gaming operations through
wholly-owned subsidiaries. The Company is focusing its efforts on other
areas of the entertainment business and is currently not seeking to
develop gaming projects. Future operations of the Company will be
organized around three primary segments:
o Live and Televised Entertainment: The creation, marketing and
distribution of the Company's live and televised entertainment
and pay-per-view programming. Revenues include live event ticket
sales, pay-per-view buys, the sale of integrated sponsorship and
commercial advertising time within the Company's events and
programs, and receipt of television rights;
o Branded Merchandise: The marketing, promotion and licensing of
the Company's branded merchandise. Revenues include direct sale
by the Company of merchandise and royalties from the sale of
merchandise by third party licensees; and
o New Media: The creation of a new media platform designed to
further capitalize on the live and televised entertainment and
branded merchandise segments and generate revenue from the sale
of advertising, memberships and merchandise on the Company's
internet site.
9
<PAGE>
NOTE 9 - SEGMENT INFORMATION - (CONTINUED)
<TABLE>
<CAPTION>
Live and
Televised Branded Gaming Segment
Entertainment Merchandise New Media Entertainment Other Totals
<S> <C> <C> <C> <C> <C> <C>
Three months ended November 30, 2000
Revenues $ 89,000 $ 3,000 $ -- $ -- $ -- $ 92,000
Operating costs (2,603,000) (11,000) (27,000) -- -- (2,641,000)
Selling, general and administrative
expenses -- -- -- (33,000) (333,000) (366,000)
------------ ------------ ------------ ------------ ------------ ------------
Segment Operating Loss $ (2,514,000) $ (8,000) $ (27,000) $ (33,000) $ (333,000) $ (2,915,000)
============ ============ ============ ============ ============ ============
As of November 30, 2000
Cash $ -- $ -- $ -- $ -- $ 148,000 $ 148,000
Accounts receivable -- -- -- -- 97,000 97,000
Merchandise inventory -- 38,000 -- -- -- 38,000
Prepaid expenses 990,000 -- -- 38,000 48,000 1,076,000
Production costs 44,000 -- -- -- -- 44,000
Other current assets -- -- -- -- -- --
Net Property and equipment -- -- -- -- 31,000 31,000
Other assets -- -- 147,000 -- -- 147,000
------------ ------------ ------------ ------------ ------------ ------------
Total Segment Assets $ 1,034,000 $ 38,000 $ 147,000 $ 38,000 $ 324,000 $ 1,581,000
============ ============ ============ ============ ============ ============
Three months ended November 30, 1999
Revenues $ -- $ -- $ -- $ 11,743,000 $ -- $ 11,743,000
Operating costs -- -- -- -- -- --
Selling, general and administrative
expenses -- -- -- (145,000) -- (145,000)
------------ ------------ ------------ ------------ ------------ ------------
Segment Operating Loss $ -- $ -- $ -- $ 11,598,000 $ -- $ 11,598,000
============ ============ ============ ============ ============ ============
As of August 31, 2000
Cash $ -- $ -- $ -- $ 61,000 $ 233,000 $ 294,000
Restricted cash -- -- -- 80,000 -- 80,000
Prepaid expenses 970,000 -- -- 60,000 75,000 1,105,000
Other current assets -- -- -- 1,000 8,000 9,000
Production costs 60,000 -- -- -- -- 60,000
Net property and equipment -- -- -- 4,000 23,000 27,000
Other assets -- -- 98,000 -- -- 98,000
------------ ------------ ------------ ------------ ------------ ------------
Total Segment Assets $ 1,030,000 $ -- $ 98,000 $ 206,000 $ 339,000 $ 1,673,000
============ ============ ============ ============ ============ ============
</TABLE>
10
<PAGE>
NOTE 10 - UNAUDITED CONSOLIDATING INFORMATION
<TABLE>
<CAPTION>
Three Months Ended November 30, 2000 (Unaudited)
-------------------------------------------------
Women of WOW
Wrestling, Inc. Entertainment,Inc. Consolidated
<S> <C> <C> <C>
OPERATING REVENUE $ 92,000 $ -- $ 92,000
----------- ----------- -----------
OPERATING COSTS AND EXPENSES
Operating costs 2,641,000 -- 2,641,000
Selling, general and administrative expenses 333,000 33,000 366,000
----------- ----------- -----------
Total Operating Costs and Expenses 2,974,000 33,000 3,007,000
----------- ----------- -----------
Operating Loss (2,882,000) (33,000) (2,915,000)
----------- ----------- -----------
OTHER EXPENSE 6,000 -- 6,000
----------- ----------- -----------
Net Loss before Provision for Income Taxes (2,888,000) (33,000) (2,909,000)
PROVISION FOR INCOME TAXES -- -- --
----------- ----------- -----------
NET LOSS $(2,888,000) $ (33,000) $(2,909,000)
=========== =========== ===========
</TABLE>
11
<PAGE>
NOTE 10- UNAUDITED CONSOLIDATING INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
November 30, 2000 (Unaudited)
------------------------------------------------
ASSETS Women of WOW
Wrestling, Inc. Entertainment, Inc. Consolidated
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ 148,000 $ -- $ 148,000
Accounts receivable 97,000 -- 97,000
Merchandise inventory 38,000 -- 38,000
Prepaid insurance 48,000 38,000 86,000
Prepaid distribution fee 990,000 -- 990,000
----------- ----------- -----------
Total Current Assets 1,321,000 38,000 1,359,000
PRODUCTION COSTS 44,000 -- 44,000
PROPERTY AND EQUIPMENT 31,000 -- 31,000
WEB-SITE DEVELOPMENT COSTS 147,000 -- 147,000
----------- ----------- -----------
TOTAL ASSETS $ 1,543,000 $ 38,000 $ 1,581,000
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit payable to stockholder $ 2,000,000 $ 2,000,000
Accounts payable 469,000 $ -- 469,000
Deferred revenue 13,000 -- 13,000
Accrued payroll and related expenses 14,000 29,000 43,000
----------- ----------- -----------
Total Current Liabilities 2,496,000 29,000 2,525,000
----------- ----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock 2,000,000 -- 2,000,000
Common stock -- 625,000 625,000
Additional paid in capital and warrants outstanding 158,000 33,000 191,000
Accumulated deficit (3,111,000) (649,000) (3,760,000)
----------- ----------- -----------
Total Stockholders' Equity (953,000) 9,000 (944,000)
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,543,000 $ 38,000 $ 1,581,000
=========== =========== ===========
</TABLE>
12
<PAGE>
Item 2. Management's Discussion And Analysis Or Plan Of Operations.
This document contains statements that constitute "forward-looking statements"
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended, and Section 27A of the Securities Act of 1933, as amended. The words
"expect," "estimate," "anticipate," "predict," "believe" and similar expressions
and variations thereof are intended to identify forward-looking statements.
These statements appear in a number of places in this document and include
statements regarding the intent, belief or current expectations of WOW
Entertainment, Inc. (the "Company"), its directors or its officers with respect
to, among other things, trends affecting the Company's financial condition or
results of operations. The readers of this document are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, those risks and uncertainties are discussed under the
headings "Risk Factors" and "Management's Discussion and Analysis Or Plan of
Operations," in the Company's Form 10-KSB40 for the fiscal year ended August 31,
2000 as well as the information set forth below. The Company does not ordinarily
make projections of its future operating results and undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise. Readers should carefully review
other documents filed by the Company with the Securities and Exchange
Commission. This section should be read in conjunction with the unaudited
financial statements of the Company and related notes set forth elsewhere
herein.
WOW Entertainment, Inc. is an integrated media company primarily engaged in the
development, production and marketing of live events featuring women's
professional wrestling, which are filmed for pay-per-view, Internet and
worldwide television broadcast; the licensing and sale of branded consumer
products featuring the WOW Women of Wrestling brand; and the creation of a new
media platform designed to further capitalize on the live and televised
entertainment and branded merchandise segments.
Prior to 2000, the Company operated various gaming operations through
wholly-owned subsidiaries. The Company is focusing its efforts on other areas of
the entertainment business and is currently not actively seeking to develop
gaming projects. Future operations of the Company will be organized around three
primary segments:
o Live and Televised Entertainment: The creation, marketing and distribution
of the Company's live and televised entertainment and pay-per-view
programming. Revenues include live event ticket sales, pay-per-view buys,
the sale of integrated sponsorship and commercial advertising time within
the Company's events and programs, and receipt of television rights;
o Branded Merchandise: The marketing, promotion and licensing of the
Company's branded merchandise. Revenues include direct sale by the Company
of merchandise and royalties from the sale of merchandise by third party
licensees; and
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o New Media: The creation of a new media platform designed to further
capitalize on the live and televised entertainment and branded merchandise
segments and generate revenue from the sale of advertising, memberships and
merchandise on the Company's Internet site.
On September 1, 2000, the Company purchased, for nominal consideration, all of
the common stock of Women of Wrestling, Inc., a company owned by David B.
McLane, John F. Fisbeck and Carter M. Fortune (the "Control Group"), the
controlling shareholders of the Company. WOW was incorporated as an Indiana
corporation in May, 2000, and had no operating history. This transaction was
accounted for in a manner similar to a pooling of interest. WOW's significant
assets included employment, venue and other production contracts (entered into
in the ordinary course of business); certain intellectual property, including
trademark rights in the "WOW Women of Wrestling" name, logos and character names
of performers; rights in characters portrayed by performers; publicity rights of
performers with respect to their performances; and copyrights in recorded
performances, events, programs, advertisements and promotional materials and
capitalized production costs relating to its syndicated television program. The
Company has discontinued for the foreseeable future its gaming operations.
The Company has received, and anticipates it will continue to receive license
fees for the production of television programming through its distribution
agreement with a third party and other future direct and third party agreements.
Revenue will be recognized by the Company from its direct distribution,
exploitation, or licensing of its films and television programs, before
deduction for any of the Company's direct costs of distribution. For markets and
territories in which the Company's fully or jointly-owned films and television
programs are distributed by third parties, revenue is the net amounts payable to
the entity by third party distributors. Revenue is reduced by appropriate
allowances, estimated returns, price concessions, and similar adjustments, as
applicable.
The Company has implemented Statement of Position (SOP) 00-2, "Accounting by
Producers or Distributors of Films", which requires special accounting for
production costs relating to episodic television series. Specifically, SOP 00-2
requires a company to demonstrate through its experience and industry norms that
the number of episodes already produced, plus those for which a firm commitment
exists and the entity expects to deliver, can be licensed in the secondary
market before an episodic television series can implement the
individual-film-forecast-computation method to amortize production costs. SOP
00-2 further stipulates that until an entity can establish estimates of
secondary market revenue, capitalized costs for each episode produced should not
exceed an amount equal to the amount of revenue contracted for that episode, the
entity should expense as incurred production costs in excess of this limitation
on an episode-by-episode basis, and the entity should expense all capitalized
costs for each episode as it recognizes the related revenue for each episode.
The Company as of the quarter-end continues to follow the more conservative
episode-by-episode basis versus the individual-film-forecast-computation method.
As such, the Company's capitalized production costs as of November 30,
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2000 were all considered in process and will all be expensed in the upcoming
operating cycle as episodic revenue is recognized.
Advertising and exploitation costs, which include marketing, advertising,
publicity, promotion, and other distribution expenses incurred in connection
with the distribution of a film or television program, are expensed as incurred.
The Company accounts for all stock based compensation under the provision of
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation", which uses the term "compensation" in its broadest
sense to refer to consideration paid for goods and services, regardless of
whether the supplier is an employee or not. In connection with a certain
distribution agreement, the Company's distributor was granted a warrant to
purchase 1% of the common stock owned by the Control Group at an aggregate
exercise price of $1,000,000. The warrant is exercisable immediately and expires
in 2005. The Company values stock options and warrants issued based upon an
option-pricing model and recognizes this value as an expense over the period in
which the option vests.
RESULTS OF OPERATIONS: COMPARISON OF THE THREE MONTH PERIODS ENDED NOVEMBER 30,
2000 AND NOVEMBER 30, 1999
Summarized financial information concerning the Company's reportable segments is
shown in the following table:
<TABLE>
<CAPTION>
Live and
Televised Branded Gaming Segment
Entertainment Merchandise New Media Entertainment Other Totals
Three-months ended November 30, 2000
<S> <C> <C> <C> <C> <C> <C>
Revenue 89,000 3,000 -0- -0- -0- 92,000
Operating costs (2,603,000) (11,000) (27,000) -0- -0- (2,915,000)
Selling, general and administrative -0- -0- -0- (33,000) (333,000) (366,000)
------------ --------- --------- -------- --------- -----------
Operating income (loss) (2,514,000) (8,000) (27,000) (33,000) (333,000) (2,915,000)
============ ========= ========= ========= ========== ============
As of November 30, 2000
Total segment assets 1,034,000 38,000 147,000 38,000 324,000 1,581,000
Three-months ended November 30, 1999
Revenue -0- -0- -0- 11,743,000 - 11,743,000
Operating costs -0- -0- -0- -0- -0- -0-
Selling, general and administrative -0- -0- -0- (145,000) -0- (145,000)
------------ --------- --------- -------- --------- -----------
Operating income (loss) -0- -0- -0- 11,598,000 -0- 11,598,000
============ ========= ========= ========= ========== ============
As of August 31, 2000
Total segment assets 1,030,000 -0- 98,000 206,000 339,000 1,673,000
</TABLE>
Revenues
Revenue for the three months ended November 30, 2000 was $92,000, compared to
$11,743,000 for the three months ended November 30, 1999, a decrease of
$11,621,000. The decrease in revenue was primarily due to a decrease in revenue
in the discontinued Gaming Entertainment segment of $11,743,000, which was a
result of the confirmation of a bankruptcy plan dated November 23, 1999 (prior
to the change in control) and the dismissal of an adversary complaint filed by
the Company's unsecured creditors challenging the transfer of certain gaming
assets (the Gold Coast Barge) to the Company for which the Company recognized
"Deferred Charter Revenue" of approximately $11,743,000 as revenue for the three
months ended November 30, 1999. In the Live and Televised Entertainment segment,
the increase of $92,000 was mostly from the distribution of the Company's
television show WOW Women of Wrestling that premiered during the quarter. While
the Company did have an
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increase in revenues from the prior fiscal year in its Live and Televised
Entertainment segment, this was because the Company only began operations in the
segment subsequent to last year, and revenues from the distribution of the
Company's television show were significantly below expectations in part due to
the downturn in the U.S. economy and its adverse effect on the advertising
market. The Company did not recognize revenue in its Branded Merchandise and New
Media segments for either the quarter ended November 30, 2000 or for the same
period in the previous fiscal year.
Costs and Expenses
The Company began additional operations, primarily the production of its
one-hour weekly television program, WOW Women of Wrestling, starting in May,
2000. Operating costs were $2,641,000 for the three months ended November 30,
2000 compared to zero for the three months ended November 30, 1999, an increase
of $2,641,000. This increase was primarily due to an increase of $2,603,000 in
the Company's Live and Televised Entertainment segment in which there was an
increase of $1,969,000 in production costs and an increase of $633,000 in
exploitation costs all related to the Company's weekly, one-hour, syndicated
television show, WOW Women of Wrestling. In the Branded Merchandise segment, the
Company had an increase of $11,000 in operating costs for the quarter ended
November 30, 2000 compared to the same period in the previous fiscal year. This
increase was primarily related to design costs and the fact that the Company did
not commence operations in the segment until subsequent to the previous fiscal
year. In the New Media segment, the Company had an increase of $27,000 in
operating costs for the quarter ended November 30, 2000 compared to the same
period in the previous fiscal year. This increase was primarily related to
salaries and benefits and website maintenance, and the fact that the Company did
not commence operations in the segment until subsequent to the previous fiscal
year. The Company did not incur any operating costs in its discontinued Gaming
Entertainment segment for either the quarter ended November 30, 2000 or for the
same period in the previous fiscal year.
Selling, general and administrative expenses were $366,000 for the three months
ended August 31, 2000, compared to $145,000 for the three months ended November
30, 1999, an increase of $221,000. The change was primarily due to an increase
in legal and accounting and consulting fees, related to the Company's change in
ownership, operating direction, and fiscal year end.
Interest income for the three months ended November 30, 2000 was approximately
$1,000, primarily related to funds deposited in a money market account. Interest
income for the three months ended November 30, 1999 was approximately
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$17,000, primarily related to funds held in escrow in connection with the
settlement of a lawsuit. In November 1999, the Company agreed to transfer to a
stockholder all payments, distributions, dividends and proceeds of any type to
which the Company is entitled pursuant to or in connection with the settlement
of a lawsuit.
Interest expense for the three months ended November 30, 2000 was approximately
$7,000 from the Company's line of credit. Interest expense for the three months
ended November 30, 1999 was approximately $1,164,000 on debt owed to a
stockholder. In November 1999, the stockholder agreed to release the Company
from all debts and liabilities.
For the three months ended November 30, 1999, the Company recorded a net gain of
approximately $7,000, which amount represents the reversal of accrued expenses
relating to a building in Mobile, Alabama, which was sold in March 1999. No such
gain was recorded for the three months ended November 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash of approximately $148,000 as of November 30, 2000. As of
November 30, 2000, the Company has no outstanding bank borrowings. The Company's
subsidiary, Women of Wrestling, Inc. ("WOW"), had outstanding 2,000 shares of
Series A Preferred Stock that were sold to Carter M. Fortune, a member of the
Control Group, for $2,000,000. The dividend rate of the Series A Preferred Stock
is equal to the London Interbank Offered Rate ("LIBOR") plus one percent (1%)
(subject to change effective on the same date as each change of LIBOR) per annum
payable quarterly on the 15th day of January, April, July and October in each
year. The redemption price for the Preferred Stock is $100 per share; the
Preferred Stock is not convertible into common stock; in the event of a
liquidation, the Preferred Stock is entitled to receive a liquidating
distribution of $100 per share (plus any accrued but unpaid dividends) and the
Preferred Stock has the same voting rights as WOW's common stock.
In addition, Mr. Fortune has loaned to WOW $3,000,000 pursuant to a Line of
Credit Promissory Note dated May 5, 2000, at an interest rate equal to LIBOR
plus one percent (1%) (subject to change effective on the same date as each
change of LIBOR) per annum. Interest on said note is due monthly with the entire
outstanding principal and any accrued interest due on November 1, 2001. The note
is secured by a security interest in WOW's assets.
In November, 2000, Mr. Fortune agreed to loan the Company up to an additional
$1,000,000 under substantially the same terms as the original loan from Mr.
Fortune. As of the date of this report, the Company has drawn approximately
$500,000 of the additional $1,000,000 loan from Mr. Fortune. The Company has
agreed to issue to Mr. Fortune, in a transaction that is exempt from
registration under Section 4(2) of the Securities Act of 1933, one share of
common stock for each dollar drawn on the additional $1,000,000 loan. As of
November 30, 2000, no shares had been issued and formal documentation is still
being negotiated.
The Company began airing its programs in the United States in October, 2000 and
marketing its programs internationally in the same period. While the Company
anticipates that its future cash requirements over the next 12 month will be
partially fulfilled by sales of its television programs internationally,
advertising revenues from its television programs, pay-per-view buys, Internet
advertising and memberships and sales of branded merchandise, revenues received
from such activities to date, particularly U.S. advertising revenue from the
Company's syndicated television show, have been substantially less than the
Company anticipated.
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The Company believes that its loan commitment from Mr. Fortune along with
revenues from its programs and merchandise sales will only partially satisfy its
cash requirements over the next 12 months. As of the date of this report, the
Company has begun negotiations with Mr. Fortune to loan up to an additional
$3,000,000; however, no formal documentation has been executed and there can be
no assurance that this additional loan commitment will be obtained.
In addition, the Company is engaging in discussions with several third parties
to participate in an "accredited investor" only Regulation D offering under the
Securities Act of 1933. The Company believes that, if its working capital is
insufficient to fund its operations, it will have to explore additional sources
of financing as discussed above. No assurances, however, can be given that
future financing will be available or, if available, could be obtained at terms
satisfactory to the Company.
The Company has been encouraged to date by the acceptance of its syndicated
program as evidenced by the more than 51% increase in the number of viewing
homes during November, 2000 as compared to the prior programming in its time
period. The Company is actively pursuing the licensing of additional programming
with a television company and/or a cable network affiliation. The acceptance of
the program to date coupled with the Company's ability to produce original
content programming at low production costs makes the Company's program
attractive. However, there is no guarantee that the Company will be able to
secure a licensing agreement that would provide adequate additional capital from
operations to warrant the production of such a program. If the Company is unable
to secure such an agreement within the next twelve months, then the Company will
probably alter its current operating structure.
The Company's short and long term capital requirements will depend upon many
factors, including the rate of market acceptance of the Company's television and
pay-per-view broadcasts and its new media broadcasts, advertising, Internet
memberships and sales of branded merchandise, the ability to license production
properties at favorable terms, as well as the level of resources required to
expand the Company's marketing and sales operations. Many of these and other
factors are beyond the Company's control.
Over the next 12 months, the Company has no plans as of the date of this report
to hire a significant number of additional employees.
PART II--OTHER INFORMATION.
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities and Use of Proceeds.
The information required by this item is omitted from this report. Pursuant to
General Instruction C to Form 10-QSB, the information is included in the
Company's Definitive Information Statement filed on
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September 18, 2000 with the Securities and Exchange Commission, and is
incorporated herein by reference.
Item 3. Defaults upon Senior Securities.
None
Item 4. Submission of Matter to a Vote of Security Holders.
The information required by this item is omitted from this report. Pursuant to
General Instruction C to Form 10-QSB, the information is included in the
Company's Definitive Information Statement filed on September 18, 2000 with the
Securities and Exchange Commission, and is incorporated herein by reference.
Item 5. Other Information.
In January, 2001, the Company appointed Jeffrey J. Lewis as its new Chief
Executive Officer. Mr. Lewis was a Partner at Glass & Associates, a
nationally-recognized management consulting firm. He previously was the Chief
Financial Officer for The Hunt Corporation, a billion dollar construction
management firm. He also holds a law degree from Indiana University. The Company
is negotiating the terms of Mr. Lewis' employment as of the date of this report.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K. The following report was filed by the Company during
the first quarter of fiscal year 2000-2001:
(1) Form 8-K dated September 1, 2000 with respect to the change in
control of the Company, the acquisition of a subsidiary by the Company, the
Changes in Certifying Accountant by the Company and the Change in fiscal for the
Company.
(2) Form 8-K/A dated November 17, 2000 (amended Form 8-K dated
September 1, 2000) to include the required financial statements for the acquired
business described in Item 2 of said Current Report.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
WOW ENTERTAINMENT, INC.
Date: 1/16/01 By: /s/ Douglas E. May
--------------- ----------------------------
Douglas E. May
Vice President of Finance and
Chief Financial Officer
