<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[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
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From _______ to _______
Commission File No. 0-18954
COMMUNICATIONS AND ENTERTAINMENT CORP.
--------------------------------------------------
(Exact name of registrant as specified in charter)
Nevada 95-4269048
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(State or other juris- (I.R.S. Employer
diction of incorporation Identification No.)
or organization)
1875 Century Park East, Suite 2130, Los Angeles, CA 90067
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone No., including area code (310) 229-2430
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 the filing
requirement for at least the past 90 days. Yes _x_ No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $.01 per share --
2,670,190 outstanding shares as of November 8, 1996.
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COMMUNICATIONS AND ENTERTAINMENT CORP.
INDEX
Page
Part I - Financial Information
Consolidated Balance Sheets as of 1
September 30, 1996 and June 30, 1996
Consolidated Statements of Operations 2
for the Three Month Periods Ended
September 30, 1996 and 1995
Consolidated Statements of Cash Flows 3
for the Three Month Periods Ended
September 30, 1996 and 1995
Notes to Consolidated Financial Statements 5
Management's Discussion and Analysis of 6
Financial Condition and Results of Operations
Part II - Other Information 9
Signatures 10
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COMMUNICATIONS AND ENTERTAINMENT CORP.
CONSOLIDATED BALANCE SHEETS
September 30, June 30,
1996 1996
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ASSETS:
Cash $ 105,537 $ 462,971
Accounts receivable, net 1,022,574 996,574
Film costs, net 1,054,761 1,000,968
Other assets 29,442 27,945
------------ -----------
$2,212,314 $2,488,458
------------ -----------
------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Accounts payable and accrued expenses $ 888,256 $ 912,629
Due to producers and participants 3,785,813 3,760,142
Deferred revenues 3,000 3,000
Notes and loans payable 561,500 561,500
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Total liabilities 5,238,569 5,237,271
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SHAREHOLDERS' DEFICIT:
Preferred stock, par value $.10;
Authorized - 10,000,000 shares
Issued - none
Common stock, par value $.01;
Authorized - 6,666,666 shares
Issued -2,670,190 and 2,591,242
Shares 26,702 25,913
Capital in excess of par value 25,955,577 25,911,366
Accumulated deficit (29,008,534) (28,686,092)
------------ -----------
Total shareholders' deficit (3,026,255) (2,748,813)
------------ -----------
$2,212,314 $2,488,458
------------ -----------
------------ -----------
The accompanying notes are an integral part of these statements.
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COMMUNICATIONS AND ENTERTAINMENT CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS
ENDED SEPTEMBER 30,
------------------------
1996 1995
---------- ---------
REVENUES: $ 57,251 $ 50,020
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EXPENSES:
Costs related to revenues 3,002 32,402
Selling, general and
Administrative expenses 353,474 317,649
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356,476 350,051
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Operating loss (299,225) (300,031)
OTHER INCOME (EXPENSES):
Interest income 0 48
Interest expense (23,217) (10,236)
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Net loss $(322,442) $ (310,219)
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---------- ---------
Net loss per share ($0.12) ($0.14)
---------- ---------
---------- ---------
Weighted average common shares outstanding * 2,670,190 2,282,199
---------- ---------
---------- ---------
* Shares outstanding for all periods have been adjusted to give effect to a
1 for 6 reverse stock split on March 18, 1996.
The accompanying notes are an integral part of these statements.
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COMMUNICATIONS AND ENTERTAINMENT CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS
ENDED SEPTEMBER 30,
--------------------
1996 1995
---------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(322,442) $(310,219)
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Amortization of film costs -- 21,994
Other depreciation and amortization 519 407
Issuance of shares of stock to officers in payment
of deferred compensation 45,000 --
Decrease (increase) in assets:
Funds held in joint venture accounts -- 379,181
Accounts receivable, net (26,000) 268,517
Film costs (53,793) (10,712)
Other (516) 4,804
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (24,373) (78,218)
Due to producers and participants 25,671 (478,270)
Deferred revenues -- --
---------- ---------
Net cash used in operations (355,934) (202,516)
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets (1,500) (4,889)
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Net cash used in investing
activities (1,500) (4,889)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from the sale of
Senior Notes -- 219,250
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Net cash provided by
financing activities -- 219,250
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Net (decrease) increase in cash and equivalents (357,434) 11,845
Cash and equivalents at beginning of period 462,971 43,491
---------- ---------
Cash and equivalents at end of period $105,537 $55,336
---------- ---------
---------- ---------
The accompanying notes are an integral part of these statements.
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COMMUNICATIONS AND ENTERTAINMENT CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months
Ended September 30,
--------------------
1996 1995
---------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for-
Interest -- $5,408
---------- --------
---------- --------
Income taxes -- --
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---------- --------
The accompanying notes are an integral part of these statements.
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COMMUNICATIONS AND ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. - BASIS OF FINANCIAL STATEMENT PREPARATION:
The Consolidated Financial Statements for Communications and
Entertainment Corp. and subsidiaries (collectively "ComEnt" or the
"Company"), included herein, have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the information
presented not misleading. These financial statements should be read
in conjunction with the consolidated financial statements and the
notes thereto included in the Company's Report on Form 10-K for the
period ended June 30, 1996.
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly (a) the financial
position as of September 30, 1996, (b) the results of operations for
the three month periods ended September 30, 1996 and 1995 and (c) cash
flows for the three month periods ended September 30, 1996 and 1995.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Revenues for the three month period ended September 30, 1996 did not
increase substantially from the three months ended September 30, 1995. There
were no films which became available for delivery in either of the periods.
Costs related to revenues decreased to $3,002 for the 1996 Three Month
Period from $32,402 for the 1995 Three Month Period.
The costs of revenues decrease is primarily due to a settlement with a producer
in the amount of $25,000 for unrecouped distribution costs.
Selling, general and administrative expenses increased $35,825 (11%) to
$353,474 for the 1996 Three Month Period from $317,649 for the comparable 1995
Period. The increase is primarily due to higher legal and accounting fees.
Interest expense increased to $23,217 for the 1996 Three Month Period from
$10,236 for the comparable 1995 Three Month Period. The increased interest
resulted from the private placement sale of an aggregate of $312,500 principal
amount of 12% Senior Unsecured Promissory Notes in August and October 1995 and
the issuance of a note payable in the amount of $70,000 in payment of legal
fees.
The Company did not recognize any tax benefits related to its losses from
operations for either period due to its inability to carry-back such losses to
prior years.
As of September 30, 1996, the Company had a federal net operating loss
carryforward, for tax purposes, of approximately $27,000,000, expiring through
2010, available to be used to reduce future tax liability. Due to limitations
imposed by the Internal Revenue Service, the utilization of approximately
$4,900,000 of these net operating losses will be limited to approximately
$350,000 per year.
The Company's principal activities have been the acquisition of rights in
either completed or incomplete motion pictures and the licensing of these rights
to sub-distributors in foreign countries. As of September 30, 1996, the Company
had agreements in principle with sub-distributors relating to distribution
commitments or guarantees of approximately $1.3 million that had not been
recognized in the statement of operations. The Company will recognize these
guarantees in revenues and the costs related to such revenues when motion
pictures are completed and available for delivery. It is possible that changes
in schedules and cancellations of pictures may defer and/or reduce the amounts
of revenues that will be recognized in later periods.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company held approximately $106,000 of cash.
In many instances, the Company acquires the rights to motion picture
productions prior to their completion. As a result, there may be a substantial
delay between the time the Company enters into distribution agreements with
producers and sub-distribution agreements with foreign sub-distributors and the
time it recognizes revenues and generates cash from each production.
As of September 30, 1996, the Company had an outstanding obligation of
approximately $2.7 million for the prior acquisition of distribution rights
relating to the motion picture "Wuthering Heights", which obligation is included
in the consolidated statement of financial condition. In September, 1996 the
Company reached a verbal understanding with Paramount, pursuant to which the
Company believes that Paramount will agree to cancel the outstanding
indebtedness of $2.7 million in full, in exchange for which the Company will
agree to (i) relinquish all further distribution rights to "Wuthering Heights";
(ii) assign to Paramount all of its rights in any outstanding distribution
agreements for the film, and any receivables to be generated therefrom; and
(iii) guarantee that Paramount will collect a total of $500,000 in sales
revenues from existing distribution agreements no later than January 15, 1997.
The Company anticipates that existing license agreements will yield at least
$450,000 in revenue prior to January 15, 1997 (of which the Company would have
been entitled to retain approximately 20% thereof in commissions), thereby
minimizing the Company's exposure under the guarantee to Paramount.
In the past, the Company has been dependent on obtaining outside financing
to acquire distribution rights to films. New management has reduced the
Company's reliance on outside financing by placing more emphasis on acquiring
distribution rights through arrangements which require lower or no advance
payments. At present, the Company may not be able to secure distribution rights
by issuing letters of credit or advancing significant production funds, as it
has in the past.
In August 1996, the Company entered into an agreement, pursuant to which
the Company agreed to grant subdistribution rights in, and to sell other
distribution rights to, certain films in the Company's film library. In
exchange for these rights, the Company will receive a total cash consideration
of $1,075,000, payable $500,000 on closing, $275,000 six months after closing,
and $300,000 eighteen months after the closing. In addition, the Company will
retain a continuing right to receive revenues from certain of the films, valued
by management at a minimum of approximately $150,000. Additionally, the
purchaser will provide the Company with a $500,000 revolving line of credit to
be secured by accounts receivable and other
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contractual rights acquired by the Company. As part of the transaction, the
Company will grant 100,000 stock options, exercisable over a three year
period at the bid price of the Company's common stock in effect on August 5,
1996 ($.625). The transaction closed on October 7, 1996.
In September 1996, the Company entered into an agreement with an
unaffiliated third party (subject to conditions) for the purchase of 1 million
shares of the Company's common stock in consideration for $750,000 cash. The
purchaser will also receive three-year warrants to purchase up to 2 million
shares of common stock at an average exercise price of $ .875 per share.
The Company had no material commitments for capital expenditures as of
September 30, 1996.
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PART II - OTHER INFORMATION
ITEMS 1 THROUGH 6 OF PART II ARE NOT APPLICABLE
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMUNICATIONS AND ENTERTAINMENT CORP.
By: \s\ Ira N. Smith
----------------------------
Ira N. Smith
President
By: \s\ Marvin N. Grossman
-----------------------------
Marvin N. Grossman
Exec. Vice-President & Chief Financial
Officer
DATED: November 13, 1996
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 105,537
<SECURITIES> 0
<RECEIVABLES> 1,022,574
<ALLOWANCES> 0
<INVENTORY> 1,054,761
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,212,314
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 26,702
<OTHER-SE> (3,052,957)
<TOTAL-LIABILITY-AND-EQUITY> 2,212,314
<SALES> 57,251
<TOTAL-REVENUES> 57,251
<CGS> 3,002
<TOTAL-COSTS> 3,002
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,217
<INCOME-PRETAX> (322,442)
<INCOME-TAX> 0
<INCOME-CONTINUING> (322,442)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (322,442)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
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