<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required] for the fiscal year ended June 30,
1997.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period from
____________ to ____________.
Commission file number 0-21070
INTERNATIONAL TOURIST ENTERTAINMENT CORPORATION
U.S. Virgin Islands 66-0426648
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(State of Incorporation) (IRS Employer Identification No.)
7030 Park Centre Drive
Salt Lake City, Utah 84121
(801) 566-9000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
Check whether the registrant (1) filed all reports required to be filed
by Section 13 or Section 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
(1) Yes X No
(2) Yes X No
Check if there is no disclosure of delinquent filers pursuant to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB.
The registrant's revenues for its fiscal year ended June 30, 1997 were
$4,893,055.
The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $900,000 as of September 24, 1997,
computed by reference to the price of which the stock was sold, or the
average bid and asked prices of such stock.
Check whether the issuer has filed all documents and reports required by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes X No .
The number of shares outstanding of each of the registrant's classes of
common equity as of September 24, 1997:
Class Shares Outstanding
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Common Stock, $.001 par value 8,015,397
Exhibit index at page _____.
Transitional Small Business Disclosure Format (check one): Yes No X .
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PART I
Item 1. Description of Business
-----------------------
International Tourist Entertainment Corporation, a U.S. Virgin
Islands corporation, was incorporated June 3, 1986, to develop, finance,
own and operate destination, giant screen theaters and associated amenities
in popular tourist locations.
The Company owns and operates a giant screen theater, restaurant and
mall facility in Branson, Missouri. The Branson facility was constructed
in 1993 and commenced operations on October 8, 1993. The Branson facility
consists of an IMAX giant screen theater, retail space, a full-service
restaurant, other food concessions and related amenities.
The Company has produced and owns a giant screen theme film entitled
"Ozarks: Legacy and Legend." The theme film premiered on April 28, 1995 at
the Branson facility and is exhibited regularly there. The Company also
rents giant screen films from third parties for exhibition at its Branson
facility.
Revenue from the Branson facility is generated from three primary
sources: (1) ticket sales for admission to the giant screen theater; (2)
lease of retail space; (3) operation of restaurant facilities, and retail
shops and concessions owned by the Company in the Branson facility.
On January 25, 1996, the Company filed a voluntary petition for
relief under Chapter 11 of the United States Bankruptcy Code, Case No. 96-
60122-S-11 (Chapter 11), with the United States Bankruptcy Court, Western
District of Missouri, Southern Division. On December 18, 1996, the Company
filed its Second Amended Plan of Reorganization Dated December 18, 1996
(the "Plan of Reorganization") and its Second Amended Disclosure Statement
in Support of Proposed Debtor's Second Amended Plan of Reorganization Dated
December 18, 1996 (the "Disclosure Statement") with the United States
Bankruptcy Court. On February 6, 1997, an Order Confirming the Plan of
Reorganization was entered by the United States Bankruptcy Court in the
matter of In Re: International Tourist Entertainment Corporation, Debtor
and Debtor-in-Possession.
The Plan of Reorganization provides for the reorganization of the
Company. The terms of the reorganization provide for (i) the payment in
full of priority, administrative and tax claims, (ii) the modification of
the Boatmen's Bank secured claim, (iii) settlement of the Bank of Nova
Scotia secured claim by delivery of the St. Thomas, U.S. Virgin Islands
property of the Company to the Bank of Nova Scotia, (iv) the performance of
the Great Southern mortgage obligation on a condominium owned by the
Company in accordance with its terms, (v) debentureholders were able to
elect to receive cash in the amount of 12 1/2% of their claims and one-half
share of the common stock of the Company for each $10.00 of their claim; or
cash in the amount of 10% of their claims and one and one-half shares of
the common stock of the Company for each $10.00 of their claim, (vi)
creditors with Allowed Unsecured Claims were able to elect to receive cash
in the amount of 12 1/2% of their Allowed Unsecured Claims; or cash in the
amount of 10% of their Allowed Unsecured Claims and one share of the common
stock of the Company for each $10.00 in debt, (vii) preferred shareholders
received .8 shares of the common stock of the Company for each share of
preferred stock held by them, rounded to the nearest whole share, and
(viii) common shareholders received 1 share of the common stock of the
Company for each 10 shares of common stock held by them pre-petition,
rounded to the nearest whole share.
The Plan of Reorganization was capitalized with a $1.2 million
investment of additional cash. The first installment of $600,000 was
delivered to the Company on or about February 24, 1997 by Mr. Paul M. Bluto
for which he received approximately 4,433,490 shares of the common stock of
the Company. The second installment of $600,000 was provided to the
Company from proceeds of a private placement of the Company's common stock
on or before September 10, 1997. Investors in this private placement
received 2,000,000 shares of the common stock of the Company and warrants
to purchase 2,000,000 shares of the common stock of the Company.
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Branson Facility
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The total size of the Branson facility is approximately 60,000
square feet. The main feature of this facility is a 532 seat IMAX giant
screen theater. The theater's screen is approximately 62 feet high by 83
feet wide. In addition to the theater, the Branson facility contains a
lobby area and retail shopping space with approximately 22,000 square feet
of leasable retail and restaurant space and approximately 2,000 square feet
of leasable office space. The Company owns and operates a 500 seat full
service family restaurant under the name "McFarlain's" at the Branson
facility. During 1997, the Company acquired the deli operation in the mall
in its Branson facility and named the new operation, McFarlain's Back Porch
Deli and Bakery.
Giant Screen Film and Projection Format
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The Company's giant screen theater is designed to take advantage of
the IMAX film and projection format. The giant screen film format is up
to ten times larger than the 35mm film used in the typical movie theater.
It is projected in a specially designed giant screen theater, configured
with amphitheater style seating, using a special projection system. The
projected image fills a screen that is five to seven stories high and is
complemented with a digital sound system. The result is that these giant
screen films can be displayed with great clarity at much larger than usual
viewing size, bringing the viewer "into" the film action on the screen.
The Company's theme film is produced in the IMAX film format. The
Company has leased a giant screen projection system, sound system and
projection screen for its Branson facility from Imax Corporation. The
System Lease Agreement is dated August 1, 1993 and is between the Company
and Imax Corporation. The lease is for an initial term of ten years,
renewable for an additional ten year term at the election of the Company.
The lease generally provides for an initial payment of rents in the amount
of $1,200,000, and a royalty percentage based upon net theater ticket
revenues.
Competition
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The Company operates a single facility in Branson, Missouri
providing entertainment and food to tourists. The Company must compete
with other entertainment attractions and restaurants in the Branson area
for tourists which visit the Branson area and the Company will also be
impacted by the competitive draw of Branson in relation to other locations.
Branson has many live performance theaters with presentations based
on country music and other popular music themes. These theaters generally
operate from May through mid-December, although more and more of these are
also offering a limited performance schedule in March and April. On
average, a theater operates two performances each day, for six days a week,
during the peak season, but may offer only one performance per day or
reduce the number of days per week during slower months. Seasonality will
cause a definite business cycle within each year for the Company's Branson
facility.
The major attraction in Branson is Silver Dollar City which is an
amusement park with an 1890's theme and attracts almost 2 million visitors
each year. Several other attractions exist in Branson, including water
parks, family amusements and activities related to the lakes in the region.
The Company has entered into cross promotion arrangements with Silver
Dollar City and with several of the major entertainers in Branson. The
Company's Branson facility is now listed in all major tour guides and
publications for the Branson area.
Employees
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At June 30, 1997, the Company had approximately 134 full-time
employees, almost all of which work at the Company's Branson facility, in
the theater, the McFarlain's restaurant and the McFarlain's Back Porch Deli
and Bakery. At June 30, 1996, the Company had approximately 103 full-time
employees.
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Item 2. Description of Property
-----------------------
The Company entered into a 50 year ground lease in July 1993 for the
5.5 acre site on which its Branson facility is located. The Company has
prepaid the first 20 years of the lease with a payment of $1,025,000.
Commencing in the 21st year of the lease, the annual lease payment will be
$145,000, adjusted to reflect inflationary increases.
The Company completed the construction of its Branson facility in
1993 on the 5.5 acre site leased by the Company. The Company owns the
Branson facility subject to a mortgage in the principal amount of
approximately $3,500,000 in favor of Boatmen's Bank of Southern Missouri.
The Company owns a condominium in Branson, Missouri which it
acquired in 1994 for $148,000 and which is subject to a mortgage at June
30, 1997 in the approximate principal amount of $110,000 in favor of Great
Southern with monthly payments of $741. The condominium is used as a
residence by the Company's president, Mr. Cullimore.
The Company owned a two and one-half acre site on St. Thomas which
was the planned location of a giant screen complex. Pursuant to the Plan
of Reorganization, during 1977 the Company conveyed the property to the
Bank of Nova Scotia, which held a mortgage on the property in the principal
amount of $480,000 at June 30, 1996, in full satisfaction of the Company's
obligation to the bank.
The Company owns no other real properties.
The Company produced and owns the giant screen theme film "Ozarks:
Legacy and Legend."
The Company has registered the service mark "ITEC Attractions" with
the U.S. Patent and Trademark Office and has submitted applications to
register the service marks "Ozarks Discovery" and "McFarlain's."
The properties and facilities of the Company are deemed adequate and
suitable for its operations.
Item 3. Legal Proceedings
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Other than the bankruptcy proceeding described above, there are no
material pending legal proceedings to which the Company is a party or of
which any of its property is the subject.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matter was submitted to a vote of security holders through the
solicitation of proxies or otherwise during the fourth quarter of the
fiscal year covered by this report.
In December 1996, subsequent to the filing of the Plan of
Reorganization and Disclosure Statement with the United States
Bankruptcy Court, the Company solicited and obtained approvals of its
creditors and security holders for the Plan of Reorganization.
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder
Matters
(a) Market Information. Prior to February 1996, the Company's common
stock was reported on the NASDAQ System. Since February 1996,
trading in the Company's common stock has been limited and
sporadic. There is presently no public trading market for the
Company's common stock. The Company's common stock may be traded
in the future in the over-the-counter market. Over-the-counter
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quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual
transactions. The following table shows the range of high and
low bid information available to the Company for the Company's
common stock for the quarterly periods indicated. The prices in
the table have been adjusted to give effect to the implementation
of the Company's Plan of Reorganization. The common stock was
first publicly traded in December 1992.
High Low
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1st Quarter (July 1994 - September 1994) $0.68 $0.35
2nd Quarter (October 1994 - December 1994) 0.38 0.20
3rd Quarter (January 1995 - March 1995) 0.28 0.15
4th Quarter (April 1995 - June 1995) 0.18 0.08
1st Quarter (July 1995 - September 1995) 0.14 0.06
2nd Quarter (October 1995 - December 1995) 0.13 0.01
3rd Quarter (January 1996 - March 1996) 0.02 0.00
4th Quarter (April 1996 - June 1996) 0.00 0.00
1st Quarter (July 1996 - September 1996) 0.00 0.00
2nd Quarter (October 1996 - December 1996) 0.00 0.00
3rd Quarter (January 1997 - March 1997) 0.00 0.00
4th Quarter (April 1997 - June 1997) 0.00 0.00
(b) Holders. The approximate number of record holders as of
September 24, 1997 of the Company's common stock, $.001 par value,
was 380. This number does not include beneficial owners of shares
held in "nominee" or "street" name. Including those beneficial
owners, the Company estimates total shareholders exceed 1,100.
(c) Dividends. The Company has not paid cash dividends on its
common stock during the past two fiscal years. At the present time,
the Company's anticipated capital requirements are such that it
intends to follow a policy of retaining any earnings in order to
finance the development of its business.
The Company's loan agreement with Boatmen's Bank of Southern
Missouri restricts the payment of dividends to an amount not exceeding
the Company's net profits plus depreciation plus interest expense, less
1.25 times the Company's annual principal and interest payments unless
otherwise agreed to by Boatmen's Bank of Southern Missouri.
Recent Sales of Unregistered Securities
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Commencing January 26, 1995, the Company offered and sold $500,000
of its 10% notes. No underwriter or selling agent was used in
connection with this offer and sale. The sale of these securities was
made pursuant to available exemptions under Section 4(2) and the
regulations promulgated pursuant thereto of the Securities Act of 1933,
as amended.
Commencing February 24, 1995, the Company issued 68,593 Units,
each Unit consisting of one restricted share of the series B preferred
stock of the Company, one series B warrant to purchase five restricted
shares of the common stock of the Company at a price of $3.00 per share
and one series C warrant to purchase five shares of the common stock of
the Company at a price to be determined. The Units were issued to note
holders of the Company in exchange for outstanding notes in the
principal amount of $500,000, plus accrued interest, and to investors
for $155,500 cash. The Units were offered and sold to investors through
Euro-Atlantic Securities, Inc. for which it was paid a 10% commission
and a 3% non-accountable expense allowance. The sale of these
securities was made pursuant to available exemptions under Section 4(2)
and the regulations promulgated pursuant thereto of the Securities Act
of 1933, as amended.
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Commencing May 5, 1995, the Company issued 144,020 Units, each
Unit consisting of one restricted share of the series B preferred stock
of the Company, one series B warrant to purchase five restricted shares
of the common stock of the Company at a price of $3.00 per share and one
series C warrant to purchase five shares of the common stock of the
Company at a price to be determined. The Units were issued to
debentureholders of the Company in exchange for outstanding debentures
in the principal amount of $1,405,000, plus accrued interest. No
underwriter or selling agent was used in connection with this sale. The
sale of these securities was made pursuant to available exemptions under
Section 4(2) and the regulations promulgated pursuant thereto of the
Securities Act of 1933, as amended.
In February 1997, the Company issued approximately 4,433,490
restricted shares of its common stock to Mr. Paul M. Bluto in
consideration of $600,000 cash. No underwriter or selling agent was
used in connection with this sale. The sale of these shares was made
pursuant to available exemptions under Section 4(2), Section 4(6), and
the regulations promulgated pursuant thereto of the Securities Act of
1933, as amended.
Commencing February 28, 1997 and completing on September 10, 1997,
the Company offered and sold 2,000,000 Units at a price of $.30 per Unit
for an aggregate consideration of $600,000, each Unit consisting of one
restricted share of the common stock of the Company and one warrant to
purchase one restricted share of the common stock of the Company at a
price of $1.00 per share. No underwriter or selling agent was used in
connection with this offer and sale. The sale of these shares was made
pursuant to available exemptions under Section 4(2), Section 4(6), and
the regulations promulgated pursuant thereto, of the Securities Act of
1933, as amended.
Item 6. Management's Discussion and Analysis or Plan of Operation
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The Company filed a voluntary petition for relief under Chapter 11
of the United States Bankruptcy Code on January 25, 1996. An Order
confirming the Company's Plan of Reorganization was entered on February 6,
1997.
Plan of Operation
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The Company expects that its call requirements will be satisfied
with available funds and that the Company will not need to raise additional
funds during the current fiscal year.
The Company does not expect to make any significant purchases or
sales of property or equipment during the current fiscal year.
The Company does not expect any significant changes in the number of
employees during the current fiscal year.
Financial Condition and Results of Operations
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At June 30, 1997 the Company had a cash balance of $260,774. The
Company had working capital at June 30, 1997 of $45,801 and a current ratio
of 1.1 to 1.
The Company's Plan of Reorganization, which was confirmed on
February 6, 1997, relieved the Company of approximately $3.2 million of
current liabilities and approximately $2.2 million of long-term debt for
which it paid approximately $600,000. This has significantly improved the
Company's financial condition.
The Company expects to be able to finance its operations and
immediate capital requirements from current operations and capital invested
pursuant to the Plan of Reorganization.
<PAGE>
The Company has not been unusually impacted by inflation or
changing prices during the past two years.
The Company's revenues for its fiscal year ending June 30, 1997
increased 20% to $4,893,055 compared to $4,067,089 for the fiscal year
ending June 30, 1996. This increase was primarily due to increased
revenues at the McFarlain's restaurant and the acquisition of the
McFarlain's Back Porch Deli and Bakery in the mall.
The Company's direct costs for film exhibition decreased to
$213,486 as compared to $253,514 in the prior year. This decrease is
due to a reduction in film rental expenses paid to third parties. The
Company primarily exhibits its own theme film: "Ozarks: Legacy and
Legend," which premiered on April 28, 1995. Restaurant expenses
increased to $645,633 as compared to $396,914 in the prior year period,
primarily due to increased sales volume at McFarlain's restaurant and
the addition of the McFarlain's Back Porch operation. Concession
expenses decreased to $177,370 as compared to $234,733 in fiscal 1996 as
a result of the sale of the Company's Gingerbread Kids operation in the
mall.
Selling, general and administrative expenses for the fiscal year
ended June 30, 1997 increased 1.9 percent to $3,742,244 as compared to
$3,674,242 in the prior year. Management remains focused on controlling
expenses while increasing revenues at its Branson facility.
During fiscal 1996, the Company adopted Statement of Financial
Accounting Standard (SFAS) No. 121 "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of." SFAS No.
121 requires that long-lived assets and certain identifiable intangibles
which are held and used by the Company be reviewed for impairment
whenever changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. In performing the review of
recoverability, the Company estimated the future cash flows expected to
result from the use of various assets including the Company's property,
film and intangible assets and recognized an impairment loss in the
amount of $5,118,198 for the year ended June 30, 1996.
Income from operations for fiscal 1997 was $114,322 compared to an
operating loss of $5,610,512 in fiscal 1996 which was primarily related
to the write-down of assets discussed above.
Interest expense for the 1997 fiscal year reflects carrying costs
of the Company's mortgage on the Branson theater complex, the Company's
1993 Debentures issued in September 1993 and borrowings required to
complete the production of the Ozarks film. The 1993 Debentures and
other borrowings were converted to equity in connection with the
Company's Plan of Reorganization.
Net income applicable to common stock for the fiscal year ended
June 30, 1997 totaled $3,567,849 as compared to a net loss of $6,577,586
for 1996. The June 30, 1997 net income included an extraordinary gain
in the amount of $4,086,766 from forgiveness of debt in the Company's
bankruptcy reorganization.
Item 7. Financial Statements
--------------------
The Financial Statements of the Company required by this Item are
attached as a separate section of this report and are listed in Part IV,
Item 13 of this Form 10-KSB.
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
On February 11, 1997, the Company notified KPMG Peat Marwick LLP,
Salt Lake City, Utah, that it would not be retained as the principal
accountant to audit the Company's financial statements for the June 30,
1996 year. The accountant's report on the Company's financial
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statements for the fiscal year ended June 30, 1995 contained a going
concern explanatory paragraph. There have been no disagreements between
the Company and the former accountant on any matter of accounting
principles or practices, financial statement disclosure, or auditing
scope or procedure in connection with the audits of the two years ended
June 30, 1995 or any subsequent period preceding the change described
herein.
On February 12, 1997, the Company engaged Tanner + Co., Salt Lake
City, Utah, as the principal accountant to audit the Company's financial
statements. The Board of Directors of the Company has approved the
change of accountants.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act
Directors and Executive Officers
The directors and executive officers of the Company at September 24,
1997 are:
Name Age Position in Company
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Paul M. Bluto 68 Chairman of the Board and Chief
Financial Officer
Kelvyn H. Cullimore 62 President, Chief Executive
Officer, and Director
Robert J. Cardon 34 Secretary/Treasurer
Kelvyn H. Cullimore, Jr. 41 Director
Francis E. McLaughlin 55 Director
Kumar V. Patel 51 Director
Thomas J. Carlson 44 Director
Michael L. Pitman 41 Senior Vice President of Marketing
Randy S. Brashers 28 Vice President of Operations
Kelvyn H. Cullimore is the father of Kelvyn H. Cullimore, Jr. There
are no other family relationships among any of the above-named persons.
All directors of the Company are elected to hold office until the
annual meeting of the shareholders following their election and until their
successors have been duly elected and qualified. Officers of the Company
are elected by the Board of Directors at the first meeting after the annual
meeting of the Company's shareholders and hold office until their
successors are chosen and qualify, or until their death, or until they
resign or have been removed from office.
Kelvyn H. Cullimore is employed by the Company as its President and
Chief Executive Officer and will also continue to devote part of his time
to his duties as Chairman of the Board of Dynatronics Corporation. It is
not anticipated that this arrangement will interfere with Mr. Cullimore's
ability to perform his duties for the Company. All other staff personnel
employed by the Company devote full-time to the business of the Company as
salaried employees. Robert J. Cardon and other support personnel are
<PAGE>
available under the contract with Dynatronics Corporation to provide
services to the Company on an as needed basis. See "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS." Dynatronics Corporation is a public company
which manufactures devices for the physical medicine market.
Paul M. Bluto has been a Director of the Company since April 1995.
He became Chairman of the Board and Chief Financial Officer in February
1997. Since 1990, Mr. Bluto has been employed by G.S.&W. Services in
marketing, special projects and computerization. From 1966 to 1990, Mr.
Bluto was employed with the United Automobile, Aerospace, Agriculture
Implement Workers of America (U.A.W.), most recently as a Senior Vice
President of Operations and Human Resources.
Kelvyn H. Cullimore has served as President of the Company since its
incorporation in 1986. He has been a director since 1986, served as
Chairman of the Board from 1986 to February 1997 and became Chief Executive
Officer in February 1997. Mr. Cullimore received a B.S. in Marketing from
Brigham Young University in 1957 and, following graduation, worked for a
number of years as a partner in a family-owned home furnishings business in
Oklahoma City, Oklahoma. Mr. Cullimore has participated in the
organization and management of various enterprises, becoming the president
or general partner in several business entities, including real estate, the
motion picture industry and equipment partnerships and has served on the
board of directors of Brighton Bank and a privately-owned wholesale travel
agency. Since 1975, Mr. Cullimore has consulted for independent film
production and distribution companies and has been involved in the raising
of capital for the production of feature-length films. From 1979 to 1992,
Mr. Cullimore served as chairman of the board and president of American
Consolidated Industries ("ACI"), a corporate affiliate of Dynatronics
Corporation, which in 1992 was merged with and into Dynatronics
Corporation. ACI was a privately-owned holding company for various
investments. From 1983 to 1992, Mr. Cullimore also served as president of
Dynatronics Corporation and from 1983 to present, he has served as chairman
of the board of Dynatronics Corporation, a publicly-held company whose
securities are registered under the Securities Exchange Act of 1934, as
amended.
Robert J. Cardon was appointed Corporate Secretary of the Company in
February 1992 and became Treasurer of the Company in February 1997. Since
1988, Mr. Cardon has served as administrative assistant to the President of
the Company and of Dynatronics Corporation, and since December 1992 has
served as Corporate Secretary of Dynatronics Corporation. From 1987 to
1988, Mr. Cardon was employed as a registered representative of an
investment banking firm. He received his B.A. in 1987 and his M.B.A. in
1990, both from Brigham Young University.
Kelvyn H. Cullimore, Jr. has been a Director of the Company since
its incorporation in 1986. He graduated from Brigham Young University with
a degree in Financial and Estate Planning in 1980. Since graduation, Mr.
Cullimore, Jr. has served on the board of directors of several businesses,
including Dynatronics Corporation, Dynatronics Marketing Company, ACI and a
privately-owned wholesale travel agency. In addition, he has served as
secretary/treasurer of each of the foregoing companies. Mr. Cullimore, Jr.
also served as Executive Vice President and Chief Operating Officer of ACI
and he currently serves as President and a Director of Dynatronics
Corporation, a publicly-held company whose securities are registered under
the Securities Exchange Act of 1934, as amended.
Francis E. McLaughlin has been a Director of the Company since
1988. He is the founder and principal owner of the McLaughlin Companies,
which includes the largest real estate firm in the U.S. Virgin Islands, a
real estate appraisal company and a property management company. Mr.
McLaughlin is a licensed real estate broker holding the Certified
Residential Broker (CRB) and Graduate, Realtors Institute (GRI)
designations. He has developed several residential and commercial real
estate projects in the U.S. Virgin Islands. He is also active in community
and civic affairs in the U.S. Virgin Islands.
Kumar V. Patel was elected a director of the Company in April 1995.
Since 1976, Mr. Patel has been self-employed in real estate investment and
management in Southern California. He received a B.A. in Honors Economics
<PAGE>
and Accounting from the University of Newcastle-Upon-Tyne, Great Britain.
He is a licensed Real Estate Broker and a licensed General Contractor in
California. He is also President of Great Designs Realty and Development
Inc., a family business offering service in foreclosure, property
management and construction.
Thomas J. Carlson became a Director in June, 1997. Mr. Carlson has
been in a private law practice for over 14 years in Springfield, Missouri.
From 1987 to 1993, he served as Mayor of Springfield and currently serves
as a member of Springfield's City Council. He serves on various community
service boards of directors. Mr. Carlson received a JD degree from the
University of Missouri at Kansas City in 1979 and a BA degree in Journalism
from George Washington University in 1975.
Michael L. Pitman has been with the Company since April of 1993. He
served as Marketing Director until June of 1997 at which time he was
elected Senior Vice President of Marketing. Prior to his employment with
ITEC, Mr. Pitman was a salesman for a natural sugar company and a regional
food brokerage. Prior to that time, he managed Ike's Candy Company in Salt
Lake City, Utah for five years.
Randy S. Brashers was elected Vice President of Operations for the
Company in June of 1997. Mr. Brashers is a life-long resident of the
Ozarks. He grew up in the retail and wholesale broker business and
graduated with a B.S. degree from Southern Missouri State University. He
was employed by the Kimberling City Chamber of Commerce prior to joining
ITEC in December of 1993. He has served as floor manager, assistant
operations manager and as operations manager prior to his current position.
Compliance With Section 16(a) of the Exchange Act
- -------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's Officers and Directors and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange
Commission. Officers, directors and greater than 10% beneficial owners are
required by regulations of the Securities and Exchange Commission to
furnish the Company with copies of all Section 16(a) forms which they file.
During fiscal 1997 and up through September 10, 1997, several of
the Company's directors and officers acquired stock in the Company.
These individuals include: Paul Bluto who purchased 4,433,490 shares
pursuant to the Plan of Reorganization and 539,573 shares in the
Company's private placement; Kelvyn Cullimore who acquired 201,523
shares pursuant to the Plan of Reorganization and purchased 16,667
shares in the Company's private placement; Frank McLaughlin who
purchased 66,667 shares in the Company's private placement; Tom Carlson
who purchased 66,667 shares in the private placement and became a
Director in June, 1997; Kumar Patel who purchased 100,000 shares in the
private placement; Michael Pitman who acquired 70,363 shares pursuant to
the Plan of Reorganization; and Randy Brashers who acquired 70,363
shares pursuant to the Plan of Reorganization. In addition, Mr. Bluto
may be considered to be a control person of Gs&W Services which
purchased 383,333 shares in the private placement. The Company believes
that all Section 16(a) filings applicable to its officers, directors and
greater than 10% beneficial owners have been made, however, the filings
pertaining to these transactions or events were made subsequent to the
prescribed filing periods.
<PAGE>
Item 10. Executive Compensation
----------------------
Compensation of Executive Officers
- ----------------------------------
The following table sets forth the compensation of the Company's
chief executive officer during the fiscal years ended June 30, 1997,
1996, and 1995. No other executive officer had a total annual salary
and bonus exceeding $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
---------------------------------------- ----------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Other Restricted
Name and Annual Stock LTIP All Other
Principal Compen- Award(s) Options/ Payouts Compen-
Position Year Salary($) Bonus($) sation($) ($) SAR(#) ($) sation($)
- -------- ---- -------- -------- ---------- ----------- ------- ---------- -----------
Kelvyn H. Cullimore 1997 $100,800 $ -0- $ 37,076(1) $ -0- -0- $ -0- $ -0-(3)
CEO(2) 1996 $124,784 $ -0- $ 38,791(1) $ -0- -0- $ -0- $ -0-
1995 $125,538 $ -0- $ 42,074(1) $ -0- -0- $ -0- $ -0-
- -------------------------------------------------------------------
</TABLE>
(1) Included in these amounts are premiums of $34,224 for 1997,
$34,134 for 1996, $34,211 and for 1995 on insurance policies
funding a salary continuation plan for Mr. Kelvyn H. Cullimore.
Also included are life insurance premiums, disability
insurance premiums and personal usage of a Company automobile
or car allowance.
(2) Mr. Cullimore's presence in Branson on behalf of the Company is
considered temporary and therefore, the above Compensation
Table does not include any amount for use of the condominium by
Mr. Cullimore. The Company paid approximately $11,400 for the
condominium during each of the last three fiscal years.
(3) Mr. Cullimore received 201,523 shares of restricted common
stock as part of the Company's Plan of Reorganization in fiscal
1997. The stock had no value at that time, and since the value
is not determinable, no value is placed on the stock.
The Company did not grant to executive officers nor were there
outstanding any stock options or stock appreciation rights during its
last completed fiscal year ending June 30, 1997.
During the last completed fiscal year, the Company made no awards
under any long-term incentive plan. The Company does not maintain any
defined benefit or actuarial plan.
Employment Agreements
- ---------------------
Pursuant to the Plan of Reorganization confirmed by the U.S.
Bankruptcy Court on February 6, 1997, Mr. Cullimore has agreed to continue
to work for the Company on the following terms: an annual salary of
$100,800; an automobile allowance of $250 per month; a $35,000 annual
contribution to Mr. Cullimore's retirement fund; and the condominium owned
by the Company will be provided to Mr. Cullimore for his living
accommodations.
Mr. Cullimore receives one-half of an incentive bonus pool equal to
50% of positive cash flow from operations per year from $200,000 to
$300,000, 25% from $300,000 to $400,000, and 10% in excess of $400,000.
<PAGE>
Compensation of Directors
- -------------------------
Directors of the Company receive $250.00 per meeting for service as
directors of the Company. The Board of Directors will meet quarterly or
more often as needed. Directors are reimbursed for expenses incurred on
behalf of the Company in attending directors' meetings.
Item 11. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The following table sets forth, as of September 24, 1997, certain
information with respect to any person who is known to the Company to be
the beneficial owner of more than five percent (5%) of the Company's
capital stock, each director, certain executive officers and as to all
directors and officers as a group:
Common Stock Beneficially Owned
-------------------------------
Number
Name of shares % of Class(1)
---- --------- -------------
Paul M. Bluto (2) 5,367,409 67.0%
Kelvyn H. Cullimore (3) 463,982 5.8%
Kelvyn H. Cullimore, Jr. (4) 230,339 2.9%
Francis E. McLaughlin 74,697 0.9%
Kumar V. Patel 100,000 1.2%
Thomas J. Carlson 66,667 0.8%
Michael L. Pitman 70,563 0.9%
Randy S. Brashers 70,543 0.9%
All Directors and Officers
of the Company as a Group
(9 persons)(5) 6,213,860 77.5%
___________________
(1) These calculations are based upon a total of 8,015,397 shares
outstanding as of September 24, 1997. Pursuant to the Plan of
Reorganization, 284,243 shares of common stock are issued to
debentureholders upon conversion of their claims; 88,530 shares
of common stock are issued to unsecured creditors upon conversion
of their claims; 635,999 shares of common stock are issued to
pre-petition common shareholders; 170,090 shares of common stock
are issued to pre-petition preferred shareholders; 403,045 shares
of common stock are issued to management of the Company pursuant
to an incentive program; 4,433,490 shares of common stock are
issued to Mr. Bluto in consideration of $600,000 cash; and
2,000,000 shares of common stock are issued to investors in the
Company's 1997 private placement in consideration of $600,000
cash of which Mr. Bluto was an investor.
(2) Mr. Bluto owns 11,013 shares as a result of the pre-petition
holdings of himself and his wife and acquired 4,433,490 shares
pursuant to the Plan of Reorganization. Mr. Bluto acquired
539,573 additional shares in the Company's private placement
<PAGE>
which was completed subsequent to June 30, 1997. In addition,
Mr. Bluto, as trustee, may be deemed to be a control person of
the GS&W Services Defined Benefit Plan which owns 383,333 shares
which are included in Mr. Bluto's holdings.
(3) Mr. Cullimore owns 10,453 shares as a result of pre-petition
holdings, he received 201,523 shares as part of the Company's
Plan of Reorganization and he owns 5,000 shares which he received
in satisfaction of claims as a creditor of the Company. In
addition, Mr. Cullimore acquired 16,667 shares of common stock in
the Company's private placement. Mr. Cullimore may be deemed to
be a control person of Dynatronics Corporation which owns 230,339
shares, which are included in Mr. Cullimore's holdings.
(4) Mr. Cullimore, Jr. may be deemed to be a control person of
Dynatronics Corporation which owns 230,339 shares, which are
included in Mr. Cullimore, Jr.'s holdings.
(5) The calculation of beneficially owned shares of all executive
officers and directors as a group eliminates the duplicate
entries of shares owned by Dynatronics which are reflected in the
beneficial ownership of both Kelvyn H. Cullimore and Kelvyn H.
Cullimore, Jr.
Item 12. Certain Relationships And Related Transactions
----------------------------------------------
Mr. Kelvyn H. Cullimore is the Chairman of the Board of Dynatronics
Corporation. Mr. Kelvyn H. Cullimore, Jr. is the President and a Director of
Dynatronics Corporation. Kelvyn H. Cullimore and Kelvyn H. Cullimore, Jr. may
be considered to be affiliates of Dynatronics Corporation by virtue of their
positions with Dynatronics Corporation. The Company pays Dynatronics
Corporation, an affiliate of the Company, $6,000 per month to provide
administrative, payroll, staffing, accounting functions and support.
Dynatronics Corporation owns approximately 3% of the common stock of the
Company (post reorganizaton).
PART IV
Item 13. Exhibits and Reports on Form 8-K
--------------------------------
Documents filed as part of Form 10-K:
Financial Statements Filed as part of Form 10-KSB:
-------------------------------------------------
Independent Auditors' Report
Tanner + Co. F-2
Balance Sheet at June 30, 1997 F-3
Statements of Operations --
years ended June 30, 1997 and 1996 F-4
Statements of Stockholders'
Equity -- years ended June 30,
1997 and 1996 F-5
Statements of Cash Flows --
years ended June 30, 1997 and 1996 F-6
Notes to Financial Statements F-7
<PAGE>
(a) Exhibits
Reg. S-B
Exhibit No. Description
----------- -----------
3.1 Articles of Incorporation of the Registrant, as
amended (incorporated by reference to Registration
Statement on Form S-1, Registration No. 33-48630)
3.2 Bylaws of the Registrant, as amended and restated on
April 6, 1991 (incorporated by reference to
Registration Statement on Form S-1, Registration No.
33-48630)
3.3 Amendments to Bylaws of the Registrant dated August
28, 1991 and July 24, 1992 (incorporated by reference
to Registration Statement on Form S-1, Registration
No. 33-48630)
4.1 Specimen Certificate for the Common Stock of the
Registrant (incorporated by reference to Registration
Statement on Form S-1, Registration No. 33-48630)
10.3 Ground Lease Agreement dated July 27, 1993 between
Treasure Lake R.V. Resort Camping Club, Inc. and
International Tourist Entertainment Corporation
(incorporated by reference to Registration Statement
on Form S-1, Registration No. 33-64132)
10.4 Loan Agreement dated July 30, 1993 for loan from
Boatmen's Bank, Branson, Missouri to International
Tourist Entertainment Corporation (incorporated by
reference to Registration Statement on Form S-1,
Registration No. 33-64132)
10.5 Deed of Trust dated July 30, 1993 for benefit of
Boatmen's Bank, Branson, Missouri (incorporated by
reference to Registration Statement on Form S-1,
Registration No. 33-64132)
10.10 Distribution Agreement dated July 14, 1995 between
Imax Corporation and the Company
10.11 Second Amended Plan of Reorganization dated December
18, 1996 and Second Amended Disclosure Statement in
Support of Proposed Second Amended Plan of
Reorganization dated December 18, 1996 (incorporated
by reference to Form 8-K filed on February 26, 1997)
10.12 Third Modification Agreement dated March 1, 1997
between Boatmen's Bank of Southern Missouri and the
Company.
10.13 System Lease Agreement as amended dated August 1, 1993
between IMAX Corporation and the Company.
16.1 Letter regarding change in certifying accountant
(incorporated by reference to a report on Form 8-K
filed on February 19, 1997)
(b) Reports on Form 8-K: No report on Form 8-K has been filed by the
Company during the last quarter of the period covered by this
report.
<PAGE>
On February 19, 1997 the Company filed a report on Form 8-K
reporting a change in its certifying accountant.
On February 26, 1997 the Company filed a report on Form 8-K
reporting a change in control of the Company resulting from the
confirmation of the Plan of Reorganization on February 6, 1997 and the
Company's Bankruptcy proceeding.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
INTERNATIONAL TOURIST ENTERTAINMENT CORPORATION
By /s/ Kelvyn H. Cullimore Date: September 30, 1997
----------------------------
Kelvyn H. Cullimore,
President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
/s/ Paul M. Bluto Chairman of the Board of Directors 9/30/97
- ---------------------------- Chief Financial Officer ---------
Paul M. Bluto (Principal Financial Officer)
/s/ Kelvyn H. Cullimore Chief Executive Officer, 9/30/97
- ---------------------------- President and Director ---------
Kelvyn H. Cullimore (Principal Executive Officer)
/s/ Kelvyn H. Cullimore, Jr. Director 9/30/97
- ---------------------------- ---------
Kelvyn H. Cullimore, Jr.
/s/ Francis E. McLaughlin Director 9/30/97
- ---------------------------- ---------
Francis E. McLaughlin
/s/ Kumar V. Patel Director 9/30/97
- ---------------------------- ---------
Kumar V. Patel
Director
- ---------------------------- ---------
Thomas J. Carlson
<PAGE>
INTERNATIONAL TOURIST ENTERTAINMENT CORPORATION
Index to Financial Statements
Page
----
Report of Tanner + Co. F-2
Balance Sheet F-3
Statement of Operations F-4
Statement of Stockholders' Equity F-5
Statement of Cash Flows F-6
Notes to Financial Statements F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
International Tourist Entertainment Corporation
We have audited the balance sheet of International Tourist Entertainment
Corporation as of June 30, 1997, and the related statements of
operations, stockholders' equity and cash flows for the two years ended
June 30, 1997 and 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of
International Tourist Entertainment Corporation as of June 30, 1997, and
the results of its operations and its cash flows for the two years ended
June 30, 1997 and 1996, in conformity with generally accepted accounting
principles.
TANNER + Co.
Salt Lake City, Utah
August 18, 1997 except for Note 14,
which is dated September 10, 1997
F-2
<PAGE>
INTERNATIONAL TOURIST ENTERTAINMENT CORPORATION
Balance Sheet
June 30, 1997
-------------
Assets
------
Current assets:
Cash and cash equivalents $ 260,774
Receivables 36,145
Inventories 59,939
Prepaid expenses 9,809
Current portion of prepaid leases 166,915
-----------
Total current assets 533,582
Property and equipment, net 5,648,829
Prepaid leases 1,382,475
Deposits 12,276
-----------
$ 7,577,162
===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 47,558
Accrued expenses 322,731
Current portion of long-term debt 117,492
-----------
Total current liabilities 487,781
Accrued lease expense 225,391
Long-term debt 3,678,956
Deposits 22,000
-----------
Total liabilities 4,414,128
-----------
Commitments and contingencies -
Stockholders' equity:
Common stock, $.001 par value; authorized 40,000,000
shares; issued and outstanding 6,844,397 shares 6,844
Additional paid-in capital 10,432,419
Accumulated deficit (7,276,229)
-----------
Total stockholders' equity 3,163,034
-----------
$7,577,162
===========
See accompanying notes to financial statements.
F-3
<PAGE>
INTERNATIONAL TOURIST ENTERTAINMENT CORPORATION
Statement of Operations
Years Ended June 30,
1997 1996
--------- ----------
Revenues:
Theater admissions $1,880,773 $1,825,826
Restaurant and deli 2,108,439 1,388,656
Concession and retail sales 347,684 394,760
Retail rental income 556,159 457,847
---------- ----------
4,893,055 4,067,089
Costs and expenses:
Direct exhibition film costs 213,486 253,514
Direct restaurant and deli costs 645,633 396,914
Direct concession and retail costs 177,370 234,733
Selling, general, and administrative
expenses 3,742,244 3,674,242
Property, film, and intangible
asset write-down - 5,118,198
---------- ----------
4,778,733 9,677,601
---------- ----------
Income (loss) from operations 114,322 (5,610,512)
---------- ----------
Other income (expense):
Interest expense (657,363) (759,939)
Interest income 22,451 7,388
Other 1,673 (1,910)
---------- ----------
(633,239) (754,461)
---------- ----------
Loss before provision for income
taxes and extraordinary item (518,917) (6,364,973)
Provision for income taxes - -
---------- ----------
Loss before extraordinary item (518,917) (6,364,973)
Extraordinary gain from forgiveness of
debt, net of $-0- income taxes 4,086,766 -
---------- ----------
Net income (loss) $3,567,849 $(6,364,973)
========== ==========
Dividends on convertible preferred
stock; unpaid - (212,613)
---------- ----------
Income (loss) applicable to common
stock $3,567,849 $(6,577,586)
========== ==========
Gain (loss) per common share
Continuing operations $ (.21)$ (10.34)
Extraordinary item 1.66 -
---------- ----------
$ 1.45 $ (10.34)
========== ==========
Weighted average common shares outstanding 2,463,738 635,999
========== ==========
See accompanying notes to financial statements.
F-4
<PAGE>
INTERNATIONAL TOURIST ENTERTAINMENT CORPORATION
Statement of Stockholders' Equity
Years Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
Total
Additional Stockholders'
Preferred Stock Common Stock Paid-In Accumulated Equity
Shares Amount Shares Amount Capital Deficit (Deficit)
------ ------ ------ ------ ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1995 212,613 $ 213 635,999 $ 636 $9,580,140 $(4,479,105) $5,101,884
Net loss - - - - - (6,364,973) (6,364,973)
------- ------- ------- ------- ---------- ----------- ----------
Balance, June 30, 1996 212,613 213 635,999 636 9,580,140 (10,844,078) (1,263,089)
Conversion of debentures
and related interest for
common stock - - 284,243 285 6,673 - 6,958
Conversion of preferred
stock to common stock (212,613) (213) 170,090 170 43 - -
Issuance of common
stock for:
Cash - - 5,262,490 5,262 843,439 - 848,700
Forgiveness of debt - - 88,530 88 2,125 - 2,213
Bankruptcy settlement - - 403,045 403 - - 403
Net income - - - - - 3,567,849 3,567,849
------- ------- --------- -------- ---------- ----------- ----------
Balance, June 30, 1997 - $ - 6,844,397 $6,844 $10,432,420 $(7,276,229) $3,163,034
======= ======= ========= ======== =========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
INTERNATIONAL TOURIST ENTERTAINMENT CORPORATION
Statement of Cash Flows
<TABLE>
<CAPTION>
Years Ended June 30,
1997 1996
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $3,567,849 $(6,364,973)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 349,045 731,264
Loss on disposition of property and equipment - 79,502
Property, film, and intangible asset write-down - 5,118,198
Extraordinary gain from forgiveness of debt (4,086,766) -
(Increase) decrease in:
Receivables (18,382) 26,082
Inventories (8,480) 43,843
Deposits and prepaid expenses 26,401 14,812
Prepaid leases 178,754 166,915
Increase (decrease) in:
Accounts payable and accrued expenses (1,566) 678,468
Deposits (4,800) 8,850
----------- ----------
Net cash provided by
operating activities 2,055 502,961
----------- ----------
Cash flows from investing activities-
purchase of property and equipment (460,806) (198,956)
----------- ----------
Cash flows from financing activities:
Proceeds from debt 5,123 136,236
Payments on debt (275,214) (241,649)
Payments on debentures (221,263) -
Net proceeds from issuance of common stock 848,700 -
----------- ----------
Net cash provided by (used in)
financing activities 357,346 (105,413)
----------- ----------
(Decrease) increase in cash and cash equivalents (101,405) 198,592
Cash and cash equivalents, beginning of year 362,179 163,587
----------- ----------
Cash and cash equivalents, end of year $260,774 $ 362,179
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
INTERNATIONAL TOURIST ENTERTAINMENT CORPORATION
Notes to Financial Statements
June 30, 1997 and 1996
1. Summary of Significant Accounting Policies
------------------------------------------
Description of Business
- -----------------------
The Company's principal business is in the tourist
entertainment sector. The Company completed and
placed in operation in October 1993 a giant screen
tourist entertainment complex in Branson, Missouri,
began showing its own theme film produced especially
for the Branson location in April 1995. The Company
also operates a restaurant (as of May 1995), a fast
food concession as of March 1997 and a small retail
store in the Branson complex.
Concentration of Credit Risk
- ----------------------------
Financial instruments which potentially subject the
Company to concentration of credit risk consist
primarily of trade receivables. In the normal course
of business, the Company provides credit terms to its
customers. Accordingly, the Company performs ongoing
credit evaluations of its customers and maintains
allowances for possible losses which, when realized,
have been within the range of management's
expectations.
The Company maintains its cash in bank deposit amounts
which, at times, may exceed federally insured limits.
The Company has not experienced any losses in such
accounts and believes it is not exposed to any
significant credit risk on cash and cash equivalents.
Cash Equivalents
- ----------------
The Company considers all highly liquid temporary
investments with an original maturity of three months
or less to be cash equivalents.
Inventories
- -----------
Inventories consist of retail merchandise and
concession items that are recorded at the lower of
cost or market, cost being determined on the first-in
first-out (FIFO) method.
F-7
<PAGE>
1. Summary of Significant Accounting Policies (Continued)
-----------------------------------------------------
Film Development Costs
- ----------------------
Film development costs reflect the direct costs
incurred to produce giant screen films exhibited by
the Company. Such costs are amortized, commencing
when films are first exhibited, using a straight-line
method over an estimated useful life of seven years.
The estimated useful life and method of amortization
is based principally on management's estimates of
projected future revenues, and the years over which
similar theme films have been exhibited within the
giant screen theater industry. As films are exhibited
and historical information becomes available to aid
management in film revenue projections, amortization
will be modified, if necessary, so as to reasonably
relate film costs to estimated gross revenues expected
over the estimated useful life of the films, not to
exceed seven years. Management evaluates the
unamortized film development costs for possible
impairment giving consideration to various factors
including revenue trends and projected cash flows.
Impairments determined through the evaluation are
expensed currently.
Property and Equipment
- ----------------------
Property and equipment are recorded at cost, less
accumulated depreciation. Depreciation and
amortization on capital leases and property and
equipment is determined using the straight-line method
over the estimated useful lives of the assets or terms
of the lease. Expenditures of maintenance and repairs
are expensed when incurred and betterments are
capitalized. Gains and losses on sale of property and
equipment are reflected in operations.
Gain (Loss) Per Common Share
- ----------------------------
Net gain (loss) per common share is based on net gain
(loss) after preferred stock dividend requirements and
the weighted average number of common shares
outstanding during each year after giving effect to
stock options considered to be dilutive common stock
equivalents, determined using the treasury stock
method. Fully diluted net gain (loss) per common
share is not materially different from primary net
gain (loss) per common share.
F-8
<PAGE>
1. Summary of Significant Accounting Policies (Continued)
-----------------------------------------------------
Income Taxes
- ------------
Income taxes are recorded using the asset and
liability method, deferred tax assets and liabilities
are recognized for the future tax consequences
attributable to differences between the financial
statement carrying amounts of existing assets and
liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the
years in which those temporary differences are
expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that
includes the enactment date.
Impairment of Assets
- --------------------
In 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." The Statement establishes
accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill
related to those assets. Under provision of the
Statement, impairment losses are recognized when
expected future cash flows are less than the assets'
carrying value. Accordingly, when indicators of
impairment are present, the Company evaluates the
carrying value of property, plant, and equipment and
intangibles in relation to the operating performance
and future undiscounted cash flows of the underlying
business. The Company adjusts the net book value of
the underlying assets if the sum of expected future
cash flows is less than book value.
Use of Estimates in the Preparation of Financial Statements
- -----------------------------------------------------------
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that
affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
F-9
<PAGE>
2. Property and Equipment
----------------------
Property and equipment consists of the following:
Buildings $4,542,766
Equipment 619,528
Furniture and fixtures 272,029
Film development costs 900,000
----------
6,334,323
Less accumulated depreciation
and amortization (685,494)
----------
$5,648,829
==========
3. Related Party Transactions
--------------------------
The Company pays Dynatronics Corporation
(Dynatronics), a company with common management a
monthly fee for administrative staff, accounting
services, and accounting personnel. The related costs
are included in general and administrative expenses
and amounted to $67,500 and $72,000, for the years
ended June 30, 1997 and 1996, respectively.
During fiscal 1996, the Company leased vehicles under
noncancelable operating lease agreements and
reimbursed Dynatronics for vehicle lease expenses.
Rent expense for the year ended June 30, 1996, was
approximately $14,800.
During 1995, Dynatronics guaranteed a commercial bank
loan of $500,000 to the Company to pay for production
of the Branson theme film. Dynatronics also made
advances to the Company of $228,824 for reimbursement
of expenses. Additionally, the Company borrowed
$300,000 under a promissory note, which is in default,
that bears interest at prime plus 1/2 percent for the
production of the Branson theme film from a director
of the Company. There was no interest charged during
the year ended June 30, 1997 and $25,683 for the year
ended June 30, 1996. In consideration for the
guarantee, advances and loans, the Company granted to
Dynatronics and the director a security interest in
its Branson theme film.
F-10
<PAGE>
4. Preferred Stock
---------------
Preferred Stock
- ---------------
The Company prior to its filing for bankruptcy
protection, had issued and outstanding 212,613 shares
of preferred stock. The preferred stock had various
provisions including the conversion into common stock
and the entitlement of dividends to be paid out of
legally available funds at a rate of 10%. At June 30,
1996, dividends in arrears totaled $237,161.
The Company's bankruptcy's plan of reorganization
provided for the conversion of each share of preferred
stock plus the dividend in arrears into .8 shares of
the Company's common stock. During May and June 1997,
the Company converted the 212,613 shares of preferred
stock plus the dividends in arrears into 170,090
shares of the Company's common stock.
5. Convertible Debenture Offering
------------------------------
The Company at June 30, 1996 and 1995, had convertible
debentures totaling $2,055,000. The debentures had an
interest rate of 10% and were convertible into 316,154
shares of common stock.
During the year ended June 30, 1997 as part of the
bankruptcy agreement, the Company modified the
conversion rate and converted the $2,055,000 of
debentures into cash payments of $221,264 and 284,243
shares of common stock. The Company realized a gain
of $1,826,779 on the conversion of the debentures to
common stock see note 14.
6. Lease Obligations
-----------------
The Company has a ten year operating lease agreement
for a giant screen theater projection and sound system
for its Branson Theater Complex. Under the terms of
this agreement, the Company was required to make
advance rental payments. Such amounts, net of
amortization, are reflected in prepaid leases in the
accompanying financial statements. The advance rent
payments are being amortized on a straight-line basis
over the initial ten year lease term. Additionally,
the lease agreement requires the payment of monthly
rents in the amount of $9,223 throughout the remaining
lease term, together with annual percentage royalties
ranging from one to ten percent based upon the
attainment of certain net theater admission revenue
volumes. Advance and fixed minimum lease commitments
related to this lease are included in the following
tables.
F-11
<PAGE>
6. Lease Obligations (Continued)
-----------------------------
The Company also has a fifty year operating lease on
land located in Branson, Missouri, the site of the
Company's giant screen tourist entertainment complex.
An advance rent payment of $1,025,000 was made at the
time of the lease which satisfied the Company's rent
obligation for years one through twenty of the lease
agreement. For years twenty-one through fifty of the
lease, the Company is obligated to make quarterly rent
payments aggregating $145,000 annually, these amounts
are subject to an annual consumer price index
adjustment. Base rents including the $1,025,000 in
advance rents and the $145,000 annual amount
commencing in the twenty-first lease year is expensed
on a straight-line basis over the fifty-year lease
term, which under the term of the agreement began
October 1, 1993. Amounts recorded as accrued rent
land lease noncurrent in the accompanying balance
sheet reflects an accrual for those portions of the
rents that will be paid during years twenty-one
through fifty which are expensed currently using the
straight-line expense recognition method.
Advance rental payments associated with the theater
system and land are reflected in the current portion of prepaid
leases and prepaid leases in the accompanying balance sheet as
summarized below:
Advance rents:
Theater system $ 726,859
Land 822,531
----------
1,549,390
----------
Less current portion of prepaid leases
Theater system (116,298)
Land (50,617)
----------
(166,915)
----------
Prepaid leases $1,382,475
==========
F-12
<PAGE>
6. Lease Obligations (Continued)
----------------------------
Annual amortization expense is as follows:
Theater system $ 116,298
Land 50,617
----------
$ 166,915
==========
A schedule of future minimum rental payments required under
operating leases that have initial or remaining
noncancelable lease terms in excess of one year as of June 30,
1996, is as follows:
Year Amount
---- ------
1998 $ 158,324
1999 158,324
2000 156,383
2001 152,500
152,500
Thereafter 4,655,000
----------
Total $5,433,031
==========
Rental expense on operating leases for the years ended
June 30, 1997 and 1996 was $154,441 and $152,500.
The Company leases certain equipment under noncancellable
capital lease agreements. Assets under capital leases included in
property and equipment are as follows:
Equipment $ 127,407
Less accumulated amortization (89,284)
----------
$ 38,123
==========
Amortization expense for assets under capital lease
during fiscal 1997 and 1996 was $25,257 and $28,311,
respectively.
F-13
<PAGE>
6. Lease Obligations (Continued)
----------------------------
The capital lease obligations have an imputed interest rate
approximately equal to the Company's borrowing rate for
similar type transactions and are payable in monthly installments
through October 2002. Future maturities and minimum payments
on capital lease obligations are as follows:
Year Amount
---- ------
1998 $ 18,248
1999 8,176
2000 8,401
2001 6,191
2002 2,497
---------
43,513
Less amount representing interest 6,407
---------
Present value of minimum capital
lease obligations $ 37,106
=========
7. Lessor Lease Agreements
-----------------------
The Company has agreements to rent space as lessor to
various retail tenants in its Branson, Missouri
theater complex with terms ranging from one to five
years. The agreements also include certain renewal
terms for lease beyond five years, which are not
included in the amounts below. As of June 30, 1997,
the Company held $22,000 in deposits related to the
leases.
A summary of future minimum rentals to be received follows:
Year Amount
---- ----------
1998 $ 241,460
1999 208,460
2000 136,360
2001 88,260
2002 73,260
Thereafter 56,760
----------
Total $ 804,560
==========
F-14
<PAGE>
8. Long-Term Debt
--------------
Long-term debt is comprised of the following:
Note payable to a bank in monthly
installments of $32,000, including
interest 9% through February 1999, and
prime plus .75% thereafter, secured by
the theater complex $3,460,532
Note payable to a bank in monthly
installments of $2,625, including
interest at 10.75%, secured by
equipment 105,905
4% to 12% adjustable rate mortgage
secured by real property payable in
monthly installments of $741 through
July 2019 109,469
10.65% promissory note secured by
equipment payable in monthly
installments of $1,514 through October
2003 83,436
Capital lease obligations (see note 6) 37,106
---------
3,796,448
Less current portion 117,492
---------
Long-term debt $3,678,956
=========
Future maturities of long-term debt are as follows:
Year Amount
---- ----------
1998 $ 117,492
1999 125,393
2000 137,821
2001 149,026
2002 133,139
Thereafter 3,133,577
----------
$3,796,448
==========
F-15
<PAGE>
9. Income Taxes
------------
The provision for income taxes is different than amounts which
would be provided by applying the statutory federal income tax rate
to loss before provision for income taxes for the following
reasons:
Years Ended
December 31,
1997 1996
---------- ----------
Federal income tax (provision) or
benefit at statutory rate $(1,208,000) $2,164,000
Change in valuation allowance 1,208,000 (2,164,000)
----------- ----------
$ - $ -
=========== ==========
Deferred tax assets (liabilities) are comprised of the following:
Write-down of assets $1,989,000
Net operating loss carry forward 546,000
Depreciation (89,000)
Accrued rents 88,000
----------
2,534,000
Less valuation allowance (2,534,000)
----------
$ -
==========
F-16
<PAGE>
9. Income Taxes (Continued)
-----------------------
At June 30, 1997, the Company has $1,400,000 of net
operating loss carryforwards for income tax purposes
to offset future income. These carryforwards expire
in 2011.
Since certain of the net operating losses were
incurred from activities in the U.S. Virgin Islands
and the Company is treated as a foreign corporation
doing business in the United States, net operating
losses generated from U.S. Virgin Island activities
are not available to offset income from activities
within the United States. In addition, if substantial
changes in the Company's ownership should occur, there
would also be an annual limitation of the amount of
NOL carryforwards which could be utilized.
10. Write-Down of Assets
--------------------
During the year ended June 30, 1996, the Company
evaluated the carrying value of its property and
equipment, other assets and intangible assets based
upon current market value appraisals and projected
future cash flows in accordance with Statement of
Financial Accounting Standards No. 121 (see note 1).
Based upon the valuation of these assets the Company
had an aggregate non-cash expense for the write-down
of assets of $5,118,198.
The write-down of assets at June 30, 1996 consisted of the
following:
Film development costs $2,602,886
Building 1,206,044
Project development and start-up costs 1,049,791
Deferred debenture issuance costs 259,477
----------
$5,118,198
==========
The Company did not have a write-down of assets during the year
ended June 30, 1997.
F-17
<PAGE>
11. Supplemental Cash Flow Information
----------------------------------
During the year ended June 30, 1997, the Company had the
following noncash investing and financing activities:
Exchange of land for the settlement of
a debt obligation $480,000
Incurred debt for purchase of fixed
assets $148,522
Realized gain on forgiveness of
accounts payable, long-term debt and
debentures as part of bankruptcy
settlement $4,086,766
Actual amounts paid for interest and income taxes are as follows:
Years Ended
June 30,
1997 1996
--------- ----------
Interest $657,362 $386,978
======== ========
Income taxes $ - $ -
======== ========
2. Employment Agreements
---------------------
The Company has entered into an employment agreement
with an officer of the Company. The agreement
provides for an annual salary of $100,800 per year,
$250 per month car allowance, payment of health
insurance premiums, $35,000 annual retirement fund
contribution, use of a condominium for living
purposes, and an incentive bonus arrangement based on
annual cash flow over $200,000 per year.
13. Fair Value of Financial Instruments
-----------------------------------
None of the Company's financial instruments are held
for trading purposes. The Company estimates that the
fair value of all financial instruments at June 30,
1997, does not differ materially from the aggregate
carrying values of its financial instruments recorded
in the accompanying balance sheet. The estimated fair
value amounts have been determined by the Company
using available market information and appropriate
valuation methodologies. Considerable judgement is
necessarily required in interpreting market data to
develop the estimates of fair value, and, accordingly,
the estimates are not necessarily indicative of the
amounts that the Company could realize in a current
market exchange.
F-18
<PAGE>
14. Stock-Based Compensation
------------------------
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123) which established financial
accounting and reporting standards for stock-based compensation. The
new standard defines a fair value method of accounting for an
employee stock option or similar equity instrument. This statement
gives entities the choice between adopting the fair value method or
continuing to use the intrinsic value method under Accounting
Principles Board (APB) Opinion No. 25 with footnote disclosures of
the pro forma effects if the fair value method had been adopted.
The Company has opted for the latter approach. Accordingly, no
compensation expense has been recognized for the stock warrants.
Had compensation expense for the Company's stock warrants been
determined based on the fair value at the grant date for awards in
1996 and 1995 consistent with the provisions of SFAS No. 123, the
Company's results of operations would have been reduced to the pro
forma amounts indicated below:
June 30,
1997 1996
---------- ----------
Net income (loss) - as reported $3,567,849 $(6,364,973)
Net income (loss) - pro forma $3,527,396 $(6,364,973)
Income (loss) per share - as reported $ 1.45 $ (10.34)
Income (loss) per share - pro forma $ 1.43 $ (10.34)
The fair value of each warrant grant is estimated on the date of
grant using the Black-Scholes option pricing model with the
following assumptions:
June 30,
1997 1996
---------- ----------
Expected dividend yield $ - $ -
Expected stock price volatility 204% -
Risk-free interest rate 5% -
Expected life of options 18 months
========== ==========
The weighted average fair value of options granted
during the year ended June 30, 1997 are $.20.
F-19
<PAGE>
14. Stock-Based Compensation (Continued)
-----------------------------------
The following table summarizes information about stock warrants
outstanding at June 30, 1997:
<TABLE>
<CAPTION>
Warrants Outstanding Warrants Exercisable
------------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Weighted
Average
Number Remaining Weighted Number Weighted
Range of Outstanding Contractual Average Exercisable Average
Exercise at Life Exercise at Exercise
Prices 6/30/97 (Years) Price 6/30/97 Price
-------- ----------- ----------- ---------- ----------- ---------
$ 1.00 829,001 1.25 $ 1.00 829,001 $ 1.00
======== =========== =========== ========== =========== =========
</TABLE>
15. Bankruptcy
----------
On February 6, 1997, the Bankruptcy Court approved the
Company's plan of reorganization (the Plan). The Plan requires a
capital infusion of $1,200,000 of which $848,700 was paid prior to
June 30, 1997 for 3,262,490 shares of common stock and the remaining
$351,300 was paid on September 10, 1997. Upon final approval of the
Plan the Company's ownership will be approximately as follows:
Stockholders' % Owned
------------ ---------
New capital infusion 80%
Existing stockholders' 10
Debenture holders 5
Management 5
---------
Total 100%
=========
F-20
<PAGE>
15. Bankruptcy (Continued)
----------------------
The Company prior to June 30, 1997, completed the following
related to the bankruptcy plan:
Gain on
Forgiveness
Category Description of Debt
------------ --------------- ---------------
Accounts payable To satisfy $1,257,832 of creditor
and accrued claims the Company issued and
expenses aggregate of 88,530 shares of
common stock and paid $101,565
in cash $1,154,054
Convertible To satisfy $2,055,000 of
debentures debentures plus $274,000
of accrued interest the
Company issued 284,243
shares of common stock and
paid cash of 221,263. The
terms of the conversion
were substantially
different than the
convertible terms when the
dentures were issued 2,100,789
Debt The Company transferred
real estate in the Virgin
Islands to a creditor for
payment in full of a
$480,000 note payable.
The Company restructured
its mortgage note payable
and paid $103,801 in
satisfaction of $935,724
of notes payable 831,923
------------
Total gain $4,086,766
============
In addition, the Company converted its preferred stock
to common stock (see note 4) and restructured the
employment agreement to an officer. Final bankruptcy
clearance has not been received.
F-21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AND STATEMENT OF INCOME 6-30-97 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 260,774
<SECURITIES> 0
<RECEIVABLES> 36,145
<ALLOWANCES> 0
<INVENTORY> 59,939
<CURRENT-ASSETS> 533,582
<PP&E> 6,334,323
<DEPRECIATION> 685,494
<TOTAL-ASSETS> 7,577,162
<CURRENT-LIABILITIES> 487,781
<BONDS> 3,926,347
0
0
<COMMON> 6,844
<OTHER-SE> 3,156,190
<TOTAL-LIABILITY-AND-EQUITY> 7,577,162
<SALES> 2,456,123
<TOTAL-REVENUES> 4,893,055
<CGS> 823,003
<TOTAL-COSTS> 4,778,733
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 657,363
<INCOME-PRETAX> (518,917)
<INCOME-TAX> 0
<INCOME-CONTINUING> (518,917)
<DISCONTINUED> 0
<EXTRAORDINARY> 4,086,766
<CHANGES> 0
<NET-INCOME> 3,567,849
<EPS-PRIMARY> 1.45
<EPS-DILUTED> 1.45
</TABLE>
