<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, 1998.
[ ] 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
----------------------------- ----------------------
(State of Incorporation) (IRS Employer Identification No.)
3562 Shepherd of the Hills Expressway
Branson, Missouri 65616
(417) 335-3533
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
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(2) Yes X No
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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. X
-------
The registrant's revenues for its fiscal year ended June 30, 1998 were
$5,893,074.
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $425,000 as of September 23, 1998, computed by
reference to the price at 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 the registrant's class of common equity as
of September 23, 1998:
Class Shares
Outstanding
------------------ ------------------
Common Stock, $.001 par value 7,937,638
Exhibit index at page 13.
Transitional Small Business Disclosure Format (check one): Yes No X .
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<PAGE>
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 currently owns and operates a major entertainment facility
in Branson, Missouri, known as the IMAX Entertainment Complex. The Branson
facility was constructed by the Company and commenced operations on October 8,
1993. The IMAX Entertainment Complex consists of the Ozarks Discovery IMAX
Theater, a giant screen motion picture theater, the Remember When Theater
which features live performances, McFarlain's, a full service restaurant,
retail shops, various food concessions and related amenities.
The Company produced and owns an IMAX theme film entitled "Ozarks:
Legacy and Legend." The theme film premiered on April 28, 1995 and is
exhibited only at the Ozarks Discovery IMAX Theater. The Company also rents
giant screen films and 35mm feature films from third parties for exhibition at
its Branson facility.
Revenues from the Branson facility are generated from four general
sources: (1) ticket sales for admission to the IMAX Theater; (2) lease of
retail space; (3) operation of restaurant facilities, retail shops, and
concessions owned by the Company in the Branson facility; and (4) ticket sales
for admission to the Remember When Theater.
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 (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 has proven effective. The Company has
operated with significant positive cash flow since emerging from Chapter 11.
IMAX Entertainment Complex, Branson, MO
- ---------------------------------------
The Branson facility is known as the IMAX Entertainment Complex. The
Complex features a 532 seat IMAX giant screen theater with a screen that is 6
stories tall and 83 feet wide. This theater is known as the "Ozarks Discovery
IMAX Theater." Other features of the Complex which are operated by the
Company are:
- "McFarlain's Family Restaurant," one of Branson's most popular eating
establishments. The Restaurant seats 600 people and features regional
food specialties as well as home baked pies and other desserts.
<PAGE>
- A 200 seat live theater known as the "Remember When Theater."
Currently, the theater stars Mike Radford who presents a comedy and
patriotic show, which honors our heritage and pays tribute to our
country.
- An Ozark style deli known as "The Back Porch." This deli seats some
140 people and features various homemade food products.
- Legacy & Legends Gift Shop, which deals primarily in products which
tie to the IMAX films, which are being presented in the theater or
reflect the lifestyle of the Ozarks.
The Complex also houses some 16 other tourist related retail shops and
kiosks, consisting of approximately 10,000 square feet, which are leased to
and operated by third parties.
Ozarks Discovery IMAX Theater and Projection Formats
- ----------------------------------------------------
The Company's giant screen theater was designed initially to take
advantage of only the IMAX film and projection format. This IMAX format is
ten times larger than the 35mm film used in the typical movie theater. This
specially designed giant screen theater, configured with amphitheater style
seating, using a special projection and sound system. The projected image
fills the screen that is 62 feet high and is 83 feet wide. The result is that
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 visual image is complemented with a digital, 22,000-watt, 44 speaker,
surround sound system, which management believes is one of the best theater
sound systems in the world.
The Company has leased the giant screen projection system, sound system
and projection screen from IMAX Corporation.
The Company's exclusive film, "Ozarks: Legacy & Legend," which is
exhibited three to six times per day, was produced in the IMAX format. The
Company typically exhibits two to four IMAX films in its regular daily
schedule.
In December of 1997, the Company installed a 35mm projection system with
special lenses that allow the image of regular feature films to be projected
in such a way as to fill approximately 50% of the six story tall screen. The
projection system is tied into the powerful IMAXr sound system. This
combination of the largest possible visual image and perhaps the nations most
sophisticated and effective sound system, make viewing a feature 35mm film a
memorable experience.
The 35mm projection system opened in December 1997 with "Tomorrow Never
Dies" on a "first run" basis, but typically shows "second run" or "move over"
films. "Titanic" began showing in May and was scheduled to be shown through
Labor Day, 1998.
The reception of this unique 35mm projection system has been outstanding
from both the local citizens and tourists. 35mm feature films are typically
longer than IMAX and as a result, concession sales have increased
dramatically.
<PAGE>
McFarlain's Family Restaurant
- -----------------------------
In May of 1995, the Company entered into an agreement to obtain the
leasehold improvements and equipment of the restaurant in the Complex, which
had been leased, to a third party. In August of 1995, the name of the
restaurant was changed to McFarlain's Family Restaurant and Pie Shop and the
Company began a concerted effort to develop the restaurant into one of the
major eating establishments in Branson.
The key factors in the success of McFarlain's are quality food with
extra special service. Unique specialties like fried green tomatoes and
french fried sweet potatoes are provided to entice customers.
The Restaurant contained approximately 375 seats in 1995. In May of
1997, an addition to the restaurant of approximately 125 seats was completed.
Recently, another expansion was completed which brings seating to slightly
over 600.
McFarlain's can now accommodate up to 15 motor coach groups per hour.
While tour groups are important, they represent only 33% of the restaurant's
business. In 1997, the restaurant served over 350,000 people.
Back Porch Deli
- ---------------
In January of 1997, the Company purchased a deli operation in the
Complex and renamed it McFarlain's Back Porch. Because of the need to expand
service and capacity, significant capital improvements were made. The Back
Porch features baked products, sandwiches, fountain products, deserts, and
regional food specialties. The Back Porch is designed to provide rapid
service and to handle high volumes.
Remember When Theater
- ---------------------
To better utilize space and broaden the entertainment offerings of the
Complex, the Company recently constructed a 200 seat, intimate live
performance theater in an area of the facility which had been a holding area
for the IMAX Theater.
This theater was completed in March of 1998 and currently features Mike
Radford's Remember When Show. The show has a comedy and patriotic theme that
is both nostalgic and fun and has a lot of audience participation. Tony
Orlando has stated, "The Mike Radford Remember When Show is the best tribute
to Veterans in Branson."
The Remember When Theater is in the start-up phase and is currently
meeting financial projections. Bookings are already being taken for one year
in advance.
<PAGE>
Legacy & Legends Gift Shop
- --------------------------
In 1994, the Company began selling some gift items related to the films
which are exhibited in the IMAX theater or which are representative of the
lifestyle of the Ozarks. In 1995, this operation was expanded into a full-
fledged specialty gift shop.
The Gift Shop generates the highest percentage profit of any of the
Company's departments. Sales for Calendar 1998 at the Gift Shop are running
20% higher than the previous year.
Retail Shops
- ------------
Since the inception of the Complex in 1993, retail sales have been a
very important factor in creating a total experience for visitors. There are
now 16 retail shops and kiosks in the Complex that are leased to third
parties. The Complex boasts the most atmospheric, comfortable and unique
indoor shopping experience in Branson.
Competition
- -----------
The Company operates a single facility in Branson, Missouri providing
entertainment, food, and shopping for tourists. The Company competes with
other entertainment attractions, restaurants, and retail shops in the Branson
area. The Company is also impacted by the competitive draw of Branson in
relation to other locations across the country.
Branson has many live performance theaters with presentations ranging
from music to comedy to drama. These theaters generally operate from May
through mid-December, although more of these theaters are now offering a
limited performance schedule in March and April. On an average, a theater
offers 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 causes a definite business cycle
within each year for the Company's Branson facility.
The major attraction in Branson is Silver Dollar City, an amusement park
with an 1890's theme, which attracts almost 2 million visitors each year.
Several other attractions exist in Branson, including water parks, family
amusements, and activities related to the lake 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 IMAXr Entertainment Complex
has become established as one of the major attractions in Branson and
approximately 1,000,000 people have visited the facility in 1997.
Employees
- ---------
At June 30, 1998, the Company had approximately 140 full-time employees
and all of them work at the IMAX Entertainment Complex in Branson, Missouri.
At June 30, 1997, the Company had approximately 134 full-time employees.
<PAGE>
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 NationsBank (formerly 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, 1998 in the
approximate principal amount of $106,232 in favor of Great Southern Bank with
monthly payments of $962. The condominium is used as a residence by the
Company's president, Mr. Cullimore.
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" and the
"McFarlain's" Logo with the U.S. Patent and Trademark Office.
The properties and facilities of the Company are deemed adequate and
suitable for its operations.
Item 3. Legal Proceedings
-----------------
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.
<PAGE>
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder
Matters
(a) Market Information. The common stock of the Company was first publicly
traded in December 1992. Prior to February 1996, the Company's common
stock was reported on the NASDAQ System. From February 1996 to February
1998, trading in the Company's common stock was limited and sporadic.
Since February 1998 the Company's common stock has been traded in the
over-the-counter and quoted on the NASD's OTC Bulletin Board. Over-the-
counter quotations reflect inter-dealer prices, without retail mark-up,
markdown 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.
High Low
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
1st Quarter (July 1997 - September 1997) 0.00 0.00
2nd Quarter (October 1997 - December 1997) 0.00 0.00
3rd Quarter (January 1998 - March 1998) 1.55 0.60
4th Quarter (April 1998 - June 1998) 1.20 0.40
(b) Holders. The approximate number of record holders as of September
23, 1998 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 NationsBank 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 NationsBank.
Recent Sales of Unregistered Securities
- ---------------------------------------
As part of the Company's plan of reorganization, 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.
<PAGE>
Commencing February 28, 1997 and concluding 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
---------------------------------------------------------
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 by the United
States Bankruptcy Court.
Plan of Operation
- -----------------
The Company expects that its cash requirements for operations will be
satisfied with available funds and anticipated future cash flows 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
- ---------------------------------------------
At June 30, 1998, the Company had a cash balance of $350,793. The
Company had working capital at June 30, 1998 of $8,426 and a current ratio of
1.01 to 1.
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, 1998 increased
24% to $5,893,074 compared to $4,749,185 for the fiscal year ending June 30,
1997. This increase was primarily due to increased revenues at the theater
from the showing of 35mm feature films, the opening of the Remember When
Theater, and increased revenues at McFarlain's Family Restaurant, the Backporch
deli, and Legacy & Legends Gift Shop.
The Company's direct costs for film exhibition increased to $456,410 as
compared to $268,070 in the prior year. This increase is due to the Company
having begun showing, in December 1997, 35mm feature films, which have higher
royalties, and from an increase in theater attendance for the fiscal year
ended June 30, 1998. Restaurant expenses increased to $862,826 as compared to
$640,848 in the prior year period, primarily due to increased sales volume at
McFarlain's Family Restaurant and at the Backporch deli
<PAGE>
Selling, general and administrative expenses for the fiscal year ended
June 30, 1998 increased 21 percent to $4,355,473 as compared to $3,598,374 in
the prior year, primarily due to increases in marketing and advertising
expenses, payments under the Company's incentive bonus agreement, and
increased costs related to the increase in revenues. Management remains
focused on controlling expenses while increasing revenues at its Branson
facility.
Income from operations for fiscal 1998 was $38,130 compared to $114,322
in fiscal 1997.
Interest expense for the 1998 fiscal year primarily reflects carrying
costs of the Company's mortgage on the Branson theater complex, while 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 loss applicable to common stock for the fiscal year ended June 30,
1998 totaled $252,526 as compared to a net income of $3,567,849 for 1997. 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 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.
<PAGE>
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 23, 1998 are:
Name Age Position in Company
---- --- -------------------
Paul M. Bluto 69 Chairman of the Board and Chief Financial
Officer
Kelvyn H. Cullimore 63 President, Chief Executive Officer, and Director
Robert J. Cardon 35 Secretary/Treasurer
Kelvyn H. Cullimore, Jr. 42 Director
Francis E. McLaughlin 56 Director
Kumar V. Patel 52 Director
Thomas J. Carlson 45 Director
Lourette Ann Bluto 66 Director
Michael L. Pitman 42 Senior Vice President of Marketing
Randy S. Brashers 29 Vice President of Operations
Kelvyn H. Cullimore is the father of Kelvyn H. Cullimore, Jr and Lourette
Ann Bluto is the wife of Paul M. Bluto. 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 he is also the Chairman of the Board of Dynatronics
Corporation. His duties at Dynatronics Corporation require very little of his
time and have not interfered 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,
who is an employee of Dynatronics Corporation, provides 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.
<PAGE>
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. Mr. Cardon
is Corporate Secretary and is a full time employee 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.
<PAGE>
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 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.
Lourette Ann Bluto was elected a director of the Company on October 3,
1997. She is President and sole owner of GS & W Services, Inc., a full service
printing and mailing corporation. Mrs. Bluto founded GS & W Services in 1969,
and currently has 31 employees. GS & W Services is located in Walnut,
California. Mrs. Bluto is active in community and civic affairs, having served
as Vice-President of Edison Elementary School P.T.A., President of the
Walnut/Diamond Bar Soroptimist Club, Board member of the Santa Ana YWCA Hotel
for Women, President of the California Chapter of M.A.S.A., and has served on
the Board of Directors of several businesses including Local 509 Federal Credit
Union.
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.
The Company believes that all Section 16(a) filings applicable to its
officers, directors and greater than 10% beneficial owners have been made.
<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, 1998, 1997, and 1996.
No other executive officer had a total annual salary and bonus exceeding
$100,000.
[CAPTION]
<TABLE>
Summary Compensation Table
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
---------------------------------------- ---------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Other Restricted
Name and Annual Stock LTIP All Other
Principal Compen- Award(s) Options/ Payouts Compen-
Position Year Salary($) Bonus($) sation($) ($) SAR(#) ($)
sation($)
- ----------- ---- -------- ---------- ----------- ---------- --------- ---------- ------------
Kelvyn H. Cullimore 1998 $100,800 $32,500(4) $ 44,019(1) $ -0- -0- $ -0- $
- -0-
CEO(2) 1997 $100,800 $ -0- $ 37,076(1) $ -0- -0- $ -0-
$ -0-(3)
1996 $124,784 $ -0- $ 38,791(1) $ -0- -0- $ -0-
$ -0-
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Included in these amounts are premiums of $39,967 for 1998, $34,224
for 1997, $34,134 and for 1996 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 $11,500 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 was not
determinable, no value was placed on the stock.
(4) Mr. Cullimore received $32,500 under the Company's incentive bonus
plan.
The Company did not grant to executive officers nor were there
outstanding any stock options or stock appreciation rights during fiscal years
ending June 30, 1997 and 1998.
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 through February 1999, on the following terms: an annual salary of
$100,800; an automobile allowance of $250 per month; a $39,967 annual
contribution to Mr. Cullimore's salary continuation plan; and the condominium
owned by the Company will be provided to Mr. Cullimore for his living
accommodations.
<PAGE>
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. For the fiscal year
ending June 30, 1998, Mr. Cullimore received $32,500 under this agreement.
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 23, 1998, 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) 6,296,590 71.1%
Lourette Ann Bluto (2) 6,296,590 71.1%
Kelvyn H. Cullimore (3) 480,649 6.0%
Kelvyn H. Cullimore, Jr. (4) 230,339 2.9%
Francis E. McLaughlin (5) 167,764 2.1%
Kumar V. Patel (6) 200,000 2.5%
Thomas J. Carlson(7) 133,334 1.7%
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)(8) 7,419,443 81.4%
___________________
<PAGE>
(1) These calculations are based upon a total of 7,937,638 shares
outstanding as of September 23, 1998. In addition, for each person or
group the number of shares owned and the calculation of the percentage
ownership includes the number of shares that person or group has the
right to acquire.
(2) Mr. Paul Bluto and Mrs. Lourette Ann Bluto jointly own 11,013 shares as
a result of their pre-bankruptcy holdings, Mr. Bluto acquired 4,433,490
restricted shares pursuant to the Company's Plan of Reorganization, Mr.
Bluto acquired 539,573 restricted shares in a private placement by the
Company, and Mrs. Bluto owns 6,257 shares. In addition, Mr. Bluto is a
trustee of the GS & W Services Defined Benefit Plan which acquired
383,333 restricted shares in a private placement by the Company and Mr.
Bluto is deemed to be the beneficial owner of these shares. Mr. Bluto
also owns warrants to purchase 539,573 restricted shares at a price of
$1.00 per share. The GS & W Services Defined Benefit Plan also owns
warrants to purchase 383,333 restricted shares at a price of $1.00 per
share. All shares owned directly or beneficially by either Mr. Bluto or
Mrs. Bluto are deemed to be beneficially owned by the other.
(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 restricted 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) Mr. McLaughlin owns 9,430 shares as a result of pre-petition holdings
and he acquired 66,667 restricted shares in the Company's private
placement. He also owns warrants to purchase 66,667 restricted shares
of the Company's common stock at a price of $1.00 per share.
(6) Mr. Patel acquired 100,000 restricted shares in the Company's private
placement. He also owns warrants to purchase 100,000 restricted shares
of the Company's common stock at a price of $1.00 per share.
(7) Mr. Carlson acquired 66,667 restricted shares in the Company's private
placement. He also owns warrants to purchase 66,667 restricted shares
of the Company's common stock at a price of $1.00 per share.
(8) 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., as well as shares
owned by GS & W Services, Inc. and the Bluto family which are reflected
in the beneficial ownership of both Paul and Lourette Ann Bluto.
<PAGE>
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 paid Dynatronics
Corporation, an affiliate of the Company, $6,000 per month to provide
administrative, payroll, staffing, accounting functions and support through
March 31, 1998. At which time, the Company brought these functions in house
and entered into an agreement with Dynatronics Corporation to provide for
the services of Robert J. Cardon, the Company Secretary/Treasurer on a
hourly fee basis. Dynatronics Corporation owns approximately 3% of the
common stock of the Company (post reorganization).
<PAGE>
PART IV
Item 13. Exhibits and Reports on Form 8-K
--------------------------------
Financial Statements Filed as part of Form 10-KSB:
-------------------------------------------------
Independent Auditors' Report
Tanner + Co. F-2
Balance Sheet at June 30, 1998 F-3
Statements of Operations --
years ended June 30, 1998 and 1997 F-4
Statements of Stockholders'
Equity -- years ended June 30,
1998 and 1997 F-5
Statements of Cash Flows --
years ended June 30, 1998 and 1997 F-6
Notes to Financial Statements F-7
(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 RV 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 NationsBank
to International Tourist Entertainment Corporation
(incorporated by reference to Registration Statement on Form
S-1, Registration No. 33-64132)
<PAGE>
10.5 Deed of Trust dated July 30, 1993 for benefit of NationsBank
(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 (incorporated by reference to
Form 10-KSB for year ended June 30, 1997).
10.12 Third Modification Agreement dated March 1, 1997 between
Nations Bank and the Company. (incorporated by reference to
Form 10-KSB for year ended June 30, 1997).
10.13 System Lease Agreement as amended dated August 1, 1993
between IMAX Corporation and the Company. (incorporated by
reference to Form 10-KSB for year ended June 30, 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>
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 23, 1998
---------------------------
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 9/23/98
- --------------------------- Chief Financial Officer ---------
Paul M. Bluto (Principal Financial Officer)
/s/ Kelvyn H. Cullimore Chief Executive Officer, 9/23/98
- --------------------------- President and Director ---------
Kelvyn H. Cullimore (Principal Executive
Officer)
/s/ Kelvyn H. Cullimore, Jr. Director 9/23/98
- --------------------------- ---------
Kelvyn H. Cullimore, Jr.
Director
- --------------------------- ---------
Francis E. McLaughlin
/s/Lourette Ann Bluto Director 9/23/98
- --------------------------- ---------
Lourette Ann Bluto
Director
- --------------------------- ---------
Thomas J. Carlson
Director
- --------------------------- ---------
Kumar V. Patel
<PAGE>
INTERNATIONAL TOURIST ENTERTAINMENT
CORPORATION
Financial Statements
June 30, 1998
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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-1
<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, 1998, and the related statements of operations,
stockholders' equity and cash flows for the two years ended June 30, 1998 and
1997. 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 auditin
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, 1998, and the results of its operations
and its cash flows for the two years ended June 30, 1998 and 1997, in conformity
with generally accepted accounting principles
Salt Lake City, Utah
August 5, 1998
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL TOURIST ENTERTAINMENT
CORPORATION
Balance Sheet
June 30, 1998
- ----------------------------------------------------------------------------------------------------------
Assets
<S> <C>
Current assets:
Cash $ 350,793
Receivables 37,611
Inventories 77,705
Prepaid expenses 22,947
Current portion of prepaid leases 166,915
------------------
Total current assets 655,971
Property and equipment, net 5,868,192
Prepaid leases 1,215,560
Deposits 24,503
------------------
$ 7,764,226
------------------
- ----------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 202,225
Accrued expenses 323,940
Current portion of long-term debt 121,380
------------------
Total current liabilities 647,545
Accrued lease expense 281,739
Long-term debt 3,554,182
Deposits 20,500
------------------
Total liabilities 4,503,966
------------------
Commitments and contingencies -
Stockholders' equity:
Common stock, $.001 par value; authorized 40,000,000
shares; issued and outstanding 7,937,638 shares 7,938
Additional paid-in capital 10,781,076
Accumulated deficit (7,528,754)
------------------
Total stockholders' equity 3,260,260
------------------
$ 7,764,226
------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations
Years Ended June 30,
- ----------------------------------------------------------------------------------------------------------
1998 1997
-----------------------------------
<S> <C> <C>
Revenues:
Theater admissions and concessions $ 2,286,232 $ 1,990,034
Restaurant and deli 2,843,511 2,108,439
Retail sales 333,120 238,423
Retail rental income 430,211 412,289
-----------------------------------
5,893,074 4,749,185
-----------------------------------
Costs and expenses:
Direct exhibition film costs and concessions 456,410 268,070
Direct restaurant and deli costs 862,826 640,848
Direct retail costs 180,235 127,571
Selling, general, and administrative expenses 4,355,473 3,598,374
-----------------------------------
5,854,944 4,634,863
-----------------------------------
Income from operations 38,130 114,322
-----------------------------------
Other income (expense):
Interest expense (340,674) (657,363)
Interest income 26,018 22,451
Other 24,000 1,673
-----------------------------------
(290,656) (633,239)
-----------------------------------
Loss before income taxes and
extraordinary item (252,526) (518,917)
Income taxes - -
-----------------------------------
Loss before extraordinary item (252,526) (518,917)
Extraordinary gain from forgiveness of debt, net of $-0-
income taxes - 4,086,766
-----------------------------------
Net (loss) income $ (252,526) $ 3,567,849
-----------------------------------
(Loss) income per common share
Continuing operations $ (.03) $ (.21)
Extraordinary item - 1.66
-----------------------------------
Net (loss) income per share $ (.03) $ 1.45
-----------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL TOURIST ENTERTAINMENT
CORPORATION
Statement of Stockholders' Equity
Years Ended June 30, 1998 and 1997
- ----------------------------------------------------------------------------------------------------------
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, 1996 212,613 $ 213 635,999 $ 636 $ 9,580,139 $(10,844,077) $(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 - 848,701
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 10,432,419 (7,276,228) 3,163,035
Issuance of common
stock for cash and
bankruptcy conversions
and settlements - - 1,093,241 1,094 348,657 - 349,751
Net loss - - - - - (252,526) (252,526)
------------------------------------------------------------------------------------
Balance, June 30, 1998 - $ 7,937,638 $ 7,938 $ 10,781,076 $ (7,528,754) $ 3,260,260
------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL TOURIST ENTERTAINMENT
CORPORATION
Statement of Cash Flows
Years Ended June 30,
- ------------------------------------------------------------------------------------------------------------
1998 1997
-----------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (252,526) $ 3,567,849
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization 407,449 349,045
Loss on disposition of property and equipment 925 -
Extraordinary gain from forgiveness of debt - (4,086,766)
(Increase) decrease in:
Receivables (1,466) (18,382)
Inventories (17,766) (8,480)
Deposits and prepaid expenses (25,365) 26,401
Prepaid leases 166,915 178,754
Increase (decrease) in:
Accounts payable and accrued expenses 212,225 (1,566)
Deposits (1,500) (4,800)
-----------------------------------
Net cash provided by
operating activities 488,891 2,055
-----------------------------------
Cash flows from investing activities-
purchase of property and equipment (627,737) (460,806)
-----------------------------------
Cash flows from financing activities:
Proceeds from debt - 5,123
Payments on debt (120,886) (275,215)
Payments on debentures - (221,263)
Net proceeds from issuance of common stock 349,751 848,701
-----------------------------------
Net cash provided by
financing activities 228,865 357,346
-----------------------------------
Increase (decrease) in cash and cash equivalents 90,019 (101,405)
Cash beginning of year 260,774 362,179
-----------------------------------
Cash end of year $ 350,793 $ 260,774
-----------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
INTERNATIONAL TOURIST ENTERTAINMENT CORPORATION
Notes to Financial Statements
June 30, 1998 and 1997
- --------------------------------------------------------------------------------
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, and began showing its own theme film
produced especially for the Branson location. The Company also operates a
restaurant, a deli as of March 1997, a live performance theater as of April
1998, and a small gift shop in the Branson complex.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentration of
credit risk consist primarily of 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, food, 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-6
<PAGE>
INTERNATIONAL TOURIST ENTERTAINMENT CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies
Continued
Film Development Costs
Film development costs reflect the direct costs incurred to produce a giant
screen film 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.
(Loss) Income Per Share
The computation of basic (loss) income per common share is based on the weighted
average number of shares outstanding during each year.
The computation of diluted (loss) income per common share is based on the
weighted average number of shares outstanding during the year plus the common
stock equivalents which would arise from the exercise of stock warrants
outstanding using the treasury stock method and the average market price per
share during the year.
- --------------------------------------------------------------------------------
F-7
<PAGE>
INTERNATIONAL TOURIST ENTERTAINMENT CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
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.
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.
Reclassifications
Certain accounts in the 1997 financial statements have been reclassified to
conform with the current year presentation.
2. Property and
Equipment
Property and equipment consists of the following:
Buildings $ 4,872,961
Equipment 794,220
Furniture and fixtures 270,443
Land improvements 123,244
Film development costs 900,000
----------------
6,960,868
Less accumulated depreciation and
amortization (1,092,676)
----------------
$ 5,868,192
----------------
- --------------------------------------------------------------------------------
F-8
<PAGE>
INTERNATIONAL TOURIST ENTERTAINMENT CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
3. Related Party Transaction
During the years ended June 30, 1998 and 1997, the Company paid Dynatronics
Corporation (Dynatronics), a company which had 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 $64,000 and $67,500, respectively.
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%.
The Company's bankruptcy 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 dividends in arrears of $237,161 into
170,090 shares of the Company's common stock.
5. Convertible Debenture Offering
During the year ended June 30, 1997 as part of the bankruptcy agreement, the
Company modified the conversion rate of $2,055,000 of convertible debentures
plus approximately $274,000 of accrued interest, and converted the debentures
into cash payments of $221,264 and 284,243 shares of common stock. The Company
realized a gain of $2,100,789 on the conversion of the debentures to common
stock see note 15.
- --------------------------------------------------------------------------------
F-9
<PAGE>
INTERNATIONAL TOURIST ENTERTAINMENT CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
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 monthly payments, adjusted annually based on the
Consumer Price Index, 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.
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 lease expense 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.
- --------------------------------------------------------------------------------
F-10
<PAGE>
INTERNATIONAL TOURIST ENTERTAINMENT CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
6. Lease Obligations
Continued
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 $ 610,562
Land 771,913
-----------------
1,382,475
-----------------
Less current portion of prepaid leases
Theater system (116,298)
Land (50,617)
-----------------
(166,915)
-----------------
Prepaid leases $ 1,215,560
-----------------
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, 1998, is as follows:
Year Amount
-----------------
1999 $ 182,895
2000 181,097
2001 177,500
2002 177,500
2003 177,500
Thereafter 4,527,500
-----------------
$ 5,423,992
-----------------
- --------------------------------------------------------------------------------
F-11
<PAGE>
INTERNATIONAL TOURIST ENTERTAINMENT CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
6. Lease Obligations
Continued
Rental expense on operating leases for the years ended June 30, 1998 and 1997
was approximately $238,000 and $154,000.
The Company leases certain equipment under noncancellable capital lease
agreements. Assets under capital leases included in property and equipment are
as follows:
Equipment $ 31,990
Less accumulated amortization (6,724)
-----------------
$ 25,266
-----------------
Amortization expense for assets under capital lease during fiscal 1998 and 1997
was $6,398 and $25,257, respectively.
The capital lease obligations have imputed interest rates 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
-----------------
1999 $ 9,036
2000 9,036
2001 6,576
2002 2,610
-----------------
27,258
Less amount representing interest (3,766)
-----------------
Present value of minimum capital
lease obligations $ 23,492
-----------------
- --------------------------------------------------------------------------------
F-12
<PAGE>
INTERNATIONAL TOURIST ENTERTAINMENT CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
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 leases beyond five years,
which are not included in the amounts below. As of June 30, 1998, the Company
held $20,500 in deposits related to the leases.
A summary of future minimum rentals to be received are as follows:
Year Amount
-----------------
1999 $ 309,760
2000 258,460
2001 244,860
2002 161,960
2003 93,060
Thereafter 30,000
-----------------
Total $ 1,098,100
-----------------
8. Long-Term Debt
Long-term debt is comprised of the following:
Note payable to a bank in monthly installments of $33,000, including interest 9%
through February 1999, and prime plus .75% thereafter, secured by
the theater complex $ 3,387,893
Mortgage payable in monthly installments of $741
including adjustable interest from 4% to 12%,
secured by real property 106,232
Note payable to a bank in monthly installments of
$2,625, including interest at 10.75%, secured by
equipment 84,263
Note payable in monthly installments of $1,514
including interest at 10.8%, secured by equipment 73,682
- --------------------------------------------------------------------------------
F-13
<PAGE>
INTERNATIONAL TOURIST ENTERTAINMENT CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
8. Long-Term Debt
Continued
Capital lease obligations (see note 6) 23,492
-----------------
3,675,562
Less current portion (121,380)
-----------------
Long-term debt $ 3,554,182
-----------------
Future maturities of long-term debt are as follows:
Year Amount
-----------------
1999 $ 121,380
2000 132,619
2001 144,200
2002 127,894
2003 130,987
Thereafter 3,018,482
-----------------
$ 3,675,562
-----------------
9. Income
Taxes
Income taxes is different than amounts which would be provided by applying the
statutory federal income tax rate to loss before income taxes for the following
reasons:
Years Ended
June 30,
-----------------------------------
1998 1997
-----------------------------------
Federal income tax benefit
(provision) at statutory rate $ 84,000$ (1,208,000)
Change in valuation allowance (84,000) 1,208,000
-----------------------------------
$ - -
-----------------------------------
- --------------------------------------------------------------------------------
F-14
<PAGE>
INTERNATIONAL TOURIST ENTERTAINMENT CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
9. Income Taxes
Continued
Deferred tax assets (liabilities) are comprised of the following:
Write-down of assets $ 1,911,000
Net operating loss carry forward 636,000
Depreciation (39,000)
Accrued rents 110,000
-----------------
2,618,000
Less valuation allowance (2,618,000)
-----------------
$ -
-----------------
At June 30, 1998, the Company has approximately $1,800,000 of net operating loss
carryforwards for income tax purposes to offset future income. These
carryforwards begin to 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. Supplemental Cash Flow Information
During the year ended June 30, 1997, the Company had the following noncash
investing and financing activities:
o Exchange of land for the settlement of a debt
obligation $ 480,000
o Incurred debt for purchase of fixed assets $ 148,522
o Realized gain on forgiveness of accounts payable,
long-term debt and debentures as part of
bankruptcy settlement $ 4,086,766
- --------------------------------------------------------------------------------
F-15
<PAGE>
INTERNATIONAL TOURIST ENTERTAINMENT CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
10. Supplemental Cash Flow Information
Continued
Actual amounts paid for interest and income taxes are as follows:
Years Ended
June 30,
------------------------------------
1998 1997
------------------------------------
Interest $ 337,592 $ 657,362
------------------------------------
Income taxes $ - $ -
------------------------------------
11. 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, $39,000 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.
12. 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,
1998, 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-16
<PAGE>
INTERNATIONAL TOURIST ENTERTAINMENT CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
13. Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123) established financial accounting and reporting
standards for stock-based compensation. The 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 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,
--------------------------------
1998 1997
--------------------------------
Net (loss) income - as reported $ (252,526) $ 3,567,849
Net (loss) income - pro forma $ (476,592) $ 3,527,396
(Loss) income per share - as reported $ (.03) $ 1.45
(Loss) income per share - pro forma $ (.06) $ 1.43
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,
-----------------------------------
1998 1997
-----------------------------------
Expected dividend yield $ - $ -
Expected stock price volatility 202% 204%
Risk-free interest rate 5.84% 5%
Expected life of options 18 months 18 months
-----------------------------------
The weighted average fair value of options granted during the year ended June
30, 1998 and 1997 are $.19 and $.20, respectively.
- --------------------------------------------------------------------------------
F-17
<PAGE>
INTERNATIONAL TOURIST ENTERTAINMENT CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
13. Stock-Based Compensation
Continued
The following table summarizes information about stock warrants outstanding at
June 30, 1998:
Warrants Outstanding Warrants Exercisable
------------------------------------------------------------------
Weighted
Average
Number Remaining Weighted Number Weighted
Range of Outstanding Contractual Average Exercisable Average
Exercise at Life Exercise at Exercise
Prices 6/30/98 (Years) Price 6/30/98 Price
- --------------------------------------------------------------------------------
$ 1.00 2,000,000 0.53 $ 1.00 944,000 $ 1.00
- --------------------------------------------------------------------------------
14. Earnings Per Share
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128 (SFAS 128) "Earnings Per Share," which requires
companies to present basic earnings per share (EPS) and diluted earnings per
share, instead of the primary and fully diluted EPS as previously required. The
new standard also requires additional informational disclosures, and makes
certain modifications to the previously applicable EPS calculations defined in
Accounting Principles Board No. 15. The new standard is required to be adopted
by all public companies for reporting periods ending after December 15, 1997,
and requires restatement of EPS for all prior periods reported. During the year
ended June 30, 1998, the Company adopted this standard.
Earnings per share information is as follows:
Years Ended
June 30,
-----------------------------------
1998 1997
-----------------------------------
Net (loss) income available to
common stockholders (basic
and diluted) $ (252,526) $ 3,567,849
-----------------------------------
Average equivalent shares
(basic and diluted) $ 7,716,000 $ 2,464,000
-----------------------------------
- --------------------------------------------------------------------------------
F-18
<PAGE>
INTERNATIONAL TOURIST ENTERTAINMENT CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
15. Bankruptcy
On February 6, 1997, the Bankruptcy Court approved the Company's plan of
reorganization (the Plan). The Plan require 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. The Company's
ownership after the approved bankruptcy reorganization is as follows:
Stockholders' % Owned
-----------------
New capital infusion 80%
Existing stockholders' 10
Debenture holders 5
Management 5
-----------------
100%
-----------------
The resulting gain recognized related to the final bankruptcy settlement is as
follows:
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 $221,264.
The terms of the conversion were
substantially different than the
convertible terms when the
dentures were issued 2,100,789
- --------------------------------------------------------------------------------
F-19
<PAGE>
INTERNATIONAL TOURIST ENTERTAINMENT CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
15. Bankruptcy
Continued
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
5) and restructured the employment agreement to an officer.
Final bankruptcy clearance has been received.
- --------------------------------------------------------------------------------
F-20
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
BALANCE
SHEET AND STATEMENT OF INCOME 6-30-98 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 350,793
<SECURITIES> 0
<RECEIVABLES> 37,611
<ALLOWANCES> 0
<INVENTORY> 77,705
<CURRENT-ASSETS> 655,971
<PP&E> 6,960,868
<DEPRECIATION> 1,092,676
<TOTAL-ASSETS> 7,764,226
<CURRENT-LIABILITIES> 647,545
<BONDS> 3,856,421
0
0
<COMMON> 7,859
<OTHER-SE> 3,252,401
<TOTAL-LIABILITY-AND-EQUITY> 7,764,226
<SALES> 3,176,631
<TOTAL-REVENUES> 5,893,074
<CGS> 1,043,061
<TOTAL-COSTS> 5,854,944
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 340,674
<INCOME-PRETAX> (252,526)
<INCOME-TAX> 0
<INCOME-CONTINUING> (252,526)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (252,526)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
