U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________________ to _____________
COMMISSION FILE NO. 0-22908
BIG ENTERTAINMENT, INC.
(Exact name of small business issuer as specified in its charter)
FLORIDA 65-0385686
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2255 GLADES ROAD, SUITE 237 WEST
BOCA RATON, FLORIDA 33431
(Address of principal executive offices) (zip code)
(561) 998-8000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
As of November 11, 1996, the number of shares outstanding of the
issuer's Common Stock, $.01 par value was 6,090,407.
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BIG ENTERTAINMENT, INC.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION PAGE(S)
Item 1. Consolidated Financial Statements
<S> <C>
Consolidated Balance Sheets as of September 30, 1996 and
December 31, 1995............................................... 3
Consolidated Statements of Operations for the three and
nine months ended September 30, 1996 and 4
1995................................
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1996 and 5
1995............................................................
Notes to Unaudited Consolidated Financial Statements............. 6-8
Item 2. Management's Discussion and Analysis or Plan of Operations............. 9-18
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.................... 19
Item 5. Exhibits and Reports on Form 8-K 19
Signature ................................................................... 20
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2
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Item 1. Consolidated Financial Statements
BIG ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
<TABLE>
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SEPTEMBER 30, DECEMBER 31,
1996 1995
-------------- -------------
ASSETS (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 861,229 $ 606,376
Trade receivables, net 557,682 244,598
Merchandise inventories 980,582 579,218
Prepaid expenses 561,101 343,235
Franchise fee receivable 700,000 700,000
Other current assets 96,479 104,899
------------- -------------
Total current assets 3,757,073 2,578,326
PROPERTY AND EQUIPMENT, net 2,349,558 1,940,915
INTANGIBLE ASSETS, net 600,867 873,838
GOODWILL, net 350,117 364,697
OTHER ASSETS 462,841 40,000
-------------- -------------
$ 7,520,456 $ 5,797,776
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 426,768 $ 1,633,063
Accrued professional fees 110,050 134,721
Other accrued expenses 478,142 284,353
Deferred revenue 1,357,579 959,840
Current portion of capital lease obligations 740,892 154,725
-------------- -------------
Total current liabilities 3,113,431 3,166,702
-------------- -------------
CAPITAL LEASE OBLIGATIONS, less current portion 645,041 239,040
-------------- -------------
MINORITY INTEREST - 23,557
-------------- -------------
COMMON STOCK SUBJECT TO REDEMPTION, $.01 par value, 50,000 shares - 300,000
-------------- -------------
SHAREHOLDERS' EQUITY:
Series A variable rate convertible preferred stock, $6.25 stated value,
320,000 shares authorized; 217,600 issued and outstanding at September 30,
1996 and 128,000 shares issued and outstanding at December 31, 1995.
Liquidation preference of $1,562,912 at
September 30, 1996. 1,360,000 800,000
Common stock, $.01 par value, 25,000,000 shares authorized;
5,865,407 shares issued and outstanding at
September 30, 1996 and 4,723,876 issued and outstanding at
December 31, 1995 58,654 47,239
Additional paid-in-capital 21,881,182 16,149,046
Warrants outstanding 486,600 302,000
Accumulated deficit (20,024,452) (15,229,808)
-------------- -------------
Total shareholders' equity 3,761,984 2,068,477
-------------- -------------
$ 7,520,456 $ 5,797,776
============== =============
</TABLE>
The accompanying Notes to Unaudited Consolidated Financial Statements are an
integral part of these consolidated balance sheets.
3
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BIG ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
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THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET REVENUES $ 1,669,438 $ 1,194,116 $ 5,093,336 $ 4,633,596
COST OF SALES 1,092,489 1,316,756 3,315,698 4,030,851
----------- ----------- ----------- -----------
Gross profit 576,949 (122,640) 1,777,638 602,745
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Selling, general and administrative 1,292,852 1,025,391 3,401,957 3,976,539
Salaries and benefits 866,266 589,505 2,404,709 1,699,283
Amortization of goodwill and Intangibles 112,407 172,891 337,221 533,989
----------- ----------- ----------- -----------
Total operating expenses 2,271,525 1,787,787 6,143,887 6,209,811
----------- ----------- ----------- -----------
Operating loss (1,694,576) (1,910,427) (4,366,249) (5,607,066)
OTHER (INCOME) EXPENSE:
Interest (income) expense 8,247 (104,161) 127,658 (28,912)
Other, net (10,025) -- (28,300) --
----------- ----------- ----------- -----------
Loss before minority interest (1,692,798) (1,806,266) (4,465,607) (5,578,154)
MINORITY INTEREST (47,480) (61,063) (245,639) (143,685)
----------- ----------- ----------- -----------
Net loss $(1,740,278) $(1,867,329) $ (4,711,246) $ (5,721,839)
=========== =========== =========== ============
Net loss per common and common
equivalent share $ (0.30) $ (0.42) $ (0.88) $ (1.35)
=========== =========== =========== ============
Weighted average number of common
and common equivalent shares outstanding 5,861,294 4,446,534 5,346,509 4,228,415
=========== =========== =========== ============
</TABLE>
The accompanying Notes to Unaudited Consolidated Financial Statements are an
integral part of these consolidated financial statements.
4
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BIG ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
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NINE MONTHS ENDED SEPTEMBER 30,
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,711,246) $ (5,721,839)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization 771,189 533,989
Realized loss on sale of short-term investments -- 92,252
Services rendered as part of subscription agreement -- 26,019
Issuance of stock options under consulting agreements -- 87,500
Minority interest 245,639 143,685
Loss on sale of marketable securities
Changes in assets and liabilities:
Trade receivables (313,084) (41,354)
Prepaid expenses (107,081) (335,646)
Merchandise inventories (401,364) (96,743)
Other current assets 8,420 64,192
Other assets 29,112 --
Accounts payable (1,206,295) 354,025
Accrued professional fees (24,671) (7,382)
Deferred revenue 266,476 --
Other accrued expenses 180,477 276,725
------------ -------------
Net cash used in operating activities (5,262,428) (4,624,577)
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Netco Partners (202,255) --
Cash used in acquisition, net of cash acquired -- (430,000)
Sale of short-term investments -- 2,816,805
Capital expenditures, net (623,699) (802,807)
Other -- (123,131)
Investment in Patents and Trademarks (49,670) --
Return of capital from Tekno Books to minority shareholder (353,051) --
------------ -------------
Net cash provided by (used in) investing activities (1,228,675) 1,460,867
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of preferred stock 560,000 --
Proceeds from the issuance of common stock 4,873,465 3,435,738
Proceeds from sale of 8.5% convertible promissory note 500,000 --
Proceeds from sale of Assets 803,372 --
Repayments under capital lease obligations (175,481) (96,773)
Receipts of subscription receivable 184,600 160,000
=========== =============
Net cash provided by financing activities 6,745,956 3,498,965
=========== =============
Net increase (decrease) in cash and cash equivalents 254,853 335,255
CASH AND CASH EQUIVALENTS, beginning of period 606,376 1,242,391
----------- -------------
CASH AND CASH EQUIVALENTS, end of period $ 861,229 $ 1,577,646
=========== =============
SUPPLEMENTAL SCHEDULE OF CASH RELATED ACTIVITIES:
Interest paid $ 176,683 $ 12,505
=========== =============
</TABLE>
The accompanying Notes to Unaudited Consolidated Financial Statements are an
integral part of these consolidated financial statements.
5
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BIG ENTERTAINMENT INC., AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION:
In the opinion of management, the accompanying unaudited consolidated financial
statements have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in annual financial statements prepared
in accordance with generally accepted accounting principles have been condensed
or omitted pursuant to those rules and regulations. However, the Company
believes that the disclosures contained herein are adequate to make the
information presented not misleading.
The financial statements reflect, in the opinion of management, all material
adjustments (which include only normal recurring adjustments) necessary to
present fairly the Company's financial position and results of operations.
The results of operations and cash flows for the nine months ended September 30,
1996 are not necessarily indicative of the results of operations or cash flows
which may be recorded for the remainder of 1996.
The accompanying unaudited consolidated financial statements should be read in
conjunction with the Company's audited consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1995.
(2) CAPITAL STOCK:
In January 1996, the Company sold an 8.5% Convertible Promissory Note (the
"Note") to an investor in a private transaction for $500,000. On May 15, 1996,
the principal amount of the Note and interest accrued thereon was converted into
82,947 shares of the Company's common stock at a conversion rate of $6.25 per
share.
In February 1996, the Company sold 64,000 shares of Series A Convertible
Preferred Stock to Tekno Simon, LLC for $6.25 per share for a total of $400,000,
and in April 1996, the Company sold an additional 25,600 shares of Series A
Convertible Preferred Stock to Tekno Simon, LLC for $6.25 per share for a total
of $160,000, the proceeds of which were to fund the construction and
installation of seven Entertainment Super-Kiosks.
In April 1996, the Company completed a public offering of its common stock. The
Company sold 1,000,000 shares of common stock at $6.00 per share for a gross
amount of $6,000,000. After deducting expenses, including underwriting fees,
filing fees, legal fees, accounting and other expenses, the Company realized
proceeds of approximately $4,873,465.
In April 1996, the Company issued 3,912 shares of common stock as non-cash
dividends on the Series A Convertible Preferred Stock.
In September 1996, the Company issued 4,672 shares of common stock as non-cash
dividends on the Series A Convertible Preferred Stock.
6
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In connection with the agreement entered into as part of the acquisition of
Tekno Books, a shareholder/director of the Company had the option to require the
Company to purchase, at $6.00 per share, 50,000 shares of the Company's common
stock if the Company entered into a financing transaction to raise capital in
excess of $1,000,000 through the sale of the Company's securities within nine
months of the date of the agreement. The aggregate total of these shares of
$300,000 is reflected as "Common Stock Subject to Redemption" in the
accompanying consolidated balance sheet as of December 31, 1995. Even though the
aforementioned financing condition was satisfied entitling this
shareholder/director to require the Company to make such purchases, the common
stock redemption option expired unexercised on June 13, 1996. Accordingly, the
$300,000 was reclassified to common stock and additional paid-in capital as
reflected in the consolidated balance sheet as of September 30, 1996.
(3) SALE-LEASEBACK:
In February 1996, the Company entered into a sale-leaseback transaction with a
lessor. Pursuant to the sale-leaseback transaction, the Company sold 18
Entertainment Super-Kiosks to the lessor for $1,080,000 and simultaneously
leased the Entertainment Super-Kiosks from the lessor for a term of 39 months
with aggregate rental payments of approximately $35,000 per month. The
sale-leaseback does not include the underlying mall leases for the sites of the
Company's Entertainment Super-Kiosks, with respect to which the Company remains
liable. Upon expiration of the lease, the Company will have the option to
repurchase the Entertainment Super-Kiosks for their fair market value, but in no
event more than $108,000 in the aggregate. As collateral security for the lease,
the Company issued 225,000 shares of its common stock (the "Escrow Shares")
which are held by an escrow agent. In the event that the Company defaults under
the agreements for the sale-leaseback, the Escrow Shares will be released to the
lessor. While held in escrow, the Escrow Shares will be voted by the lessor on
all matters in accordance with the recommendations of management and neither the
escrow agent nor the lessor will have any dispositive rights with respect
thereto. As additional consideration for the sale-leaseback, the Company also
issued to the lessor warrants to purchase 26,739 shares of common stock,
exerciseable for four years commencing on the first anniversary of the date of
grant, at an exercise price of $8.08 per share. The company is exploring
additional sales-leaseback transactions.
(4) SUPPLEMENTAL NON-CASH DISCLOSURES:
In connection with the sale-leaseback transaction referred to above, the Company
recorded property and equipment and capitalized lease obligations of $1,080,000,
prepaid expenses of $110,785, other assets of $165,843, and deferred gain of
$131,263.
In the nine months ended September 30, 1996, the Company entered into capital
lease transactions and recorded property and equipment and capitalized lease
obligations of $87,649.
The common stock redemption option referred to above expired on June 13, 1996,
and accordingly was reclassified from "Common Stock Subject to Redemption" to
$500 of Common Stock and $299,500 to Additional Paid-in Capital.
In April 1996, the Company issued 3,912 shares of common stock as non-cash
dividends on the Series A Convertible Preferred Stock in the amount of $27,139.
In September 1996, the Company issued 4,672 shares of common stock as non-cash
dividends on the Series A Convertible Preferred Stock in the amount of $24,528.
7
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In September 1996 the Company accrued non-cash dividends on the Series A
Convertible Preferred Stock, that will be issued in the fourth quarter of 1996,
in the amount of $31,731. The number of shares of common stock to be issued in
connection with such dividends is dependent upon the market price of the common
stock during the month of September 1996.
In connection with the conversion of the 8.5% Convertible Promissory Note, the
principal amount plus accrued interest was converted into 82,947 shares of the
Company's common stock at a conversion rate of $6.25 per share or $518,419.
(6) SUBSEQUENT EVENTS:
In September 1996, NetCo Partners, a joint venture owned fifty percent by the
Company and fifty percent by C. P. Group, Inc., signed a master toy licensing
agreement with Playmates Toys, Inc., a major toy company. Plans are for a
diverse line of toys including action figures, accessories and vehicles, to be
based on TOM CLANCY'S NETFORCE, an entertainment property owned by NetCo
Partners. The agreement calls for advance payments aggregating $1,000,000 to
NetCo Partners by Playmates Toys against future royalties payable to NetCo
Partners by Playmates Toys, Inc. (based on a percentage of the selling price of
the licensed products sold by Playmates Toys, Inc.) as earned at later dates.
NetCo Partners delivered character sketches upon which the licensed products
will be based to Playmate Toys, Inc. in October 1996. Payments in excess of
$1,000,000 will be payable to NetCo Partners if and when royalties (based on a
percentage of the selling price of the licensed products sold by Playmates Toys,
Inc.) exceed $1,000,000.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion contains, in addition to historical information,
"forward-looking statements" with respect to Big Entertainment, Inc. (the
"Company") which represent the Company's expectations or beliefs, including, but
not limited to, statements concerning industry performance, the Company's
operations, performance, financial condition, growth and acquisition strategies,
margins, and growth in sales of the Company's products. For this purpose, any
statements contained in this report that are not statements of historical fact
may be deemed to be forward-looking statements. Without limiting the generality
of the foregoing, words such as "may," "will," "expect," "believe,"
"anticipate," "intend," "could," "estimate," or "continue" or the negative or
other variations thereof or comparable terminology are intended to identify
forward-looking statements. These statements by their nature involve substantial
risks and uncertainties, certain of which are beyond the Company's control, and
actual results may differ materially depending on a variety of important
factors. Such factors include, but are not limited to, limited operating
history; operating losses and accumulated deficit; possible need for additional
financing; dependence on relationships with authors; risks related to retail
operations; competition; dependence on management; risks related to trademarks
and proprietary rights; dependence on distributors; and other factors discussed
in the Company's filings with the Securities and Exchange Commission.
GENERAL
The Company is a diversified entertainment company, which owns or controls the
exclusive rights to certain original characters and concepts created by
best-selling authors and media celebrities such as Tom Clancy, Leonard Nimoy,
Gene Roddenberry, Mickey Spillane, Arthur C. Clarke, John Jakes, Anne McCaffrey,
Margaret Weis, Isaac Asimov and L. Ron Hubbard. The Company uses illustrated
novels to introduce and develop its intellectual properties, including
characters and storylines, as a means of exploring the potential of these
intellectual properties for licensing them across all media, including films,
television, books, multimedia software, toys, and other merchandise. The Company
acquires the rights to properties pursuant to agreements which grant it, on an
exclusive basis, all rights in all media as well as the right to use the
Creator's name in the title of the property (e.g., LEONARD NIMOY'S PRIMORTALS,
MICKEY SPILLANE'S MIKE DANGER). Substantially all costs associated with
development of intellectual properties are expensed in the Company's illustrated
novel publishing division.
In addition, the Company is a fifty percent partner in NetCo Partners. NetCo
Partners was formed in June 1995 as a joint venture owned 50% by the Company and
50% by C.P. Group, Inc., a company in which Tom Clancy is a substantial
shareholder. Initially, C.P. Group, Inc. contributed to NetCo Partners all media
rights to TOM CLANCY'S NETFORCE, and the Company contributed to NetCo Partners
all rights to TAD WILLIAMS' MIRRORWORLD and committed to contribute three
additional entertainment properties. Subsequently, pursuant to the Joint Venture
Agreement the Company contributed to NetCo Partners certain media rights to
ARTHUR C. CLARKE'S CRIOSPHINX, NEIL GAIMAN'S LIFERS, and ANNE MCCAFFREY'S
SARABAND. Pursuant to the Joint Venture Agreement, the Company is not obligated
to contribute any additional properties to NetCo Partners; however, the two
venturers, the Company and C.P. Group, Inc., are working together on seeking to
obtain rights from third parties to additional entertainment properties for the
NetCo Partners Joint Venture.
NetCo Partners is engaged in the business of publishing and licensing of
entertainment properties and characters, and its operations are expected to
encompass all of the Company's four divisions. Pursuant to the terms of the
NetCo Partners Joint Venture Agreement, the Company is responsible for
developing, producing, manufacturing, advertising, promoting, marketing and
distributing NetCo Partners' illustrated novels and related products and for
advancing all costs incurred in connection therewith. All amounts advanced by
the Company to fund NetCo Partners' operations are treated as capital
contributions of the Company and the Company is entitled to a return of such
capital contributions before distributions of cash
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flow are split equally between the Company and C.P. Group, Inc. Through
September 30, 1996 pursuant to the NetCo Partners Joint Venture Agreement the
Company advanced approximately $240,000 to NetCo Partners for development costs
of NetCo Partners' entertainment properties. The Company is entitled to
reimbursement of this amount from NetCo Partners. After this amount is
distributed to the Company, excess cash flow of NetCo Partners will be split 50%
to the Company and 50% to C.P. Group, Inc.
In September 1996, NetCo Partners, a joint venture owned fifty percent by the
Company and fifty percent by C. P. Group, Inc., signed a master toy licensing
agreement with Playmates Toys, Inc., a major toy company. Plans are for a
diverse line of toys including action figures, accessories and vehicles, to be
based on TOM CLANCY'S NETFORCE, an entertainment property owned by NetCo
Partners. The agreement calls for advance payments aggregating one million
dollars to NetCo Partners by Playmates Toys against future royalties (based on a
percentage of the selling price of the licensed products sold by Playmates Toys,
Inc.) as earned at later dates. NetCo Partners delivered character sketches upon
which the licensed products will be based to Playmate Toys, Inc. in October
1996. Payments in excess of $1,000,000 will be payable to NetCo Partners if and
when royalties (based on a percentage of the selling price of the licensed
products sold by Playmates Toys, Inc.) exceed $1,000,000. In addition, NetCo
Partners has licensed TAD WILLIAMS' MIRRORWORLD to HarperCollins for publication
as an illustrated novel.
In the third quarter 1996 the Company retained the investment banking firm of
Wasserstein Perella & Co. to assist the Company in its efforts to identify
strategic opportunities in the media business that are consistent with the
Company's goal of increasing shareholder value.
The Company has the following divisions:
BOOK LICENSING AND PACKAGING. Operating under the name "Tekno
Books", this 51% owned division has more than 860 published books in
its history and agreements with more than 30 publishers to add an
additional approximate 150 titles. These titles are expected to
include dozens of books by numerous best-selling authors. Tekno
Books also enables the Company to take ideas from the Company's
entertainment properties and transform them into novels. This
division is an excellent source of referring authors to the Company
for the development of licensable entertainment properties. This
division has two streams of revenue, one being revenue generated
from new book projects in the form of advances paid to this
division by publishers in return for granting certain publication
rights to such publishers, and the other being royalties from the
division's expanding library of titles.
LICENSING AND NEW MEDIA. Management believes that this is the area
of greatest potential growth for the Company. Intellectual
properties are offered to movie studios, TV producers, book
publishers, toy companies, multimedia publishers and others under
licensing agreements.
Licensing agreements in place include:
/bullet/ In September 1996 a master toy license agreement
with Playmates Toys, Inc. regarding TOM CLANCY'S
NETFORCE, was entered into by NetCo Partners, a
joint venture owned fifty percent by the Company.
/bullet/ In September 1996 the Company entered into a
joint CD-ROM publishing venture with Sierra
On-Line, one of the largest worldwide publishers
of interactive entertainment, productivity and
educational software, for LEONARD NIMOY'S
PRIMORTALS.
/bullet/ In June 1996 the Company entered into a joint
publishing agreement with HarperCollins, one of
the largest publishers in the world and a wholly
owned subsidiary of Rupert Murdoch's The News
Corporation, to publish
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hardcover books, paperback books, and illustrated
novels for ANNE MCCAFFREY'S ACORNA:QUEEN OF THE
UNICORNS, ISAAC ASIMOV'S I-BOTS, and MARGARET
WEIS' TESTAMENT OF THE DRAGON.
/bullet/ In June 1996, NetCo Partners licensed TAD
WILLIAMS' MIRRORWORLD to HarperCollins for
HarperCollins to publish as an illustrated novel.
/bullet/ In March 1996 the Company signed an agreement with
Alliance Television Productions, a division of
Alliance Communications Corporation, to license
JOHN JAKES' MULKON EMPIRE for television.
/bullet/ In May 1995 the Company entered into a publishing
agreement with Warner Books, a division of Time
Warner, Inc., for the publication of novels based
on LEONARD NIMOY'S PRIMORTALS and GENE
RODDENBERRY'S XANDER IN LOST UNIVERSE.
/bullet/ In April 1995 the Company entered into a film
licensing agreement with Miramax Films, a
subsidiary of the Walt Disney Company.
Generally, the Company's licensing agreements provide for the
Company to receive advance payments from the licensee, as well as
royalty payments based on sales after the advance has been earned
out.
ILLUSTRATED NOVEL PUBLISHING. Ideas from best selling authors and
media celebrities like Tom Clancy, Mickey Spillane, and Leonard
Nimoy are developed into detailed story lines and full-bodied
characters. This is the first step in the Company's development
process of creating an entertainment property. The Company believes
that this facilitates the licensing of these intellectual
properties. The Company has entered into an agreement with
HarperCollins to publish, with the Company, a minimum of four titles
of illustrated novels. Pursuant to this agreement, HarperCollins is
advancing five hundred thousand dollars to the Company and will
handle all newsstand and bookstore distribution of these titles. The
Company will also receive royalty payments on sales once the advance
payment is earned. The Company believes these advances will cover
all costs for the production of these titles. (The HarperCollins
agreement also includes a license to HarperCollins from the Company
for HarperColllins to publish text-only traditional hardcover and
paperback novels, involving several of the Company's entertainment
properties, as described above.)
The HarperCollins agreement fundamentally changes the way this
division does business. Before the effect of the HarperCollins
agreement, the Company advanced one hundred percent of all costs
associated with the development of its titles. Furthermore, the
Company paid for the printing of all books, and was responsible for
returns, which are a normal part of book publishing. HarperCollins'
advance payments to the Company are a source of funds for the
Company to use for development costs; HarperCollins will be paying
the costs of printing; and HarperCollins will be solely responsible
for all returns.
Substantially all of the costs in this division are expensed as
incurred. Since most development costs of the Company's
entertainment properties are expensed in the illustrated novel
division, there are expected to be minimal incremental additional
expenses associated with licensing revenue anticipated to be
generated from the Company's entertainment properties.
ENTERTAINMENT RETAIL. The Company operates as of September 30, 1996
23, and as of November 19, 1996, 25 "Entertainment Super-Kiosks" at
various shopping malls and a 540-square-foot retail store in Mall of
America. These Entertainment Super-Kiosks resemble high-
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tech semi-circular newsstands and feature a bank of TV monitors that
show movie trailers and promotional spots. The Company believes it
has reached a critical mass in these Entertainment Super-Kiosks and
is now starting to market an integrated marketing/promotional
program that will be viewed on its TV monitors and supported by
third parties, a business that management expects to generate
revenues with relatively small incremental costs. An office was
opened by the Company during the third quarter of 1996 as the base
for a dedicated integrated marketing sales group at 20 East 46th
Street, New York, NY, occupying 1210 sq. feet of space, with an
unaffiliated landlord for a three year term with rent of
$2700/month.
The Company, through its wholly owned subsidiary, Big Entertainment
Franchise Corp., is currently registered in numerous franchise
registration states and is in the process of obtaining additional
registrations, to offer Entertainment Super-Kiosk franchises to
third parties for franchise fees and royalties. The proposed
franchise agreements call for the Big Entertainment Super-Kiosk to
be a turnkey operation provided to the franchisee in return for
payments by the franchisee to Big Entertainment Franchise Corp.
Further, in December 1995, the Company entered into an agreement
granting certain exclusive territorial franchise rights for Canada
(excluding the Province of Alberta) for a ten year period to a
non-affiliate of the Company for $1,000,000. The Canadian franchise
rights granted primarily the right to open, operate and subfranchise
Entertainment Super-Kiosks under the Company's name in the specified
territory. Included in the $1,000,000 purchase price is the purchase
of two Entertainment Super-Kiosks to be installed at Canadian
shopping malls. The Company will receive certain royalty fees on
sales by Entertainment Super-Kiosk units operated by this party and
his sub-franchisees. The Company currently anticipates that the
first two Canadian units will be open by June 30, 1997 (extended
from December 31, 1996), and that eight additional Canadian units
will be open by December 31, 1997 (extended from October 1, 1997).
Of the $1,000,000 purchase price for the franchise rights, $700,000
is expected to be received and recorded as revenue prior to the
opening of the first two units and upon the completion of certain
training by the Company of employees of the franchisee and the
balance is due upon delivery of the two Entertainment Super-Kiosks.
The extensions were made in order to coordinate the Canadian
franchise program with the Company's franchise program in the United
States and to utilize similar training programs and systems in
Canada as are being implemented in the United States.
12
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 ("Q3-96") AND NINE MONTHS
ENDED SEPTEMBER 30, 1996 ("Y3-96") AS COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1995 ("Q3-95") AND NINE MONTHS ENDED SEPTEMBER 30, 1995 ("Y3-95"),
RESPECTIVELY.
The following table summarizes the revenues, cost of sales and gross
profit attributable to each of the Company's divisions for Q3-96 and Q3-95 and
Y3-96 and Y3-95, respectively:
<TABLE>
<CAPTION>
INTELLECTUAL PROPERTY RETAIL
----------------------------------------- -------------
BOOK
LICENSING LICENSING ILLUSTRATED ENTERTAINMENT TOTAL
AND AND NEW NOVEL RETAIL
PACKAGING MEDIA PUBLISHING
----------------------------------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Q3-96
Net Revenues $ 435,651 $ 16,466 $ 229,861 $ 987,460 $ 1,669,438
Cost of sales 264,620 0 291,240 536,629 1,092,489
----------- ----------- ----------- ----------- -----------
Gross profit (loss) $ 171,031 $ 16,466 $ (61,379) $ 450,831 $ 576,949
=========== =========== ============ =========== ===========
Q3-95
Net Revenues $ 150,125 $ 49,911 $ 562,062 $ 432,018 $ 1,194,116
Cost of sales (14,475) -- 1,037,276 293,955 1,316,756
----------- ----------- ----------- ----------- -----------
Gross profit(loss) $ 164,600 $ 49,911 $ (475,214) $ 138,063 $ (122,640)
=========== =========== ============ =========== ===========
Y3-96
Net Revenues $ 1,384,842 $ 303,693 $ 1,032,348 $ 2,372,453 $ 5,093,336
Cost of sales 713,659 68,000 1,248,044 1,285,995 3,315,698
----------- ----------- ----------- ----------- -----------
Gross profit (loss) $ 671,183 $ 235,693 $ (215,696) $ 1,086,458 $ 1,777,638
=========== =========== ============ =========== ===========
Y3-95
Net Revenues $ 759,882 $ 361,202 $ 2,269,962 $ 1,242,550 $ 4,633,596
Cost of sales 365,820 -- 2,882,917 782,114 4,030,851
----------- ----------- ----------- ----------- -----------
Gross profit (loss) $ 394,062 $ 361,202 $ (612,955) $ 460,436 $ 602,745
=========== =========== =========== =========== ===========
</TABLE>
NET REVENUES
Revenues are generated through the Company's intellectual property
activities, including publishing, book licensing and packaging, and licensing
and new media, and through its entertainment retail activities, which consist of
the operations of the Company's Entertainment Super-Kiosks. Net revenues for
Q3-96 increased by 40%, or $475,322, to $1,669,438 from $1,194,116 for Q3-95.
The increase noted in Q3-96 over Q3-95 is primarily due to increases in book
licensing and packaging and entertainment retail revenues offset by a decrease
in illustrated novel publishing. The increase in revenues noted in Y3-96, as
13
<PAGE>
compared to Y3-95, is attributable to the continued growth in the Company's
entertainment retail and book licensing and packaging divisions offset by the
Company's planned reduction in comic books.
GROSS PROFIT
Overall Company gross profit increased by $699,589, to $576,949 for
Q3-96 from ($122,640) in Q3-95. As a percentage of net revenues, gross profit
increased to 35% in Q3-96 from (10%) in Q3-95. The Company's overall gross
profit increased 195%, or $1,174,893, to $1,777,638 for Y3-96 from $602,745 in
Y3- 95. As a percentage of net revenues, gross profit increased to 35% in Y3-96
from 13% in Y3-95. The increase in gross profit is primarily due to increases in
gross profit in the Company's book licensing and packaging and entertainment
retail divisions.
INTELLECTUAL PROPERTY
/bullet/ BOOK LICENSING AND PACKAGING
NET REVENUES. Total net revenues from Tekno Books, which is 51%
owned by the Company, increased 190%, or $285,526, to $435,651 for Q3-96 from
$150,125 for Q3-95. In addition, net revenues increased 82%, or $624,960, to
$1,384,842 for Y3-96 from $759,882 for Y3-95. Deferred revenues increased 96%,
or $248,897, to $508,625 at September 30, 1996 from $259,728 at September 30,
1995. Tekno Books' net revenues consist of two sources of revenue (1) cash
advances recognized as revenues upon the acceptance by publishers of books, and
(2) royalties on books licensed to and published by third-party publishers.
Tekno Books generates significant cash flow from cash advances received upon the
execution of publishing agreements with publishers for books to be published in
the future. Such cash advances are only recognized as revenue when the books to
which they relate are accepted by the publisher, resulting in a deferral of
revenue recognition following receipt of the cash advance. Historically,
virtually all books delivered by Tekno Books have been accepted. Additionally,
Tekno Books has a library of books totaling approximately 860 titles which
generate royalty payments to Tekno Books.
GROSS PROFIT. Gross profit for Tekno Books increased by 4%, or
$6,431, to $171,031 for Q3-96 from $164,600 for Q3-95 and by 70%, or $277,121,
to $671,183 in Y3-96 from $394,062 for Y3-95. As a percentage of revenues from
book licensing and packaging, gross profit amounted to 39% in Q3-96 as compared
to 110% in Q3-95, and 48% in Y3-96 as compared to 52% in Y3-95.
/bullet/ LICENSING AND NEW MEDIA
NET REVENUES. Net revenues from the licensing and new media divisions
amounted to $303,693 for Y3-96 and $16,466 for Q3-96 as compared to $361,202 for
Y3-95 and $49,911 for Q3-95, for a decrease of 16% and 67%, respectively;
however, note that the payments called for under the licensing agreements
(before royalties are taken into account) entered into during Y3-96 exceed such
payments from all licensing agreements entered into during 1995. The decrease in
recorded net revenues, therefore, primarily resulted from changes in the nature
and timing of the licensing agreements entered into by the Company in Y3-96
(HarperCollins Publishing and Alliance Productions) as compared to the licensing
agreements entered into by the Company in Y3-95 (Miramax Films and Warner
Books). The Miramax Films 1995 Agreement called for an up-front payment of
$250,000, which was paid and recognized equally over the last three quarters of
1995; the Warner Books 1995 agreement called for an advance of $200,000, with
$100,000 paid upon signing of the agreement, of this amount $40,000 was
recognized in the first quarter of 1996, and $20,000 was recognized in the
second quarter of 1996; an additional $40,000 was paid and recognized in the
second quarter of 1996 when the manuscript for the first of the two books
covered by the Warner Books agreement was accepted. The HarperCollins 1996
agreement called for an advance of
14
<PAGE>
$500,000 with $125,000 due and recognized upon signing. The Alliance Productions
1996 agreement called for an up-front payment of $25,000 which was paid and
recognized in the first quarter of 1996. All of these licensing agreements call
for additional royalties to be payable as earned at later dates.
Revenue recognition for licensing agreements takes place as each of the
Company's obligations under the various agreements are fulfilled, primarily in
reference to the Company's delivery of manuscripts to Warner Books and to
HarperCollins. Management does not anticipate any difficulty in making such
deliveries.
GROSS PROFIT. Licensing and new media gross profit percentage in Q3-96
is 100% which is unchanged as compared to Q3-95. Y3-96 gross profit percentage
was 78% as compared to Y3-95 which was 100%. The decrease in gross profit
percentage in Y3-96 is due to the additional costs that were accrued for
writers' fees against the HarperCollins revenue recognized in the second quarter
of 1996.
/bullet/ ILLUSTRATED NOVEL PUBLISHING
The Company uses illustrated novels to introduce and develop its
intellectual properties, including characters and storylines as a means to
explore the potential of its intellectual properties for licensing them across
all media, including film, television, books, multimedia software, toys, apparel
and other merchandise. Cost of sales for the illustrated novel publishing
division represents direct costs in intellectual property development, including
character and storyline development, design, writing and illustration of
publications, plus printing, shipping and distribution costs. The Company does
not assign its intellectual properties any value for financial accounting
purposes, and does not therefore reflect them as assets on its financial
statements. Notwithstanding these accounting conventions, the Company believes
that these intellectual properties carry substantial value, which, although not
readily quantifiable, may be realized in potential future revenue streams
through licensing and new media with no or minimal further development cost on
the part of the Company.
NET REVENUES. Net publishing revenues from the sale of illustrated
novels and comic books published by the Company decreased by 59%, or $332,201,
to $229,861 for Q3-96 from $562,062 for Q3-95 and by 55%, or $1,237,614, to
$1,032,348 for Y3-96 from $2,269,962 for Y3-95, reflecting the results primarily
of a shift in the Company's strategy in two areas, as listed below. (To reflect
this shift, the Company has changed the name of this division from Comic Book
and Illustrated Novel Publishing to Illustrated Novel Publishing.)
1) In preparation for expanding the Company's publishing business
through the introduction of illustrated novels, which are longer in
page length than comic books and have a higher cover price
(generally ranging from $9.95 - $19.95) than comic books (generally
$1.95 - $2.25), the Company began reducing the number of comic book
titles in January of 1996. The Company believes that illustrated
novels have a wider distribution potential to the bookstore market
for the Company's titles than do comic books. Since most of the
Company's titles in development feature best-selling authors' names
as part of the titles, the Company believes that the vast number of
their readers are more likely to look for their titles in
traditional book stores and where books are generally sold than in
comic book stores.
2) In January of 1996, the Company began reducing the level of
shipments of comic book titles to the newsstand market, which is a
market that permits retailers to return unsold product, as compared
to the same period in 1995. This was done to seek to enhance the
sell-through percentage of comic books shipped. In Q3-96, all
newsstand shipments of comic books were eliminated.
15
<PAGE>
While revenues in this division have declined due to the impact of
the Company's shift in strategy as described above, the Company
anticipates that the long-term results of these actions will be
favorable once additional titles are published as illustrated novels
and the full effects of its illustrated novel program are
recognized. The Company's agreement with HarperCollins Publishing, a
division of Rupert Murdoch's News Corporation, for a joint
publishing program for hardcover books, paperback books, and
illustrated novels, eliminates the Company's risk for returns in the
newsstand and bookstore markets for entertainment properties covered
by this agreement. HarperCollins, with its expertise in the
bookstore and newsstand market, is handling all shipments of the
illustrated novels covered under the agreement and thus carries all
the risk of returns. In addition, all printing and distribution
costs are borne by HarperCollins. The agreement also calls for
advances to be paid by HarperCollins to the Company, which are
expected to cover all or most of the Company's costs in producing
the illustrated novels covered by the HarperCollins agreement, and
the Company will receive royalties on sales if and when the
royalties on sales exceed the advance payments. The Company is
commencing delivery of illustrated novels to HarperCollins in the
fourth quarter of 1996 and plans are for the illustrated novels to
begin to be released in 1997.
GROSS PROFIT/LOSS. The illustrated novel publishing division
gross loss decreased to ($61,379) for Q3-96 from ($475,214) in
Q3-95, a decrease of 87%, and decreased to ($215,696) for Y3-96 from
($612,955) for Y3-95, a decrease of 65%. The decrease in gross loss
was due to the Company's efforts to control costs, including the
reduction of shipments to the newsstand market through the second
quarter 1996 and the elimination of the Company making newsstand
shipments in Q3-96 as described above. As also noted above, the
Company has an agreement in place with HarperCollins for
HarperCollins to handle newsstand and bookstore distribution of
certain titles, pursuant to which HarperCollins will pay all
printing and distribution costs, and the Company will not be at risk
for returns.
RETAIL
/bullet/ ENTERTAINMENT RETAIL
NET REVENUES. The Company's entertainment retail division net
revenues increased by 129%, or $555,442, to $987,460 for Q3-96 from
$432,018 for Q3-95 and by 91%, or $1,129,903, to $2,372,453 for Y3-
96 from $1,242,550 for Y3-95. Net revenues are derived from sales of
entertainment products and merchandise, such as illustrated novels,
comic books, T-shirts, toys, trading cards, models, electronic
games, art, videos, and entertainment collectibles at the Company's
Entertainment Super-Kiosks located in major malls in various parts
of the U.S. The Company had 24 retail units in operation at
September 30, 1996 as compared to 7 retail units at September 30,
1995. As a result, the increase in revenues was due in substantial
part to an increase in the number of Entertainment Super-Kiosks in
operation.
GROSS PROFIT. Gross profit for the entertainment retail
division increased by 227%, or $312,768, to $450,831 for Q3-96 from
$138,063 for Q3-95 and by 136%, or $626,022 to $1,086,458 for Y3-96
from $460,436 for Y3-95. As a percentage of entertainment retail
division revenues, gross profit increased to 46% for Q3-96, from 32%
for Q3-95 and 46% in Y3-96 from 37% in Y3-95. The increase in gross
profit was due in part to the procurement of preferred pricing of
merchandise which was obtained by the Company's enhanced bargaining
power in purchasing merchandise for resale due to the increased
number of Company retail units, and the resulting greater volume of
purchases, as well as a gradual evolution in the product mix to
higher margin merchandise.
16
<PAGE>
OPERATING EXPENSES
Total operating expenses consist of selling, general and administrative
expenses, salaries and benefits and amortization of Goodwill and Intangibles.
Total operating expenses decreased by 1%, or $65,924, to $6,143,887 for Y3-96
from $6,209,811 for Y3-95. As a percentage of net revenues, total operating
expenses decreased to 121% in Y3-96 from 134% in Y3-95. The decrease from Y3-95
to Y3-96 reflects reductions in operating expenses in the illustrated novel
publication division and corporate overhead offset by increases in salaries and
benefits related to increases in the entertainment retail division due to the
need to add overhead to support additional Entertainment Super-Kiosks. Total
operating expenses increased by 27% or $483,738 to $2,271,525 for Q3-96 from
$1,787,787 for Q3-95. This increase from Q3-95 to Q3-96 is primarily due to
increases in rents and salaries related to the increased number of Entertainment
Super-Kiosks. As a percentage of net revenues, total operating expenses
decreased to 136% in Q3-96 from 150% in Q3-95. The decrease in operating
expenses in Y3-96 from Y3-95 is a result of reductions in operating expenses in
the illustrated novel publishing division as well as reductions in corporate
overhead.
OTHER (INCOME) EXPENSE
Other (income) expense for Q3-96 was ($1,778) as compared to ($104,161)
for Q3-95 and $99,358 for Y3-96 as compared to ($28,912) for Y3-95, representing
increased interest expense due to the interest portion of increased capitalized
leases and interest accrued on the $500,000, 8.5% convertible promissory note,
which, as noted in the notes to the financial statements, was converted to
equity during May 1996.
NET LOSS
Year-to-date net loss decreased by 18% or $1,010,593 to $4,711,246 for
Y3-96 as compared to a net loss of $5,721,839 for Y3-95 and decreased by 7%, or
$127,051, to $1,740,278 for Q3-96 from $1,867,329 for Q3-95. The decreased
year-to-date net loss resulted from increased gross profit of the Company and
decreased operating expenses as described above. Net loss per share for Y3-96
was $0.88 compared to $1.35 per share in Y3-95, for a decrease in net loss per
share of 35%, and net loss per share for Q3-96 was $0.30 compared to $0.42 per
share in Q3-95, for a decrease in net loss per share of 29%. The decrease in net
loss per share in both Q3-96 from Q3-95 and Y3-96 from Y3-95 is attributable to
both a decrease in net loss and an increase in the number of shares outstanding.
NET WORTH
Net worth increased by 82% or $1,693,507, to $3,761,984 at September
30, 1996 as compared to a net worth of $2,068,477 as of December 31, 1995. The
increase in net worth is primarily due to the public offering of the Company's
stock (completed April 29, 1996) offset by the current year-to-date loss.
LIQUIDITY AND CAPITAL RESOURCES
On April 29, 1996, the Company completed a public offering of its
common stock, raising approximately $4,873,465 in net proceeds as described
below. At September 30, 1996, the Company had cash and cash equivalents of
$861,229 and working capital of $643,642 compared to cash and cash equivalents
of $603,376 and a working capital deficit of $588,376 at December 31, 1995. Net
cash used in operating activities during Y3-96 was $5,262,428 primarily
representing cash used to fund the Company's net loss. Net cash used in
investing activities was $1,228,675 and $6,745,956 in cash was provided by
financing activities for a total increase in cash and cash equivalents of
$254,853. Net cash used in operating activities during Y3-95 was $4,624,577 and
net cash provided by financing and investing activities was
17
<PAGE>
$3,498,965 and $1,460,867, respectively. Cash provided from investing activities
consisted of proceeds from the sale of short-term investments.
In January 1996, the Company sold an 8.5% Promissory Convertible Note
to an investor in a private transaction for $500,000. On May 15, 1996, the
principal amount of the Note and interest accrued thereon was converted into
82,947 shares of the Company's common stock at a conversion rate of $6.25 per
share.
In November 1995, the Company entered into a Preferred Stock Purchase
Agreement with Tekno Simon, LLC (an entity controlled by Melvin Simon,
co-chairman of the Simon DeBartolo Group the largest mall manager/owner in the
United States) to fund the construction of additional Entertainment Super-Kiosks
through the sale of $2,000,000 of Series A Preferred Stock at $6.25 per share.
As of September 30, 1996, the Company had sold 217,600 shares for $1,360,000 to
Tekno Simon, LLC. No shares of Series A Preferred Stock will be sold pursuant to
the Tekno Simon Stock Purchase Agreement for leases entered into after December
31, 1996. The parties are discussing an extension of this arrangement through
March 30, 1997.
In February 1996, the Company entered into a sale-leaseback transaction
with a lessor. Pursuant to the sale-leaseback transaction, the Company sold 18
Entertainment Super-Kiosks to the lessor for $1,080,000 and simultaneously
leased the Entertainment Super-Kiosks from the lessor for a term of 39 months
with rental payments of approximately $35,000 per month. The sale-leaseback
transaction does not include the underlying mall leases for the sites of the
Company's Entertainment Super-Kiosks, with respect to which the Company remains
liable. Upon expiration of the lease, the Company will have the option to
repurchase the Entertainment Super-Kiosks for their fair market value, but in
no event more than $108,000 in the aggregate.
On April 29, 1996, the Company completed a public offering of its
common stock. The Company sold 1,000,000 shares of common stock at $6.00 per
share for a gross amount of $6,000,000. After deducting expenses, including
underwriting fees, filing fees, legal fees, accounting and other expenses, the
Company realized net proceeds of approximately $4,873,465.
Based on currently proposed plans and assumptions relating to its
operations, the Company anticipates that its current capital resources, when
combined with anticipated cash flows from operations, will be sufficient to
satisfy the Company's contemplated working capital requirements for
approximately the next nine months. If the Company's plans change or its
assumptions change or prove to be inaccurate, the Company may be required to
seek additional funds or curtail its operations. There can be no assurance that
additional financing, if required, will be available to the Company, or if
available, on terms favorable to the Company.
INFLATION AND SEASONALITY
Although the Company cannot accurately determine the precise effects of
inflation, it does not believe inflation has a material effect on sales or
results of operations. The Company considers its business to be somewhat
seasonal and expects net revenues to be generally higher during the second and
fourth quarters of each fiscal year for its Tekno Books book licensing and
packaging division as a result of the general publishing industry practice of
paying royalties semi-annually and during the summer (when schools and colleges
are not in session) and holiday seasons for its entertainment retail division.
Accordingly, as the Company expands its chain of Entertainment Super-Kiosks, it
anticipates that its results of operations will be increasingly affected by
seasonality.
18
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Company held its annual meeting of shareholders on August 23,
1996 (the "Annual Meeting").
(c) At the Annual Meeting , the shareholders voted on four matters: (1)
the election of nine (9) directors; (2) the approval of an
amendment to the Company's Articles of Incorporation to increase
the number of shares of authorized Common Stock from 11,000,000 to
25,000,000; (3) the approval of an amendment to the Company's 1993
Stock Option Plan to increase the number of shares of the Company's
Common Stock reserved for issuance thereunder from an aggregate of
350,000 shares to an aggregate of 1,000,000 shares; and (4) the
ratification of Arthur Andersen LLP as the Company's independent
auditors. The shareholders elected all members of the Board of
Directors in an uncontested election, approved the amendment to the
Company's Articles of Incorporation, approved the amendment to the
Company's 1993 Stock Option Plan, and ratified the appointment of
Arthur Anderson LLP as the Company's independent auditors, by the
following votes:
<TABLE>
<CAPTION>
AGAINST/ BROKER
1. ELECTION OF DIRECTORS FOR WITHHELD ABSTAIN NONVOTES
- ------------------------ --------- -------- ------- --------
<S> <C> <C> <C> <C>
Mitchell Rubenstein 5,691,745 32,300 - -
Laurie S. Silvers 5,691,745 32,300 - -
Dr. Martin H. Greenberg 5,691,745 32,300 - -
Harry T. Hoffman 5,691,745 32,300 - -
Dr. Lawrence Gould 5,691,745 32,300 - -
Jules L. Plangere, Jr 5,691,745 32,300 - -
E. Donald Lass 5,691,745 32,300 - -
Deborah J. Simon 5,691,145 32,900 - -
John W. Waller, III 5,691,745 32,300 - -
BROKER
FOR AGAINST ABSTAIN NONVOTES
--------- -------- ------- --------
2. AMENDMENT TO ARTICLES OF INCORPORATION: 5,621,253 70,742 10,050 22,000
- -----------------------------------------
3. AMENDMENT TO 1993 STOCK OPTION PLAN: 3,874,170 482,583 21,850 1,345,442
- -----------------------------------------
4. RATIFICATION OF INDEPENDENT AUDITORS: 5,713,145 7,800 3,100 -
- -----------------------------------------
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits Exhibit 27 - Financial Data Schedule (SEC use only).
(b) Reports on Form 8-K. The Company filed a Report on Form 8-K on
September 4, 1996 regarding the adoption of a Shareholder Rights
Plan by the Company.
19
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
BIG ENTERTAINMENT, INC.
Date: November 19, 1996 By: /s/ Mitchell Rubenstein
Chairman of the Board and Chief
Executive Officer (Principal Executive
Officer and Principal Financial and
Accounting Officer)
20
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 861,229
<SECURITIES> 0
<RECEIVABLES> 557,682
<ALLOWANCES> 0
<INVENTORY> 980,582
<CURRENT-ASSETS> 3,757,073
<PP&E> 3,019,705
<DEPRECIATION> 670,147
<TOTAL-ASSETS> 7,520,456
<CURRENT-LIABILITIES> 3,113,431
<BONDS> 1,385,933
0
1,360,000
<COMMON> 58,654
<OTHER-SE> 2,343,330
<TOTAL-LIABILITY-AND-EQUITY> 7,520,456
<SALES> 5,093,336
<TOTAL-REVENUES> 5,093,336
<CGS> 3,315,698
<TOTAL-COSTS> 3,315,698
<OTHER-EXPENSES> 6,143,887
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 181,996
<INCOME-PRETAX> (4,711,246)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,711,246)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,711,246)
<EPS-PRIMARY> (.88)
<EPS-DILUTED> (.88)
</TABLE>
