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 March 31, 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)
(407) 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 May 15, 1996, the number of shares outstanding of the
issuer's Common Stock, $.01 par value was 6,002,788.
<PAGE>
BIG ENTERTAINMENT, INC.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION PAGE(S)
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of March 31, 1996 and
December 31, 1995.......................................... 3
Consolidated Statements of Operations for the three months
ended March 31, 1996 and 1995.............................. 4
Consolidated Statements of Cash Flows for the three months
ended March 31, 1996 and 1995.............................. 5
Notes to Unaudited Consolidated Financial Statements....... 6 - 7
Item 2. Management's Discussion and Analysis or Plan of Operation... 8 - 13
PART II OTHER INFORMATION 14
Signature ........................................................... 15
2
<PAGE>
Item 1. Consolidated Financial Statements
BIG ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of March 31, 1996 and December 31, 1995
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
(Unaudited)
----------------- -----------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 209,721 $ 606,376
Trade receivables, net 539,535 244,598
Merchandise inventories 662,661 579,218
Prepaid expenses 667,679 343,235
Franchise fee receivable 700,000 700,000
Other current assets 175,863 104,899
----------------- -----------------
Total current assets 2,955,459 2,578,326
PROPERTY AND EQUIPMENT, net 2,022,873 1,940,915
INTANGIBLE ASSETS, net 789,668 873,838
GOODWILL, net 359,837 364,697
OTHER ASSETS 325,731 40,000
----------------- -----------------
$ 6,453,568 $ 5,797,776
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes Payable $ 500,000 $
Accounts payable 1,544,757 1,633,063
Accrued professional fees 184,072 134,721
Other accrued expenses 254,689 284,353
Deferred revenue 1,274,512 959,840
Current portion of capital lease obligations 424,951 154,725
----------------- -----------------
Total current liabilities 4,182,981 3,166,702
----------------- -----------------
CAPITAL LEASE OBLIGATIONS, less current portion 965,195 239,040
----------------- -----------------
MINORITY INTEREST - 23,557
----------------- -----------------
COMMITMENTS AND CONTINGENCIES - -
----------------- -----------------
COMMON STOCK SUBJECT TO REDEMPTION, $.01 par value, 50,000 shares 300,000 300,000
----------------- -----------------
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 680,000 shares authorized;
none outstanding
Series A variable rate convertible preferred stock, $6.25 stated
value, 320,000 shares authorized; 192,000 and 128,000 shares
issued and outstanding at March 31, 1996 and December 31, 1995.
Liquidation preference of $1,379,040 at March 31, 1996. 1,200,000 800,000
Common stock, $.01 par value, 11,000,000 shares authorized;
4,948,876 shares issued and 4,723,876 outstanding at
March 31, 1996 and 4,723,876 issued and outstanding at
and December 31, 1995 47,239 47,239
Additional paid-in-capital 16,149,046 16,149,046
Warrants outstanding 486,600 302,000
Accumulated deficit (16,877,493) (15,229,808)
----------------- -----------------
Total shareholders' equity 1,005,392 2,068,477
----------------- -----------------
$ 6,453,568 $ 5,797,776
================= =================
</TABLE>
The accompanying Notes to Unaudited Consolidated Financial Statements
are an integral part of these consolidated balance sheets.
3
<PAGE>
BIG ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
---------------- ---------------
<S> <C> <C>
NET REVENUES $ 1,535,623 $ 1,633,579
COST OF SALES 970,092 1,186,370
---------------- ---------------
Gross profit 565,531 447,209
---------------- ---------------
OPERATING EXPENSES:
Selling, general and administrative 1,228,135 1,754,425
Salaries and benefits 768,055 542,144
Amortization of goodwill and Intangibles 112,407 110,548
---------------- ---------------
Total operating expenses 2,108,597 2,407,117
---------------- ---------------
Operating loss (1,543,066) (1,959,908)
OTHER (INCOME) EXPENSE:
Interest (income) expense 57,728 (73,219)
Loss on sale of securities - 79,852
Other, net (5,325) (1,238)
---------------- ---------------
Loss before minority interest (1,595,469) (1,965,303)
MINORITY INTEREST (52,216) (31,442)
---------------- ---------------
Net loss $ (1,647,685) $ (1,996,745)
================ ===============
Net loss per common and common
equivalent share $ (0.35) $ (0.49)
================ ===============
Weighted average number of common
and common equivalent shares outstanding 4,723,876 4,115,490
================ ===============
</TABLE>
The accompanying Notes to Unaudited Consolidated Financial Statements
are an integral part of these consolidated financial statements.
4
<PAGE>
BIG ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
------------------ ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,647,685) $ (1,996,745)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization 258,060 182,053
Services rendered as part of subscription agreement - 26,019
Issuance of stock options under consulting agreements - 37,500
Minority interest 52,216 31,441
Loss on sale of marketable securities
Changes in assets and liabilities:
Trade receivables (294,937) (258,114)
Prepaid expenses (213,659) (155,084)
Merchandise inventories (83,443) (15,635)
Other current assets (70,964) (7,936)
Other assets (30,517) (466)
Accounts payable (88,306) 230,540
Accrued professional fees 49,351 16,942
Deferred revenue 183,409 -
Other accrued expenses (29,664) 136,170
------------------ ----------------
Net cash used in operating activities (1,916,139) (1,773,315)
------------------ ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Netco Partners (33,500) -
Cash used in acquisition, net of cash acquired - (400,000)
Sale of short-term investments - 2,836,124
Capital expenditures, net (96,343) (93,778)
Investment in Patents and Trademarks (23,377) -
Return of capital from Tekno Books to minority shareholder (131,644) -
------------------ ----------------
Net cash provided by (used in) investing activities (284,869) 2,342,346
------------------ ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of preferred stock 400,000 -
Proceeds from sale of 8.5% convertible promissory note 500,000 -
Proceeds from sale of Assets 803,372 -
Repayments under capital lease obligations (83,619) (16,621)
Receipts of subscription receivable 184,600 160,000
------------------ ----------------
Net cash provided by financing activities 1,804,353 143,379
------------------ ----------------
Net increase (decrease) in cash and cash equivalents (396,655) 712,410
CASH AND CASH EQUIVALENTS, beginning of period 606,376 1,242,391
------------------ ----------------
CASH AND CASH EQUIVALENTS, end of period $ 209,721 $ 1,954,801
================== ================
SUPPLEMENTAL SCHEDULE OF CASH RELATED ACTIVITIES:
Interest paid $ 52,494 $ 10,734
================== ================
SUPPLEMENTAL SCHEDULE OF NONCASH RELATED ACTIVITIES:
In connection with the sale-leaseback transaction, the Company
recorded property and equipment and capitalized lease obligations
for $1,080,000, prepaid expenses for $110,785, other assets of
$165,843, and deferred gain of $131,263.
</TABLE>
The accompanying Notes to Unaudited Consolidated Financial Statements
are an integral part of these consolidated financial statements.
5
<PAGE>
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.
In order to maintain consistency and comparability between periods presented,
certain amounts have been reclassified from the previously reported financial
statements in order to conform with the financial statement presentation of the
current period.
The results of operations and cash flows for the three months ended March 31,
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) WARRANTS:
During the first quarter, 1996, the Company received payments of $184,600 from
two investors in payment for warrants previously subscribed.
(3) CAPITAL STOCK:
In February 1996, the Company sold an additional 64,000 shares of Series A
Convertible Preferred Stock to Tekno Simon, LLC for $400,000 to finance the
construction and installation of five additional Entertainment Super-Kiosks.
(4) 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
6
<PAGE>
$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.
(5) COMMITMENTS AND CONTINGENCIES:
In January 1996, the Company sold an 8.5% Convertible Promissory Note (the
"Note") to an investor in a private transaction for $500,000. The Note accrues
interest through June 30, 1996, at which time the unpaid principal amount,
together with interest thereon, will automatically convert into shares of the
Company's common stock at a conversion rate of $6.25 per share.
(6) SUBSEQUENT EVENTS:
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 $5,050,000.
In April 1996, the Company issued 3,912 shares of Common Stock issued as
non-cash dividends on the Series A Convertible Preferred Stock.
7
<PAGE>
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") that involve risks and uncertainties. The Company's actual results
could differ materially. Factors that could cause or contribute to such
difference 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.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 ("Q1-96") AS COMPARED TO
THE THREE MONTHS ENDED MARCH 31, 1995 ("Q1-95").
GENERAL
The Company is a diversified entertainment company, which owns 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, Anne McCaffrey, Isaac
Asimov and L. Ron Hubbard. The Company uses illustrated novels and comic books
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. All costs associated
with development of intellectual properties are expensed in the Company's comic
book and illustrated novel publishing division. The Company has the following
divisions:
Book licensing and packaging
Licensing and new media
Comic book and illustrated novel publishing
Entertainment retail
The Company has expended significant funds developing its products,
divisions and business. The Company expects to continue to invest heavily for
the foreseeable future in developing additional intellectual properties and in
seeking licenses of them to third parties for films, television, books,
multimedia software, toys, apparel and other merchandise. There can be no
assurance that the Company will be able to generate sufficient revenues from
these activities to cover its development and other costs and therefore may
continue to incur losses. Operating losses since inception, including the
development stage, have resulted in an accumulated deficit of $16,877,493 at
March 31, 1996.
8
<PAGE>
The following tables summarize the revenues, cost of sales and gross
profit attributable to each of the Company's divisions for Q1-96 and Q1-95,
respectively:
<TABLE>
<CAPTION>
Q1-96
INTELLECTUAL PROPERTY RETAIL
------------------------------------------------------- -----------------
BOOK COMIC BOOK
LICENSING AND LICENSING AND AND ILLUSTRATED ENTERTAINMENT
PACKAGING NEW MEDIA NOVEL PUBLISHING RETAIL TOTAL
----------------- ---------------- -------------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Net Revenues $340,346 $ 97,833 $443,170 $654,274 $1,535,623
Cost of sales 185,275 - 440,315 344,502 970,092
-------- -------- -------- -------- ----------
Gross profit $155,071 $ 97,833 $ 2,855 $309,772 $ 565,531
======== ======== ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
Q1-95
INTELLECTUAL PROPERTY RETAIL
------------------------------------------------------- -----------------
BOOK COMIC BOOK
LICENSING AND LICENSING AND AND ILLUSTRATED ENTERTAINMENT
PACKAGING NEW MEDIA NOVEL PUBLISHING RETAIL TOTAL
----------------- ---------------- -------------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Net Revenues $361,678 $21,500 $878,113 $372,288 $1,633,579
Cost of sales 261,174 - 659,659 265,537 1,186,370
-------- ------- -------- -------- ----------
Gross profit $100,504 $21,500 $218,454 $106,751 $ 447,209
======== ======= ======== ======== ==========
</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 Supero Kiosks. Net revenues for Q1-96
decreased by 6%, or $97,956, to $1,535,623 from $1,633,579 for Q1-95, primarily
due to a decrease in publishing revenue offset by increases in licensing and new
media and entertainment retail revenues.
GROSS PROFIT
Overall Company gross profit increased by 26%, or $118,322, to
$565,531 for Q1-96 from $447,209 in Q1-95. As a percentage of net revenues,
gross profit increased to 37% in Q1-96 from 27% in Q1-95, an increase in the
percentage rate of 37%.
INTELLECTUAL PROPERTY
/bullet/ BOOK LICENSING AND PACKAGING
NET REVENUES. Tekno Books' net revenues consist of cash advances
recognized as revenues upon the acceptance by publishers of books, and 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
9
<PAGE>
publisher, resulting in a deferral of revenue recognition following receipt of
the cash advance. Total net revenues from the Company's Tekno Books book
licensing and packaging division, which is 51% owned by the Company, decreased
6%, or $21,332, to $340,346 for Q1-96 from $361,678 for Q1-95. Deferred revenues
increased 1152%, or $338,242, to $367,592 in Q1-96 from $29,350 in Q1-95. At
March 31, 1996 and 1995, Tekno Books deferred revenues represent cash advances,
which are expected to be recognized as revenue at a future date. Tekno Books'
business expanded in Q1-96 from Q1-95 taking into account the increase in
deferred revenues as compared to the prior period.
GROSS PROFIT. Gross profit for the Company's Tekno Books book
licensing and packaging division increased by 54%, or $54,567, to $155,071 for
Q1-96 from $100,504 for Q1-95. As a percentage of revenues from book licensing
and packaging, gross profit increased to 46% in Q1-96 from 28% in Q1-95. The
increase in gross profit was the result of an increase in the number of higher
margin book projects under development.
/bullet/ LICENSING AND NEW MEDIA
NET REVENUES. Net revenues from the licensing and new media
divisions increased 355%, or $76,333, to $97,833 for Q1-96 from $21,500 for
Q1-95, primarily resulting from revenues generated through the licensing of
intellectual property to third parties. Q1-96 licensing revenue included $25,000
from Alliance Productions, Ltd. ("Alliance"), under an agreement signed in Q1-96
with Alliance for the license of John Jakes' Mullkon Empire as a television
series to Alliance, and $40,000 earned pursuant to an agreement between the
Company and Warner Books, a division of Time-Warner, Inc., which represents
recognition of a portion of a $100,000 royalty advance previously paid to the
Company and deferred.
GROSS PROFIT. Gross profit represents 100% of revenues of such
division as all costs related to the development of the properties licensed are
expensed by the comic book and illustrated novel publishing division where the
Company's intellectual properties are created and developed.
/bullet/ COMIC BOOK AND ILLUSTRATED NOVEL PUBLISHING
The Company uses illustrated novels and comic books 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 comic book publishing
division represent 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 further development cost.
NET REVENUES. Net publishing revenues from the sale of comic books
and illustrated novels published by the Company decreased by 50%, or $434,943,
to $443,170 for Q1-96 from $878,113 for Q1-95. The decrease in net publishing
revenues from Q1-96 to Q1-95 resulted primarily from a shift in the Company's
strategy in two areas, as follows:
1) In preparation for expanding the Company's publishing business
through the introduction of illustrated novels, which are longer in
page length than comics, have a higher cover price (generally
ranging from $9.95 - $19.95) than comics (generally $1.95 - $2.25)
the Company reduced the number of comic book titles in Q1-96. The
Company believes that illustrated novels have a wider distribution
potential to the bookstore market for the Company's titles than do
comics since most of the Company's titles in development feature
best-selling authors' names as part of the titles.
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<PAGE>
2) In Q1-96, the Company reduced the level of shipments of comic
book titles to the newsstand market, which is a market that permits
retailers to return unsold product. This was done to seek to enhance
the sell-through percentage of comics shipped and thereby enhance
the efficiency of its publishing operations by selling a higher
percentage of those comics which it produces.
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
implemented, although there can be no assurance that revenues will increase over
current levels in this division.
GROSS PROFIT. The comic book and illustrated novel publishing
division gross profit decreased to $2,855 for Q1-96 from $218,454 in Q1-95. The
decrease was due to the reduction of sales volume associated with a strategic
shift from comic books to illustrated novels, and estimated newsstand
sell-through percentages in Q1-95 which were higher than actually realized and
were subsequently reduced in the latter part of 1995.
RETAIL
/bullet/ ENTERTAINMENT RETAIL
NET REVENUES. The Company's entertainment retail division net
revenues increased by 76%, or $281,986, to $654,274 for Q1-96 from $372,288 for
Q1-95. Net revenues are derived from sales of entertainment products and
merchandise, such as illustrated novels, comic books, T-shirts, and
entertainment collectibles, at the Company's Entertainment Super-Kiosks located
in major malls in various parts of the U.S. The increase in revenues was due in
substantial part to an increase in the number of Entertainment Supero Kiosks in
operation.
GROSS PROFIT. Gross profit for the entertainment retail division
increased by 190%, or $203,021, to $309,772 for Q1-96 from $106,751 for Q1-95.
As a percentage of entertainment retail division revenues, gross profit
increased to 47% in Q1-96 from 29% in Q1-95, which indicates an improvement in
gross margin of 62%. Cost of sales for the entertainment retail division
includes direct costs of goods purchased for resale net of existing inventories
valued at the lower of cost using the first-in, first-out method or market. The
increase in gross profit as a percentage of entertainment retail division sales
was due in large part to the Company's commencing to utilize a central warehouse
for distribution of merchandise to the Company's Entertainment Supero Kiosks,
which enables the Company to purchase merchandise in bulk and thereby obtain
better pricing and to a shift in product mix to higher margin merchandise. As
the Company rolls out additional Entertainment Super-Kiosks, it expects to
enhance its negotiating position with vendors which may result in further
improvement in gross profit margins.
OPERATING EXPENSES
Total operating expenses consist of selling, general and
administrative expenses, salaries and benefits and amortization. Total operating
expenses decreased by 12%, or $298,520 to $2,108,597 for Q1-96 from $2,407,117
for Q1-95. As a percentage of net revenues, total operating expenses decreased
to 137% in Q1-96 from 147% in Q1-95. The decreased expenses reflect reductions
in comic book and 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 additional overhead to
support additional Entertainment Super-Kiosks.
OTHER INCOME/EXPENSE
Other expense for Q1-96 was $52,403 as compared to $5,395 for Q1-95,
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.
11
<PAGE>
NET LOSS
Net loss decreased by 17% or $349,060 to $1,647,685 for Q1-96 as
compared to a net loss of $1,996,745 for Q1-95. The decreased net loss resulted
from increased gross profit by the Company and decreased operating expenses both
in the comic book and illustrated novel publishing division and corporate
overhead. Net loss per share for Q1-96 was $(0.35) compared to $(0.49) per share
in Q1-95, for a decrease in net loss per share of 29%. This decrease in net loss
per share is a result of a 17% decrease in net loss measured against the
weighted average number of common and common equivalent shares outstanding for
each period.
LIQUIDITY AND CAPITAL RESOURCES
On April 29, 1996, the Company completed a public offering of its
common stock, raising approximately $5,050,000 in net proceeds as described
below. At March 31, 1996, the Company had cash and cash equivalents of $209,721
and a working capital deficit of $1,227,522 compared to cash and cash
equivalents of $606,376 and a working capital deficit of $588,376 at December
31, 1995. Net cash used in operating activities during Q1-96 was $1,916,139
primarily representing cash used to fund the Company's losses and net cash used
in investing activities of $284,869 which were offset by $1,804,353 in cash
provided by financing activities for a total decrease in cash of $396,655. Net
cash used in operating activities during Q1-95 was $1,773,315 offset by
$2,342,348 in cash provided in part by investing activities, including primarily
proceeds from the sale of short-term investments and cash from financing
activities of $143,379 for a total net increase in cash of $712,410.
During Q1-96 the Company received payments of $184,600 from two
investors for warrants previously subscribed. In January 1996, the Company sold
an 8.5% Convertible Note to an investor in a private transaction for $500,000.
Interest on the 8.5% note accrues at the rate of 8.5% per annum until June 30,
1996, at which time the principal amount of the 8.5% Convertible Note, together
with interest thereon, will automatically convert into shares of the Company's
Common Stock at a conversion rate of $6.25 per share.
In February 1996, the Company sold an additional 64,000 shares of
Series A Preferred Stock to Tekno Simon, LLC for $400,000 to finance the
construction and installation of five additional Entertainment Supero Kiosks.
The Company anticipates that it will enter into ten additional leases and close
the sale of the remaining 128,000 shares of Series A Preferred Stock in fiscal
1996, in which case the Company will receive additional proceeds of $800,000. 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.
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 Supero Kiosks to the lessor for $1,080,000 and
simultaneously leased the Entertainment Supero 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 Supero Kiosks, with respect to which the
Company remains liable. Upon expiration of the lease, the Company will have the
option to repurchase the Entertainment Supero 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
shares 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 $5,050,000.
Based on currently proposed plans and assumptions relating to its
operations, the Company anticipates that its current capital resources, when
combined with anticipated cash flow from operations, will be sufficient to
satisfy the Company's contemplated working capital requirements for
approximately the next 18 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.
12
<PAGE>
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 Supero Kiosks, it
anticipates that its results of operations will be increasingly affected by
seasonality.
13
<PAGE>
PART II - OTHER INFORMATION
Not Applicable
14
<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: May 15, 1996 By: /s/ Mitchell Rubenstein
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer and Principal
Financial and Accounting Officer)
15
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 209,721
<SECURITIES> 0
<RECEIVABLES> 539,505
<ALLOWANCES> 0
<INVENTORY> 662,661
<CURRENT-ASSETS> 2,955,459
<PP&E> 2,022,873
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,453,568
<CURRENT-LIABILITIES> 4,182,981
<BONDS> 0
0
1,200,000
<COMMON> 47,209
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,453,568
<SALES> 1,535,623
<TOTAL-REVENUES> 1,535,623
<CGS> 970,092
<TOTAL-COSTS> 2,108,597
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57,728
<INCOME-PRETAX> (1,647,685)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,647,685)
<EPS-PRIMARY> (0.35)
<EPS-DILUTED> (0.35)
</TABLE>
