<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] Annual report pursuant to sections 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended September 30, 1998.
[_] Transition report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934.
Commission File Number 0-23914
Entertainment Technologies & Programs, Inc.
----------------------------------------------
(Name of Small Business Issuer in its charter)
Delaware 87-521389
(State or other jurisdiction of I.R.S. Employer ID No.
Incorporation or organization)
16055 Space Center Blvd., Ste. 230 Houston, Tx 77062
------------------------------------------------------
(Address of principal executive office) (Zip Code)
(281) 486-6115
--------------
(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.001 par value
(Title of Class)
Check whether the issuer (1) filed all reports to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [_]
Check if there is no disclosure of delinquent filers in response to item 405 of
Regulation S-B is not contained herein and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III for this Form 10-KSB or any amendments to
this Form 10-KSB.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on January 31,
1999 as reported on the NASDAQ Electronic Bulletin Board, was $6,292,501. Shares
of Common Stock held by each executive officer and director and by each person
who owns 5% or more of the outstanding Common Stock have been excluded in that
such persons may be deemed affiliates. This determination of affiliate status is
not necessarily a conclusive determination for other purposes.
The issuer's revenues for the year ended September 30, 1998 totaled $4,755,500.
As of January 31, 1999, Registrant had outstanding shares of Common Stock of
30,382,857.
DOCUMENTS INCORPORATED BY REFERENCE
None
Transitional Small Business Disclosure Format Yes [_] No [X]
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Entertainment Technologies and Programs, Inc.
Annual Report on Form 10-KSB
September 30, 1998
Table of Contents
Part I
Item 1 Business 3
Overview 3
The Divisions 4
NiteLife Military Entertainment, Inc. 4
Performance Sound and Light, Inc. 5
Stargate Entertainment, Inc. 6
Redfish Management, Inc. 6
Employees 7
Item 2 Description of Properties 7
Item 3 Legal Proceedings 7
Item 4 Submission of Matters to a Vote of Security Holders 8
Part II
Item 5 Market for the Common Equity and Related Stockholder Matters 8
Item 6 Management's Discussion and Analysis 9
Item 7 Financial Statements 10
Index to Consolidated Financial Statements
Report of Independent Certified Public Accountant
Consolidated Balance Sheet as of September 30, 1998
Consolidated Statements of Operations for the years ended
September 30, 1998 and December 31, 1997
Consolidated Statements of Stockholders' Equity for the years
ended September 30, 1998 and December 31, 1997
Consolidated Statements of Cash Flows for the years ended
September 30, 1998 and December 31, 1997
Notes to Consolidated Financial Statements
Item 8 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 10
Part III
Item 9 Directors, Executive Officers, Promoters and Control Persons: 11
Compliance with Section 16(a) of the Exchange Act
Item 10 Executive Compensation 12
Item 11 Security Ownership of Certain Beneficial Owners and Management 13
Item 12 Certain Transactions and Relationships 13
Item 13 Exhibits and Reports on Form 8-K 14
2
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GENERAL RISK FACTORS
Government Contracts
The Company's dealings with the U.S. government, specifically the
Department of Defense ("DOD") and the various branches of the military, are
contracted through the Air Force Non Appropriated Fund Purchasing Office
("AFNAFPO"). This type of contract allows the Company to contract with the
service branches of the military without going through the competitive bidding
process each time. The Company has been awarded two AFNAF contracts. One is a
master AFNAF contract under which the Company has installed approximately 167
operating facilities. Although such contracts are entered into for five-year
terms, they are renewed annually. There can be no assurances that the DOD will
renew these contracts. Should such contracts not be renewed, the Company will be
required to bid competitively for each contract it enters into with the
military.
Competition
The Company will be in direct competition with other entertainment
facilities and services. Many such companies with whom the Company will compete
have financial and marketing resources that are substantially greater than those
possessed by the Company. There can be no assurance that the Company will be
able to effectively compete with its competitors in its dealings in the civilian
markets. However, because of the Company's unique state resulting from its AFNAF
contracts, the Company believes the Company possesses a competitive advantage
when providing entertainment services and products to the military markets.
Dependence on Key Personnel
The success of the Company is dependent upon, among other things, the
continuing services of James Douglas Butcher. Mr. Butcher is Chief Executive
Officer and Chairman of the Board of Directors of the Company. Mr. Butcher is in
good health; however, his retirement, disability or death would have a
significant adverse impact on the Company's business. The Company has entered
into an employment agreement with Mr. Butcher, and the Company maintains a total
of $500,000 life insurance coverage on the life of Mr. Butcher. Management
anticipates the hiring of additional personnel to assist it in implementing its
plan of operations.
There can be no assurance that the Company will be able to attract and
train key employees to implement its business plan.
Control of the Company
Mr. Butcher, the Company's Chief Executive Officer and Chairman of the
Board of Directors, and William Michael Grasberger, its Secretary and Director,
beneficially own approximately 33.76% and 8.04% respectively, of the Company's
outstanding common stock. Collectively, Messrs. Butcher and Grasberger may be
deemed to have absolute control over the management and affairs of the Company.
Part I
Item I--Business
Overview
The Company is a Delaware corporation. Prior to April 1995, it had not
engaged in any material operations since approximately 1988. In April 1995, the
Company entered into a reorganization transaction with the shareholders of
NiteLife, Inc., a Texas Corporation, consequently the assets and the business of
NiteLife became the Company.
NiteLife was incorporated on October 2, 1985, by James D. Butcher, the
Company's Chairman, CEO and its principal stockholder. The Company was formed to
provide audio and video entertainment at military bases located in the United
States and abroad: to provide mobile musical entertainment; and to operate a
music store in San Diego, California. Since its formation, the Company has
expanded both the number of products and services it provides and the markets
into which such products and services are distributed. Today, the Company is
strategically positioned as the provider of a comprehensive array of
entertainment products and services to both military and civilian markets.
3
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The Company's business is currently operated through four (4) divisions
("Divisions"): NiteLife Military Entertainment, Inc. (club development and
management division), Performance Sound and Light, Inc. (equipment retail
division), Stargate Entertainment, Inc. (gaming and arcade division), and Red
Fish Management, Inc. (restaurant management division).
The Company is engaged, through its four divisions, in:
1. The operation of entertainment facilities located on U.S. military bases
throughout the world. The designing, planning, promotion, and production
of live performances and entertainment booking in both the military and
the civilian markets.
2. The design and the retail sale of professional sound and lighting
equipment through mail order catalogs targeting the military market
through NAF purchase agreements and both the military and civilian
consumer markets.
3. Ownership installation and operation of amusement equipment in company
owned facilities. The designing and construction of entertainment
facilities and restaurants.
4. The operation of restaurants and entertainment facilities in the
civilian markets, through contracting and ownership.
THE DIVISIONS
NiteLife Entertainment
Overview
NiteLife Entertainment is engaged in the installation and operation of
nightclub facilities on U.S. military bases located in the United States, Europe
and Asia. At present, NiteLife Entertainment operates approximately 102
entertainment systems. Nightclubs have historically been established on military
bases by military leaders in an attempt to: (1) retain service men and women on
base, thereby avoiding potential problems arising out of interaction between
service personnel and civilians, and (2) boost morale by providing U.S. style
entertainment in foreign countries where none otherwise exists.
In order to meet the needs of this market, NiteLife provides a wide variety
of entertainment programs and services to base clubs. NiteLife typically
installs audio and video equipment, including a custom built disc jockey booth,
state of the art industrial video tape players and turntables, top of the line
mixing consoles and several 26" television monitors in each club. NiteLife
provides maintenance of all the equipment installed in a club and supplies all
of the compact discs and music video tapes for use within its clubs. NiteLife
also designs and produces all club promotions for club managers.
The comprehensive package of entertainment equipment and services is
provided by NiteLife to military customers on a fee basis, pursuant to a one
year renewable contract between the Company and the Air Force Non-Appropriated
Fund Purchasing Office (AFNAFPO). Each contract provides for a minimum number of
hours of disc jockey services at a specified hourly rate. These minimum hours
are established so that NiteLife recovers its investment within eight months of
operation.
Vision Quest Productions, a DBA of NiteLife Military Entertainment, Inc.
("Vision Quest"), is engaged in the booking, promotion and production of live
local and nationally recognized concert acts on military bases around the world.
In 1993, the Company was selected by the Pacific Air Force to produce a program
entitled "Stateside Sounds" which brought top 40 bands within the Asian theater
for a tour of U.S. military bases. "Sounds of NiteLife" is a program, which has
been produced by the Company since 1993, and brings rock, top 40 and country
acts on military bases located throughout the United States and Asia.
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The Future of NiteLife Entertainment
It has been the experience of the Company's management that, with the
continued loss of military budget funding, military clubs must become
self-sufficient or they will be closed. With the Company's turnkey club
installation and operation program, an existing military nightclub can be
renovated with no capital outlay by the military customer. The Company's
management believes that the continued loss of defense funding provides a basis
for growth of the NiteLife division through new installations both in the near
and distant future to military bases located in the Southeast and Central areas
of the United States.
Risk Factors
. The downsizing of the military, which began in the 1990's, will reduce
the total number of military installations that remain open.
. This division produces the bulk of the profits and free cash flow for the
Company. However, the cash flow that it produces is not sufficient to
support the current debt of other operational divisions of the Company
and the Company overhead.
. The assets of NiteLife Entertainment will be used in any restructure of
corporate debt.
Performance Sound and Light
Overview
Performance Sound and Light ("PS&L") is engaged in providing professional
sound and lighting equipment to military clubs and others through direct sales
efforts and through catalogs and Internet sales.
PS&L produces two mail order catalogs, each targeting a specific market
niche. The first catalog offers sound and lighting equipment to the military
market. PS&L also has an AFNAF number for sales to the Military. The Company's
management perceives an opportunity exists to provide business and institutional
purchases turnkey sound and lighting systems in an easy to read mail order
catalog.
The second catalog targets the general consumer. This catalog contains
professional sound and lighting equipment. Although there are many companies
offering this type of catalog, the Company believes that, as a result of the
Company's presence on military bases, it possess a unique ability to be
extremely price competitive.
The Future of Performance Sound & Light
PS&L is expanding its marketing of the mail order catalog into Southern
California consisting of a branch office in San Diego.
Now in the early stages of WEB site development, PS&L expects to be on the
forefront of the very exciting world of electronic commerce. PS&L expects a
period of very solid growth over the next 18 to 24 months, by attracting new
customers throughout our Internet site and the distribution of a new CD-ROM
based catalog on the U.S. Military. Visit PS&L's website at
www.performance-s-1.com.
Risk Factors
. A substantial investment in the design, production and mailing costs of a
catalog must be made prior to any sales being realized. Consequently,
there can be no assurances that the catalogs will generate sufficient
sales in order for the Company to recover its investment.
. This division needs substantial capital to create and maintain consistent
growth.
. Although a `Letter of Intent' has been signed for $4,000,000 with Capital
Growth Planning there are no assurances that said funding will be
completed to allow for the growth of the catalog and on-line sales.
. All profits from this operation are going back to growth of this division
so Performance Sound & Light is not contributing to the debt and expenses
of the Company.
5
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Stargate Entertainment, Inc.
Stargate Entertainment, Inc. ("Stargate") is a coin-operated amusement game
operator specializing in large arcade and military accounts. The Company is
presently undergoing a major restructuring to position itself in the Family
Entertainment Center ("FEC") industry. This move was due in part, to the recent
decline in game revenues affecting route operators in the industry. Qualifying
factors for an FEC makes this a natural progression for the Company and will
also enable Stargate to take full advantage of the growth potential of
entertainment centers.
Stargate acquired its first civilian FEC, "Hero's Family Fun Center,"
located in Pasadena, Texas. Hero's occupies a 16,000 square foot stand alone
building. The center offers entertainment for the family unit and includes
indoor batting cages, laser tag, large inflatable games, redemption center,
high-end video games, restaurant and party rooms.
Future plans for Stargate include building and operating an additional
entertainment center in the Houston area. The center may operate different
attractions to fit their specific demographic population; however, both
facilities will feature video games and laser tag attractions currently owned by
the Company.
Risk Factors
. A substantial investment in the build out attractions, and amusement
games is required to open an entertainment center. Proposed sites must
be studied extensively by identifying the surrounding demographics,
competition, and capitalization requirements versus projected revenues.
A reasonable amount of time is required to carefully study these factors
in order to prevent over/under capitalizing a center. There is no
guarantee that a center will support itself and debt service upon
opening.
. Stargate opened a location at the Parks Mall in Arlington, Texas in July
1998. This 11,000 square foot facility was undercapitalized and was
unable to support the operations and the Company was forced to close the
facility on 4 January 1999.
. This division depends on large amounts of capital to complete and
finish current projects that are currently due.
. The Company is behind 60 to 90 days on all debt instruments. The
contemplated recapitalization will allow this division to FOCUS & FINISH
its current projects and move from substantial negative cash flow in a
minimal amount of time.
. The FOCUS & FINISH plan of this division depends on the completion of
funding from Capital Growth Planning.
Redfish Management, Inc.
Overview
RedFish Management, Inc. ("RedFish") is the restaurant management division
which currently owns and operates the "RedFish Island Bar & Grill" located in
Seabrook, Texas. This restaurant is a freestanding building located on the only
channel leading into the Galveston Bay from the Clear Lake area. During the
summer months, RedFish will showcase a variety of bands from the local area.
RedFish has acquired its second venture, "Chacho's Mexican Restaurants,"
with a location in El Lago, Texas and Houston, Texas. Chacho's features "Tex-
Mex" style Mexican dishes prepared from scratch daily. Both restaurants also
feature a bar for those who just want to try their famous margaritas.
Risk Factors
. This operation is consistent with the risks of the restaurant industry.
. The current operations are not producing positive cash flow. Additional
marketing is required for this division to move from negative to positive
cash flow.
. Long term operations and continuation is dependent on positive results from
marketing efforts.
6
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. One of the restaurants, "RedFish Island," is seasonal and will not show
substantial increases until the third and fourth quarters of the fiscal year.
Employees
As of September 30, 1998, the Company had approximately 95 employees, of
which 40 are full time and 55 are employed part time. The Company's employees
are not represented by any collective bargaining agreements, and the Company has
never experienced a work stoppage. The Company believes that its employee
relations are good, though employee morale fluctuates with the Company's lack of
capital and ability to meet obligations in a timely manner.
Company Number of Employees
- ------- -------------------
Entertainment Technologies & Programs, Inc. 8
Performance Sound & Light, Inc. 3
NiteLife Military Entertainment, Inc. 8
Stargate Entertainment, Inc. 15
RedFish Management Inc. 61
Item 2--Description of Properties
The Company leases office space at the monthly rate of $4,330.75 consisting
of approximately 4,076 square feet, for its corporate headquarters at 16055
Space Center Blvd., Suite #230 Houston, Texas 77062. The lease expires on March
31, 2001.
Performance Sound & Light leases office space at the monthly rate of
$1,153.20 consisting of approximately 1,922 square feet for its operations at
1020 Hercules Ave. Houston, Texas 77058 and space at 2602 Transportation Ave. #B
National City, California 91950 at the rate of $648.00 per month at 1200 square
feet for its Southern California operation.
Water Wonderland being approximately 90.27 acres in the County of Midland,
State of Texas consisting of an 18 acre waterpark, a 220 square foot restaurant
and a International Motor Car Approved 1/8 mile speedway in addition to 50 +
acres of raw land.
Hero's Entertainment Center 2.2-acre parcel of land located at 7770 Spencer
Highway, Pasadena, Texas 77505, consisting of a 16,000 square foot building.
RedFish is leased space consisting of a 2,400 square foot elevated building
with attached 1,025 square foot outside deck which is located at 101 Bath Avenue
Seabrook, Texas 77586.
NiteLife leases a mini warehouse from Coastal Storage in Seabrook, Texas
77586.
Chacho's Restaurant & Cantina's located at 4449 Nasa Road 1, El Lago, Texas
and 10943 Scarsdale, Houston, Texas.
Item 3--Legal Proceedings
Entertainment Technologies & Programs, Inc. and Stargate Entertainment,
Inc. vs. Vincent Schappell d/b/a All Prime Amusements Case No. 98-08926.
The case is a breach of contract. The defendant was a vendor to Hero's
Family Fun Entertainment, Inc. and the cause of action is based on the
defendant's failure to perform his contractual obligations. Plaintiff alleges
approximately $145,000 in damages. The defendant has filed a counterclaim for an
unspecified damage claim.
San Jose Original Sports Bar Ltd. vs. Just Games, Inc. d/b/a Just Games of
San Diego Case No. 694.428.
This case is a breach of contract case arising out of a Vending Agreement.
The claim for damages are for $24,126.15, reasonable attorney's fees, court
costs and interest. Defendant, Just Games, Inc., has filed its counterclaim for
damages in the sum of $16,061.25, plus reasonable attorney's fees, courts costs
and interest.
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At this point in time, the Company is vigorously defending itself in both
matters and anticipates positive outcome.
Item 4--Submission of Matters to a Vote of Security Holders
Board Member compensation as will be discussed in the proxy statement for
1999.
Part II
Item 5--Market for Common Equity and Related Stockholder Matters
Absence of Public Market: Instability of Stock Price
The shares of the Company are trading on the NASD OTC Electronic Bulletin
Board under the stock ticker symbol "ETPI" (CUSIP 293810107); however, there is
no "established trading market" for the shares of common stock of the Company,
and no assurance can be given that such a market will develop. If an
"established trading market" for the Company's common stock does develop in the
future, there can be no assurance that it will continue or be maintained. Any
market price for shares of common stock of the Company is likely to be very
volatile, and factors such as competition, governmental regulation and
fluctuations in operating results may all have a significant effect. In
addition, the stock markets generally have experienced and continue to
experience extreme price and volume fluctuations which have affected the market
price of many small capital companies and which have often been unrelated to the
operating performance of these companies. These broad market fluctuations, as
well as general economic and political conditions, may adversely affect the
market price of the Company's common stock.
The sale of "restricted securities" held by members of management and
others could also have an adverse effect on any such market; currently,
30,382,857 shares of the Company's common stock are outstanding 23,281,492 of
which are designated as "restricted securities." Of this amount, 14,995,195
shares of these "restricted securities" have been held for a sufficient period
of time to be sold under Rule 144 of the Securities and Exchange Commission.
COMMON
NON-NASDAQ OTC:
CLOSING BID CLOSING ASK
1998 HIGH LOW HIGH LOW
- ---- ---- --- ---- ---
JAN. 2 THRU .32 .125 .35 .21
MAR. 31
APR. 1 THRU .92 .22 .98 .26
JUNE 30
JULY 1 THRU .70 .14 .74 .16
SEPT. 30
OCT. 1 THRU
DEC. 31 .48 .18 .52 .19
***These quotations do not represent actual transactions, and do not reflect
broker/dealer mark-ups, mark-downs or commissions.
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Item 6--Management's Discussion and Analysis
Plan of Operations
With the completion of the contemplated recapitalization of the Company,
ETPI will `FOCUS AND FINISH' all outstanding projects to include:
. Laser Tag and Face Lift to Pasadena Hero's
. Signage and opening of Hero's Scarsdale
. Marketing and advertisement of all locations
. New deck cover RedFish Island
. Waterpark renovations
. Recovery and Deployment of Amusement assets
In 1998, the Company made commitments and obligations to projects and
operations without completing the financing packages to support the given
operations. In 1999, all financing will be in place and completed prior to any
additional obligations by the Company.
Y2K Compliance
The Company uses Peachtree software version 11, which is Y2K compliant.
Payroll is done through Paychex, Inc. which is also Y2K compliant.
Results of Operations
Year Ended September 30, 1998 compared to year ended December 31, 1997.
Revenues for the year ended September 30, 1998, decreased $2,322,007 or
32.8% to $4,755,500 from $7,077,500 for the year ended December 31, 1997
(Restated). This decrease was due to short year due to the change from calendar
year to a fiscal year ending September 30, 1998.
Gross profit for the year ended September 30, 1998, decreased $1,104,367 or
29% to $2,797,318 from $3,901,685 for the year ended December 31, 1997
(Restated). This decrease was due partially due to the change in the accounting
cycle.
General and administrative expenses for the year ended September 30, 1998,
decreased $770,471 or 23% to $2,629,999 from $3,400,470 for the year ended
December 31, 1997 (Restated). This decrease is generally attributable to cost
reductions in the second half of the year and the shortened fiscal year.
Depreciation expense for the year ended September 30, 1998, decreased
$150,290 or 24% to $491,610 from $641,900 for the year ended December 31, 1997
(Restated). The decrease is due to the short fiscal period. However, the monthly
amount is up due to the new acquisitions of equipment (Games) and property.
Interest expense decreased $53,149 or 24% to $168,144 for the year ended
September 30, 1998, from $221,293 for the year ended December 31, 1997
(Restated). The decrease is due to the change of the fiscal year end. On a
monthly basis the amounts only increased by $242 even with the substantial
increase in borrowings for new acquisitions.
Year Ended December 31, 1997 (Restated) Compared to year ended December 31, 1996
Revenues for the year ended December 31, 1997, decreased $1,255,841 or
18.6% to $5,493,760 from $6,749,601 for the year ended December 31, 1996. This
decrease was due to the statistical move from route operations to based
operations within the amusement division, Stargate.
Gross profit for the year ended December 31, 1997, increased $405,413 or
11.95% to $2,985,777 from $3,391,190 for the year ended December 31, 1996. This
decrease was due partially due to Stargate restructuring.
9
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General and administrative expenses for the year ended December 31, 1997,
decreased $594,644 or 19.61% to $2,437,573 from $3,032,217 for the year ended
December 31, 1996. This decrease is generally attributable to cost reduction in
the second half of the year.
Depreciation expense for the year ended December 31, 1997, decreased
$67,452 or 10.87% to $553,325 from $620,777 for the year ended December 31,
1996. This decrease reflects lower purchases of property and equipment and the
disposal of assets in 1996 and 1997.
Liquidity and Capital Resources
The Company at September 30, 1998, had a working capital deficit of
($522,000) compared to a deficit of ($462,000) at December 31, 1997 (Restated).
This increase was due to the taking on of additional debt due to acquisitions
and the interim costs of opening new centers,
The Company at December 31, 1997 had a working capital deficit of
($407,471) compared to a deficit of ($704,000) at December 31, 1996. This
decrease was primarily due to the improvement in operations. The implementation
of cost reductions in the third quarter of 1996 including payroll reductions,
and discontinuing the use of outside contractors for club installations were the
major contributors in this reduction. The Company believes that internally
generated cash is sufficient to fund the current level of operations. However,
additional capital requirements needed for planned growth and to reduce short
term debt will require the Company to seek additional outside financing. There
can be no assurance, however, that the Company will be able to obtain financing.
Item 7--Financial Statements
The Company's audited Financial Statements for the years ended September
30, 1998, and December 31, 1997 are presented immediately on the following on
pages.
Item 8--Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
10
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Brian S. Nathanson, C.P.A. Member:
American Institute of Certified Public Accountants
-Tax Division
-S.E.C. Practice Section
California Society of Certified Public Accountants
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of Entertainment Technologies &
Programs, Inc. and subsidiaries, Houston, Texas.
We have audited the accompanying consolidated balance sheet of Entertainment
Technologies & Programs, Inc. (a Delaware corporation) and subsidiaries as of
September 30, 1998 and December 31, 1997, and the related consolidated
statements of operations, stockholders, equity, and cash flows for the nine
months (short year) ended September 30, 1998 and one year ended December 31,
1997. These financial statements are the responsibility of the Company's
management. our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Entertainment
Technologies & Programs, Inc. and subsidiaries as of September 30, 1998 and
December 31, 1997, and the results of their operations and their cash flows for
the nine months (short year) ended September 30, 1998 and one year ended
December 31, 1997 in conformity with generally accepted accounting principles.
/s/ Brian S. Nathanson
- ---------------------------
Brian S. Nathanson, CPA
January 3, 1999
3101 West Coast Highway, Suite 210, Newport Beach, California 92663
Telephone: (949) 574-8333 Facsimile: (949) 574-8334
<PAGE>
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
(Restated)
CURRENT ASSETS: 9-30-98 12-31-97
--------- ----------
<S> <C> <C>
Cash $ 6,740 $ 126,162
Accounts receivables, net of allowance of $13,000
in FY98 and $4,985 in 1997 617,317 411,926
Retail inventory 205,418 160,795
Prepaid expenses 36,940 41,054
Other current assets 414 29,128
---------- ----------
Total Current Assets 866,829 769,065
---------- ----------
PROPERTY AND EQUIPMENT
Land and Buildings 2,053,874 493,930
Amusement games 2,207,926 1,269,716
Furniture and fixtures 363,206 447,121
Club equipment 2,674,754 2,628,772
Vehicles 115,151 111,701
Leasehold improvement 416,712 107,228
Less: accumulated depreciation (2,930,797) (2,439,187)
---------- ----------
Net Property and Equipment 4,900,826 2,619,281
---------- ----------
OTHER ASSETS 278,329 192,010
---------- ----------
TOTAL ASSETS $6,045,984 $3,580,356
========== ==========
</TABLE>
See Accompanying Notes and Independent Auditor's Report
<PAGE>
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES
-----------
<TABLE>
<CAPTION>
(RESTATED)
CURRENT LIABILITIES: 9-30-98 12-31-97
------- --------
<S> <C> <C>
Accounts payable and accrued expenses $ 410,931 $ 450,963
Notes payable & current portion of long-term debt 977,641 753,890
Other -- 25,729
----------- -----------
Total Current Liabilities 1,388,572 1,230,582
----------- -----------
LONG TERM LIABILITIES:
Notes payable - non-current 1,606,230 1,181,856
----------- -----------
Total Long Term Liabilities 1,606,230 1,181,856
----------- -----------
Total Liabilities 2,994,802 2,412,438
----------- -----------
STOCKHOLDERS' EQUITY
--------------------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 50 million shares
authorized, 29,484,108 shares outstanding @ 9/30/98
and 21,877,321 @ 12/31/97 29,485 21,888
Additional paid-capital 5,049,988 2,653,198
Retained earnings (2,028,291) (1,507,168)
----------- -----------
Total Stockholders' Equity 3,051,182 1,167,918
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,045,984 $ 3,580,356
=========== ===========
</TABLE>
See Accompanying Notes and Independent Auditor's Report
<PAGE>
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD ENDED
-------------------------
(Restated)
9-30-98 12-31-97
--------- ----------
<S> <C> <C>
REVENUES:
Entertainment services $2,965,530 $4,599,196
Retail 1,789,970 2,478,311
---------- ----------
TOTAL REVENUES 4,755,500 7,077,507
COST OF GOODS SOLD
Entertainment services 1,265,411 1,983,950
Retail 692,771 1,191,872
---------- ----------
TOTAL COST OF GOODS SOLD 1,958,182 3,175,822
---------- ----------
GROSS PROFIT 2,797,318 3,901,685
GENERAL AND ADMINISTRATIVE EXPENSES 2,629,999 3,400,470
DEPRECIATION 491,610 641,900
AMORTIZATION 28,688 47,080
LOSS ON DISPOSAL OF ASSETS -- 56,306
INTEREST EXPENSE 168,144 221,293
---------- ----------
(LOSS) BEFORE TAXES (521,123) (465,364)
PROVISION FOR INCOME TAXES 0 0
---------- ----------
NET (LOSS) $ (521,123) $ (465,364)
========== ==========
NET (LOSS) PER SHARE $ (.02) $ (.02)
========== ==========
</TABLE>
See Accompanying Notes and Independent Auditor's Report
<PAGE>
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD ENDED
---------------------------
(Restated)
9-30-98 12-31-97
--------- ----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income/(loss) $ (521,123) $ (465,364)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 491,610 641,900
Amortization 28,688 47,080
Provision for doubtful accounts 8,015 10,001)
Disposal of property and equipment 56,306
Changes in operating assets and liabilities, net
of effects from acquisitions:
Accounts receivable (213,406) (45,653)
Retail inventory (44,623) (9,245)
Other assets 32,828 4,036
Accounts payable (40,032) (115,029)
Other current liabilities 198,022 (56,540)
----------- ----------
Net cash provided by (used in) operating activities (60,021) 47,490
----------- ----------
Cash Flows From Investing Activities:
Purchases of property and equipment (2,773,155) (712,942)
Other (115,007) 0
----------- ----------
Net cash used in investing activities (2,888,162) (712,942)
----------- ----------
Cash Flows From Financing Activities:
Proceeds from issuance of debt (net) 424,374 766,029
Issuance of stocks 2,404,387 ---
----------- ----------
Net cash provided by financing activities 2,828,761 766,029
----------- ----------
Increase (Decrease) in cash (119,422) 100,577
Cash at beginning of period 126,162 25,585
----------- ----------
Cash at end of period $ 6,740 $ 126,162
=========== ==========
Supplemental disclosure of cash paid for
Interest $ 168,144 $ 221,293
Income taxes 0 0
Non-cash investing and financing activities:
Exchange of A/R for games ----- $ 100,000
Acquisitions for stock $ 1,480,000
</TABLE>
See Accompanying Notes and Independent Auditor's Report
<PAGE>
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Common Stock Add'l
# Assigned Paid in Retained
Shares Value Capital Earnings Net
------------ -------- ------- -------- ---
<S> <C> <C> <C> <C> <C>
Balances December 31, 1996 20,507,821 $ 20,508 $ 2,448,268 $ (986,152) $1,482,624
Acquisitions 9,500 10 204,930 (55,652) 149,288
---------- ---------- ----------- ----------- ----------
Subtotal 20,517,321 20,518 2,653,198 (1,041,804) 1,631,912
Net (Loss) for year 1997 (465,364) ( 465,364)
Stock issued 1,369,500 1,370 1,370
---------- ---------- ----------- ----------- ----------
Balances December 31, 1997 (Restated) 21,886,821 21,888 2,653,198 (1,507,168) 1,167,998
Net (Loss) for the nine months ended 9-30-98 --- --- --- (521,123) (521,123)
Stock Issued 7,597,287 7,597 2,396,790 --- 2,404,387
---------- ---------- ----------- ----------- ----------
29,484,108 $ 29,485 $ 5,049,988 $(2,028,291) $3,051,182
========== ========== =========== =========== ==========
</TABLE>
See Accompanying Notes and Independent Auditor's Report
<PAGE>
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
NOTE 1 - ORGANIZATION
Entertainment Technologies & Programs, Inc. (ETPI) ("The Company") (a Delaware
Corporation), through its wholly-owned subsidiaries NiteLife, Inc., (a
California Corporation) acquired effective April 14, 1995, and NiteLife Military
Entertainment, Inc. (a Texas Corporation) formed January 15, 1997 provide audio
and video entertainment at U.S. military bases located domestically and abroad,
and provides facilities design and installation services to night clubs and
restaurants; and through its wholly-owned subsidiaries Just Games, Inc., (a
California Corporation) acquired effective June 1, 1994, and Stargate
Entertainment, Inc. (a Texas Corporation) formed January 27, 1997, installs and
operates amusement game machines and entertainment centers; and through its
wholly owned subsidiary Performance Sound & Light, Inc. (a Texas Corporation)
formed January 27, 1997, sells sound and lighting equipment; and through its
wholly owned subsidiary Redfish Management, Inc. (a Texas Corporation), formed
January 9, 1997, manages three restaurants.
In April 1995, NiteLife, Inc. agreed to be acquired by Westcott Financial
Corporation, a publicly-held corporation which had no substantive operations.
Shareholders of NiteLife, Inc. tendered their shares of stock and received an
equal number of shares of Westcott Financial Corporation stock. Former NiteLife,
Inc. shareholders, including persons who subscribed to a private placement
of 500,000 shares of NiteLife, Inc. stock issued in May 1995, now control
approximately 90 percent of outstanding Westcott shares.
Effective July 13, 1995 Westcott Financial Corporation, (a Delaware corporation)
changed its name to Entertainment Technologies & Programs, Inc. In late May 1996
the company relocated its headquarters from San Diego, California to Houston,
Texas.
In January 1997, the Company formed the following wholly owned subsidiaries as
Texas corporations:
NITELIFE MILITARY ENTERTAINMENT, INC., dba VISION QUEST PROMOTIONS
PERFORMANCE SOUND & LIGHT, INC.
REDFISH MANAGEMENT, INC., dba REDFISH ISLAND
STARGATE ENTERTAINMENT, INC., dba DYNAMIC IMAGE DESIGNS
It is the company's intent to dissolve the California Corporation subsidiaries
of NiteLife, Inc. and Just Games, Inc. The Texas corporations formed,
previously operated as divisions of the subsidiary companies.
NiteLife Military Entertainment, Inc. assumed the operations of NiteLife, Inc.
Stargate Entertainment, Inc. assumed the operations of Just Games, Inc., and
Hero's Inc. since March 1998. Performance Sound & Light, Inc. sells sound and
lighting equipment. Redfish Management, Inc. manages a Redfish Island restaurant
since March 1997, and two Chacho's Mexican restaurants since March 1998.
In March 1998, Redfish Management, Inc. acquired Chachos, Inc. (a Texas
Corporation), which operates two Mexican style restaurants.
In March, 1998, Stargate Entertainment, Inc. acquired Hero's, Inc. (a Texas
Corporation) which owns and operates Family Entertainment Centers, including a
16,000 square foot
<PAGE>
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
building and 2.2 acres of land.
In June, 1998, Hero's, Inc. acquired a waterpark in Texas, including over 90
acres of land and waterpark improvements.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Entertainment Technologies & Programs, Inc. (the parent company), (a Delaware
Corporation), NiteLife, Inc. (a California Corporation), NiteLife Military
Entertainment, Inc. (a Texas Corporation), Performance Sound & Light, Inc. (a
Texas Corporation), Stargate Entertainment, Inc. (a Texas Corporation), and
Redfish Management, Inc. (a Texas Corporation), Just Games, Inc. (a California
Corporation), Hero's, Inc. (a Texas Corporation), and Chacho's, Inc. (a Texas
Corporation). All intercompany balances and transactions have been eliminated in
consolidation.
The acquisition of Chacho's, Inc. was accounted for using the pooling of
interest method. All periods presented are restated to reflect the activity of
Chacho's, Inc. as if acquired at the beginning of the periods presented.
1,100,000 of ETPI common stock share were exchanged for all of the outstanding
stock of Chacho's, Inc. At the date of acquisition in March, 1998, Chacho's,
Inc. had revenues of $227,384 and a net loss of $(8,909).
The acquisition of Hero's, Inc. was accounted for using the pooling of interest
method. All periods presented are restated to reflect the activity of Hero's,
Inc. as if acquired at the beginning of the periods presented. 1,750,000 of ETPI
common stock shares were exchanged for all of the outstanding stock of Hero's,
Inc. At the date of acquisition in March, 1998, Hero's, Inc. had revenues of
$297,416 and a net loss of $(38,422).
The acquisition of the waterpark was accounted for using the purchase method
where 2,000,000 of ETPI common stock share were exchanged for all of the assets
(land and improvement) of the waterpark.
2,000,000 outstanding shares plus 18,000,000 issued shares of Westcott Financial
Corporation were exchanged for 20,000,000 issued shares of NiteLife, Inc.
resulting in 20,000,000 outstanding shares of the Company's $0.001 par value
common stock following the reverse merger (Note 1) in July 1995.
Fiscal Year
Beginning in 1998, the Company's fiscal year ends on September 30 of each year.
Prior to 1998, the Company was on a calendar year ending on December 31.
Revenue Recognition
The Company recognizes revenue as services are provided.
<PAGE>
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
Inventories
Inventories consist primarily of items available for catalog sales and
for intercompany equipment sales, and restaurant inventory, and are
valued at the lower of cost or market.
Property and Equipment
Property and equipment are stated at cost. The cost of major renewals
and betterments are capitalized; repairs and maintenance costs are
expensed when incurred. Depreciation is computed using the straight-line
method over the following estimated useful lives:
Description Estimated Life
Amusement games 3-5 years
Furniture and fixtures 5-8 years
Club equipment 5-8 years
Leasehold improvements 15 years
Autos and trucks 5 years
Buildings 40 years
For tax purposes, a combination of accelerated depreciation methods
(MACRS) and straight line methods are used.
Cash and Cash Equivalents
Cash represents cash in demand deposit accounts and cash on hand. The
Company had no cash equivalents at year end.
Accounts Receivable
Accounts receivable consist primarily of amounts due from U.S.
military bases for entertainment services provided.
Accounts receivable are stated net of allowances for uncollectibles
($13,000 at September 30, 1998, $4,985 at December 31, 1997) which is
charged to operations based on an evaluation of potential losses.
Income Taxes
The Company follows the provisions of Statement of Financial Accounting
Standards (SFAS) No. 109 "Accounting for Income Taxes". Deferred taxes
arise primarily from depreciation and the recognition of revenues and
expenses in different periods for income tax and financial reporting
purposes.
<PAGE>
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
Net Earnings Per Share of Common Stock
During 1998, the Company adopted SFAS No. 128, "Earnings Per Share,"
which changed the standard for computing and presenting earnings per
share. Earnings per share for periods prior to 1998 have been restated
as required by SFAS No. 128.
Primary net earnings per share has been computed by dividing net
earnings by the weighted average number of common stock equivalents
outstanding during the period. Fully diluted earnings per share are not
presented, as there are no outstanding options. The weighted average
shares outstanding used in the calculation was 25,680,714 in FY98 and
21,192,571 in 1997.
Fair Value of Financial Instruments
The fair value of the company's debt approximates a nominal amount due
to the relatively short maturities.
Basis of Accounting
The consolidated financial statements are prepared on the accrual basis
of accounting in accordance with generally accepted accounting
principles (GAAP). GAAP requires the use of some estimates, namely in
the area of bad debt allowances, useful lives of depreciable assets, and
valuation allowance for deferred tax assets based on future taxable
income. Actual results could be different than the estimates used in
these financial statements.
NOTE 3 - CONCENTRATION OF CREDIT RISK & SIGNIFICANT CUSTOMERS
The Company's major customer is the Unites States Military. Though the
majority (60% in FY98, 66% in 1997) of the Company's revenues are
derived from services provided to military installations, the decision
to contract with the Company rests with the individual bases. During
FY98 and 1997, no one military base accounted for more than 10% of
consolidated revenues. The Company has not been adversely affected by
the military downsizing. In the case of further military downsizing, the
effect on sales and operations is unknown.
<PAGE>
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
Aggregate maturities of the Company's long-term debt during the next five years
are as follows:
9-30-99 $ 446,142
9-30-00 906,656
9-30-01 188,489
9-30-02 14,234
9-30-03 15,885
9-30-04 & beyond 480,966
NOTE 5 - SHORT TERM DEBT
The company had short term borrowings (due within one year) of $279,531 in FY98
and $381,048 in 1997 from a finance company and a bank. This borrowing is
secured by the proceeds of the Company's entertainment contracts. Payments under
the contract are received directly by the finance company or bank. In addition
three other notes totaling $176,968 in FY98, and $207,326 in 1997 and a bank
line of credit of $75,000 exist at Sep. 30, 1998 and Dec. 31, 1997.
Total short term debt is as follows:
(Restated)
9-30-98 12-31-97
------- --------
Short term debt $531,499 $663,374
Current portion long term debt 446,142 90,516
-------- --------
Total debt due within current year $977,641 $753,890
======== ========
<PAGE>
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
NOTE 9 - BUSINESS SEGMENTS
During FY98 and 1997 the Company operated primarily in four business
segments; providing audio and video entertainment at U.S. military
bases, selling retail, operating amusement games and entertainment
centers and managing restaurants. During FY98 and 1997 all intersegment
activities have been eliminated in consolidation.
Information regarding the business segments for FY98 and 1997 is presented
below:
Year Ended December 31
-------------------------------
Nine (Restated)
months Year
Ended 9-30-98 Ended 12-31-97
------------- --------------
Revenue (000's)
Military entertainment $2,362 $3,499
Retail 515 613
Amusement games 603 1,482
Restaurant Management 1,275 1,484
------ ------
Total revenue $4,755 $7,078
====== ======
Operating Profit (Loss) (000's)
Military entertainment $ 225 $ 528
Retail 92 6
Amusement games (284) (208)
Restaurant Management (19) (100)
Other (405) (470)
------ ------
Total operating profit (353) (244)
Interest, other expense, (net) (168) (221)
------ ------
Loss before taxes $ (521) $ (465)
====== ======
Identifiable Assets (000's)
Military entertainment $1,585 $1,734
Retail 402 196
Amusement games 3,539 1,490
Restaurant Management 520 522
------ ------
Total identifiable assets $6,046 $3,942
====== ======
<PAGE>
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
NOTE 6 - ACQUISITIONS
In March 1998, the Company's wholly owned subsidiary, Stargate
Entertainment, Inc. acquired Hero's Family Fun Entertainment, Inc. (a Texas
Corporation), and was accounted for as a pooling of interests. 1,750,000
shares of unregistered and restricted ETPI stock were exchanged for all
assets and liabilities of the acquired company. Hero's is a family
entertainment center located in Pasadena, Texas.
In late March 1998, the Company's wholly owned subsidiary, Redfish
Management, Inc. acquired Chacho's, Inc. (a Texas Corporation), and was
accounted for as a pooling of interests. 1,100,000 shares of unregistered
and restricted ETPI stock were exchanged for all assets and liabilities (not
to exceed $50,000) of the acquired company. Chacho's Inc. owns and operates
two restaurants in Seabrook, Texas and Houston, Texas.
In late June 1998, the Company purchased Waterpark Wonderland in Harris
County, Texas. It includes over 90 acres of land and waterpark improvements.
The Company issued 2,000.000 of ETPI common Stock shares, plus $10 for the
property.
NOTE 7 - INCOME TAXES
The Company has the following tax carry forwards to 9/30/99. They expire in
the years 2009-2014.
Federal California
Net Operating Loss (NOL) $2,562,147 $902,724
Alternative Minimum Tax NOL $1,850,462 $749,281
Accumulated Adjusted Current Earnings $ 15,454 $193,903
Prior Year Minimum Tax Credit $ 5,930 $ 1,190
Contributions $ 1,720 $ 620
Sec. 1231 Losses $ 260,518 $270,518
NOTE 8 - ISSUANCE OF COMMON STOCK
In June, 1997, the Company granted 90,000 shares of its unregistered and
restricted common stock as part of the trust units transaction to the
Company setting up the Lenders Trust. In addition, the Company granted
1,200,000 shares of its unregistered and restricted common stock to the
Lenders Trust as security for the loan. In addition each investor received
100 shares of its unregistered and restricted common stock per every $1,000
invested, totaling 60,000 shares. The Company also granted 19,500 shares of
the Company's unregistered and restricted common stock to several employees.
The Company has a letter of intent for a $3.75 million offering.
<PAGE>
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
NOTES 4 - NOTES PAYABLE AND LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
(Restated)
Ended 9-30-98 12/31/97
------------- -----------
<S> <C> <C>
Bayshore National Bank $ 545,529 $ 575,962
$575,000 SBA loan at 11% interest
for 20 years. Payments are $5,928.26/month.
Maturity date is in 2017. The note was
assumed in the Hero's Inc. acquisition.
Bell Atlantic 621,607
Capital equipment lease for $700,00.
Payments are $23,006.56/month.
Maturity date is August 15, 2001.
Moss Distributing 130,565
Capital equipment lease for $130,565 at
10.75% interest for two years.
Payments are $6,081.63/month.
Maturity date is July, 2000.
Miscellaneous Notes 57,858
Notes payable (3) to equipment leasing company,
due in monthly installments totaling $5,773, with
maturity dates of February 1999. The interest
rates are 15.68% secured by specified amusement
machines. 0 27,124
Notes payable (2) to equipment leasing company,
secured by specified amusement machines. 0 69,286
600 Trust Units of $1,000/unit totaling $600,000
at 14% annual interest paid months, with principal
balance due in 24 months. Unit holders have rights
to convert every $1 invested into the trust into
shares of restricted common stock of the company
at a price of $1/share. 696,813 600,000
---------- ----------
TOTAL LONG TERM DEBT 2,052,372 1,272,372
LESS CURRENT PORTION (446,142) (90,516)
---------- ----------
TOTAL $1,606,230 $1,181,856
========== ==========
</TABLE>
<PAGE>
ENTERTAINMENT TECHNOLOGIES & PROGRAMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
Depreciation and Amortization Capital Expenditures
----------------------------- --------------------
(In Thousands of Dollars)
-------------------------
Nine months (Restated) Nine Months (Restated)
Ended 9-30-98 12-31-97 Ended 9-30-98 12-31-97
------------- ---------- ------------- ----------
Military entertainment $ 230 $ 366 $ 267 $ 301
Retail 5 8 2 2
Amusement games 210 211 2,070 393
Restaurant Management 16 48 420 10
Other 59 56 14 9
----- ----- ------- -----
$ 520 $ 689 $ 2,773 $ 713
===== ===== ======= =====
NOTE 10 - FINANCING
The Company has a verbal commitment to get long-term mortgage financing on
land owned by Hero's Inc., free and clear of any encumbrances. These funds
will be used to restructure short-term debt to long term with favorable
terms.
NOTE 11 - START-UP COSTS
As part of the acquisition of Chacho's, Inc., Hero's, Inc., and the
Waterpark facility, the Company incurred many one time start up expenses
and legal fees.
<PAGE>
Part III
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The following table sets forth-certain information concerning the Company's
executive officers and directors:
Name Age Position
- ---- --- --------
James Douglas Butcher 39 Chairman of the Board and CEO
Leonida Butcher 42 Director
William M. Grasberger 44 Secretary and Director
Mark Madamba 36 Director
Jeffery Thornton 42 Director
JAMES "DOUG" BUTCHER, the Company's founder, Chairman of the Board of
Directors and Chief Executive Officer, formed a mobile music company in 1978,
while in the Navy, to provide entertainment services to the military nightclub
at the bases on which he was stationed. After being transferred to San Diego in
1980, Mr. Butcher continued in the entertainment business obtaining several Navy
contracts in the San Diego area. By 1982, after departing the Navy, the disc
jockey business became a full time venture based on two clubs, one mobile D. J.
system and a need for quality entertainment. Mr. Butcher has built the Company
into the provider of comprehensive entertainment service and products it is
today.
WILLIAM MICHAEL GRASBERGER President, NiteLife Entertainment, has been with
NiteLife since 1983. Prior to joining the Company, Mr. Grasberger has a Bachelor
of Arts degree from California State University of Pennsylvania where he won the
Distinguished Service Award for his work in radio and television, student
government and academics. Mr. Grasberger was the founder of Video Link, which
distributes music videos to clubs and restaurants and most importantly, provides
the Company with its music videos. The Video Link television show, developed by
Mr. Grasberger in 1986, is still being seen around the world on the Armed Forces
Television Network.
MARK MADAMBA President, Stargate, Inc. since May 1994. After graduating
from high school in 1980, Mr. Madamba entered the Technical Vocational Institute
of New Mexico. At age 19, he successfully completed and received a two-year
diploma in digital electronics. Mr. Madamba then moved to Kadena Air Base, Japan
where he began working as an electronic technician in the Air Force slot machine
program. In 1986, he designed and produced an electronic circuit board to
eliminate a computer design error in the base's slot machines. The new circuit
was used throughout the Air Force and was eventually sold to the manufacturer as
well. Mr. Madamba subsequently was recognized as the top electronic
troubleshooter in the Air Force slot machine program and was transferred to the
Headquarters Air Force Morale, Welfare and Recreation Department in San Antonio,
Texas. There he served as a Technical Advisor and Program Manager for the thirty
million dollar a year Air Force slot machine program encompassing over 35 bases
worldwide. Using computer aided design programs, Mr. Madamba designed eleven new
games that were installed as a modification to existing machines. He also
developed all game and machine specifications for the Air Force's first video
poker and stepper motor driven slot machine. In 1990, Headquarters Pacific Air
Forces employed Mr. Madamba to provide technical and management oversight to ten
bases in the Pacific Rim. Based at Osan Air Base, South Korea, he was directly
responsible for the slot program at Osan Air Base.
JEFFERY THORNTON, President, Vision Quest Productions. Mr. Thornton is an
honors graduate of the University of Northern Colorado, with a degree in
Recreation Administration and a minor in Business. Mr. Thornton began his
professional career as the first Parks and Recreation Director for a Southwest
Native American Indian Tribe, the Pascua Yaqui Tibe in Tucson, Arizona.
Subsequently, Mr. Thornton was hired as the Recreation coordinator for the Air
Force Logistics Command at Wright Patterson Air Force Base, Dayton, Ohio. His
<PAGE>
supervision of recreation and sports activities extended to six bases throughout
the United States. Following that, Mr. Thornton became the Recreation Director
for the Naval Training Center in San Diego, which included eleven facilities and
over 500 personnel. After five years with NTC, Mr. Thornton became the Moral,
Recreation and Club Director for the Submarine Base San Diego, and was in charge
of all operations on the base. In addition to his other duties, Mr. Thornton
wrote the "NiteLife Handbook of Club Programs and Fun", a detailed event
planning guide, published and distributed by the Company, and used extensively
by military clubs worldwide.
James D. Butcher and Leonida Butcher, both directors of the Company, are
husband and wife. Other than Mr. and Mrs. Butcher, there are no family
relationships between any director and executive officers of the Company, either
by blood or by marriage.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors and persons who own more than ten percent
of a registered class of the Company's equity securities to file various reports
with the Securities and Exchange Commission and the National Association of
Securities Dealers, Inc. concerning their holdings of and transactions in,
securities of the Company. Copies of these filings must be furnished to the
Company.
ITEM 10 - EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation of the chief
executive officer and all other executive officers of the Company whose salary
and bonus exceeded $100,000 for services rendered to the Company for the fiscal
year ended September 30, 1998.
Summary Compensation Table (1)
Annual Compensation
-------------------
Name and Other Annual
Principal Position Year Salary Bonus Compensation
- ------------------ ---- ------ ----- ------------
James D. Butcher 1998 $117,000 (1) (2)
President and Chief
Executive Officer
(1) The Company currently has not adopted any bonus, profit sharing or long-
term compensation plan providing any executive officer, director or
employee with any compensation except as provided above.
(2) Mr. Butcher received 150,000 shares of "restricted stock" for providing
personal guarantees on certain loans and debt of the Company.
EMPLOYMENT AGREEMENT
Effective November 10, 1995, the Company entered a ten-year employment
agreement with James D. Butcher. The Agreement provides for an annual salary of
$156,000, increasing to $240,000 upon completion of a secondary offering or
adequate funding. All future increases will be at the discretion of the Board of
Directors Compensation Advisory Committee. The Agreement may be terminated upon
death, disability or for "Just cause" (as defined therein).
COMPENSATION OF DIRECTORS
The Company's Board of Directors is comprised entirely of employees of the
Company, and receives no additional compensation in connection with attending
Board Meetings. The Company intends to actively pursue and attract capable and
notable independent outside directors. Consequently, the Company is currently
contemplating board compensation. This issue will go to a vote of the
shareholders to help attract outside board members.
<PAGE>
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of January 31, 1998, for (a) each
person known by the Company to own beneficially more than 5% of the Common
Stock, (b) each director, (c) each executive officer identified in the
compensation table above, and (d) officers and directors of the Company as a
group.
Name of Beneficial Number of Shares Percentage
Owner Beneficially Owned Owned
- ------------------ ------------------ ----------
James D. Butcher & 10,060,156 33.76%
Leonida Butcher
480 Kirby Rd.
Seabrook, TX 77586
Michael W. Grasberger 2,443,460 8.04%
2037 Spinnaker Drive
League City, TX 77573
Mark Madamba 90,000 0.296%
Jeffrey Thornton 40,000 0.132%
All Officers and
Directors as a group (5) 12,833,624 42.24%
Multi-Technologies Ltd. 2,048,332 6.74%
c/o John Holler
13409 MW Military Hwy. Suite 300
San Antonio, TX 78231
ITEM 12- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There have been no material transactions, series of similar transactions,
currently proposed transactions, or a series of similar transactions, to which
the Company or any of its subsidiaries was or is to be a party, in which the
amount involved exceeds $60,000 and in which any director or executive officer
or any security holder who is known to the Company to own of record or
beneficially more than 5% of the Company's common stock or any member of the
immediate family of any of the foregoing persons, had a material interest.
The Company has no parents; it is the parent of NiteLife Military
Entertainment, Inc., Stargate Entertainment, Inc. and their affiliated
companies, RedFish Management, Inc. and Performance Sound & Light, Inc.
<PAGE>
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
<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.
Entertainment Technologies and Programs, Inc.
/s/ James D. Butcher
--------------------
By: JAMES D. BUTCHER, 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.
Signature Capacity Date
- --------- -------- ----
/s/ James D. Butcher President, Chief Executive February 8, 1999
- ------------------------- Officer and Director (Principal
James D. Butcher Executive Officer)
/s/ Leonida Butcher Director February 8, 1999
- -------------------------
Leonida, Butcher
/s/ Mark Madamba Director February 8, 1999
- -------------------------
Mark Madamba
/s/ Jeffrey Thornton Director February 8, 1999
- -------------------------
Jeffrey Thornton
/s/ William Grasberger Secretary February 8, 1999
- ------------------------- and Director
William Grasberger
