<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report pursuant to Section 13 or 15(d)
of the Securities and Exchange Act of 1934
For Quarter Ended September 30, 1997
Commission File Number 0-26828
FOOD COURT ENTERTAINMENT NETWORK, INC.
(Exact name of registrant as specified in its charter)
Delaware 51-0338736
(State of Incorporation) (Federal Identification #)
220 East 42nd Street
New York, New York 10017-5806
(Address of Principal Executive Offices)
(212) 983-4500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required 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 .
As of September 30, 1997, there were 7,070,396 shares of Series A Common
Stock, $0.01 par value of the registrant outstanding, 1,076,168 shares of
Series B Common Stock, $0.01 par value of the registrant outstanding,
8,796,797 Class A Warrants of the registrant outstanding, and 7,097,447 Class
B Warrants of the registrant outstanding (See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" (Page 9) for a description of the results of the "Exchange
Offer" completed by the Registrant on October 27, 1997).
<PAGE>
FOOD COURT ENTERTAINMENT NETWORK, INC.
INDEX
Part I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Condensed Balance Sheets as of December 31, 1996
(audited) and September 30, 1997 (unaudited)......... 3
Condensed Statements of Operations
for the three months and nine months ended
September 30, 1996 & 1997
(unaudited).......................................... 4
Condensed Statements of Cash Flow
for the nine months ended
September 30, 1996 & 1997
(unaudited).......................................... 5
Notes to Condensed Financial Statements (unaudited).. 6
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations................. 7-10
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.................................... 11
Item 5. Other Information.................................... 12
Item 6. Exhibits and Reports on Form 8-K..................... 13
Signature Page......................................................... 14
Exhibit Index.......................................................... 15
<PAGE>
FOOD COURT ENTERTAINMENT NETWORK, INC.
(a development stage company)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30
December 31, 1997
1996 (unaudited)
------------ ------------
A S S E T S
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,498,864 $ 708,441
Other current assets 402,626 176,643
------------ ------------
Total Current Assets 6,901,490 885,084
Fixed Assets (Net) 2,415,115 2,548,678
Other Assets 130,215 45,000
------------ ------------
Total Assets 9,446,820 3,478,762
L I A B I L I T I E S
Current liabilities:
Accounts payable 665,022 68,910
Accrued payroll 255,518 66,172
Other accrued expenses 178,692 228,257
Due to former employee 200,000 224,750
------------ ------------
Total liabilities 1,299,232 588,089
S T O C K H O L D E R S' E Q U I T Y
Preferred stock - 5,000,000 shares authorized, none issued
Common stock:
Series A common stock - $.01 par value, 200,000,000 shares authorized;
as of 12-31-96 6,913,555 shares issued and outstanding, as of 9-30-97
7,070,396 shares issued and outstanding 69,135 70,703
Series B common stock - $.01 par value, 1,250,000 shares
authorized; as of 12-31-96 1,133,009 share issued and
outstanding, as of 9-30-97 1,076,168 shares issued
and outstanding 11,330 10,762
Additional paid-in capital 23,757,996 23,690,105
Deficit accumulated during the development stage (15,690,772) (20,880,796)
------------ ------------
T o t a l 8,147,689 2,890,774
Treasury stock (101) (101)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 8,147,588 2,890,673
------------ ------------
TOTAL $ 9,446,820 $ 3,478,762
============ ============
</TABLE>
<PAGE>
FOOD COURT ENTERTAINMENT NETWORK, INC.
(a development stage company)
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
February 12, 1992
(inception)
Three month period ended Nine month period ended through
September 30, September 30, September 30,
1996* 1997 1996* 1997 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Advertising Revenue 28,750 -- 38,750 -- 122,260
----------- ----------- ----------- ----------- -----------
Operating Expenses:
Sales and Marketing 192,194 130,046 356,764 570,857 1,131,370
Programming 626,826 235,188 1,012,575 1,119,509 2,433,849
Network Costs 327,976 417,773 688,667 1,699,571 2,928,128
General and Administrative expenses 578,931 564,228 1,388,581 1,895,893 5,230,293
Development costs -- -- 1,104,316 -- 8,983,551
----------- ----------- ----------- ----------- -----------
Total (1,725,927) (1,347,235) (4,550,903) (5,285,830) (20,707,191)
Operating income (loss) (1,697,177) (1,347,235) (4,512,153) (5,285,830) (20,584,931)
Other (income) expenses:
Interest Expense 657,705
Interest and other (income) (17,661) (20,561) (110,113) (95,806) (361,840)
----------- ----------- ----------- ----------- -----------
NET (loss) (1,679,516) (1,326,674) (4,402,040) (5,190,024) (20,880,796)
=========== =========== =========== =========== ===========
Net (loss) per share of common stock $ (0.38) $ (0.18) $ (1.01) $ (0.70)
=========== =========== =========== ===========
Number of common share and common
share equivalent used in computation 4,408,125 7,510,449 4,359,514 7,454,893
=========== =========== =========== ===========
</TABLE>
* Certain amounts have been reclassified to conform to the presentation in
the Company's Annual Report on Form 10-KSB
<PAGE>
FOOD COURT ENTERTAINMENT NETWORK, INC.
(a development stage company)
CONDENSED STATEMENTS OF CASH FLOW
(unaudited)
<TABLE>
<CAPTION>
February 12, 1992
(inception)
Nine month period ended through
September 30, September 30,
------------------------------- ------------
1996 1997 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flow from Operating Activities:
Net (loss)
Adjustments to reconcile net income (loss) $ (4,402,040) $ (5,190,024) $(20,880,796)
Cash provided by operating activities:
Depreciation and amortization 280,978 580,000 1,544,086
Write off of nonproductive asset 205,000 205,000
Loss on disposal of equipment 26,182
Write off of debt issuance costs 146,397
Value assigned to options and
warrants issued as compensation and
for guarantees of debt 108,583
Common stock issued as consideration
for programming 350,000 700,000
Common stock & warrants issued as consideration
for consulting and other compensation 150,000 188,002
Changes in operating assets and liabilities:
(Increase) in other assets ** (64,354) 311,198 97,409
(Increase) decrease in accrued expenses
and other liabilities 183,500 (860,143) 439,088
------------ ------------ ------------
Net Cash (used in) operating activities (3,651,916) (4,803,969) (17,426,049)
------------ ------------ ------------
Cash Flows from Investing Activities
Purchase of property and equipment (801,707) (918,563) (3,942,640)
Organization costs (11,336)
------------ ------------ ------------
Net Cash (used by) investing activities (801,707) (918,563) (3,953,976)
------------ ------------ ------------
Cash Flow from Financing Activities:
Net proceeds from sale of preferred and common stock 23,370,719
Redemption of preferred stock (1,146,250)
Preferred dividends paid (148,112)
Capital contributions ** 32,500
Proceeds from bridge loan 2,250,000
Repayment of bridge loan (2,250,000)
Deferred financing fee (65,000) (67,891) (360,391)
Proceeds from director and officer loans 390,000
Repayment of director and officer loans (50,000)
Proceeds from note payable 954,572
Repayment of note payable (954,572)
------------ ------------ ------------
Net cash provided by (used in) financing activities (65,000) (67,891) 22,088,466
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH (4,518,623) (5,790,423) 708,441
Cash at beginning of period 5,191,897 6,498,864 6,498,864
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 673,274 $ 708,441 $ (5,790,423)
============ ============ ============
Supplemental schedule of Net cash financing activities:
Warrants issued in connection with bridge loan $ 225,000
Warrants issued in connection with deferred consulting 317,919
Director and officer loans exchanged for common and preferred stock 150,000
Director loan contribution to capital 190,000
Supplemental disclosure of cash flow information: Cash paid for interest 336,406
</TABLE>
<PAGE>
FOOD COURT ENTERTAINMENT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Financial Statement Presentation
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial position of the Company
and its results of operations and cash flow for the interim periods presented.
Such financial statements have been condensed in accordance with the
applicable regulations of the Securities and Exchange Commission and,
therefore, do not include all disclosures required by generally accepted
accounting principles.
The results of operations for the nine months ended September 30,
1997, are not necessarily indicative of the results to be expected for the
entire fiscal year.
These financial statements should be read in conjunction with the
financial statements included in the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1996, and Quarterly Reports on Form 10-QSB for
the three-month periods ended March 31, 1997 and June 30, 1997.
Loss Per Share of Common Stock
Net loss per share of common stock is based on the weighted average
number of shares outstanding during each period. Options and warrants have
been excluded as they are anti-dilutive. Series B common shares in escrow have
also been excluded for all periods.
6
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
Results of Operations
The following discussion and analysis should be read in conjunction
with the financial statements and notes thereto appearing elsewhere in this
report. The Company is in its development stage through September 30, 1997.
The Company's development activities to date have consisted of designing,
developing and producing Cafe USA programming, producing and evaluating three
market tests of Cafe USA to evaluate its acceptance in the marketplace,
developing and refining an end-to-end distribution system for the delivery and
management of Cafe USA programming into Food Courts, attracting and engaging
management, employees, consultants and advisers for marketing operations and
implementation of the Cafe USA network, entering into agreements with
advertisers and mall operators and installing and operating Cafe USA in 20
Food Courts. To date, the Company has received only limited revenues. The
Company's principal expenses from inception through September 30, 1997 have
been salaries and payments to consultants ($6,657,600), production costs for
Cafe USA programming ($4,416,800) and advertising and marketing expenses
($1,680,300). Additionally, the Company invested $3,708,000 in capital
equipment through September 30, 1997. Accordingly, as of September 30, 1997,
the Company had a deficit accumulated in the development stage of
approximately $20,881,000 and a net worth of approximately $2,891,000. The
Company continues to incur substantial losses. For the foreseeable future, and
until significant advertising sales occur, the Company expects losses to
continue and will be entirely dependent on public or private financing or a
strategic alliance.
During the three month period ended March 31, 1996, principally all
expenses incurred by the Company were charged to development costs. Subsequent
to March 31, 1997, expenses were charged to individual and appropriate expense
classifications, rather than to development costs. Therefore, the individual
components of operating expenses for the nine month period ended September 30,
1996 cannot be compared to those for the nine month period ended September 30,
1997. Total operating expenses for the nine months ended September 30, 1997,
increased to $5,285,830 from $4,550,903 for the comparable period from the
previous year. Such increase was principally due to the Company's expansion
into additional malls. Total operating expenses decreased to $1,347,235 for
the three month period ended September 30, 1997 from $1,725,927 for the
comparable period from the previous year. This was principally due to a
decrease in sales and marketing expenses to $130,046, from $192,194 and a
decrease in programming expenses to $235,188, from $626,826. Such decreases
were principally due to a change in programming format.
The Company had $28,750 in advertising revenue for the three month
period ended September 30, 1996, and $38,750 in advertising revenue for the
nine month period ended September 30, 1996. The Company did not have any
advertising revenue for the three month or nine month periods ended September
7
<PAGE>
30, 1997. However, the Company currently has three paid national advertisers
(Revlon, Air Jamaica/Friends International Resorts, AutoNation) scheduled for
the fourth quarter of 1997.
Net loss increased to $5,190,024 for the nine month period ended
September 30, 1997 from $4,402,040 for the comparable period from the previous
year. Net loss decreased to $1,326,674 for the three month period ended
September 30, 1997 from $1,679,516 for the comparable period from the previous
year. Net loss was substantially due to the Company's incurring expenses from
continued operations, additional mall installations and increased network
costs, without receiving offsetting advertising revenues.
Net loss per share of common stock is based on the weighted average
number of shares outstanding during each period. Net loss per share of common
stock decreased to $0.18 for the three month period ended September 30, 1997
from $0.38 for the comparable period from the previous year. Net loss per
share of common stock decreased to $0.70 for the nine month period ended
September 30, 1997 from $1.01 for the comparable period from the previous
year. These decreases were due, in part, to the increase in the number of
common share and common share equivalents used in computation from 4,408,125
for the three month period ended September 30, 1996 to 7,510,449 for the three
month period ended September 30, 1997 and from 4,359,514 for the nine month
period ended September 30, 1996 to 7,454,893 for the nine month period ended
September 30, 1997. This increase in the number of common share and common
share equivalents was mostly the result of the Company's issuance of shares of
Series A Common Stock in connection with it's private placement, which closed
on November 14, 1996.
Liquidity and Capital Resources
On November 14, 1996, the Company closed on a private placement of 90
private units (the "Private Units"), each Private Unit consisting of 31,746
units identical to the units offered in the Company's October 16, 1995 public
offering, which consist of one share of Series A Common Stock, one Class A
Warrant and one Class B Warrant (the "Private Offering"). Substantially all of
the net proceeds have been used for mall installations and operations, and
working capital, including salaries of service management and technical and
administrative staff, advertising, sales and research expenses, programming
and production expenses, professional fees and office and administrative
expenses. The Company will utilize the remainder of the proceeds to fund its
operations.
The Company has financed its operations to date almost exclusively
through three private placements of securities, bank loans and its public
offering, including net proceeds of approximately $2,000,000 through a
Preferred Stock Unit Offering, net proceeds of approximately $2,000,000 from
the private placement of notes with warrants, bank loans of approximately
$1,086,000, net proceeds of approximately $12,900,000 from a public offering
and net proceeds from the Private Offering in November, 1996, of approximately
$7,800,000. As of September 30, 1997, the Company had a working capital
remaining of approximately $297,000. Unless the Company is successful in
obtaining substantial additional capital, or entering into a strategic
alliance, it will be forced to cease operations.
8
<PAGE>
The Company has employment contracts with four officers which provide
for aggregate salaries of $143,750 in the fourth quarter of 1997. However,
these four officers have agreed to reductions in salary, which will reduce
their aggregate salaries to approximately $57,500 for the fourth quarter of
1997. In addition, the Company has significantly reduced or eliminated other
non-essential costs and expenses.
The Company's lease agreement for its offices, including electricity,
provides for monthly payments of approximately $12,000.
The Company has entered into a settlement agreement for $200,000 with
a former director and officer of the Company dated October 12, 1993, regarding
any claims he had or may have had with respect to continued employment with
the Company and his rights to acquire additional securities of the Company.
Commencing January 1, 1996 interest began to be accrued on such obligation, at
the prime rate. The entire remaining unpaid balance of $200,000, plus accrued
interest, is due and payable no later than December 31, 1997. In addition to
the above, the settlement agreement provided for the purchase by the former
director and officer from the Company of 11,259 shares of the Company's Class
B Common Stock at a price of $.01 per share and the payment of consulting fees
for services provided at the request of the Company.
On August 25, 1997, the Company commenced a private tender offer to
exchange 0.6 shares of it's Series A Common Stock, $.01 par value per share,
for each issued and outstanding Class A Warrant, and 0.4 shares of its Series
A Common Stock, $.01 par value per share, for each issued and outstanding
Class B Warrant (the "Exchange Offer"). The Exchange Offer was conditioned
upon, among other things, the valid tender for exchange of not less than
6,157,758 Class A Warrants (70% of the Class A Warrants issued and
outstanding) and 4,968,213 Class B Warrants (70% of the Class B Warrants
issued and outstanding). The Exchange Offer expired at 5:00 p.m., New York
City time, on October 27, 1997. Approximately 85% of the Company's 15,894,244
issued and outstanding Class A and Class B Warrants were tendered for
exchange. In exchange for these tendered warrants, the Company will issue
approximately 7,000,000 shares of Series A Common Stock. The Exchange Offer
was proposed in order to substantially decrease the potential dilutive effect
the warrants have upon the Company's capital structure.
Plan of Operation
As of September 30, 1997, the Company is broadcasting in 20 mall Food
Courts, and is in the pre-construction phase with 11 additional malls. The
Company is actively seeking strategic alliances with appropriate corporate
partners to provide the Company with the necessary capital to enable the
Company to continue operations. Simultaneously, the Company is investigating
other methods of raising capital to finance its operations. In addition, the
Company has substantially reduced its operating expenses, including management
salaries, while it seeks capital and a strategic alliance. However, unless a
financing or strategic partnership is completed in the near future, the
Company will be forced to cease operations.
9
<PAGE>
In January, 1997, the Company entered into a six-year exclusive
advertising sales representative agreement with ABC (the "ABC Agreement"). In
accordance with the ABC Agreement, the Company was obligated to pay a minimum
$100,000 guaranteed commission to ABC in 1997, the first year of the ABC
Agreement. Such amount has been pre-paid and will be amortized over the course
of the year. The ABC Agreement provides that ABC will be the exclusive
advertising representative for the Company and will use the ABC New Media
sales force to seek advertisers for the Company's programming. ABC has the
right to terminate the ABC Agreement upon 90 days written notice for a period
of 30 days after the end of the second contract year and each contract year
thereafter. The Company has the right to terminate the ABC Agreement upon 30
days written notice, after the second and fourth contract years, if certain
minimum advertising sales benchmarks have not been met. During the third
quarter of 1997, the Company had no paid advertisers. The Company currently
has three paid national advertisers for the fourth quarter of 1997, Revlon,
Air Jamaica/Friends International Resorts and AutoNation. Revenues from these
advertisers are not sufficient to sustain operations, and therefore, without a
strategic alliance or substantial additional capital the Company will be
forced to cease operations.
Charge to Income in the Event of Release of Escrow Shares
In connection with a private offering, which began in November, 1993,
and terminated in July, 1994, of units of Series A Common Stock and Series A
Redeemable Preferred Stock (the "Preferred Stock Unit Offering"), 750,000
shares of Series B Common Stock were placed in escrow of which 103,750 have
been canceled effective as of July 5, 1994. In the event the Company attains
any of the earnings thresholds or the Company's Series A Common Stock meets
certain minimum purchase prices required for the release of the Escrow Shares,
such release will require the Company to recognize additional compensation
expense for fair value of the shares which are held by current and former
officers and directors. Such charges could substantially increase the loss or
reduce or eliminate the Company's net income, if any, for financial reporting
purposes for the period in which the Escrow Shares are released or are
probable of being released. Although the amount of compensation expense
recognized by the Company will not affect the Company's total stockholders'
equity or its working capital, it may have a depressive effect on the market
price of the Company's securities. If neither the required earnings or sale
price are attained by December 31, 1998, the Escrow Shares as well as any
dividends or other distributions made with respect thereto, will be
contributed to the capital of the Company.
10
<PAGE>
PART II
OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
A description of the Company's pending legal proceeding has been previously
reported in the Company's Quarterly Report on Form 10-QSB for the quarter
ended June 30, 1997.
11
<PAGE>
ITEM 5 - OTHER INFORMATION
Effective August 10, 1997, Benjamin Frank resigned as a member of the
Company's Board of Directors.
Effective September 16, 1997, Furman Selz, LLC resigned as the
Company's investment banker. Furman Selz had provided financial advisory and
investment banking services for the Company since December of 1996. In
connection with their resignation, Furman Selz, LLC forfeited 401,321
warrants, which were granted in consideration for its services.
Effective September 22, 1997, Robert H. Lenz resigned as an officer
of the Company. He will continue to serve as Chairman of the Company's Board
of Directors.
12
<PAGE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Amended and Restated Certificate of Incorporation
of the Company (Incorporated by reference from
Exhibit 3.1 to the Company's Annual Report on form
10-KSB for the fiscal year ended December 31,
1996).
3.2 Bylaws of the Company (Incorporated by
reference from Exhibit 3.2 to the Company's
Registration Statement on Form SB-2
[File No. 33-91054])
27 Financial Data Schedule
(b) Reports on Form 8-K
(none)
13
<PAGE>
SIGNATURE PAGE
In accordance with the requirements of the Securities Exchange of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Food Court Entertainment Network, Inc.
--------------------------------------
(Registrant)
11/14/97 By: /s/ James N. Perkins
- -------------------------- ----------------------
(Date) James N. Perkins
President, Chief Executive
Officer & Principal Accounting
Officer
14
<PAGE>
EXHIBIT INDEX
Exhibit
Number Document
- ------ --------
3.1 Amended and Restated
Certificate of Incorporation
of the Company (Incorporated
by reference from Exhibit 3.1
to the Company's Annual Report
on form 10-KSB for the fiscal
year ended December 31, 1996).
3.2 Bylaws of the Company
(Incorporated by reference
from Exhibit 3.2 to the
Company's Registration
Statement on Form SB-2 [File
No. 33-91054])
27 Financial Data Schedule
15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jul-01-1997
<PERIOD-END> Sep-30-1997
<CASH> 708,441
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 885,084
<PP&E> 2,548,678
<DEPRECIATION> 580,000
<TOTAL-ASSETS> 3,478,762
<CURRENT-LIABILITIES> 588,089
<BONDS> 0
<COMMON> 81,465
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,478,762
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 1,347,235
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (20,561)
<INCOME-PRETAX> (1,326,674)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,190,024)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,190,024)
<EPS-PRIMARY> (0.70)
<EPS-DILUTED> (0.70)
</TABLE>
