ITEM 1. BUSINESS
(a) GENERAL DESCRIPTION OF BUSINESS
The Company develops, produces and markets various entertainment properties for the motion picture, pay/cable and commercial television markets and, until September 1995 through its 50.1% owned subsidiary, Willy Bietak Productions, Inc. ("WBPI"), produced and operates small touring ice shows and theme shows appearing in theatres, casinos, and major amusement parks and arenas. On September 29, 1995, in consideration of guarantees of certain bank debt of WBPI, provided WBPI by its minority shareholder, the Company transferred 65,900 of its shares of WBPI common stock to such minority shareholder, thereby reducing the Company's interest to 30%. The Company's wholly-owned subsidiary, International Theatres Corporation ("ITC") operates the Chanhassen Dinner Theatre in Chanhassen, Minnesota which the Company acquired in 1993.
If ITC fails to generate anticipated cash flow, the Company may be unable to continue as a going concern without raising additional funds from outside sources. Management is uncertain as to the likelihood of raising additional funds. (See Liquidity and Sources of Capital for Further Discussion.)
The Company was organized under Minnesota law in 1983. The Company's executive offices are located at 4701 IDS Center, Minneapolis, Minnesota 55402 and its telephone number is (612) 333-5100.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company's operations are attributable to one business segment. The ownership, production, and operation of entertainment attractions.
(c) ACCOUNTANTS OPINION
The Company's independent auditors issued their opinion on the Company's financial statements for the year ended September 30, 1996, which included an explanatory paragraph as to substantial doubt about the Company's ability to continue as a going concern. This doubt was raised primarily due to recurring losses from operations and due to the Company's working capital deficit of $2,949,739 at September 30, 1996.
(d) NARRATIVE DESCRIPTION OF BUSINESS
(i) International Theatres Corporation
On July 29, 1993, the Company acquired International Theatres Corporation which operates the Chanhassen Dinner Theatre, located in suburban Minneapolis, which the Company believes is the largest dinner theater operation in the country. The facility, which was founded in 1968, encompasses 87,000 square feet and consists of four theaters and a related food service operation. The Chanhassen Dinner Theatre has a total theater capacity of over 1,100 and can serve 1,100 dinners in a two-hour period. Since the Company's purchase, the Chanhassen Dinner Theatre has been managed by Michael Brindisi, formerly the artistic director of Chanhassen Dinner Theatre.
The Chanhassen Dinner Theatre's four theaters play to approximately 180,000 customers annually and have played to over 6 million customers since its inception. Each theater usually performs eight shows per week. The main theater, which seats 576 people for dinner and theater, typically offers a musical show, such as "42nd Street" and "Crazy For You". The other theaters seat 250, 130, and 125 people respectively, and offer a variety of popular plays, such as "Nunsence", "Mass Appeal", "On Golden Pond", and "Sleuth". The facilities also include cocktail lounges, private banquet areas and a ballroom. The Chanhassen Dinner Theatre employs approximately 250 full-time employees, including 50 actors and musicians.
Ticket prices, generally include dinner and a show, and vary from theatre to theatre. An in-house production staff produces each show, including the development of all costumes and scenery. The Chanhassen Dinner Theatre is open all year.
(ii) Motion Pictures, Pay/Cable, and Television
In producing entertainment properties for motion picture, pay/cable and commercial television, the Company has limited its costs to those incurred prior to the commencement of principal photography. It has been the Company's intention to produce or co-produce and arrange for the distribution of primarily feature length motion pictures with production financing derived from third party sources. The Company has reported no revenues from motion pictures, pay/cable and television during 1994, 1995 and 1996. At September 30, 1996, the Company had two (2) properties in various stages of production and development of which one (1) was substantially completed. All such properties have been charged to expenses.
The profits of an enterprise involved in the entertainment industry generally and, particularly, the motion picture,
television and music industries are greatly dependent upon the audience appeal of each creative product, compared with the cost of such product's purchase, development, production and distribution. Competition is intense both within the motion picture and television industry and other entertainment media. The Company is in competition with several major film studios, as well as with numerous "independent" motion picture and television production companies for the acquisition of artistic properties, and the services for creative and technical personnel.
ITEM 2.
ITEM 2. PROPERTIES
The Company leases, as its headquarters, 1,941 square feet of office space at 4701 IDS Center, Minneapolis, Minnesota 55402. The Company's motion picture and television operations leases 160 square feet of office space at 3575 Cahuenga Blvd. West, Los Angeles, California 90048. Management believes that there is adequate space available in the Los Angeles area to accommodate its California operations.
International Theaters Corporation leases the Chanhassen Dinner Theatre facilities pursuant to two leases, both of which expire on May 31, 1999. The Company has an option to extend the term of these leases for two additional periods of five years each. The leases cover approximately 87,000 square feet and contain options to purchase the property for $3,665,000, before expiration.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
NONE
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this Report.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCK HOLDER MATTERS
a. Price Range of Common Stock
The following table shows the range of the closing bid prices for the Common Stock in the over-the-counter market for the fiscal years ended September 30, 1996 and 1995. The quotations for 1995 represent prices in the over-the-counter market between dealers in
securities, do not include retail markup, markdown, or commission and do not necessarily represent actual transactions. For first quarter 1996 there was no established public trading market for the Company's common shares. There were only limited or sporadic quotations and none exceed 1/10.
Fiscal Year 1996 Bid Prices ---------------- ---------- High Low ---- --- See above explanation
Fiscal Year 1995 Bid Prices ---------------- ---------- High Low ---- ---
First Quarter 1/16 1/32 Second Quarter 1/8 1/32 Third Quarter 3/32 1/32 Fourth Quarter 1/16 1/32
b. Number of equity security holders' accounts at December 31, 1996:
c. Dividends:
The Registrant has never paid any cash dividends on its Common Stock and does not plan to pay any cash dividends in the foreseeable future.
ITEM 6.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(a) The Company acquired ITC on July 29, 1993.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS
OPERATIONS
Year Ended September 30, 1996 compared to September 30, 1995
Admissions revenues attributable to the operations of ITC were $4,259,578 for the year ended September 30, 1996 compared to $4,064,623 for the comparable prior year period. The increase in revenues was primarily attributed to increased ticket prices and fewer available discounts, offset in part by a decrease in paid attendance. Admissions revenue attributable to the operation of PIKE were $291,579 for the year ended September 30, 1996, its only year of operation.
Food, beverage and merchandise sales attributable to the operation of ITC were $3,551,805 for the year ended September 30, 1996 compared to $3,665,635 for the comparable prior year period. The decrease was due to a decrease in attendance, offset by increased merchandise sales due to the opening of a gift shop and slight increases in prices. The cost of food, beverage and merchandise were $1,110,131 for the year ended September 30, 1996 compared to $1,151,073 for the comparable prior year period. Such costs as a percent of related sales were 31.2% and 31.4% for 1996 and 1995, respectively. The slight improvement in gross margin of food, beverage and merchandise sales were due primarily to increased prices and use of contract pricing for the purchase of major food products. Food, beverage and merchandise sales attributed to the
operations of PIKE were $20,767 for the year ended September 30, 1996.
Operating Costs attributable to the operations of ITC were $5,797,235 for the year ended September 30, 1996 compared to $5,843,601 for the comparable prior year period. The decrease in operating costs was primarily attributable to a combination of fewer theatres in year round operation and decreased attendance which effects labor and direct operating costs. Operating costs attributable to the operation of PIKE were $555,216 for the year ended September 30, 1996, its only year of operation.
General and administrative expenses attributable to the operations of ITC were $791,433 for the year ended September 30, 1996 compared to $711,746 for the comparable prior year. The increase in operating expenses was primarily due to a combination of higher than expected credit card fees (related to increase usage), additional bank charges related to securing the line of credit and inflationary increases in certain administrative costs. General and administrative expenses attributable to the operation of PIKE were $1,311,533 for the year ended September 30, 1996, its only year of operation. General and administrative expenses attributed to CPPC were $485,598 for the year ended September 30, 1996 compared to $531,549 for the comparable prior year period. The decrease was primarily due to cost containment efforts.
Interest expense was $113,430 for the year ended September 30, 1996 compared to $117,496 for the comparable prior year period. Substantially all of the interest expense is related to ITC's capitalized leasehold interest in building. The decrease in interest is due to the decreases in the outstanding balance of the capitalized leasehold interest.
Equity in net income (loss) of WBPI was $42,397 for the year ended September 30, 1996 compared to ($7,040) for the comparable prior year period. The company's equity interest is 30%. See Note 4 to Consolidated Financial Statements for condensed financial information of WBPI.
Year Ended September 30, 1995 compared to September 30, 1994
Admissions revenues were $4,064,623 for the year ended September 30, 1995 compared to $3,619,314 for the comparable prior year period. All of the admission revenues were attributable to the operations of ITC. The increase in admission revenues was primarily attributable to increased paid attendance.
All of the Company's food, beverage and merchandise sales and their related costs of sales were generated by ITC. Food, beverage and
merchandise sales were $3,665,635 for the year ended September 30, 1995 compared to $3,157,027 for the comparable prior year period. The increase in such sales was primarily attributable to increased attendance. The cost of food, beverage and merchandise sales were $1,151,073 for the year ended September 30, 1995 compared to $1,011,814 for the comparable prior year period. Such costs as a percent of related sales were 31.4% and 32.0% for 1995 and 1994, respectively. The slight improvement in gross margin on food, beverage and merchandise sales were due primarily to increased prices.
Operating expenses were $5,843,601 for the year ended September 30, 1995 compared to $5,408,396 for the comparable prior year period. The increase in operating expenses was primarily attributable to increased attendance and more elaborate props in 1995, offset in part by reduced performers' compensation which was due to fewer performers in certain productions in 1995 compared to 1994.
General and administrative expenses were $1,243,295 for the year ended September 30, 1995 compared to $1,227,221 for the comparable prior year period. The increase was primarily due to inflationary increases in certain administrative costs.
Interest expense was $117,496 for the year ended September 30, 1995 compared to $139,305 for the comparable prior year period. Substantially all of the interest expense is related to ITC's capitalized leasehold interest in building as discussed in Note 3 to the Consolidated Financial Statements. The decrease in interest is due to the decrease in the outstanding balance of the capitalized leasehold interest.
Equity in net loss of WBPI was $7,040 for the year ended September 30, 1995 compared to $48,235 for the comparable prior year period. The Company's equity interest is 30%. See Note 5 to the Consolidated Financial Statements for condensed financial information of WBPI.
LIQUIDITY AND SOURCES OF CAPITAL
Cash provided (used) by operating activities for the year ended September 30, 1996 was $(1,083,134) compared to $(501,830) in the comparable prior year period. Cash provided (used) by investing activities was ($7,455) for the year ended September 30, 1996 compared to $65,166 for the comparable prior year period. During 1995, the Company realized decreases in due from affiliates of $77,280, and decreases in due to affiliates of $56,347. Cash provided by financing activities was $1,087,711 for the year ended September 30, 1996, compared to $41,582 for the comparable prior year period. The increase in 1995 was primarily due to short-term
borrowings of $450,000, advances from related parties of $580,300 and proceeds from issuance of commons stock of $312,424.
At September 30, 1996, the Company had cash totaling $29,200 and a working capital deficit of $2,949,739. The working capital deficit was comprised primarily of notes payable of $450,000 accounts payable of $931,141 and deferred revenues of $1,090,501. The deferred revenues consist primarily of advance ticket sales of ITC's operations. Management believes the incremental cost that ITC will incur to realize the revenues attributable to the customers that have purchased tickets in advance will be offset by the gross profit from food, beverage and merchandise sales to such customers.
Management intends to continue to restrict expenditures with respect to the future development of entertainment properties and to market its completed properties. The Company has two completed properties. The costs of development have been written off. Accordingly, the Company will incur little, if any, costs of marketing. Management believes these actions may contribute to the Company's liquidity. The Company had no material commitments for capital expenditures as of September 30, 1996 and capital expenditures for fiscal 1997 are expected to be immaterial.
The Company intends to continue to seek out potential acquisitions, primarily but not necessarily limited to, television stations. The Company is currently investigating several multi-station acquisitions. However, these potential acquisitions are in the early stages of negotiation. The Company intends to finance any acquisitions with senior bank financing of approximately 60%, and the remainder with a combination of other debt and equity instruments. There are no assurances that the Company will successfully identify these or any other potential acquisitions or that, if identified, it will obtain financing under terms acceptable to the Company. Management presently does not consider an acquisition for a merger of the Company a viable alternative. Management prefers to be independent.
In September 1995, the Company's CEO entered into a letter of intent to lease, with the option to purchase, an arena football franchise, the franchise will be operated by Minnesota Arena Football, Inc., a wholly-owned subsidiary of the Company (the "PIKE"), to be located in Minneapolis, Minnesota. In connection therewith, the CEO advanced funds of approximately $57,000 to or for the benefit of the lessor, the league and others. During the second fiscal quarter, the Company finalized the acquisition of the CEO's interest in the franchise with no consideration paid to the CEO. The definitive lease agreement and contractual arrangement with an arena were also finalized during the second quarter. The Company's exercise of the option to purchase the franchise will be dependent in any respect on the reception of this entertainment to
the Minnesota consumer.
During the second and third fiscal quarter, the arena football franchise failed to generate the anticipated cash flow. Although, the Company raised additional financing from outside sources of approximately $400,000.00, due to inadequate cash flow and insufficient funds, the Company did not exercise its option to purchase the Franchise. Consequently, the operations of the PIKE were discontinued prior to September 30, 1996. Such financing will be due in December, 1996, and is secured by the common stock of Minnesota Arena Football, Inc. Management anticipates the majority of the financing will be converted into the Company's common stock. Management was unsuccessful in its attempts to sell the Company's interest in the PIKE. There are no assurances that the financing will be converted into the Company's common stock. Management is uncertain as to the alternate resolution of the liabilities of the PIKE. Management is evaluating the best course of action which may involve a bankruptcy filing of the PIKE.
Management caused several of ITC's costs to be reduced or eliminated for fiscal 1996. ITC's operating budget for fiscal 1997 projects net income. Management plans to continue to closely monitor the operations of ITC, taking quick action to control costs and cause expenses to be reduced, should actual revenues not meet budgeted revenues. ITC's operations are behind budget for the first fiscal quarter. However, management believes that advance ticket sales and advance bookings are indicative that the second quarter's results should approximate budget. Although ITC's operations are continuous throughout the year, ITC has historically generated profits during the first two fiscal quarters and has incurred losses during the third and fourth fiscal quarters. Management anticipates that ITC's results for the first and second fiscal quarters will provide sufficient funds to sustain their operations for the remainder of fiscal 1997. However, there is no assurance that ITC will produce net income for fiscal year 1997.
The Company's independent auditors issued their opinion on the Company's financial statements for the year ended September 30, 1996, which included an explanatory paragraph as to substantial doubt about the Company's ability to continue as a going concern. This doubt was raised primarily due to recurring losses from operations and due to the Company's working capital deficit of $2,949,739 at September 30, 1996.
Management believes its current cash position, including proceeds from exercise of stock warrants, is sufficient to sustain its operations for fiscal 1997, and to fund the cost relative to investigating potential acquisitions. Management also believes ITC will return to profitability and that ITC will provide sufficient funds to satisfy its working capital requirements for fiscal 1997. However, there can be no assurance that anticipated cash flow from
ITC's operations will be achieved.
If ITC fails to generate cash flow, the Company may be unable to continue as a going concern without raising additional funds from outside sources. Management is uncertain as to the likelihood of raising additional funds.
During 1995, the Company adopted Financial Accounting Standards Board No. 121, Accounting for the Impairment of Long-Lived Assets. Historically, the Company reviewed its long-lived assets at each balance sheet date to determine potential impairment by comparing the carrying value of the long-lived assets with expected future net cash flows provided by operating activities of the long-lived assets. If the sum of the expected future net cash flows was less than the carrying value, the Company would record an impairment loss. An impairment loss would be measured by comparing the amount by which the carrying value exceeds the fair value of the long-lived assets.
Under the new method, the Company reviews impairment whenever events or changes in circumstances indicate that the carrying amount of the assets is not recoverable. Impairment is measured by comparing the carrying value of long-lived assets to estimated fair value of the long-lived assets.
No impairment was recognized during the year ended September 30, 1996.
INFLATION
Inflation and changing prices have not had a significant impact on operations of the Company to date. It is anticipated that future cost increases will be recovered by adjustment in pricing admissions to the Chanhassen Dinner Theatre and the WBPI shows.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This information is included following "Index to Financial Statements".
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
NONE
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT AT SEPTEMBER 30, 1996
Director/ Officer Name Office Held Since Age - ---- ----------- ----- ---
Philip Rogers President, Director 1983 62 Thomas K. Scallen Chief Executive Officer, Director 1983 71 Ronald L. Leckelt Chief Financial Officer 1992 44 Bruce Lansbury Director 1983 66 Willy Bietak Director 1992 49
Mr. Rogers became President and Director upon the Company's formation in 1983. Mr. Roger is also a principal of Philipico Picture Company, a motion picture and television production company.
Mr. Scallen became Chairman of the Board of Directors, Vice President, and Treasurer of CPPC upon its formation in 1983. Mr. Scallen was elected Chief Executive Officer of the Company on March 14, 1992. Mr. Scallen was president, director and principal stockholder of International Broadcasting Corporation, a publicly traded company engaged in entertainment activities, the presentation of touring shows, arena shows and motion picture or television productions until March 1992. International Broadcasting Corporation filed for protection under Chapter 11 of the Bankruptcy Act in August 1991.
Mr. Leckelt was elected Chief Financial Officer of the Company in June 1992. For the three years prior, Mr. Leckelt was a general services partner with the firm of McGladrey & Pullen, L.L.P., Certified Public Accountants and Consultants. Mr. Leckelt does not currently devote full time to the Company. Mr. Leckelt is also a partner with the firm of Sharp & Leckelt, Certified Public Accountants.
Mr. Lansbury became a Director of the Company upon its formation. For more than the past five years, Mr. Lansbury has been an independent producer and is Supervising Producer and one of the writers for the television series "Murder She Wrote."
Mr. Bietak became a Director of the Company in 1992. He is President of Willy Bietak Productions, Inc. and has been associated with the Company since 1986.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Officer Compensation
Cash and Cash Equivalent Aggregate Name Capacity Year Paid or Accrued Salaries Remuneration ---- -------- ---- ------------------------ ------------
Philip Rogers President 1996 $ -0- $ -0- 1995 $ -0- $ -0- 1994 $ -0- $ -0-
Thomas K. Scallen CEO 1996 $135,000 $135,000 1995 $135,000 $135,000 1994 $135,692 $135,692
Ronald L. Leckelt CFO 1996 $ 60,000 $ 60,000 1995 $ 60,000 $ 60,000 1994 $ 60,000 $ 60,000 All Officers as a Group (4 in number) 1996 $195,000 $195,000 1995 $195,000 $195,000 1994 $195,692 $195,692
Director Compensation
The Directors have not received any cash compensation. Directors, other than Messrs. Scallen and Rogers, each received 2 year options to purchase 10,000 shares of the Company's common stock at $1.50 per share in 1993. These options expired September 30, 1996.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as at September 30, 1996, the information with respect to common stock ownership of each person known to the Company to own beneficially more than five percent (5%) of the shares of the Company's common stock and all Directors and Officers as a group.
Name Number of & Address Shares Percentage - --------- ------ ----------
Thomas K. Scallen 1,619,480 16.4% Heron Cove, Unit B Windham, NH 03087 All Officers and Directors as a Group (5 in number) 1,718,855 17.3%
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended September 30, 1996, the Company's chief executive officer (CEO) provided short-term advances of $580,300 to the Company. This amount is required to be reported as additional paid in capital in the accompanying financial statements. The advances contain specific repayment provisions and when repayments occur, there will be a reduction of additional paid in capital. The advances are secured by the Company's shares of stock in ITC. During the year ended September 30, 1995, no advances were made.
At September 30, 1995, the Company had advances to the Company's CEO totaling $48,150. Subsequent to September 30, 1995, the advances of $48,150 was repaid by the Company's CEO. At September 30, 1996 there were no advances to the Company's CEO. For the year ended September 30, 1995, the Company did not charge interest on these advances.
During the years ended September 30, 1995 and 1994, the Company paid the Company's CEO $24,000 rent for the use of a condominium in Los Angeles. No rent was paid during the year ended September 30, 1996.
As of September 30, 1996 and 1995, the Company owed the Company's CEO $77,500 and $2,500 respectively for cumulative accrued salary. These amounts are included in accrued expenses on the balance sheets.
As of September 30, 1996 and 1995, the Company owed a company owned by the Company's CEO $18,683 and $45,588, respectively for contracted services and cash advances.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements. See following "Index to Financial Statements".
2. Financial Statement Schedules. See following "Index to Financial Statements".
(b) Reports on Form 8-K
NONE
(c) Exhibits
(3.) Articles of Incorporation and By-Laws are incorporated by reference to the Exhibits to the Registrant's Registration Statement of September 15, 1983.
(4.) Rights of warrant holders set forth in Exhibits to Registration No.33-58546 effective April 12, 1993 incorporated by this reference.
(10.) Stock Purchase Agreement, dated July 29, 1993 between registrant and International Broadcasting Corporation, International Theatres Corporation and National Westminster Bank USA attached as an Exhibit to Registrants Report on Form 8-K is incorporated by this reference.
(21.) Registrant owns 30% of Willy Bietak Productions, Inc., a Nevada corporation. Incorporated by reference.
(22.i) Registrant is the sole shareholder of International Theatres Corporation, a Minnesota corporation ("ITC"). ITC does business under the registered trade name, Chanhassen Dinner Theatres. Incorporated by reference.
(22.ii) Registrant is the sole shareholder of Minnesota Arena Football, Inc., a Minnesota corporation ("MAF"). MAF did business under the trade name Minnesota Fighting Pike until 1995. Incorporated by reference.
(25) Manually signed copies of powers of attorney for members of the Board of Directors.
SIGNATURES
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 as of the 23rd day of January, 1998.
CENTURY PARK PICTURES CORPORATION
By: s/ Thomas K. Scallen ----------------------------- Thomas K. Scallen Chief Executive Officer
and
By: s/ Ronald L. Leckelt ----------------------------- Ronald L. Leckelt Chief Financial Officer
Pursuant to the Requirements of the Securities Exchange Act of 1934, this Report has been signed on behalf of the Registrant and in capacities and on the dates indicated.
* s/ Philip Rogers January 23, 1998 - ---------------------- Philip Rogers President & Director
s/ Thomas K. Scallen January 23, 1998 - ---------------------- Thomas K. Scallen Chief Executive Officer & Director
* s/ Bruce Lansbury January 23, 1998 - ---------------------- Bruce Lansbury Director
* s/ Willy Bietak January 23, 1998 - ---------------------- Willy Bietak Director
* Signed pursuant to Power of Attorney (SEE EXHIBIT 25 HERETO)
CENTURY PARK PICTURES CORPORATION AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPORTING SCHEDULES INCLUDED IN ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
INDEX
Page numbers refer to pages in the attached Consolidated Financial Statements:
Page ----
Independent Auditor's Report........................................
Consolidated Balance Sheets - September 30, 1996 and September 30, 1995............................................
Consolidated Statements of Operations - Years ended September 30, 1996, 1995, and 1994....................
Consolidated Statement of Changes in Common Stockholders' Equity - Years Ended September 30, 1996, 1995, and 1994................................
Consolidated Statements of Cash Flows - Years ended September 30, 1996, 1995, and 1994....................
Notes to Consolidated Financial Statements..........................
[BLANSKI PETER KRONLAGE & ZOCH, P.A. LETTERHEAD]
BOARD OF DIRECTORS AND STOCKHOLDERS CENTURY PARK PICTURES CORPORATION MINNEAPOLIS, MINNESOTA
Independent Auditors' Report
We have audited the accompanying consolidated balance sheet of CENTURY PARK PICTURES CORPORATION as of September 30, 1996, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the years then ended. These consolidated 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 audit. The financial statements of CENTURY PARK PICTURES CORPORATION as of September 30, 1995 and 1994, were audited by other auditors whose report dated November 6, 1995, on those statements included an explanatory paragraph that described substantial doubt about the Company's ability to continue as a going concern discussed in Note 11 to the financial statements.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1996 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of CENTURY PARK PICTURES CORPORATION as of September 30, 1996, and the consolidated results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 11 to the financial statements, the Company has suffered recurring losses from operations, and its total liabilities exceeds its total assets. Those conditions raise substantial doubt about its ability to continue as a going concern. Management's plan regarding those matters are also described in Note 11. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Blanski Peter Kronlage & Zoch, P.A.
August 12, 1997 Minneapolis, Minnesota
[MCGLADREY & PULLEN, LLP LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors Century Park Pictures Corporation and Subsidiary Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheet of Century Park Pictures Corporation and Subsidiary as of September 30, 1995, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for each of the years in the two-year period ended September 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted 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 financial position of Century Park Pictures Corporation and Subsidiary as of September 30, 1995, and the results of their operations and their cash flows for each of the years in the two-year period ended September 30, 1995, in conformity with general accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has suffered recurring losses from operations, and its total liabilities exceed its total assets. This raises substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ McGladrey & Pullen, LLP McGLADREY & PULLEN, LLP
Minneapolis, Minnesota November 6, 1995
CENTURY PARK PICTURES CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995, AND 1994
CENTURY PARK PICTURES CORPORATION CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1996 AND 1995
See notes to consolidated financial statements.
LIABILITIES AND STOCKHOLDERS' DEFICIT
CENTURY PARK PICTURES CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
See notes to consolidated financial statements.
CENTURY PARK PICTURES CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED SEPTEMBER 30, 1996, 1995, AND 1994
See notes to consolidated financial statements.
CENTURY PARK PICTURES CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
See notes to consolidated financial statements.
CENTURY PARK PICTURES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 1996, 1995, AND 1994
1. DESCRIPTION OF BUSINESS AND CONSOLIDATION:
CENTURY PARK PICTURES CORPORATION (the Company) is engaged in the development, production, and marketing of entertainment properties.
International Theatres Corporation (ITC), a 100 percent owned subsidiary, owns and operates the Chanhassen Dinner Theatres in Chanhassen, Minnesota (see Note 2). During the normal course of business, ITC grants credit to its corporate clients. ITC performs on-going credit evaluations of its customers' financial condition and generally requires no collateral from them. Due to the nature of its business, the Company believes that no allowance for uncollectable amounts is necessary.
Minnesota Arena Football, Inc. dba Minnesota Fighting Pike (Pike), a 100 percent owned subsidiary, was an indoor professional football team that the Company obtained the rights to during the fiscal year ended September 30, 1996. The Pike ceased operations on August 31, 1996. The net loss generated by the Pike was $1,484,961 for the fiscal year ended September 30, 1996. Management has not adopted a formal plan to dispose of the Pike.
The Company has a 30 percent investment in Willy Bietak Productions, Inc. (WBPI), which produces touring ice shows and theme shows appearing in shopping malls, theatres, casinos, arenas, and major amusement parks throughout the United States.
Principals of consolidation: The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, ITC and Pike. All significant intercompany transactions and balances have been eliminated in consolidation.
Investment in common stock of WBPI: As explained further in Note 4, during the year ended September 30, 1995, the Company adopted the equity method of accounting for its 30 percent investment in WBPI. Under this method, the Company's equity in the earnings or losses of the investee is reported currently in the Company's earnings. However, losses of the investee are reported only to the extent of the carrying amount of the investment plus any Company advances or commitments. The financial statements for 1994 have been restated on a comparable basis. The effect of this restatement was to increase net income and retained earnings by $69,293 for the year ended September 30, 1994.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of estimates: Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenue and expenses. Actual results could vary from the estimates that were used.
CENTURY PARK PICTURES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED SEPTEMBER 30, 1996, 1995, AND 1994
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Cash and cash equivalents: For purposes of reporting the statements of cash flows, the Company considers all cash accounts and all highly liquid debt instruments purchased with an original maturity of three months or less, to be cash equivalents.
The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits.
Inventories: Inventories consist primarily of food and beverages and are stated at the lower of cost or market using the first-in, first-out method.
Property and equipment: Property and equipment are stated at the lower of depreciated cost or net realizable value. Depreciation is computed by the straight-line and various accelerated methods over the following estimated useful lives:
Years -----
Leasehold interest in building 6 Equipment 3-7 Furniture and fixtures 3-7
Income taxes: Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the bases of property and equipment and accrued vacation for financial and income tax reporting. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes also are recognized for operating losses that are available to offset future federal income taxes.
Advertising costs: Advertising costs are charged to operations when the advertising first takes place. Advertising expense for the periods ended September 30, 1996, 1995 and 1994 was $952,117 and $536,673 and $401,337, respectively.
Loss per share: Net loss per share is computed based upon the weighted average number of common shares outstanding during the year using the treasury stock method. Common equivalent shares are excluded as the effect would be anti-dilutive. Dilutive common equivalent shares consist of stock options and convertible debt. Fully diluted and primary earnings per share are the same amounts for all years presented.
CENTURY PARK PICTURES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED SEPTEMBER 30, 1996, 1995, AND 1994
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Intangibles: Costs in excess of net assets of business acquired is being amortized on the straight-line basis over 25 years. Preacquistion costs are costs incurred in an attempt to acquire businesses. These costs are expensed if the business is not acquired.
3. RELATED PARTY TRANSACTIONS:
During the years ended September 30, 1996, the Company's chief executive officer (CEO) provided short-term advances of $580,300 to the Company. This amount is required to be reported as additional paid in capital in the accompanying financial statements. The advances contain specific repayment provisions and when repayments occur, there will be a reduction of additional paid in capital. The advances are secured by the Company's shares of stock in ITC. During the year ended September 30, 1995, no advances were made.
At September 30, 1995, the Company had advances to the Company's CEO totaling $48,150. Subsequent to September 30, 1995, the advance of $48,150 was repaid by the Company's CEO. At September 30, 1996 there were no advances to the Company's CEO. For the year ended September 30, 1995, the Company did not charge interest on these advances.
During the years ended September 30, 1995 and 1994, the Company paid the Company's CEO $24,000 rent for the use of a condominium in Los Angeles. No rent was paid during the year ended September 30, 1996.
As of September 30, 1996 and 1995, the Company owed the Company's CEO $77,500 and $2,500, respectively for cumulative accrued salary. These amounts are included in accrued expenses on the balance sheets.
As of September 30, 1996 and 1995, the Company owed a company owned by the Company's CEO $18,683 and $45,588 for contracted services and cash advances.
4. INVESTMENT IN UNCONSOLIDATED SUBSIDIARY:
During the year ended September 30, 1995, the Company transferred a portion of its investment in common stock of Willy Bietak Production, Inc. (WBPI) to Willy Bietak Enterprises, Inc. in consideration of the guarantees of certain bank debt of WBPI. This resulted in reducing the Company's ownership percentage in WBPI from 50.1% to 30%. This change in ownership percentage resulted in a deconsolidation of WBPI. These consolidated financial statements reflect the financial position, results of operations, and cash flows as if the deconsolidation occurred as of October 1, 1993.
No value was recorded in the financial statements for the Company's equity interest at September 30, 1995.
CENTURY PARK PICTURES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED SEPTEMBER 30, 1996, 1995, AND 1994
4. INVESTMENT IN UNCONSOLIDATED SUBSIDIARY (CONTINUED):
Condensed financial information of WBPI as of September 30, 1996 and 1995, and for each of the years ended September 30, 1996, 1995, and 1994, is as follows:
5. NOTES PAYABLE:
The Company has notes payable to various individuals totaling $400,000. The notes bear interest at the rate of 12% to 15% and are secured by the Company's right, title, and interest in the Pike. The notes matured between June and December 1996. The notes are convertible into common stock of the Company. These notes are in default at September 30, 1996.
ITC obtained a line of credit with a bank during the year ended September 30, 1996. The total amount available was $50,000 at September 30, 1996. The line of credit bears interest at the rate of 2.5% over the bank's base rate and the amount outstanding at September 30, 1996 was $50,000. It is secured by all ITC assets. The line of credit matures January 1998.
ITC also has a standby letter of credit of $50,000. There were no amounts outstanding on the letter of credit at September 30, 1996.
CENTURY PARK PICTURES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED SEPTEMBER 30, 1996, 1995, AND 1994
6. INCOME TAXES:
The Company's net deferred tax assets and liabilities consisted of the following at September 30:
During the years ended September 30, 1996 and 1995, the Company recorded valuation allowances of $2,073,000 and $1,170,000, respectively, on the deferred tax assets to reduce the total amounts that management believes will ultimately be realized. Realization of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences and carryforwards are expected to be available to reduce taxable income. There was no other activity in the valuation allowance accounts.
CENTURY PARK PICTURES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED SEPTEMBER 30, 1996, 1995, AND 1994
6. INCOME TAXES (CONTINUED):
Loss carryforwards for tax purposes as of September 30, 1996, have the following expiration dates which include any limitations on amounts which can be utilized.
Expiration Date Amount --------------- ----------- 1998 $ 8,000 1999 17,000 2000 17,000 2001 17,000 2002 17,000 2003 17,000 2004 17,000 2005 17,000 2006 17,000 2007 17,000 2008 482,000 2009 331,000 2010 747,000 2011 1,980,000 ----------- $ 3,701,000 ===========
The Company's provision for income taxes differs from applying the U.S. federal income tax rate of 34% to income before income taxes. The primary differences result from the following as of September 30:
7. COMMITMENTS AND CONTINGENCIES:
Operating leases: The Company leases the land used in the operations of ITC under a noncancelable operating lease that expires May 31, 1999, and has two five-year renewal options.
CENTURY PARK PICTURES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED SEPTEMBER 30, 1996, 1995, AND 1994
7. COMMITMENTS AND CONTINGENCIES (CONTINUED):
The Company leases office space under a noncancelable operating lease that expires April 30, 1999. There is an option to renew the lease for an additional five years at an increased monthly rental.
Total rent expense under the above leases for the years ended September 30, 1996, 1995, and 1994, was $292,669, $325,777, and $346,093, respectively. Future minimum rental payments required under these leases for each of the next five years are as follows:
1997 $ 297,571 1998 297,571 1999 194,895 -----------
$ 790,037 ===========
Capitalized leases: The Company leases the buildings used in the operations of ITC under a capitalized lease (Note 3). The lease expires May 1999 with two five-year renewal options. In addition, the lease provides for options, which expire on May 31, 1999, to purchase the land and buildings. Amortization expense was $171,429 for each of the years ended September 30, 1996, 1995, 1994.
The following is a summary of leased assets and lease obligations included on the balance sheets at September 30:
1996 1995 ------------ ------------
Leasehold interest in building $ 1,000,000 $ 1,000,000 Less accumulated amortization 542,857 371,428 ------------ ------------
Net amortized value $ 457,143 $ 628,572 ============ ============
CENTURY PARK PICTURES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED SEPTEMBER 30, 1996, 1995, AND 1994
7. COMMITMENTS AND CONTINGENCIES (CONTINUED):
Future minimum payments required under the lease together with the present value as of September 30, 1996 are as follows:
Year ending September 30: 1997 $ 277,063 1998 255,750 1999 170,500 -----------
Total minimum lease payments 703,313
Less amount representing interest 126,824
Present value of net minimum lease payments 576,489
Less current portion 200,127
Long-term portion $ 376,362 ===========
8. STOCKHOLDER'S DEFICIT:
Private Placement: During the year ended September 30, 1993, the Company completed a private placement of 1,500,000 units, each consisting of two shares of common stock and a two-year warrant for the purchase of two additional shares of common stock at an exercise price of $1.50 per share. During fiscal year ended September 30, 1995, the Company extended the exercise date on these warrants to December 18, 1995, and reduced the exercise price from $1.50 to $0.25 per share.
During the year ended September 30, 1996, warrants to purchase 1,249,692 shares of common stock were exercised.
Stock options: The Company has issued options to purchase up to 10,000 shares of common stock of the Company to three of its directors. The exercise price is $1.50 per share. These options expire February 24, 1998.
9. RETIREMENT PLANS:
ITC has a 401(k) incentive savings plan covering substantially all of its non-union employees. Eligible employees may defer up to 10% of their compensation to the plan. ITC will match 25% of the employees contribution up to 6% of the employees compensation.
ITC also contributes to a retirement plan established by the union for its employees who are represented by a collective bargaining unit. The required contribution is 8% of gross wages.
CENTURY PARK PICTURES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED SEPTEMBER 30, 1996, 1995, AND 1994
9. RETIREMENT PLANS (CONTINUED):
For the years ended September 30, 1996, 1995, and 1994. ITC's contribution to the plans were $89,326, $87,750, and $71,730, respectively.
10. SALE OF OPTION:
During the fiscal year ended September 30, 1993, the Company entered into a letter of intent and acquired an option to purchase two television stations. In August 1994, the Company sold the option for $985,598. The gain on the sale of the option has been reflected in the consolidated statement of operations net of related option acquisition costs in the amount of $120,598.
11. CORPORATE LIQUIDITY:
During 1996, 1995, and 1994, the Company incurred substantial losses of $2,151,984, $939,169, and $437,594, respectively, and has a working capital deficit as of September 30, 1996 and 1995, of $2,949,739 and $1,773,971, respectively. The impact of these losses is to limit the liquidity and available cash resources for operations.
The Company's plans as they relate to ITC include close monitoring of the 1997 budget with quick action to reduce expenses should revenues not meet with budgeted expectations.
The Company's operations exclusive of its subsidiaries consist of acquisition searches and certain administrative costs, both of which could be scaled back and/or financed by the Company's CEO and major stockholder. With these actions, management believes it will have sufficient cash to operate in the 1997 fiscal year.
12. ADOPTION OF NEW ACCOUNTING POLICY:
During the fourth quarter of the fiscal year ended September 30, 1995, the Company adopted Financial Accounting Standards Board Statement No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. Statement No. 121 requires that long-lived assets and identifiable intangibles to be held and used by an entity must be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Statement No. 121 provides criteria for determining when assets should be considered potentially impaired.
As a result of ongoing losses at ITC, the Company reviewed ITC's long-lived assets for possible impairments. As a result, as of September 30, 1995, the Company recognized an impairment charge of $95,000 related to its cost in excess of net assets of the business acquired in 1993, with no related tax benefit. This impairment charge was included in amortization expense in the consolidated financial statements. In determining the amount of the impairment charge, the Company developed its best estimate of the fair value of the long-lived assets and compared this to the carrying value of the long-lived assets. The excess of the carrying value over the fair value of the asset was recognized as an impairment loss.
No impairment was recognized during the years ended September 30, 1996.
CENTURY PARK PICTURES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED SEPTEMBER 30, 1996, 1995, AND 1994
13. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair values of the Company's financial instruments, none of which are held for trading purposes, are as follows at September 30:
The carrying amounts of cash and cash equivalents, checks written in excess of bank balance and the short-term notes payable approximate fair values.