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...because everyone likes a good story...
ENTERTAINMENT TECHNOLOGIES AND PROGRAMS, INC.
OTCBB: ETPI - B$0.25 A$0.31
Once upon a time, there were a couple of fellows in the US Armed Services that created a niche for themselves. One had a talent as an on-base recreational director, once running shows on 11 bases. He was so good at what he did that he was asked to write a book on event planning to be used on military bases around the world. The other guy liked to tinker and was such a good electronic troubleshooter for Air Force slot machines, that he was upped to technical advisor and program manager for slots on 35 bases.
When we catch up with them in September, 1999, it should be no surprise that we find these young men joined their respective talents to help grow their company into an $8 million business. The mainstay of the firm is a division that provides turnkey entertainment packages on dozens of military bases worldwide (as well as for private customers here and abroad, primarily in Asia). This service can include everything from audio/video entertainment and lighting to deejay booths. Then they expanded vertically by opening a division to purchase the related equipment and thereby keep a larger margin of profit; again, this business has been expanded greatly to encompass domestic markets. Along the way, our entrepeneurs added a couple of restautants, an entertainment center and lo! a water park! (Are you beginning to get the common thread here...all entertainment!).
Particularly over the past few years, growth has accelerated, albeit by the issuance of large quantities of stock and some debt. Cash flow from the entertainment packages (the NiteLife division, which provides half of all operating profits) has been the saving grace, helping to support the Company's expansion into other areas. Too, Performance Sound and Light (the unit that sells the equipment) has been coming along nicely too, not only because of a built in base of business with NiteLife's customers, but because its prices are very competitive. Now, the other divisions are pretty capital intensive (meaning they require alot of heavy investment for a later payoff..delayed gratification, if you will). This is particularly true of Stargate and Redfish, the divisions that operate the entertainment facilities and restaurants.
As in every story, this one has its ups and downs. Probably the most notable point for investors on the positive side is that it is all too infrequent that one finds an OTC Bulletin Board company that appears to have a cohesive business strategy, genuine revenues and can pull down a profit, but ETPI has the first two down pat and the prospects for the third are looking good. In fact, if it wasn't for heavy depreciation charges from the heavy capital spending, they might be showing a profit consistently already. (But then, if they weren't buying all the stuff to make money with, they wouldn't make as much money. Life just isn't fair sometimes, is it?) Especially in the past few quarters, the Company's controllable expense levels (payroll, pencils, etc. as opposed to the actual cost of goods sold) have been...well, well controlled.
It appears the Company is just now at the point of 'critical mass', where fixed costs are now being covered and economies of scale can let profit start falling to the bottom line. (Because of prior losses, the Company has a couple of million dollars in net operating loss carryforwards, so they probably will pay little, if any, tax for the next two years). For a company of this size and given its recent levels of investment, it is more meaningful to focus on EBITDA (earnings before interest, taxes, depreciation and amortization, the latter two being non-cash charges that, nonetheless, must be deducted from reported earnings). For example, in the most recent quarter, net income was $135,000 vs. $29,000 a year ago; but EBITDA was $296,000 vs. $133,000, up 123% and for the 9 months ended June 30, EBITDA was positive despite a $530,000 net loss. Another point in ETPI's favor: while dependence on the federal government for a substantial portion of the Company's revenues carries risk, it also keeps uncollected receivables under good control. (Hey, with a surplus, its no wonder the feds are paying their bills!) Further, cash flow is enhanced by the fact that much of ETPI's remaining business is conducted in cash and cash equivalents and in the restaurant business in particular, it is quite often the norm to operate with negative working capital because the bills for foodstuffs are often billed at 30 days but customers pay when they eat. (Neat, huh?) And obviously, the water park is also cash on the spot.
