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ENTERTAINMENT TECHNOLOGIES AND PROGRAMS, INC.
Coming weeks and months may bring better news. Recent ETPI press releases give good reason to believe revenues will grow strongly in the year ahead. First, NiteLife landed five-year contracts to run clubs with the Army's SportsUSA format at three bases in the US and England. (Note: Typically, multi-year contracts with federal government agencies go year-after-year after the first year and are, therefore, technically cancellable from year to year; however NiteLife's favorable track record with the military, as evidenced by its prime vendor status, should mitigate this concern). ETPI notes that these contracts are new business and won't cannabalize or replace existing agreements. At the value stated by the Company, it appears billings will be worth an average of $6-7,000 per month per base. If these first deals work well and as few as 6-8 more follow in the coming year, we could see meaningful revenue gains within a couple of quarters and the potential for a positive contribution to the bottom line in FY (fiscal year) '00.
Also, Performance S-L appears to be experiencing an explosion of growth with the number of new customers reportedly doubling year-over-year and a ten-fold increase in their potential customer base (for the nine month period ended 6/30), due in large part to their Internet presence and the support it is providing for their catalogs. As for the water park, the Company has already said that pre-opening expenses were covered within the first month of operation and one can assume it has been throwing off free cash flow since. (As cash flow generation is a critical operating issue, the park takes on added significance). A potential upside surprise could come as a result of the extreme heat suffered by Texans this summer: at one point, there were 21 consecutive days of 100+ degree temperatures and the extreme heat continued well into August. Hopefully, with the Labor Day holdiay weekend behind us and the bulk of the quarter now history, the Company will soon give an indication of just how well the park has fared. The restaurants are the wild card in the game---probably breakeven at best for now, but increased volume could enable them to eke out a profit next year.
Some cautionary notes are in order. First, regarding year-over-year (YOY) revenue and earnings comparisons: ETPI's recent SEC filings (from late '98 to present) inexplicably used dissimilar YOY calendar periods for comparisons and are, therefore, not particularly helpful. Although the Company changed its FY from December to September, accepted accounting practice for publicly traded entities is to continue comparing like calendar quarters rather than the first quarter of one year to the shifted first quarter of the next (necessarily different calendar quarters). Because of the seasonality of ETPI's businesses, it becomes even more crucial to compare like calendar periods, regardless of which 'labeled' quarters they are. In fact, YOY 3Q comparisons (Mar-Jun of both years) were actually more positive than earlier noted: the Company recorded a 25% YOY revenue increase and net income soared 370% to show a modest profit vs. last year's loss. Curiously, the same filings fail to include depreciation in the cash flow statements; thus, cash flow was also appreciably better than reported, although still not at a comfortable level to support further growth.
Second, and more important, ETPI has experienced cash flow shortages and working capital deficits, only recently improved by a debt financing. This means long term debt has risen to 52% of total capital vs. 34% last September. The balance sheet could probably support an additional $2-2.5 million of debt and then the debt vs. equity imbalance would become troublesome. Ideally, a 50/50 debt/equity financing of up to $4 million would be a desirable solution, particularly if the debt took the form of convertible debentures and warrants.