<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED: COMMISSION FILE NUMBER:
SEPTEMBER 30, 1996 000-21049
- ------------------ ---------
Global One Distribution & Merchandising Inc.
--------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 95-4578632
- ------------------------------ ----------------------------
(State or other jurisdiction (IRS Employer Identification
of incorporation or organization) Number)
5548 Lindbergh Lane, Bell, California 90201-6410
-----------------------------------------------------
(Address and zip code of principal executive offices)
213-980-4300
------------
(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 the filing
requirements for at least the past 90 days.
YES NO X
-------------- --------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Number of Shares Outstanding
Class at November 6, 1996
- ----- -------------------
Common Stock, $.01 par value 13,010,947
This document consists of 30 pages.
1
<PAGE>
GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION ----
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 30,
1996 (Unaudited) and December 31, 1995........... 3
Consolidated Balance Sheets as of September 30,
1996 and December 31, 1995 (Liabilities and
Stockholders Equity)............................. 4
Consolidated Statements of Operations for the Three
and Nine Months Ended September 30, 1996 and 1995
(Unaudited)...................................... 5
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1996 and 1995
(Unaudited)....................................... 7
Notes to Unaudited Consolidated Financial
Statements........................................ 10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............... 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................... 22
Item 2. Changes in Securities.................................. 22
Item 3. Defaults Upon Senior Securities........................ 22
Item 4. Submission of Matters to a Vote of Security Holders.... 22
Item 5. Other Information...................................... 22
Item 6. Exhibits and Reports on Form 8-K....................... 24
2
<PAGE>
GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.
PART I. FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
ASSETS
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $74,828
Accounts receivable - trade, net of allowance for $3,745,619 5,248,459
doubtful accounts and returns of $2,349,512 and
$1,644,697 at September 30, 1996 and
December 31, 1995, respectively
Inventories (Note 2) 5,131,559 4,066,012
Prepaid royalty advances 917,345 555,236
Prepaid expenses and other current assets 776,301 152,147
Deferred income tax asset 1,123,347 38,191
------------- ------------
Total current assets 11,694,171 10,060,045
PROPERTY AND EQUIPMENT, Net 1,261,798 1,185,799
GOODWILL, Net of accumulated amortization of
$105,827 and $43,390 at September 30, 1996 and
December 31, 1995, respectively 4,480,560 148,493
DEPOSITS 261,651 229,311
------------- ------------
TOTAL $17,698,180 $11,698,476
------------- ------------
------------- ------------
See notes to consolidated financial statements.
3
<PAGE>
GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(unaudited)
CURRENT LIABILITIES:
Accounts payable $4,520,131 $3,002,207
Accrued expenses 1,584,926 1,026,089
Royalties payable 1,694,889 1,918,129
Due to customers 293,553 251,903
Income taxes payable 86,466 240,380
Current maturities of:
Capitalized lease obligations 84,787 85,003
Subordinated long-term debt 675,000 300,000
------------- ------------
Total current liabilities 8,939,752 6,823,711
REVOLVING LINE OF CREDIT 3,429,671 2,816,595
CAPITALIZED LEASE OBLIGATIONS 88,203 149,302
SHAREHOLDER LOAN 1,100,000
SUBORDINATED LONG-TERM DEBT 1,731,904 2,638,364
MINORITY INTEREST 507,772 569,277
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock, $.01 par value and no par value,
authorized 30,000,000 shares, issued and
outstanding, 13,010,947and 1,636 shares at
September 30, 1996 and December 31, 1995,
respectively 130,109 1,262,500
Additional paid-in capital 9,483,816 112,500
Accumulated deficit (7,713,047) (2,673,773)
------------- ------------
Total stockholders'
equity (deficiency) 1,900,878 (1,298,773)
------------- ------------
TOTAL $17,698,180 $11,698,476
------------- ------------
------------- ------------
See notes to consolidated financial statements.
4
<PAGE>
GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
-------------- --------------
Net sales $29,328,465 $29,229,724
Cost of sales:
Cost of goods sold 16,350,850 12,931,439
License and royalty expense 3,166,870 3,596,094
-------------- --------------
Total cost of sales 19,517,720 16,527,533
-------------- --------------
Gross profit 9,810,745 12,702,191
-------------- --------------
Operating expenses:
Warehouse and selling 7,895,437 7,635,297
General and administrative 4,889,115 3,883,481
-------------- --------------
Total operating expenses 12,784,552 11,518,778
-------------- --------------
Operating income (loss) (2,973,807) 1,183,413
Interest expense 993,717 602,134
-------------- --------------
Income (loss) before income taxes
and minority interest (3,967,524) 581,279
Income tax benefit (1,185,583) (152,035)
-------------- --------------
Income (loss) before minority interest (2,781,941) 733,314
Minority interest in (income)
loss of subsidiaries 208,487 (64,442)
-------------- --------------
Net income (loss) ($2,573,454) $668,872
-------------- --------------
-------------- --------------
Pro forma net income (loss) data:
Income (loss) before income taxes,
as reported ($3,967,524) $581,279
Pro forma (benefit) provision for
income taxes (793,505) 116,256
Minority interest in (income)
loss of subsidiaries 208,487 (64,442)
-------------- --------------
Pro forma net income (loss) ($2,965,532) $400,581
-------------- --------------
-------------- --------------
Pro forma income (loss) per share:
Income (loss) from operations ($0.35) $0.06
Minority interest in (income)
loss of subsidiaries 0.02 (0.01)
-------------- --------------
Pro forma net income (loss) ($0.33) $0.05
-------------- --------------
-------------- --------------
Weighted average shares outstanding 8,944,304 8,036,207
-------------- --------------
-------------- --------------
See notes to consolidated financial statements.
5
<PAGE>
GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
1996 1995
-------------- --------------
Net sales $8,998,664 $9,241,982
Cost of sales:
Cost of goods sold 5,217,876 4,394,214
License and royalty expense 1,003,499 1,041,027
-------------- --------------
Total cost of sales 6,221,375 5,435,241
-------------- --------------
Gross profit 2,777,289 3,806,741
-------------- --------------
Operating expenses:
Warehouse and selling 2,617,548 2,515,853
General and administrative 1,801,095 1,166,680
-------------- --------------
Total operating expenses 4,418,643 3,682,533
-------------- --------------
Operating income (loss) (1,641,354) 124,208
Interest expense 397,266 219,874
-------------- --------------
Income (loss) before income taxes
and minority interest (2,038,620) (95,666)
Income tax (benefit) provision (1,243,583) 36,986
-------------- --------------
Income (loss) before minority interest (795,037) (132,652)
Minority interest in (income)
loss of subsidiaries 114,761 (111,697)
-------------- --------------
Net income (loss) ($680,276) ($244,349)
-------------- --------------
-------------- --------------
Pro forma net income (loss) data:
Income (loss) before income taxes,
as reported ($2,038,620) ($95,666)
Pro forma (benefit) provision
for income taxes (189,875) (19,133)
Minority interest in (income)
loss of subsidiaries 114,761 (111,697)
-------------- --------------
Pro forma net income (loss) ($1,733,984) ($188,230)
-------------- --------------
-------------- --------------
Pro forma income (loss) per share:
Income (loss) from operations ($0.18) ($0.01)
Minority interest in (income)
loss of subsidiaries 0.01 (0.01)
-------------- --------------
Pro forma net income (loss) ($0.17) ($0.02)
-------------- --------------
-------------- --------------
Weighted average shares outstanding 10,069,810 8,036,207
-------------- --------------
-------------- --------------
See notes to consolidated financial statements.
6
<PAGE>
GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------
1996 1995
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income ($2,573,454) $668,872
Adjustments to reconcile net (loss) income
to net cash (used in) provided by
operating activities:
Depreciation and amortization 336,159 298,070
Minority interest in (income) loss
of subsidiary (61,505) 25,033
Deferred income taxes (1,085,156) (38,509)
Changes in operating assets and liabilities
net of KRSI business combination:
Accounts receivable 1,650,634 596,401
Inventories (797,807) 178,826
Prepaid royalties (311,679) (145,116)
Prepaid expenses and other
current assets (489,154) (116,188)
Accounts payable 699,108 702,239
Accrued liabilities (35,702) (119,666)
Royalties payable (350,665) (646,742)
Due to customers 41,650 182,954
Income taxes payable (153,914) 53,812
-------------- --------------
Net cash (used in) provided (3,131,485) 1,639,986
by operating activities
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (177,528) (632,880)
Payment of merger costs (554,724)
Organization costs (10,377)
Deposits (32,341) 183,448
-------------- --------------
7
<PAGE>
Net cash used in investing (774,970) (449,432)
activities
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line of credit 613,076 (1,342,888)
Payment on subordinated debt (531,460) (15,344)
Proceeds from issuance of shareholder loans 2,350,000
Repayment of shareholder loans (1,250,000)
Dividends paid (2,465,820) (104,732)
Proceeds from issuance of common stock in
private placement 6,486,357
Payment of stock offering costs (1,311,713)
Proceeds from issuance of warrants 2,500
Payments on capital lease obligations (61,314) (15,994)
-------------- --------------
Net cash provided by (used in) 3,831,627 (1,478,958)
financing activities
-------------- --------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (74,828) (288,404)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 74,828 288,404
-------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $0 $0
-------------- --------------
-------------- --------------
See notes to consolidated financial statements.
(Continued)
<PAGE>
GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1996 1995
---------- ----------
Cash paid during the period for:
Interest $885,053 $640,160
Income taxes $7,000
SUPPLEMENTAL DISCLOSURE OF NONCASH OPERATING, INVESTING AND
FINANCING TRANSACTION -
Effective August 28, 1996, the Company completed the acquisition of Kelly
Russell Studios, Inc. (KRSI). The acquisition was accounted for as a purchase,
applying the provisions of Accounting Principles Board Opinion No. 16. The
purchase cost was allocated to KRSI's assets and liabilities based on their
relative fair values. The purchase cost and the net liabilities assumed has
been allocated to goodwill as follows:
Purchase cost of equity $3,061,781
Assets acquired 799,563
Liabilities assumed (1,540,780)
-----------
Net liabilities acquired (741,217)
Goodwill 3,802,998
-----------
(Concluded)
<PAGE>
GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The consolidated balance sheet as of September 30, 1996 and the related
consolidated statements of operations and of cash flows for the three and nine
months ended September 30, 1996 and 1995 have been prepared by Global One
Distribution & Merchandising Inc. (the "Company") without audit. In the opinion
of management, all adjustments (consisting only of normal recurring accruals)
have been made which are necessary to present fairly the financial position,
results of operations and cash flows of the Company at September 30, 1996 and
for the three and nine month periods then ended.
Although the Company believes that the disclosure in the consolidated financial
statements is adequate for a fair presentation thereof, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to the rules and regulations of the Securities and Exchange Commission.
The December 31, 1995 audited statements were included in the Company's S-4
Registration Statement No. 333-4655 filed with the Securities and Exchange
Commission on May 29, 1996 under the Securities Act of 1933. These consolidated
financial statements should be read in conjunction with the audited financial
statements and notes thereto contained in that document.
The results of operations for the three and nine month periods ended
September 30, 1996 are not necessarily indicative of the results for the full
year.
2. INVENTORIES
Inventories consisted of the following:
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
Products in process $2,307,629 $ 659,657
Finished products 2,404,410 3,159,953
Packaging materials 419,520 246,402
------------- ------------
$5,131,559 $4,066,012
------------- ------------
------------- ------------
3. MERGER AND PRIVATE PLACEMENT
On August 28, 1996, the Company acquired Kelly Russell Studios, Inc. ("KRSI")
through a merger of KRSI into a wholly owned subsidiary of the Company (the
"KRSI Merger"). In connection with the KRSI Merger, the Company issued
2,041,189 shares of Common Stock to the former shareholders of KRSI.
Concurrently with the KRSI Merger, the Company acquired its affiliates, OSP
Publishing, Inc.
10
<PAGE>
("OSP") and The Button Exchange, Inc., through a merger of those companies
into wholly owned subsidiaries of the Company (the "Reorganization"). In
connection with the Reorganization, the Company issued 6,448,440 shares to
the former shareholders of OSP. Also concurrently with the KRSI Merger and
the Reorganization, the Company issued 4,324,238 shares of Common Stock to
investors in a private placement (the "Private Placement" and, together with
the "KRSI Merger" and the "Reorganization," the "Transactions"). Net
proceeds (less commissions and expenses and distributions) to the Company as
a result of the Private Placement were $2,824,000. The Company's Common
Stock commenced trading on the NASDAQ SmallCap Market effective August 28,
1996.
4. PRO FORMA NET INCOME (LOSS) PER SHARE
In connection with the Reorganization of the Company effective August 28, 1996,
the former shareholders of OSP received 6,449,440 shares of Common Stock of the
Company in exchange for their 1,636 shares of outstanding common stock of OSP.
The pro forma weighted average shares outstanding assumes that this exchange had
occurred throughout the periods presented, includes the dilutive common stock
equivalent shares from stock options and warrants (using the treasury stock
method) and also gives effect to 1,963,799 shares deemed to be outstanding.
These shares represent the number of shares deemed to be sold by the Company (at
the net offering proceeds of $1.20 per share) to fund the S Corporation
distribution of $2,350,000 that was declared prior to the closing of the KRSI
Merger and the Private Placement. Common and common equivalent shares issued
during the 12-month period prior to the Private Placement have been included in
the calculation using the treasury stock method as if they were outstanding for
all periods presented.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF THE COMPANY
RESULTS OF OPERATIONS
The business of the Company is conducted through the Company's
subsidiaries, OSP Publishing, Inc. ("OSP"), Stanley DeSantis, Inc. ("SDI"), BEx
Corp. ("BEx") and, since August 28, 1996, Kelly Russell Studios, Inc. ("KRSI"),
each of which conducts a distinct business. OSP develops and markets posters
incorporating primarily licensed images and characters from motion pictures,
television, animation, music, sports and popular culture. SDI develops and
markets licensed and non-licensed T-shirts, sweatshirts, hats, boxer shorts and
mugs. BEx develops and markets licensed and non-licensed buttons, key rings and
stickers. KRSI creates, markets and distributes sports related art for the
collectible market.
12
<PAGE>
The following tables set forth the net sales, total cost of sales and gross
profit of OSP, SDI, BEx, KRSI and the Company for the three and nine months
ended September 30, 1995 and 1996.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 % OF 1996 % OF 1995 % OF 1996 % OF
AMOUNT SALES AMOUNT SALES AMOUNT SALES AMOUNT SALES
------ ----- ------ ----- ------ ----- ------ -----
(DOLLARS IN MILLIONS) (DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET SALES
OSP $5.2 100.0% $5.0 100.0% $19.9 100.0% $14.9 100.0%
SDI 3.2 100.0% 3.6 100.0% 6.7 100.0% 13.3 100.0%
BEx 0.8 100.0% 0.2 100.0% 2.6 100.0% 0.9 100.0%
KRSI (1) 0.0 0.0% 0.2 100.0% 0.0 0.0% 0.2 100.0%
------ ------ ------ ------
Company $9.2 100.0% $9.0 100.0% $29.2 100.0% $29.3 100.0%
------ ------ ------ ------
------ ------ ------ ------
COST OF GOODS SOLD
OSP $2.1 40.4% $2.7 54.0% $7.8 39.2% $7.1 47.7%
SDI 1.9 59.4% 2.3 63.9% 4.0 59.7% 8.5 63.9%
BEx 0.4 50.0% 0.1 50.0% 1.1 42.3% 0.7 77.8%
KRSI 0.0 0.0% 0.1 50.0% 0.0 0.0% 0.1 50.0%
------ ------ ------ ------
Company $4.4 47.8% $5.2 57.8% $12.9 44.2% $16.4 56.0%
------ ------ ------ ------
------ ------ ------ ------
LICENSE AND ROYALTY EXPENSE
OSP $0.7 13.5% $0.6 12.0% $2.7 13.6% $1.9 12.8%
SDI 0.2 6.3% 0.3 8.3% 0.6 9.0% 1.1 8.3%
BEx 0.1 12.5% 0.1 50.0% 0.3 11.5% 0.1 11.1%
KRSI 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0%
------ ------ ------ ------
Company $1.0 10.9% $1.0 11.1% $3.6 12.3% $3.1 10.6%
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 % OF 1996 % OF 1995 % OF 1996 % OF
AMOUNT SALES AMOUNT SALES AMOUNT SALES AMOUNT SALES
------ ----- ------ ----- ------ ----- ------ -----
(DOLLARS IN MILLIONS) (DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL COST OF SALES
OSP $2.8 53.8% $3.3 66.0% $10.5 52.8% $9.0 60.4%
SDI 2.1 65.6% 2.6 72.2% 4.6 68.7% 9.6 72.2%
BEx 0.5 62.5% 0.2 100.0% 1.4 53.8% 0.8 88.9%
KRSI 0.0 0.0% 0.1 50.0% 0.0 0.0% 0.1 50.0%
------ ------ ------ ------
Company $5.4 58.7% $6.2 68.9% $16.5 56.5% $19.5 66.6%
------ ------ ------ ------
------ ------ ------ ------
GROSS PROFIT
OSP $2.4 46.2% $1.7 34.0% $9.4 47.2% $5.9 39.6%
SDI 1.1 34.4% 1.0 27.8% 2.1 31.3% 3.7 27.8%
BEx 0.3 37.5% 0.0 0.0% 1.2 46.2% 0.1 11.1%
KRSI 0.0 0.0% 0.1 50.0% 0.0 0.0% 0.1 50.0%
------ ------ ------ ------
Company $3.8 41.3% $2.8 31.1% $12.7 43.5% $9.8 33.4%
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
(1) Merged into the Company on August 28, 1996
14
<PAGE>
The following tables set forth the percentage of net sales of certain income
and expense items for the three and nine months ended September 30, 1995 and
1996.
<TABLE>
<CAPTION>
PERCENTAGE OF
NET SALES
THREE MONTHS ENDED PERIOD TO PERIOD
SEPTEMBER 30, PERCENTAGE CHANGE
------------------ -----------------
1995 1996 1995 VS. 1996
----- ----- -------------
<S> <C> <C> <C>
Net sales 100.0 100.0 (14.4)
Cost of goods sold 47.8 57.8 18.2
License and royalty expense 10.9 11.1 -
Gross profit 41.3 31.1 (26.3)
Warehouse and selling expenses 27.2 28.9 4.0
General and administrative 13.0 20.0 50.0
Operating income (loss) 1.1 (17.8) (1,700.0)
Interest expense 2.2 4.4 100.0
Benefit for change in tax status - 12.2 -
Minority interest in (income) loss of subsidiaries (1.1) 1.1 (200.0)
Net Loss (2.2) (7.8) (250.0)
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF
NET SALES
NINE MONTHS ENDED PERIOD TO PERIOD
SEPTEMBER 30, PERCENTAGE CHANGE
------------------ -----------------
1995 1996 1995 VS. 1996
----- ----- -------------
<S> <C> <C> <C>
Net sales 100.0 100.0 0.3
Cost of goods sold 44.2 56.0 27.1
License and royalty expense 12.3 10.6 (13.9)
Gross profit 43.5 33.4 (22.8)
Warehouse and selling expenses 26.0 27.0 3.9
General and administrative 13.4 16.7 25.6
Operating income (loss) 4.1 (10.2) (350.00)
Interest expense 2.1 3.4 66.7
Benefit for change in tax status - (3.8) -
Minority interest in (income) loss of subsidiaries (0.2) 0.7 300.0
Net Loss 2.4 (8.9) 471.1
</TABLE>
15
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1995
The Company's net sales increased $100,000, or less than 1%, for the
nine months ended September 30, 1996 compared to the nine months ended
September 30, 1995. The relatively unchanged total net sales resulted
primarily from an increase of $6.6 million, or 98.5%, in sales by SDI which
was offset by a $5.0 million, or 25.1%, decrease in sales by OSP as well as a
$1.7 million, or 65.4%, decrease in sales by BEx. The increase in SDI's
sales was principally due to the popularity of the Anheuser-Busch licenses
("I LOVE YOU, MAN" and FROGS). The 25.1% decrease in OSP sales is related to
the significant sales generated by LEGENDS OF THE FALL-Brad Pitt and LION
KING in the first quarter of 1995 as well as POCAHONTAS and BATMAN FOREVER in
the second and third quarters of 1995. Additionally, coupled with the
decrease in sales under certain licenses, OSP has been experiencing an
effective higher sales return rate of 16.0% of products sold in 1996 compared
with 1995's rate of approximately 12.0%. BEx's decrease in sales is
primarily due to the reorganization of the Company's management, redirection
of the marketing and sales efforts, and relocation of the Company's
operations. KRSI, which was merged into the Company effective August 28,
1996, contributed sales of $200,000.
Cost of goods sold increased $3.5 million, or 27.1%, for the nine months
ended September 30, 1996 to $16.4 million compared with $12.9 million for the
same period in 1995. As a percentage of net sales, cost of goods sold
increased to 56.0% for the nine months ended September 30, 1996 from 44.2%
for the nine months ended September 30, 1995. The Company's cost of goods
sold increased primarily because SDI, which typically has the highest cost of
goods sold percentage, comprised 45.4% of the Company's total net sales for
the nine months ended September 30, 1996 compared to 22.9% for the nine
months ended 1995.
OSP's cost of goods sold decreased $700,000, or 9.0%, to $7.1 million
for the nine months ended September 30, 1996 from $7.8 million for the same
period in 1995 primarily due to slightly lower printing and paper costs.
Cost of goods sold as a percentage of net sales increased to 47.7% compared
with 39.2% for the nine months ended September 30, 1996 and 1995,
respectively. This increase in percentage terms can be attributed to the
lower net sales spread over the fixed cost of goods sold components.
SDI's cost of goods sold increased by $4.5 million, or 112.5%, to $8.5
million for the nine months ended September 30, 1996 from $4.0 million for
the nine months ended September 30, 1995. SDI's costs of goods sold as
a percentage of sales for the nine months ended September 30, 1996 was
63.9% compared with 59.7% for the same period in 1995. SDI's sales increased
significantly, thereby contributing to the large increase in the overall
costs of good sold. The increase in the cost of goods sold as a percentage of
sales is primarily due to the increase in sales of products to mass
retailers, which are typically sold at a lower per unit price compared to
specialty and gift retailers.
BEx's cost of goods sold decreased by $400,000, or 36.4%, to $700,000
for the nine months ended September 30, 1996 compared to $1.1 million for the
same period last year. BEx's cost of goods sold as a percentage of sales
increased to 77.8% for the nine months ended September 30, 1996 from 42.3%
for the same period last year due primarily to decreased efficiency as a
result of the relocation of the Company's operations and reorganization of
management. Additionally, write-downs of inventory have increased due to the
elimination of certain products being sold and the Company's relocation to
Bell, California in April 1995.
KRSI's cost of goods sold was $100,000, or 50.0%, as a percentage of net
sales. KRSI was merged with the Company effective August 28, 1996.
License and royalty expense as a percentage of sales decreased to 10.6%
for the nine months ended September 30, 1996 from 12.3% for the nine months
ended September 30, 1995 due to the increase in sales of products under lower
royalty rate licenses as a percentage of total sales of licensed
16
<PAGE>
products. Additionally, SDI's license and royalty rates are lower than OSP's
and, with the sales of SDI representing 45.4% versus 22.9% of total net sales
for 1996 compared with 1995, overall license and royalty expense as a
percentage of sales has declined. OSP's royalty rate decreased to 12.8% for
the nine months ended September 30, 1996 from 13.6% for the same period in
1995 due primarily to a decrease in sales for Disney licenses which have
higher royalty rates. SDI's royalty rate decreased to 8.3% for the nine
months ended September 30, 1996 from 9.0% for the same period in 1995 due
primarily to the addition of a license which has a lower royalty rate than
most of SDI's film and television licenses.
Warehouse and selling expenses increased $300,000, or 3.9%, to $7.9
million for the nine months ended September 30, 1996 from $7.6 million for
the same period in 1995. Factors contributing to this increase included
increases of $100,000 in rent, $150,000 in commissions and art supplies of
$150,000. These increases were offset by decreased freight expenses of
$160,000 due to higher sales of SDI where customers pay all freight costs.
Warehouse and selling expenses as a percentage of sales increased to 27% for
the nine months ended September 30, 1996 from 26% for the same period in 1995.
General and administrative expenses increased by $1.0 million, or 26.0%,
to $4.9 million for the nine months ended September 30, 1996 from $3.9
million for the same period in 1995 due primarily to an increase of $1.0
million in salaries and wages including bonuses to the President of SDI of
$475,000 and a $176,000 increase in legal, accounting and other professional
fees. These increases were offset by a decrease in bad debt expense of
$125,000.
The operating loss was $3.0 million for the nine months ended September
30, 1996 compared to operating income of $1.2 million for the same period
in 1995 for the reasons discussed above.
Interest expense increased $392,000, or 65.1%, to $994,000 for the nine
months ended September 30, 1996 from $602,000 for the same period in 1995.
The increase in interest expense is due primarily to an increase in the
contractual interest charge on the outstanding borrowings by OSP and BEx
prior to the refinancing of the credit line in February 1996. Interest
expense was also higher due to interest on the Company's outstanding
shareholder loan as well as amortization expense of the loan origination fees
for the refinanced line of credit. Additionally, SDI's interest expense
increased $100,000 due to additional factoring of accounts receivable
resulting from the increase in sales.
The Company's income tax benefit for the nine months ended September 30,
1996 was $1.2 million, compared with $152,000 recorded for the same period in
1995. During the third quarter, the Company recorded a $1.1 million benefit
for the change in income tax status from an S Corporation to a C Corporation
in connection with the completion of the merger and private placement that
were effective August 28, 1996 (see "Liquidity and Capital Resources"). The
benefit was a result of the net deferred tax assets consisting mainly of the
allowances for doubtful accounts, sales returns and inventory obsolesence.
In addition, $152,000 of the tax benefit in 1996 was attributable to the net
loss of SDI, while in 1995 the benefit was due to the net loss of BEx offset by
a provision of $73,000 for SDI. No benefit has been recognized for the 1996
losses of BEx which had been recognized in 1995 due to available net
operating loss carrybacks.
The Company's net loss totaled $2.6 million for the nine months ended
September 30, 1996 compared with income of $669,000 for the same period in
1995.
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1995
The Company's net sales decreased $200,000, or 3.8%, for the three
months ended September 30, 1996 compared to the three months ended September
30, 1995. This decrease resulted primarily from decreased sales by OSP of
$200,000 and a $600,000 decrease in sales by BEx, offset by increased sales
by SDI of $400,000. The 12.5% increase in SDI's sales for the quarter
compared with
17
<PAGE>
the same quarter last year can be attributed to the continued popularity of
the Anheuser-Busch license. The 3.8% decrease in OSP's sales can be
attributed to increased sales returns experienced in the quarter and
additional sales return reserves recorded. BEx has continued to experience
decreased sales which were down 75.0% for the quarter as a result of the
continued redirection of marketing and sales efforts. KRSI was merged into
the Company effective August 28, 1996, and contributed sales of $200,000 for
the quarter.
Cost of goods sold increased $800,000, or 18.2%, for the three months
ended September 30, 1996 to $5.2 million compared with $4.4 million for the
same period in 1995. As a percentage of net sales, cost of goods sold
increased to 57.8% for the three months ended September 30, 1996 from 47.8%
for the three months ended September 30, 1995. The Company's cost of goods
sold increased primarily because SDI, which typically has the highest cost of
goods sold, comprised 40.0% of the Company's total net sales for the third
quarter compared with 34.8% in the third quarter of 1995.
OSP's cost of goods sold increased $600,000, or 28.6%, to $2.7 million
for the three months ended September 30, 1996 from $2.1 million for the same
period in 1995. The increased costs can be attributed primarily to
increased sales of non-licensed posters which carry higher costs and
increased sales of shrink wrap posters. For the third quarter of 1996, OSP's
costs of sales as a percentage of sales was 54.0% compared with 40.4% in the
third quarter of 1995. This is primarily due to the increased sales returns
and reserve recorded which lowered the net sales for OSP for the quarter
resulting in a higher cost of sales percentage.
SDI's cost of goods sold increased by $400,000, or 19.0%, to $2.3
million for the three months ended September 30, 1996 from $1.9 million for
the three months ended September 30, 1995. SDI's costs of goods sold as a
percentage of net sales for the third quarter of 1996 was 63.9% compared to
59.4% in the third quarter of 1995. The increase in the cost of goods sold
as a percentage of net sales is primarily due to sales of products to mass
retailers, which are typically sold at lower per unit prices compared to
specialty and gift retailers.
BEx's cost of goods sold for the third quarter of 1996 remained
consistent with the third quarter of 1995 at 50.0% of net sales despite
decreased sales of 75.0%. BEx has achieved a gross profit margin consistent
with historical operating levels for the quarter as a result of the previous
reorganization and redirection efforts over the past year including the
installation of new management and the relocation to Bell, California.
KRSI's cost of goods sold as a percentage of net sales for the month
that it was included with the consolidated group was 50.0%.
License and royalty expense as a percentage of net sales increased to
11.1% for the three months ended September 30, 1996 from 10.9% for the three
months ended September 30, 1995. OSP's royalty rate decreased to 12.0% for
the three months ended September 30, 1996 from 13.5% for the same period in
1995 due primarily to the decreased sales under Disney licenses which have
higher royalty rates. SDI's royalty rate increased to 8.3% for the three
months ended September 30, 1996 from 6.3% for the same period in 1995 due
primarily to increased sales of products under film and television licenses
which carry higher royalty rates.
Warehouse and selling expenses increased $100,000, or 4.0%, to $2.6
million for the three months ended September 30, 1996 from $2.5 million for
the same period in 1995. Factors contributing to the increase were rent,
commissions and art costs due to increased design work for new licenses.
These increases were offset by lower freight costs since SDI's customers pay
all of the freight costs. Warehouse and selling expenses as a percentage of
net sales increased to 28.9% for the three months ended September 30, 1996
from 27.2% for the same period in 1995 due to the decreased net sales for the
quarter.
General and administrative expenses increased by $600,000, or 50.0%, to
$1.8 million for the three months ended September 30, 1996 from $1.2 million
for the same period in 1995 due primarily to an increase of salaries and
wages including bonuses to the President of SDI of $355,000. The increase in
salaries and wages was offset by lower bad debt expense for the quarter.
18
<PAGE>
Operating loss was $1.6 million for the three months ended September 30,
1996 compared with operating income of $124,000 for the same period in 1995.
Interest expense increased $177,000, or 80.5%, to $397,000 for the three
months ended September 30, 1996 from $220,000 for the same period in 1995.
The increase in interest expense is due primarily to higher average
outstanding borrowings on the Company's line of credit, interest expense on
the Company's outstanding shareholder loan and amortization of the loan
origination fees for the refinanced line of credit in February 1996.
The Company's income tax benefit for the three months ended September
30, 1996 was $1.2 million compared with an income tax provision of $37,000
recorded for the same period in 1995. During the third quarter, the Company
recorded a $1.1 million benefit for the change in income tax status from an S
Corporation to a C Corporation with the completion of the merger and private
placement that were effective August 28, 1996 (see "Liquidity and Capital
Resources"). The benefit was a result of the net deferred tax assets
consisting mainly of the allowances for doubtful accounts, sales returns and
inventory obsolesence. Additionally, $150,000 of the tax benefit in 1996 was
primarily attributable to net losses of SDI which had taxable income for the
same period last year. No benefit was recognized in 1996 for the BEx losses
while such was recorded in 1995 due to operating loss carrybacks.
The Company's net loss increased $436,000, or 178.7%, to $680,000 for
the three months ended September 30, 1996 compared with a loss of $244,000
for the same period in 1995. As a percentage of net sales, the net loss was
7.6% for the three-month period in 1996 compared to 2.6% for the same period
in 1995.
19
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, working capital was approximately $ 2.8 million.
Net cash used in operating activities during the nine months ended September
30, 1996 was approximately $3.1 million due primarily to a loss of $2.6
million in the nine-month period, an increase in cash flow of $1.7 million
from accounts receivable, $699,000 from accounts payable offset by a decrease
of $1.1 million from deferred income tax assets, $798,000 in inventory and
$350,000 in royalties payable. Net cash used in investing activities was
$775,000 primarily as a result of payment for costs totaling $555,000 to
acquire KRSI and property additions of $178,000. Net cash provided by
financing activities during the nine months ended September 30, 1996 was
approximately $3.8 million due primarily to net proceeds from the issuance of
common stock from the private placement and proceeds from issuance of
shareholder loans of $1.1 million reduced by $2.35 million in dividends paid
to the former OSP shareholders in connection with the Transactions (defined
below).
The Company has a line of credit with a financial institution which
provides for maximum borrowings of $7,500,000 subject to certain conditions.
The outstanding balance at September 30, 1996 was approximately $3.4 million.
The outstanding balance under the line of credit bears interest at the bank's
prime rate plus 1.75% and is payable monthly. Under its line of credit, the
Company is required to maintain certain financial ratios. In June and July
1996, the Company was not in compliance with such ratios and, accordingly,
was in default under the line of credit. As of September 30, 1996, the
Company believes it is in compliance with its financial covenants. The
Company is currently negotiating with the financial institution to revise,
among other things, the financial covenants under which the Company was in
default. In connection with the Transactions, the financial institution had
previously agreed to revise the covenants.
On August 28, 1996, the Company acquired KRSI through a merger (the
"KRSI Merger"). Concurrently with the KRSI Merger, the Company acquired its
affiliates OSP Publishing, Inc. and the Button Exchange, Inc. through a
merger (the "Reorganization"). Also concurrently with the KRSI Merger and
the Reorganization, the Company issued 4,324,238 shares of common stock to
investors in a private placement (the "Private Placement" and, together with
the "KRSI Merger" and the "Reorganization," the "Transactions"). Net proceeds
(less commissions and expenses and distributions) to the Company as a result
of the Private Placement were $2,824,000.
Prior to the effectiveness of the Transactions, OSP Publishing, Inc.
paid a dividend of $2,350,000 to Joseph C. Angard and Michael Malm, OSP
Publishing, Inc. shareholders and the Chairman of the Board and Chief
Executive Officer, and Chief Operating Officer of the Company, respectively.
For purposes of assisting with the Company's cash flow requirements, the
shareholders loaned the funds back to the Company on an interim basis. As
of September 30, 1996, there is currently $1,100,000 outstanding under Mr.
Angard's loan.
At September 30, 1996, the Company had an account receivable with its
largest customer which totaled approximately $773,000 or 13.0% of
consolidated gross accounts receivable. The customer is substantially
current with the Company's payment terms.
20
<PAGE>
The Company has experienced operating losses for the first nine months
of 1996. However, the Company's sales typically fluctuate based on seasonal
releases of major films, which correspond to sales of promotional products
related to such releases. The Company believes that its credit facility,
together with the net proceeds of the Private Placement, will be sufficient
to fund its working capital requirements into 1997. In addition, the Company
believes that additional working capital will be available as a result of
additional licenses signed, new poster titles in process and cost reduction
plans, including the elimination of non-performing poster titles. Additional
financing will be required to provide for any business or product line
acquisitions and significant expansion of the Company's international
business. In addition, the Company's business plan anticipates that the
Company will seek to increase its distribution of products directly to mass
retailers. The extent to which the Company is successful in achieving its
business plan will depend on the availability of capital for the purchase of
additional display racks to place in retail establishments. There can be no
assurance that such additional financing will be available.
FORWARD LOOKING STATEMENTS
With the exception of the actual reported financial results and other
historical information, the statements made in this filing, including in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, are forward looking statements that involve risks and
uncertainties that could affect future results. Such risks and uncertainties
include, but are not limited to: timing and size of orders from large
customers, general economic conditions, inventory management, the health of
the retail environment, supply constraints, supplier performance and other
risks indicated in the Company's filings with the Securities and Exchange
Commission.
21
<PAGE>
GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Under its line of credit, the Company is required to maintain
certain financial ratios. In June and July 1996, the Company was not in
compliance with such ratios and, accordingly, was in default under the line
of credit. The Company is currently negotiating with its financial
institution to revise, among other things, the financial covenants under
which the Company was in default. In connection with the Transactions, the
financial institution had agreed to revise the covenants.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
On August 29, 1996, the Board of Directors elected Edward Sacks to
fill the existing vacancy on the Board. Mr. Sacks is a Class I Director and
will serve on the Board of Directors until reelected or his successor is duly
elected and qualified at the annual meeting of stockholders in 1997. Mr.
Sacks is currently the Chairman and Chief Executive Officer of E & B
Giftware, Inc., a product development, marketing and sales company.
On September 10, 1996, Thomas R. King resigned from the Board of
Directors. Mr. King was a Class I Director and had served on the Board of
KRSI prior to the Company's acquisition of KRSI.
On October 7, 1996, Walter M. Lacher was elected as the Chief Financial
Officer and Secretary of the Company to replace Christopher B. Lucas upon Mr.
Lucas' resignation. Mr. Lacher was formerly the Corporate Controller for the
Company and, prior to that, he worked at Deloitte & Touche, LLP. In
addition, George J. Vrabeck was elected the President of the Company. Mr.
Vrabeck was formerly the Executive Vice President of the Company and, prior
to the Company's acquisition of KRSI, the Chief Executive Officer of KRSI.
22
<PAGE>
The following business risks as disclosed in the S-4 Registration
Statement No. 333-4655 filed with the Securities and Exchange Commission on
May 29, 1996, are hereby incorporated by reference as those set forth fully
herein:
Reliance on license agreements
Market acceptance of licensed properties
Seasonality and fluctuations in operating results
Risk and fluctuations in operating results
Concentrated customer base
Dependence on key personnel
Control by existing shareholders
Possible insufficiency of working capital
Anti-takeover effect of undesignated preferred stock
Material returns of unsold products
23
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
2.1 Final Amended and Restated Agreement and Plan of
Merger incorporated by reference to Exhibit 2.1 of
the Company's Registration Statement on Form S-4
(No. 333-4655)
3(i).1 Certificate of Incorporation of the Company
incorporated by reference to Exhibit 3(i).1 of the
Company's Registration Statement on Form S-4
(No. 333-4655)
3(ii).1 Bylaws of the Company incorporated by reference to
Exhibit 3(ii).1 of the Company's Registration Statement
on Form S-4 (No. 333-4655)
10.1 Promissory Note, dated August 27, 1996, in favor of
Joseph C. Angard
11.1 Statement re: computation of per share earnings
</TABLE>
(b) Reports on Form 8-K. On September 13, 1996, the Company filed a
Form 8-K to report the effectiveness of the Transactions. The Form 8-K
included unaudited pro forma condensed combined financial statements which
give effect to the Transactions.
24
<PAGE>
SIGNATURE(S)
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.
DATED: November 12, 1996 By: /s/ Joseph C. Angard
--------------------
Joseph C. Angard
Chairman of the Board and
Chief Executive Officer
DATED: November 12, 1996 By: /s/ Walter M. Lacher
--------------------
Walter M. Lacher
Chief Financial Officer and Secretary
(Duly Authorized Officer)
25
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
SEQUENTIALLY
EXHIBIT NO. DESCRIPTION NUMBERED
----------- ----------- ------------
<S> <C> <C>
2.1 Final Amended and Restated Agreement and Plan of
Merger incorporated by reference to Exhibit 2.1 of
the Company's Registration Statement on Form S-4
(No. 333-4655)
3(i).1 Certificate of Incorporation of the Company
incorporated by reference to Exhibit 3(i).1 of the
Company's Registration Statement on Form S-4
(No. 333-4655)
3(ii).1 Bylaws of the Company incorporated by reference to
Exhibit 3(ii).1 of the Company's Registration Statement
on Form S-4 (No. 333-4655)
10.1 Promissory Note, dated August 27, 1996, in favor of 27
Joseph C. Angard
11.1 Statement re: computation of per share earnings 30
</TABLE>
26
<PAGE>
PROMISSORY NOTE
$1,740,000 Date: Effective August 27, 1996
FOR VALUE RECEIVED, OSP Publishing, Inc., a California corporation
("Maker") promises to pay to Joseph C. Angard, an individual, or order
("Holder"), at 122 Westwind Mall, Marina del Rey, California 90292 (or such
other address designated by Holder from time to time), the principal sum of
One Million Seven Hundred and Forty Thousand Dollars and no/100
($1,740,000.00), plus interest thereon, from the date hereof until all
amounts due hereunder are paid in full, at the rate of interest set forth
below:
1. PAYMENTS.
1.1. PRINCIPAL. Principal under this Promissory Note ("Note") shall
be due and payable on or before January 1, 1998.
1.2. INTEREST. Interest under this Note shall be payable on the
first day of October, 1996, and on the first day of each calendar month
thereafter, Maker shall pay to Holder the Interest Payment (as such term is
defined below).
1.3. INTEREST PAYMENT. Each month, as set forth above in Section
1.2, Maker shall pay Holder interest (each an "Interest Payment") at the rate
of 10% per annum.
2. MANNER OF PAYMENTS. All payments by Maker under this Note shall be
(a) made in lawful money of the United States of America without set-off,
deduction or counterclaim of any kind whatsoever, (b) credited first to
amounts for late charges, if any, second to amounts for Holder's costs of
enforcing this Note, if any, third to amounts of interest due (including
default interest) hereunder, if any, and finally to the principal balance
under this Note, and (c) deemed paid by Maker upon their actual receipt by
Holder.
3. LATE CHARGE. If any amount of interest and/or principal under this
Note is not received by Holder within fifteen (15) days after its due date,
then, without any requirement for notice to Maker, Maker shall immediately
pay to Holder an additional sum of five percent (5%) of such overdue amount
as a later charge. Such late charge is fair and reasonable based upon the
facts and circumstances existing as of the date of this Note. Acceptance of
such late charge by Holder shall not constitute a waiver of Maker's default
with respect to such overdue amount, nor prevent Holder from exercising any
of the other rights and remedies available to Holder under this Note, or
otherwise.
4. DEFAULT INTEREST. In the event Maker fails to pay any installment
of principal and/or interest, within 30 days of the date such installment is
due, then in addition to any other amounts payable hereunder, including the
late charge provided for under Paragraph 3, above, the entire outstanding
balance of principal under this Note shall thereafter bear interest, until
such
1
<PAGE>
overdue payment is paid in full, at the increased rate of five percent (5%)
per annum over and above the interest rate provided for in the introductory
paragraph of this Note.
5. COMMERCIAL PURPOSES. Maker acknowledges that the loan evidenced by
this Note is obtained for business or commercial purposes and that the
proceeds of such loan will not be used primarily for personal, family,
household or agricultural purposes.
6. INTEREST LIMITATION. It is not intended by any provision of this
Note to charge interest at a rate in excess of the maximum rate of interest
permitted to be charged to Maker under applicable law on a cumulative basis
over the life of the loan evidenced by this Note (the "Loan"). If by mistake
or error, interest in excess of such maximum rate shall be paid for any
period during the term of the Loan, the excess amount shall, if permitted by
applicable law, be retained by Holder as additional cash collateral for the
Loan to be held without interest or trust and commingled with other assets of
Holder or, if not permitted to be so held by Holder, shall be refunded to
Maker. If for any period during the term of the Loan, Holder is unable,
because of a limitation on the rate of interest permitted to be charged to
Maker under applicable law, to collect all of the interest and premium
provided for in this Note, such interest or premium ("interest shortage")
shall, if permitted by applicable law, be added to the interest earned or to
be earned for prior or subsequent periods during the term of the Loan so
that, to the extent permitted by applicable law on a cumulative basis over
the life of the Loan, Holder may collect all of the interest and premium
provided for in this Note, the same to be accomplished in the following
manner, or otherwise as permitted by applicable law: (a) if Holder were
permitted by applicable law to charge interest to Maker in such prior periods
in excess of the amount of interest and premium actually charged during such
prior periods, then the interest due on the Loan for such prior periods shall
automatically be increased by the amount of such interest shortage, but not
in excess of the maximum interest permitted to be charged to Maker during
such prior periods, and such increased interest for such prior periods shall
be immediately due and payable upon demand; and (b) if Holder shall have
collected all interest permitted by applicable law to be charged to Maker in
such prior periods, and if Holder is thereafter permitted by applicable law
to charge interest to Maker in such subsequent periods in excess of the
amount of interest and premium actually charged during such subsequent
periods, the interest due on the Loan for such subsequent periods shall
automatically be increased by the amount of such interest shortage, but not
in excess of the maximum interest permitted to be charged to Maker during
such subsequent period, and such increased interest for such subsequent
periods shall be due and payable at the end of each such subsequent period
upon demand.
7. NOTE WAIVERS. Maker waives presentment, notice, demand, protest,
notice of demand and dishonor.
8. GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of California.
9. FURTHER ASSURANCES. Each party to this Note shall execute all
instruments and
2
<PAGE>
documents and take all actions as may be reasonably required to effectuate
this Note.
10. TIME OF ESSENCE. Time and strict and punctual performance are of
the essence with respect to each provision of this Note.
11. ATTORNEY'S FEES. In the event any litigation, arbitration,
mediation, or other proceeding ("Proceeding") is initiated by any party
against any other party to enforce, interpret, collect upon, foreclose, or
otherwise obtain judicial or quasi-judicial relief in connection with this
Note, the prevailing party in such Proceeding shall be entitled to recover
from the unsuccessful party all costs, expenses, and actual attorney's fees
relating to or arising out of (i) such Proceeding (whether or not such
Proceeding proceeds to judgment), and (ii) any post-judgment or post-award
proceeding including without limitation one to enforce any judgment or award
resulting from any such Proceeding. Any such judgment or award shall contain
a specific provision for the recover of all such subsequently incurred costs,
expenses and actual attorney's fees.
12. MODIFICATION. This Note may be modified only by a contract in
writing executed by the party to this Note against whom enforcement of such
modification is sought.
13. HEADINGS. The headings of the Paragraphs of this Note have been
included only for convenience, and shall not be deemed in any manner to
modify or lmit any of the provisions of this Note, or be used in any manner
in the interpretation of this Note.
14. WAIVER. Any waiver of a default under this Note must be in writing
and shall not be a waiver of any other default concerning the same or any
other provision of this Note. No delay or omission in the exercise of any
right or remedy shall impair such right or remedy or be construed as a
waiver. A consent to or approval of any act shall not be deemed to waive or
render unnecessary consent to or approval of any other or subsequent act.
OSP PUBLISHING, INC., a California corporation
By: /s/ Michael A. Malm
-----------------------
Its: President
-----------------------
3
<PAGE>
GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.
COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- ------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Common stock outstanding at beginning
of period 6,448,440 1,636 6,448,440 1,636
Exercise of warrant 197,079 197,079
Issuance of Common Stock from Merger
with Kelly Russell Studios, Inc. 2,041,189 2,041,189
Issuance of Common Stock from Private
Placement 4,324,239 4,324,239
------------ ------------ ------------ ------------
Common stock outstanding at end
of period 13,010,947 1,636 13,010,947 1,636
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average shares outstanding
during the period assuming exercise
of warrants 8,782,430 6,645,157 7,217,887 6,645,157
Shares assumed outstanding approximating
the number of shares sold (at the net
offering proceeds per share of $1.20 and
and $1.26 per share) to fund the
S Corporation distribution 1,287,380 1,393,550 1,726,417 1,393,550
Shares assumed to be repurchased under
the treasury stock method at a fair market
value per share of $1.00 for the three and
nine months ended September 30, 1995 (2,500) (2,500)
------------ ------------ ------------ ------------
Total 10,069,810 8,036,207 8,944,304 8,036,207
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Pro forma net income (loss) data:
Income (loss) before income taxes ($2,038,620) ($95,666) ($2,878,277) $581,279
Pro forma (benefit) provision for income
taxes (189,875) (19,133) (575,655) 116,256
Minority interest in (income) loss of
subsidiary 114,761 (111,697) 208,487 (64,442)
------------ ------------ ------------ ------------
Pro forma net income (loss) ($1,733,984) ($188,230) ($2,094,135) $400,581
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Pro forma net income (loss) per share:
Income (loss) from operations ($0.18) ($0.01) ($0.26) $0.06
Minority interest in (income) loss of
subsidiaries 0.02 (0.01) 0.03 (0.01)
------------ ------------ ------------ ------------
Pro forma net income (loss) ($0.17) ($0.02) ($0.23) $0.05
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
EXHIBIT 11.1
26
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996 AND CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 6,095,131
<ALLOWANCES> 2,349,512
<INVENTORY> 5,131,559
<CURRENT-ASSETS> 11,694,171
<PP&E> 1,261,798
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,698,180
<CURRENT-LIABILITIES> 8,939,752
<BONDS> 0
0
0
<COMMON> 130,109
<OTHER-SE> 9,483,416
<TOTAL-LIABILITY-AND-EQUITY> 1,900,878
<SALES> 29,328,465
<TOTAL-REVENUES> 29,328,465
<CGS> 16,350,850
<TOTAL-COSTS> 19,517,720
<OTHER-EXPENSES> 12,784,552
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 993,717
<INCOME-PRETAX> 3,967,524
<INCOME-TAX> (1,185,583)
<INCOME-CONTINUING> (2,741,941)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,573,454)
<EPS-PRIMARY> (0.33)
<EPS-DILUTED> 0
</TABLE>
