UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[xx]QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 333-5098-NY
Hollywood Production, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3871821
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One World Trade Center, Suite 7967, New York, NY
10016
(Address of principal executive offices) (Zip Code)
(212) 466-6794
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by
section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [xx] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Common stock, par value $.001 per share: 6,132,500 shares
outstanding as of September 30, 1996.
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<CAPTION>
HOLLYWOOD PRODUCTION, INC.
INDEX
PART 1 - FINANCIAL INFORMATION:
ITEM 1 - FINANCIAL STATEMENTS
<S> <C>
Consolidated Balance Sheets (Unaudited) September 30, 1996
and December 31, 1995 F-1
Consolidated Statements of Operations (Unaudited) for the
three months ended September 30, 1996 and 1995 F-2
Consolidated Statement of Stockholders' Equity (Unaudited) for
the nine months ended September 30, 1996 F-3
Consolidated Statements of Cash Flows (Unaudited) for the
nine months ended September 30, 1996 and 1995 F-4
Notes to Consolidated Financial Statements F-5
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS F-12
PART II - OTHER INFORMATION F-16
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<CAPTION>
HOLLYWOOD PRODUCTION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
September 30, December 31,
1996 1995
<S> <C> <C>
Current assets:
Cash $3,474,212 $-
Prepaid expenses 171,471 -
Inventory 1,499,158 -
Film production costs 1,306,057 -
Other current assets 7,013 -
Total current assets 6,457,911 -
Stock subscription receivable - 1,000,000
Deferred offering costs - 100,000
Deferred expenses 312,500 -
Organizational costs, net 106,250 -
Furniture and fixtures, net 1,414 -
Excess of cost over net assets acquired
assigned to patents 1,057,783 -
Security deposits 13,078 -
Total assets $7,948,936 $1,100,000
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $18,513 $-
Accrued expenses 27,998 -
Due to factor 1,388,548 -
Advances 100,000 -
Due to related parties 371,010 -
Total current liabilities 1,906,069 -
Redeemable preferred stock of the subsidiary: Series A redeemable preferred
stock, 5,600 shares authorized, issued and outstanding, full liquidation
value $560,000 560,000 -
Commitments and contingencies (Note 4) - -
Stockholder's equity:
Common stock - $.001 par value, 20,000,000 shares authorized, 6,132,500 and
5,000,000 shares issued
and outstanding, respectively 6,133 5,000
Additional paid-in capital 5,635,043 1,095,000
Accumulated deficit (158,309) -
Total stockholder's equity 5,482,867 1,100,000
Total liabilities and stockholder's equity 7,948,936 $1,100,000
</TABLE>
See notes to consolidated financial statements (unaudited)
<PAGE>
<TABLE>
<CAPTION>
HOLLYWOOD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the three For the nine months
months ended September 30, ended September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $ 2,919 $ - $ 2,919 $ -
Cost of sales - - - -
Gross profit 2,919 - 2,919 -
Selling, general and
administrative expenses 77,274 - 160,536 -
Loss before interest expense
and provision for income taxes (74,355) (157,617) -
Interest and finance expense 692 - 692 -
Loss before provision for
income taxes (75,047) - (158,309) -
Provision for income taxes - - - -
Net loss $ (75,047) $ - $ (158,309) $ -
Loss per common equivalent shares:
Net loss $ (.01) $ - $ (.03) $ -
Weighted average number of
common shares outstanding 5,075,500 - 5,028,932 -
</TABLE>
See notes to consolidated financial statements (unaudited)
<PAGE>
<TABLE>
<CAPTION>
HOLLYWOOD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND
FROM DECEMBER 1, 1995 (DATE OF INCEPTION) TO DECEMBER 31, 1995
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
<S> <C> <C> <C> <C> <C>
Balance at inception of the
Company, December 1, 1995 - $ - $ - $ - $ -
Issuance of shares upon
capitalization 5,000,000 5,000 1,095,000 - 1,100,000
Balances at December 31, 1995 5,000,000 5,000 1,095,000 - 1,100,000
Issuance of common stock as
consideration for services
rendered to the Company 50,000 50 124,950 - 125,000
Issuance of common stock and warrants in
connection with the initial
public offering 800,000 800 4,459,440 - 4,460,240
Costs associated with initial
public offering - - (950,314) - (950,314)
Issuance of common stock in connection
with acquisition of
Breaking Waves 150,000 150 574,850 - 575,000
Issuance of common stock in connection with senior management incentive plan as
consideration for services rendered
to the Company 125,000 125 312,375 - 312,500
Issuance of common stock pursuant to a
consulting agreement as consideration for
services rendered to the Company 7,500 8 18,742 - 18,750
Net loss for the nine months
ended September 30, 1996 - - - (158,309) (158,309)
Balances at September 30, 1996 6,132,500 $6,133 $5,635,043 $(158,309) $5,482,867
</TABLE>
See notes to consolidated financial statements (unaudited)
<PAGE>
<TABLE>
<CAPTION>
HOLLYWOOD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (158,309) $ -
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities
Issuance of common stock for services 18,750 -
Amortization 18,750 -
Change in assets and liabilities:
Prepaid expenses (171,471) -
Inventory (1,499,158) -
Film production costs (1,306,057) -
Other current assets (7,013) -
Security deposits (13,078) -
Accounts payable 18,513 -
Accrued expenses 27,998 -
Due to factor 1,388,548 -
Advances 100,000 -
Net cash used in operating activities (1,582,527) -
Cash flows from investing activities:
Acquisition of furniture and fixtures (1,414) -
Net cash used for investing activities (1,414) -
Cash flows from financing activities:
Proceeds from related parties 371,010 -
Proceeds from issuance of common stock
and warrants 4,813,294 -
Issuance of Series A preferred stock 560,000 -
Offering costs incurred (686,151) -
Net cash provided from financing
activities 5,058,153 -
Net increase in cash 3,474,212 -
Cash, beginning of period - -
Cash, end of period $3,474,212 $ -
Supplemental disclosure of non-cash flow information: Cash paid during the year
for:
Interest $ 692 $ -
Schedule of non-cash investing activities: In connection with the issuance of
common stock, 182,500 shares of common stock were issued as
consideration for services $ 456,250 $ -
</TABLE>
See notes to consolidated financial statements (unaudited)
<PAGE>
NOTE 1 - GENERAL
Hollywood Productions, Inc. (the "Company") was incorporated in the State of
Delaware on December 1, 1995. The Company was formed for the purpose of
acquiring screen plays and producing low budget motion pictures. During December
1995, the Company issued 5,000,000 shares of its $.001 par value common stock to
European Ventures Corp. ("EVC") for an investment of $1,100,000. The sole
officer, director and principal stockholder of EVC is the father of the former
President and Director of the Company. During September 1996, in connection with
the completion of its Initial Public Offering ("IPO"), the Company acquired all
the capital stock of Breaking Waves, Inc. ("Breaking Waves"). Breaking Waves
designs, manufactures and distributes a line of private label of swimwear.
On April 8, 1996, the Company formed a wholly owned subsidiary
named D.L. Productions, Inc. ("D.L."). D.L. was formed in the
State of New York for the purpose of investing in the production,
distribution and exhibition of the motion picture Dirty Laundry.
As of September 30, 1996, the Company has presented
consolidated financial statements.
The Company's year end is December 31.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with instructions to Form 10-Q. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the interim financial statements include all adjustments necessary
in order to make the financial statements not misleading. The results of
operations for the three and nine months ended is not necessarily indicative of
the results to be expected for the full year. For further information, refer to
the Company's audited financial statements and footnotes thereto at April 30,
1996 and December 31, 1995, included in the Company's SB-2 Registration
Statement, filed with the Securities and Exchange Commission.
NOTE 1 - GENERAL (Cont'd)
The consolidated unaudited financial statements at September 30, 1996 include
the accounts of Hollywood Productions, Inc. and its wholly owned subsidiaries,
D.L. Productions, Inc. and Breaking Waves, Inc. after elimination of all
significant intercompany transactions and accounts. Additionally, purchase
accounting requires the elimination of all operating transactions of the
acquired subsidiaries from the inception of its fiscal year to the date of
acquisition. Hence, the consolidated statements of operations at September 30,
1996 reflects the transactions of the subsidiary, Breaking Waves for the period
from September 24, 1996 the acquisition date, to September 30, 1996. If the
operating transactions from January 1, 1996 to September 24, 1996 were included
in the September 30, 1996 consolidated statement of operations the effect by
major components would be as follows:
Increase
Net sales $3,596,982
Cost and expenses:
Cost of sales 2,401,586
Operating and interest expense 1,221,040
Net Loss $ (25,644)
NOTE 2 - DUE TO FACTOR
On April 4, 1991, Breaking Waves entered into an agreement with NationsBanc
Commercial Corp. ("Nations") to sell their interest in all present and future
receivables without recourse. Breaking Waves submits all sales orders to the
Factor for credit approval prior to shipment, and pays the Factor .75% of the
gross amount of the receivables. The Factor retains from amounts payable to
Breaking Waves a reserve for possible obligations such as customer disputes and
possible credit losses on unapproved receivables. Breaking Waves may take
advances of up to 90% of the purchase price on the receivables, with interest
charged at the rate of 13/4% over prime. Interest charged to expense totalled
approximately $692 from September 24, 1996, date of acquisitions to September
30, 1996. The Factor has a continuing interest in Breaking Waves's inventory as
collateral for the advances.
NOTE 3 - DUE TO RELATED PARTIES
From May 1996 through September 1996, a family member of the principal
stockholder of EVC, which is the majority stockholder of the Company, advanced
personally and through other entities under his common control a total of
$371,010. These advances are non-interest bearing and are due on demand. During
October 1996, the Company repaid such advances.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
a) Lease commitments
Breaking Wave's approximate future minimum rentals under two
non-cancelable operating leases in effect on December 31, 1995 are as
follows:
1996 $ 54,188
1997 49,723
1998 49,500
1999 49,500
2000 20,625
$ 223,536
Rental expense charged to operations from the date of acquisition
September 24, 1996 to September 30, 1996 amounted to approximately
$1,355.
b) Guarantees
Prior to the acquisition by the Company, Breaking Waves, along with an
affiliate D. Stone Industries Inc., ("D. Stone") an entity wholly
owned by the previous majority stockholders of Breaking Waves, had
issued cross-corporate guarantees to NationsBanc Commercial Corp. for
trade acceptances payable. In connection with the acquisition by the
Company, such cross-corporate guarantees were replaced by letters of
credit issued by the Company.
<PAGE>
c) License agreement
On October 16, 1995, the Company entered into a license agreement with
Beach Patrol, Inc. ("BPI") for the exclusive use of certain trademarks
in the United States. The agreement commenced January 1, 1996 and is
for an initial period of thirty (30) months divided into one (1) six
month, and two (2) twelve month terms with the option to extend the
agreement for an additional three (3) 12 month term periods. In
exchange, Breaking Waves will pay BPI the greater of 5% of net sales,
as defined, or the guaranteed minimum trademark royalty ("GMTR"). The
GMTR ranges from $75,000 for the first term to $200,000 for the sixth
term. In addition, the Company is obligated to pay BPI 2% of net sales
for showroom/advertising expenses, and to spend an additional 1% of
net sales for advertising. A minimum guaranteed showroom/advertising
expense will be payable for the first three terms. BPI has the option
to terminate the agreement if the Company's net sales do not reach
specified levels, ranging from $1,000,000 for the first term to
$4,000,000 for the sixth term.
d) Concentration of risk
Breaking Waves purchases the majority of it's inventory from one
vendor in the Far East.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
(Cont'd)
e) Seasonality
Breaking Waves's business may be considered seasonal with a large
portion of its revenues and profits being derived between December and
June for shipments being made between November and May. Each year from
January to November Breaking Waves engages in the process of designing
and manufacturing the following seasons swimwear lines, during which
time it incurs the majority of its expenses, with limited revenues.
f) Co-production and property purchase agreements
Pursuant to a co-production and property purchase agreements dated
March 15, 1996, as amended the Company, through is wholly owned
subsidiary, D.L., acquired the rights to and co-produce a motion
picture and agreed to finance up to approximately $1,250,000 of such
motion picture with the co-producer agreeing to up to finance
$100,000. The Company retains all rights to the motion picture, the
screenplay, and all ancillary rights attached thereto.
Pursuant to the terms of the agreements with the stars of the motion
picture, the two stars each have the right to receive $50,000 against
a 5% participation fee based on revenues from the first proceeds
received from the distribution of the Motion Picture. Thereafter, the
Company and the co-producers shall have the right to all subsequent
revenues until their initial investments are repaid. The next proceeds
received by the Company shall be distributed as follows: (i) 5% of
revenues to each of the two stars up to a maximum of $250,000, at
which time their distribution decreases to 2% (ii) the Company and the
co-producer each receives revenues up to 25% and 35%, respectively of
each parties initial investment, (iii) all revenues in excess of (i)
and (ii) shall first be used to repay any distribution costs incurred
with the remainder to the Company and co-producer at a rate of 75% and
25%, respectively. As of September 30, 1996, the Company has advanced
$1,222,000 to D.L. for the co-production of such motion picture. Such
amount has been eliminated in consolidation since D.L. is a wholly
owned subsidiary of the Company. As of September 30, 1996 the
co-producers of the motion picture had advanced $100,000 to D.L.
NOTE 5 - STOCKHOLDER'S EQUITY
a) Articles of Incorporation
In June 1996, the Company amended its Articles of Incorporation
increasing its authorized common stock from 200 common shares, no par
value, to 20,000,000 common shares, $.001 par value. In addition, the
Company effected a 50,000 for 1 stock split of all issued and
outstanding shares of common stock. The financial statements give
retroactive effect to these items.
NOTE 5 - STOCKHOLDER'S EQUITY (Cont'd)
b) Initial public offering
On December 21, 1995, the Company signed a Letter of Intent with an
underwriter to proceed on a "Firm Commitment" basis with the IPO of
the Company's Common Stock and redeemable Common Stock purchase
Warrants ("the Warrants"). The Company offered 800,000 shares and
1,600,000 Warrants. The 800,000 shares and 1,600,000 Warrants were
offered to the public at a price of $5.00 per share and $.25 per
Warrant, respectively. The total gross offering proceeds to the
Company was $4,400,000.
The number of shares offered to the public may have been increased up
to an additional 120,000 shares and the number Warrants offered to the
public may have been increased up to an additional 240,000 as a result
of the exercise of all or part of a 30 day "over allotment option"
granted to the underwriter.
Each Warrant entitled the holder thereof to purchase one share of
common stock at a price of $6.50 during the four year period
commencing one year from the ("Effective Date") of the IPO. The
Warrants are redeemable by the Company at any time commencing one year
from the Effective Date upon thirty (30) days notice at a redemption
price of $.05 per warrant, provided that the closing bid quotation of
the common stock for each of the thirty (30) trading days on which the
Company gives notice is at least 170% of the then exercise price of
the warrants.
On September 24, 1996, the Company successfully completed its public
offering. As a result, the Company sold 800,000 shares and 1,840,000
Warrants of which 240,000 Warrants were sold pursuant to the
underwriter's over-allotment option. The Company yielded a total net
proceeds of $3,813,294 after deducting underwriter selling expenses
and non-accountable expense allowance. Simultaneously with the
offering, the Company charged all deferred offering costs incurred to
additional paid-in capital which totalled $950,314.
Upon the closing of the sale of the Shares and Warrants offered, the
Company sold to the underwriter, underwriter's warrants to purchase up
to 80,000 shares of Common stock and 160,000 Warrants
c) Acquisition of Breaking Waves, Inc.
Pursuant to a stock purchase agreement dated May 31, 1996 (the
"Agreement") among the Company, EVC, Breaking Waves and it's
respective shareholders, the Company at the closing thereof issued
150,000 shares of Common Stock during September 1996, in exchange for
all of the issued and outstanding capital stock of Breaking Waves.
Such shares are subject to adjustment whereby the market value of the
Company's Common Stock must equal at least $1,150,000 for the 90 day
period after the consummation thereof. The transaction has been
accounted for using the purchase method of accounting, and,
accordingly, the accompanying consolidated financial statements
include the results of operations of Breaking Waves from the date of
acquisition, September 24, 1996. As a result of the transaction,
excess of cost over net assets acquired assigned to patents totalling
$1,057,783 have been recorded and will be amortized over their
remaining useful lives of approximately 14 years. Amortization as of
September 30, 1996 has not been recorded due to its immateriality.
<PAGE>
NOTE 5 - STOCKHOLDER'S EQUITY (Cont'd)
c) Acquisition of Breaking Waves, Inc. (Cont'd)
In conjunction with such Agreement, a previous stockholder of Breaking
Waves entered into a two year consulting agreement effective January
1, 1996 with Breaking Waves for an annual consulting fee of $100,000.
Additionally, pursuant to the Agreement, the previous stockholders of
Breaking Waves agreed not to compete with the Company for a period of
four years from the consummation thereof. The Agreement stipulates
that the previous stockholders of Breaking Waves will not engage
directly or indirectly in any business in which Breaking Waves is
conducting or is in the process of forming.
Prior to the consummation of the Company's IPO, during September 1996,
Breaking Waves performed a recapitalization and exchanged all its
common stock for new common stock, and for a series of preferred
stock. Pursuant to the Agreement, Breaking Waves issued 5,600 shares
of its newly authorized Series A Preferred Stock to its previous
stockholders in proportion to their respective holdings. The holders
of the shares of the Series A Preferred Stock shall have the right to
redemption whereby, on each of January 1, 1997 and 1998 subject to
legally available funds, Breaking Waves shall redeem one half of the
outstanding shares of the Series A Preferred Stock, at a redemption
price of $100 per share on a pro rata basis.
Lastly, the Company contributed $100,000 to the capital of Breaking
Waves whereby simultaneously therewith, Breaking Waves repaid its
stockholders' loans amounting to $100,000.
d) 1996 Senior Management Incentive Plan
During May, 1996, the Company established the 1996 Senior Management
Incentive Plan ("Incentive Plan") pursuant to which 250,000 of Common
Stock are reserved for issuance. The incentive plan is designed to
serve as an incentive for retaining qualified and competent key
employees, officers and directors of the Company.
During June 1996, pursuant to such plan the Company issued 50,000
shares of Common Stock to each of two officers of the Company and
25,000 shares to an unrelated individual for consulting services. 50%
of such shares issued will vest 12 months from the issuance date and
the remaining 50% will vest 24 months from the issuance date. Such
shares have been valued at 50% of the IPO price of $2.50. Accordingly,
the Company recorded a deferred compensation amounting to $312,500
which will be amortized as the shares vest.
NOTE 6 - RELATED PARTIES TRANSACTIONS
i) The Company's Chief Executive Officer, President
and a director is a family member of the
underwriter's President.
ii) During September 1996, the Company contributed $100,000 to
Breaking Waves pursuant to the Agreement whereby
simultaneously therewith, Breaking Waves repaid its
stockholders' loans amounting to $100,000.
NOTE 6 RELATED PARTIES TRANSACTIONS (Cont'd)
iii) During June 1996, pursuant to Incentive Plan, the
Company issued 50,000 shares of Common Stock to
each of two officers of the Company and 25,000
shares to an unrelated individual for consulting
services. 50% of such shares issued will vest 12
months from the issuance date and the remaining
50% will vest 24 months from the issuance date.
Such shares have been valued at 50% of the IPO
price of $2.50. Accordingly, the Company
recorded a deferred compensation amounting to
$312,500 which will be amortized as the shares
vest.
iv) From May 1996 through September 1996, a family
member of the principal stockholder of EVC, which
is the majority stockholder of the Company,
advanced personally and through other entities
under his common control a total of $371,010.
These advances are non-interest bearing and are due
on demand. During October 1996, the Company
repaid such advances.
v) Prior to the acquisition by the Company, Breaking
Waves, along with an affiliate D. Stone Industries
Inc., ("D. Stone") an entity wholly owned by the
previous majority stockholders of Breaking Waves,
had issued cross-corporate guarantees to
NationsBanc Commercial Corp. for trade
acceptances payable.
vi) During September 1996, the company paid $40,000 and issued
7,500 shares of Common Stock to an affiliate of the
Company's Secretary and a Director pursuant to a consulting
arrangement. The shares have been valued at 50% of the IPO
price or $2,50. Accordingly the Company recorded consulting
expense amounting to $58,750.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Hollywood Productions, Inc. (the "Company") was incorporated in the
State of Delaware on December 1, 1995. The Company was formed for the
purpose of acquiring screen plays and producing low budget motion
pictures. During December 1995, the Company issued 5,000,000 shares of
its $.001 par value common stock to European Ventures Corp. ("EVC")
for an investment of $1,100,000. The sole officer, director and
principal stockholder of EVC is the father of the former President and
Director of the Company. During September 1996, in connection with the
completion of its Initial Public Offering ("IPO"), the Company
acquired all the capital stock of Breaking Waves, Inc. ("Breaking
Waves"). Breaking Waves designs, manufactures and distributes a line
of private label of swimwear.
On April 8, 1996, the Company formed a wholly owned
subsidiary named D.L. Productions, Inc. ("D.L."). D.L.
was formed in the State of New York for the purpose of
investing in the production, distribution and exhibition of
the motion picture Dirty Laundry. As of September 30,
1996, the Company has presented consolidated financial
statements.
The Company's year end is December 31.
RESULTS OF OPERATIONS
For the three months ended September 30, 1996 as compared to the three
months ended September 30, 1995
The Company did not have any operating activities for the three month
ended September 30, 1995 since it was incorporated on December 1,
1995.
For the three months ended September 30, 1996 the Company's
subsidiary, Breaking Waves generated minimal sales ($2,919) and
expenses (approximately $3,800), since Breaking Waves was acquired by
the Company on September 24, 1996. Accordingly, the operations of
Breaking Waves are for only approximately six days in the quarter
ended September 30, 1996.
The remainder of the selling general and administrative expenses
amounting to approximately $73,000 pertain to the Company. The major
components of such expenses represent the following: $58,750 of
consulting expenses paid to an officer of the Company whereby $40,000
was paid in cash with the remainder in 7,500 shares of common stock at
$2.50 per share. The remaining of expenses amounting to approximately
$14,250 is composed of rent amounting to $2,800, officer's salaries
amounting to approximately $10,000 and miscellaneous office expenses
of $1,450.
Accordingly as a result of the above, the Company reported a
consolidated loss amounting to $75,047.
For the nine months ended September 30, 1996 compared to the nine
months September 30, 1995
As previously discussed, the Company did not have any operations for
the nine months ended September 30, 1995 since it was incorporated on
December 1, 1995.
ITEM 2 - MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Cont'd)
RESULTS OF OPERATIONS (Cont'd)
For the nine months ended September 30, 1996 compared to nine months
September 30, 1995 (Cont'd)
For the nine months ended September 30, 1996 the Company's subsidiary,
Breaking Waves generated minimal sales ($2,919) and expenses
(approximately $3,800), since Breaking Waves was acquired by the
Company on September 24, 1996. The operations of Breaking Waves are
for only approximately for six days in nine months ended September 30,
1996.
The remainder of the selling general and administrative expenses
amounting to approximately $156,000 pertain to the Company. The major
components of such expenses represent the following: $58,750 of
consulting expenses paid to an officer of the Company whereby $40,000
was paid in cash with the remainder in 7,500 shares of common stock at
$2,50 per share. The remainder of expenses amounting to approximately
$97,000 are composed of amortization of organizational costs amounting
to $18,750, officer's salaries amounting to approximately $32,000, and
other general office and corporate overhead expenses amounting to
$46,250.
Accordingly as a result of the above, the Company reported a
consolidated loss amounting to $158,309 for the nine months ended
September 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
On September 24, 1996, the Company successfully completed its public
offering. As a result, the Company sold 800,000 shares and 1,840,000
Warrants of which 240,000 Warrants were sold pursuant to the
underwriter's over-allotment option. The Company yielded a total net
proceeds of $3,813,294 after deducting underwriter selling expenses
and non-accountable expense allowance. Simultaneously with the
offering, the Company charged all deferred offering costs incurred to
additional paid-in capital which totalled $950,314.
At September 30, 1996, the Company had a working capital amounting to
$4,551,842. It is not anticipated that the Company will be required to
raise any additional capital within the next twelve months, since no
material change in the number of employees or any other material
events are expected to occur. In the event that the Company is unable
to obtain such financing, the Company may have to institute expense
reduction measures.
ITEM 2 - MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Cont'd)
LIQUIDITY AND CAPITAL RESOURCES (Cont'd)
Pursuant to a stock purchase agreement dated May 31, 1996 (the
"Agreement") among the Company, EVC, Breaking Waves and it's
respective shareholders, the Company at the closing thereof issued
150,000 shares of Common Stock during September 1996, in exchange for
all of the issued and outstanding capital stock of Breaking Waves.
Such shares are subject to adjustment whereby the market value of the
Company's Common Stock must equal at least $1,150,000 for the 90 day
period after the consummation thereof. The transaction has been
accounted for using the purchase method of accounting, and,
accordingly, the accompanying consolidated financial statements
include the results of operations of Breaking Waves from the date of
acquisition, September 24, 1996. As a result of the transaction,
excess of cost over net assets acquired assigned to patents totalling
$1,057,783 have been recorded and will be amortized over their
remaining useful lives of approximately 14 years. Amortization as of
September 30, 1996 has not been recorded due to its immateriality.
In conjunction with such Agreement, a previous stockholder of Breaking
Waves entered into a two year consulting agreement effective January
1, 1996 with Breaking Waves for an annual consulting fee of $100,000.
Additionally, pursuant to the Agreement, the previous stockholders of
Breaking Waves agreed not to compete with the Company for a period of
four years from the consummation thereof. The Agreement stipulates
that the previous stockholders of Breaking Waves will not engage
directly or indirectly in any business in which Breaking Waves is
conducting or is in the process of forming.
Prior to the consummation of the Company's IPO, during September 1996,
Breaking Waves performed a recapitalization and exchanged all its
common stock for new common stock, and for a series of preferred
stock. Pursuant to the Agreement, Breaking Waves issued 5,600 shares
of its newly authorized Series A Preferred Stock to its previous
stockholders in proportion to their respective holdings. The holders
of the shares of the Series A Preferred Stock shall have the right to
redemption whereby, on each of January 1, 1997 and 1998 subject to
legally available funds, Breaking Waves shall redeem one half of the
outstanding shares of the Series A Preferred Stock, at a redemption
price of $100 per share on a pro rata basis.
Lastly, the Company contributed $100,000 to the capital of Breaking
Waves whereby simultaneously therewith, Breaking Waves repaid its
stockholders' loans amounting to $100,000.
ITEM 2 - MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Cont'd)
LIQUIDITY AND CAPITAL RESOURCES (Cont'd)
On April 4, 1991, Breaking Waves entered into an agreement with
NationsBanc Commercial Corp. ("Nations") to sell their interest in all
present and future receivables without recourse. Breaking Waves
submits all sales orders to the Factor for credit approval prior to
shipment, and pays the Factor .75% of the gross amount of the
receivables. The Factor retains from amounts payable to Breaking Waves
a reserve for possible obligations such as customer disputes and
possible credit losses on unapproved receivables. Breaking Waves may
take advances of up to 90% of the purchase price on the receivables,
with interest charged at the rate of 13/4% over prime. Interest
charged to expense totalled approximately $692 from September 24,
1996, date of acquisitions to September 30, 1996. The Factor has a
continuing interest in Breaking Waves's inventory as collateral for
the advances.
D.L. PRODUCTIONS, INC.
Pursuant to a co-production and property purchase agreements dated
March 15, 1996, as amended the Company, through is wholly owned
subsidiary, D.L., acquired the rights to and co-produce a motion
picture and agreed to finance up to approximately $1,250,000 of such
motion picture with the co-producer agreeing to up to finance
$100,000. The Company retains all rights to the motion picture, the
screenplay, and all ancillary rights attached thereto.
Pursuant to the terms of the agreements with the stars of the motion
picture, the two stars each have the right to receive $50,000 against
a 5% participation fee based on revenues from the first proceeds
received from the distribution of the Motion Picture. Thereafter, the
Company and the co-producers shall have the right to all subsequent
revenues until their initial investments are repaid. The next proceeds
received by the Company shall be distributed as follows: (i) 5% of
revenues to each of the two stars up to a maximum of $250,000, at
which time their distribution decreases to 2% (ii) the Company and the
co-producer each receives revenues up to 25% and 35%, respectively of
each parties initial investment, (iii) all revenues in excess of (i)
and (ii) shall first be used to repay any distribution costs incurred
with the remainder to the Company and co-producer at a rate of 75% and
25%, respectively. As of September 30, 1996, the Company has advanced
$1,222,000 to D.L. for the co-production of such motion picture. Such
amount has been eliminated in consolidation since D.L. is a wholly
owned subsidiary of the Company. As of September 30, 1996 the
co-producers of the motion picture had advanced $100,000 to D.L.
As of September 30, 1996, the Company's cash balance is $3,474,212.
Such cash was generated by $5,058,153 of financing activities, net of
approximately $1,582,527 which was used for operations.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings:
None
ITEM 2 - Changes in Securities:
None
ITEM 3 - Defaults Upon Senior Securities:
None
ITEM 4 - Submission of Matters to a Vote of Security Holders:
None
ITEM 5 - Other Information:
None
ITEM 6 - Exhibits and Reports on Form 8-K:
None
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized, this the day of
, 1996.
HOLLYWOOD PRODUCTIONS, INC.
By:
Robert Melillo
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Robert Melillo Chief Executive Officer 11/19/96
Robert Melillo President and Director Date
(Principal Executive Officer)
/s/Harold Rashbaum Secretary, Treasures and Director 11/19/96
Harold Rashbaum (Principal Financial Officer) Date
/s/Alain A. LeGuillou Director 11/19/96
Alain A. LeGuillou
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Balance
Sheet, Statement of Operations, Statements of Cash Flows and Notes Thereto
incorporated in Part I, Item I of this Form 10-QSB and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,474,212
<SECURITIES> 1,491,025
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 2,805,215
<CURRENT-ASSETS> 178,484
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,978,436
<CURRENT-LIABILITIES> 1,906,069
<BONDS> 0
0
560,000
<COMMON> 6,133
<OTHER-SE> 5,476,734
<TOTAL-LIABILITY-AND-EQUITY> 7,948,936
<SALES> 2,919
<TOTAL-REVENUES> 2,919
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 77,274
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 692
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (75,047)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
