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 March 31, 1997
--------------
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: 0-28690
Hollywood Productions, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3704059
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14 East 60th Street, Suite 402, New York, NY 10022
(Address of principal executive offices) (Zip Code)
(212) 688-9223
(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
Common stock, par value $.001 per share: 6,092,500 shares outstanding as of
March 31, 1997.
<PAGE>
PART I - FINANCIAL INFORMATION:
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Consolidated balance sheet at
March 31, 1997 (unaudited) and December 31, 1996 3
Consolidated statements of operations (unaudited)
for the three months ended March 31, 1997 and 1996 4
Consolidated statements of stockholders' equity (unaudited)
for the three months ended March 31, 1997 5
Consolidated statements of cash flows (unaudited)
for the three months ended March 31, 1997 and 1996 6
Notes to consolidated financial statements 7 - 8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
PART II - OTHER INFORMATION 11
ITEM 6 - Exhibits and Reports on Form 8-K 11
Signature 12
</TABLE>
2
<PAGE>
HOLLYWOOD PRODUCTION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, 1997 December 31, 1996
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 2,441,181 $ 2,717,629
Accounts receivable 4,155 22,351
Prepaid expenses 63,819 86,698
Inventory 688,058 1,815,526
Film production and distribution costs 1,556,702 1,518,639
Advances to related parties 95,090 115,854
------ -------
Total current assets 4,849,005 6,276,697
Deferred compensation, net 92,013 209,722
Organizational costs, net 93,750 100,000
Excess of cost over net assets acquired, net 1,028,807 1,046,545
Other assets 15,119 10,118
------ ------
Total assets $ 6,078,694 $ 7,643,082
= ========= = =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 38,430 $ 61,788
Accrued expenses 34,124 103,194
Due to factor 114,082 1,434,686
Income taxes payable 99,044 35,279
Deferred taxes payable 12,309 12,309
------ ------
Total current liabilities 297,989 1,647,256
------- ---------
Redeemable preferred stock of subsidiary:
Series A redeemable preferred stock, 5,600 shares
authorized, 2,800 and 5,600 issued and outstanding, respectively,
full liquidation value $280,000 and $560,000, respectively 280,000 560,000
Commitments and contingencies (Note 6) - -
Stockholders' equity:
Common stock - $.001 par value, 20,000,000 shares authorized,
6,092,500 and 6,117,500 shares issued and outstanding, respectively 6,093 6,118
Additional paid-in capital 5,589,215 5,651,690
Accumulated deficit (94,603) (221,982)
------- --------
Total stockholders' equity 5,500,705 5,435,826
--------- ---------
Total liabilities and stockholders' equity $ 6,078,694 $ 7,643,082
= ========= = =========
</TABLE>
4
See notes to consolidated financial statements (unaudited)
<PAGE>
HOLLYWOOD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net sales 2,441,081 $-
Cost of sales 1,465,799 -
--------- -
Gross profit 975,282 -
------- -
Expenses:
Selling, general and administrative expenses 670,943 -
Amortization of excess of costs over net assets acquired 17,738 -
------ -
Total expenses 688,681 -
------- -
Income before interest expense
and provision for income taxes 286,601 -
Other income (expense):
Interest and finance expense (122,999) -
Interest income 33,604 -
------ -
Total other income (expense) (89,395) -
------- -
Income before provision for
income taxes 197,206 -
Provision for income taxes 69,827 -
Net income 127,379 $-
Income per common equivalent shares:
Net income $.02 $Nil
Weighted average number of
common shares outstanding 6,092,500 5,000,000
</TABLE>
See notes to consolidated financial statements (unaudited)
<PAGE>
HOLLYWOOD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Equity
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996 6,117,500 $6,118 $5,651,690 $(221,982) $5,435,826
Cancellation of common stock in
connection with the Senior
Management Incentive Plan as
consideration for services
rendered to the Company (25,000) (25) (62,475) - (62,500)
Net income for the three months
ended March 31, 1997 - - - -
Balances at March 31, 1997 6,092,500 $6,093 $5,589,215 $ $5,500,705
</TABLE>
See notes to consolidated financial statements (unaudited)
<PAGE>
HOLLYWOOD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31
<TABLE>
<CAPTION>
1997 1996
Cash flows from operating activities:
<S> <C> <C>
Net income $127,379 $ -
Adjustments to reconcile net income to
net cash provided by operating activities
Amortization and depreciation 79,253 -
Forgiveness of note receivable in lieu of compensation 30,130 -
Decrease (increase) in:
Accounts receivable 18,196 -
Prepaid expenses 22,879 -
Inventory 1,127,468 -
Film production costs (38,063) -
Security deposits 4,300 -
Other assets 2,257 -
Increase (decrease) in:
Accounts payable (23,358) -
Accrued expenses (69,070) -
Due to factor (1,320,604) -
Income taxes payable 63,765 -
------ -
Net cash provided by operating activities 24,532 -
------ -
Cash flows from investing activities:
Acquisition of furniture and fixtures (11,614)
Subsidiary's redemption of preferred stock (280,000) -
-------- -
Net cash used for investing activities (291,614) -
-------- -
Cash flows from financing activities:
Advances to related parties (11,866) -
Proceeds from advances to related parties 2,500 -
----- -
Net cash used for financing activities (9,366) -
------ -
Net decrease in cash (276,448) -
Cash, beginning of period 2,717,629 -
Cash, end of period $ 2,441,181 $ -
Supplemental disclosure of non-cash flow information:
Cash paid during the yearfor:
Interest $ 72,455 $ -
Income taxes$ 2,154 $ -
Schedule of non-cash operating activities:
In connection with the Senior Management Incentive Plan
for services rendered to the Company, 150,000 options on
common stock were issued $ - -
In connection with the Senior Management Incentive
Plan, 25,000 shares originally issued as consideration
for services rendered to the Company were canceled $(62,500) $-
See notes to consolidated financial statements (unaudited)
</TABLE>
<PAGE>
NOTE 1 - ORGANIZATION
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 motion pictures.
The Company's and its subsidiaries' year end is December 31.
NOTE 2 - ADVANCES TO RELATED PARTIES
During October 1996, pursuant to two promissory notes, the Company loaned
two of its officers a total of $87,000 bearing interest at six and one-half (6
1/2) percent payable over three years. During January 1997, the balance of one
of these notes amounting to $30,130 was written off as part of a severance
package for one of its previous officer. As of March 31, 1997 the remaining note
amounted to $57,834.
The remaining balance, amounting to $37,256, represents advances to
affiliates of an officer and other related parties. Such advances are
non-interest bearing and are due on demand.
NOTE 3 - DUE TO FACTOR
On April 4, 1991, Breaking Waves entered into an accounts receivable
financing 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 Nations for credit approval prior to shipment, and
pays Nations .75% of the gross amount of the receivables. Nations 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 85% of the purchase price on the receivables,
with interest charged at the rate of 13/4% over prime. Interest charged to
expense totaled approximately $72,445 for the three months ended March 31, 1997.
Nations has a continuing interest in Breaking Waves's inventory as collateral
for the advances.
NOTE 4 -COMMITMENTS AND CONTINGENCIES
a) Lease commitments
The Company and its subsidiaries' approximate future minimum rentals under
non-cancelable operating leases in effect on March 31, 1997 are as follows:
Year ended
December 31,
1997 $ 85,380
1998 119,157
1999 119,157
2000 90,282
2001 69,657
$ 483,633
<PAGE>
Rent expense charged to operations for the three months ended March 31,
1997 amounted to approximately $34,000.
b) License agreement
On October 16, 1995, Breaking Waves entered into a license agreement with
Beach Patrol, Inc. ("BPI") for the exclusive use of certain trademarks in the
United States. For the three months ended March 31, 1997, Breaking Waves
incurred royalty and advertising expenses amounting to approximately $35,500.
c)Concentration of risk
Breaking Waves purchases the majority of it's inventory from one vendor in
the Far East.
d) 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 June 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.
e)Co-production and property purchase agreements
Pursuant to 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 co-produce a motion picture and has agreed to finance the
costs of production and distribution of such motion picture with the co-producer
agreeing to finance $100,000 of the costs of production. The Company retains all
rights to the motion picture, the screenplay, and all ancillary rights attached
thereto. As of March 31, 1997, the Company invested $1,452,750 in D.L. for the
co-production and distribution of such motion picture whereas the co-producers
have invested $100,000 in D.L. which has been recorded as a capital
contribution.
NOTE 5 -STOCKHOLDER'S EQUITY
a)1996 Senior Management Incentive Plan
Effective March 14, 1997, the Company granted 150,000 options to purchase
shares of common stock pursuant to the Company's Incentive Plan. 100,000 options
were granted to the Company's President and 50,000 options were granted to an
officer.
b)Cancellation of shares
Effective January 10, 1997, upon the resignation of an officer of the
Company, pursunt to a termination agreement 25,000 of the 50,000 shares
originally issued to such officer under the Incentive Plan became immediately
vested and the remaining 25,000 shares were returned to treasury.
<PAGE>
NOTE 6 - RELATED PARTIES TRANSACTIONS
a)Redemption of Preferred Stock
During January 1997, Breaking Waves redeemed 2,800 shares of its Series A
preferred stock for a total of $280,000.
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 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 and
director of EVC is 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 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 purchasing and producing the motion picture "Dirty Laundry". As of
March 31, 1997, the Company has presented consolidated financial statements.
Results Of Operations
For the three months ended March 31, 1997 as compared to the three months
ended March 31, 1996
Since the Company was incorporated on December 1, 1995, and no operations
incurred through March 31, 1996, no discussion is applicable for the three
months ended March 31, 1996.
From January 1, 1997, to March 31, 1997 the Company's subsidiary, Breaking
Waves, generated sales amounting to $2,441,081 with cost of sales amounting to
$1,465,799. Breaking Waves generated net income amounting to approximately
$372,000. Of the total selling, general and administrative expenses amounting to
$670,943, $414,279 were incurred by Breaking Waves with the remainder amounting
to $256,664, incurred by the Company.
The major components of the total selling, general and administrative
expenses of the Company are composed of the following: $23,600 of consulting
expenses paid to an officer of the Company; $55,209 of consulting and
compensation expenses paid to officers of the Company paid in the form of common
stock; $30,130 of officer's compensation by forgiveness of note receivable; and
amortization of organization costs of $6,250. The remainder of expenses
amounting to approximately $555,754 is composed of rent amounting to $34,000;
officer's salaries of $89,016; other salaries and related payroll taxes
amounting to approximately $97,170; legal and professional fees of $11,801;
miscellaneous office expenses of $113,295; and miscellaneous selling expenses of
$210,472.
For the three months ended March 31, 1997, the Company reported a
consolidated net income amounting to $127,379 after an estimated provision for
income taxes amounting to approximately $69,827.
Liquidity And Capital Resources
8
<PAGE>
At March 31, 1997, the Company has a consolidated working capital amounting
to $4,551,016. 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.
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, which shares are 1/2 redeemable on each of January 1, 1997 and 1998
subject to legally available funds, at a redemption price of $100 per share on a
pro rata basis. During January 1997, Breaking Waves redeemed 2,800 shares of its
Series A preferred stock for a total of $280,000.
On April 4, 1991, Breaking Waves entered into an accounts receivable
financing 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 Nations for credit approval prior to shipment, and
pays Nations .75% of the gross amount of the receivables. Nations 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 85% of the purchase price on the receivables,
with interest charged at the rate of 13/4% over prime. Interest charged to
expense totaled approximately $72,445 for the three months ended March 31, 1997.
Nations has a continuing interest in Breaking Waves's inventory as collateral
for the advances.
On October 16, 1995, Breaking Waves entered into a license agreement with
Beach Patrol, Inc. ("BPI") for the exclusive use of certain trademarks in the
United States. For the three months ended March 31, 1997, Breaking Waves
incurred royalty and advertising expenses amounting to approximately $35,500.
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 to
each of two officers of the Company. 50% of such shares issued vesting 12 months
from the issuance date and the remaining 50% vesting 24 months from the issuance
date. Such shares were valued at 50% of the IPO price of $2.50. Accordingly, the
Company recorded a deferred compensation amounting to $250,000 which is being
amortized as the shares vest. During January 1997, 25,000 of these shares were
canceled and the vesting schedule for the remaining shares terminated whereby
the shares became fully vested. For the three months ended March 31, 1997,
$46,875 has been amortized as a compensation expense.
During December 1996, the Company entered into an employment agreement with
two of the officer's of Breaking Waves, whereby 5,000 shares each of common
stock of the Company was issued as compensation for services. Accordingly, the
Company recorded deferred compensation amounting to $25,000, which is being
amortized as the shares vest. For the three months ended March 31, 1997, $8,334
has been amortized as compensation expenses.
During March 1997, pursuant to the Senior Management Incentive Plan, the
Company issued 100,000 options to the Company President and 50,000 options to an
officer.
As of March 31, 1997, the Company has invested $1,452,750 in D.L. for the
co-production and distribution of such motion picture whereas the co-producers
have invested $100,000 in D.L. which has been recorded as a capital contribution
to the Company.
For the three months ended March 31, 1997, the Company provided cash for
operating activities amounting to $24,532. The major components of such use of
cash was for the payment of amounts due Breaking Wave's factor of $1,320,604.
The majority of cash for operating activities amounting to $1,127,468 was
provided from sales of inventory. For the year ended March 31, 1997, the Company
used $276,448 of cash which was primarily for the partial redemption of Breaking
Wave's preferred stock, pursuant to the purchase agreement.
<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:
In January 1997, a Form 8-K was filed wherein the following was reported:
(i ) the resignation on January 10, 1997 of the Company's President, Chief
Executive Officer, and Director, Robert Melillo; (ii) the election of Harold
Rashbaum as President of the Company; and (iii) the election of Robert DiMilia
as Vice President, Secretary, and Director of the Company.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Hollywood Productions, Inc.
(Registrant)
Dated: May 15, 1997 /s/ Harold Rashbaum
Harold Rashbaum
President
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Hollywood Productions, Inc.
Exhibit 27
Financial Data Schedule
Article 5 Of Regulation S-X
</LEGEND>
<CAPTION>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> dec-31-1996
<PERIOD-END> mar-31-1997
<CASH> 2,441,181
<SECURITIES> 4,155
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 688,058
<CURRENT-ASSETS> 4,849,005
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,078,694
<CURRENT-LIABILITIES> 577,989
<BONDS> 0
0
0
<COMMON> 6,093
<OTHER-SE> 5,494,612
<TOTAL-LIABILITY-AND-EQUITY> 6,078,694
<SALES> 2,441,081
<TOTAL-REVENUES> 2,441,081
<CGS> 1,465,799
<TOTAL-COSTS> 655,077
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 122,999
<INCOME-PRETAX> 197,206
<INCOME-TAX> 69,827
<INCOME-CONTINUING> 127,379
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 127,379
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0
</TABLE>
