SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 Jurisdiction of Incorporation) (I.R.S. Employer Identification o.)
14 East 60th Street, Ste 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
September 30, 1997.
<PAGE>
HOLLYWOOD PRODUCTIONS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION:
ITEM 1 - FINANCIAL STATEMENTS
<S> <C>
Consolidated balance sheets at
September 30, 1997 (unaudited) and December 31, 1996 2
Consolidated statements of operations (unaudited)
for the three months ended September 30, 1997 and 1996 3
Consolidated statements of operations (unaudited)
for the nine months ended September 30, 1997 and 1996 4
Consolidated statements of stockholders' equity (unaudited)
for the nine months ended September 30, 1997 5
Consolidated statements of cash flows (unaudited)
for the six months ended September 30, 1997 and 1996 6 - 7
Notes to consolidated financial statements 8 - 10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 11 - 14
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS 15
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 15
Item 3. DEFAULTS UPON SENIOR SECURITIES 15
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
Item 5. OTHER INFORMATION 15
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 15
</TABLE>
<PAGE>
HOLLYWOOD PRODUCTION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
(Unaudited)
September December
30, 1997 31, 1996
Current assets:
<S> <C> <C>
Cash and cash equivalents .......................................... $ 2,013,883 $ 2,717,629
Accounts receivable 312 22,351
Prepaid expenses ................................................... 43,935 86,698
Inventory .......................................................... 2,160,446 1,815,526
Film production and distribution costs ............................. 1,693,781 1,518,639
Deferred offering costs ............................................ 58,461 --
Advances to related parties ........................................ 105,266 115,854
Total current assets .......................................... 6,076,084 6,276,697
Deferred compensation, net ............................................. 46,875 209,722
Organizational costs, net .............................................. 81,250 100,000
Excess of cost over net assets acquired, net ........................... 993,331 1,046,545
Other assets ........................................................... 26,315 10,118
Total assets ........................................................... $ 7,223,855 $ 7,643,082
LIABILITIES AND STOCKHOLDERS= EQUITY
Current liabilities:
Accounts payable ................................................... $ 578,768 $ 61,788
Accrued expenses ................................................... 13,375 103,194
Due to factor ...................................................... 1,539,324 1,434,686
Income taxes payable ............................................... -- 35,279
Deferred taxes payable ............................................. 76,853 12,309
Total current liabilities ..................................... 2,208,320 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 4) ................................. -- --
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 ................................................ (859,773) (221,982)
Total stockholders= equity .................................... 4,735,535 5,435,826
Total liabilities and stockholders= equity ............................. $ 7,223,855 $ 7,643,082
</TABLE>
_PAGE _3_
<PAGE>
HOLLYWOOD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Net sales .................................................. $ 48,207 $2,919
Cost of sales .............................................. 10,973 --
-----------
Gross profit ............................................... 37,234 2,919
-----------
Expenses:
Selling, general and administrative expenses ........... 437,025 77,274
Amortization of excess of costs over net assets acquired 17,738 --
Total expenses ............................................. 454,763 77,274
-----------
Loss before interest expense
and provision for income taxes ............................ (417,529) (74,355)
Other income (expense):
Interest and finance expense ........................... (29,426) (692)
Interest income ........................................ 24,006 --
-----------
Total other income (expense) ...................... (5,420) (692)
----------- -----------
Loss before provision for
income taxes .............................................. (422,949) (75,047)
Provision for income tax expense ........................... 33,683 --
-----------
Net loss ................................................... $ (456,632) $(75,047)
=========== ===========
Loss per common equivalent shares:
Net loss ............................................... $ (.07) (.01)
=========== ===========
Weighted average number of
common shares outstanding ................................. 6,092,500 5,075,500
===========
</TABLE>
See notes to consolidated financial statements (unaudited)
<PAGE>
HOLLYWOOD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Net sales .................................................. $ 3,420,492 $2,919
Cost of sales .............................................. 2,168,580 --
Gross profit ............................................... 1,251,912 2,919
Expenses:
Selling, general and administrative expenses ........... 1,647,472 160,536
Amortization of excess of costs over net assets acquired 53,214 --
Total expenses ............................................. 1,700,686 160,536
Loss before interest expense
and provision for income taxes ............................ (448,774) (157,617)
Other income (expense):
Interest and finance expense ........................... (193,551) (692)
Interest income ........................................ 77,994 --
Total other income (expense) ...................... (115,557) (692)
Loss before provision for
income taxes .............................................. (564,331) (158,309)
Provision for income taxes ................................. 73,460 --
Net loss ................................................... $ (637,791) $(158,309)
Loss per common equivalent shares:
Net loss ............................................... $ (.10) $ (.03)
Weighted average number of
common shares outstanding ................................. 6,092,500 5,028,932
</TABLE>
See notes to consolidated financial statements (unaudited)
<PAGE>
HOLLYWOOD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Equity
<S> <C> <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 loss for the nine months
ended September 30, 1997 ..................... -- -- -- (637,791) (637,791)
Balances at September 30, 1997 ................6,092,500 $ 6,093 $ 5,589,215 $ (859,773) $ 4,735,535
</TABLE>
See notes to consolidated financial statements (unaudited)
<PAGE>
HOLLYWOOD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1997 1996
---------------- ---------
Cash flows from operating activities:
<S> <C> <C>
Net loss ...................................................................$ (637,791) $(158,309)
Adjustments to reconcile net loss to
net cash used by operating activities
Amortization and depreciation .............................................. 176,907 18,750
Issuance of common stock for services ...................................... -- 18,750
Forgiveness of note receivable in lieu of compensation ..................... 30,130 --
Deferred income taxes ...................................................... 64,544 --
Decrease (increase) in:
Accounts receivable ................................................... 22,039 --
Prepaid expenses ...................................................... 42,763 (171,471)
Inventory ............................................................. (344,920) (1,499,158)
Film production costs ................................................. (175,142) (1,306,057)
Other assets .......................................................... (7,310) (20,091)
Increase (decrease) in:
Accounts payable ...................................................... 516,980 18,513
Accrued expenses ...................................................... (89,819) 27,998
Due to factor ......................................................... 104,638 1,388,548
Income taxes payable .................................................. (35,279) --
----------- -----------
Net cash used by operating activities ................................. (332,260) (1,682,527)
----------- -----------
Cash flows from investing activities:
Acquisition of other assets ................................................ (13,483) (1,414)
Subsidiary=s redemption of preferred stock ................................. (280,000) --
----------- -----------
Net cash used for investing activities ................................ (293,483) (1,414)
----------- -----------
Cash flows from financing activities:
Net advances to related parties ............................................ (19,542) --
Deferred offering costs .................................................... (58,461) (686,151)
Proceeds from advances from related parties ................................ -- 371,010
Proceeds from issuance of common stock and warrants ........................ -- 3,813,294
Issuance of Series A preferred stock ....................................... -- 560,000
Proceeds from stock subscription receivable ................................ -- 1,000,000
Proceeds from capital contributions ........................................ -- 100,000
-----------
Net cash (used for) provided by financing activities .................. (78,003) 5,158,153
----------- -----------
Net (decrease) increase in cash ................................................ (703,746) 3,474,212
Cash, beginning of period ...................................................... 2,717,629 --
-----------
Cash, end of period ............................................................ 2,013,883 $3,474,212
Supplemental disclosure of non-cash flow information: Cash paid during the year
for:
Interest .............................................................. $ 129,819 $692
Income taxes .......................................................... $ 23,650 $ -
</TABLE>
See notes to consolidated financial statements (unaudited)
<PAGE>
HOLLYWOOD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1997 1996
---------------- ---------
Schedule of non-cash operating activities:
In connection with the Senior Management Incentive Plan,
25,000 shares originally issued as consideration for services
<S> <C> <C>
rendered to the Company were canceled $ (62,500)$ -
=============== ===
In connection with the Senior Management Incentive Plan 125,000 shares of
common stock issued as consideration for
services rendered the Company $ - $ 312,500
=========================
In connection with the formation of the Company, 50,000
shares of common stock were issued $ - $ 125,000
=========================
In connection with consulting services rendered the Company,
7,500 shares of common stock were issued $ - $ 18,750
========================
</TABLE>
See notes to consolidated financial statements (unaudited)
<PAGE>
HOLLYWOOD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
NOTE 1 - ORGANIZATION
Hollywood Productions, Inc. (the "Company") was incorporated in the State
of Delaware on December 1, 1995.
The Company's and its subsidiaries' year end is December 31.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with instructions to Form 10-QSB. 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 December 31,
1996, included in the Company=s Annual Report Form 10K-SB, filed with the
Securities and Exchange Commission.
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
(61/2) percent payable over three years. During January 1997, the balance of one
of the notes amounting to $30,130 was written off as part of a severance package
for one of its previous officers. As of September 30, 1997 the remaining note
amounted to $52,834.
The remaining balance, amounting to $52,432, represents advances to
officers, shareholders and other related parties. Such advances are non-interest
bearing and are due on demand.
NOTE 3 - DUE TO FACTOR
a) NationsBanc
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 $14,453 and $136,467 for the three and nine months
ended September 30, 1997, respectively. The agreement with Nations was
terminated when Breaking Waves entered into a new agreement. (See Note 3(b)).
NOTE 3 - DUE TO FACTOR (Cont=d)
b) Heller Financial
On August 20, 1997, Breaking Waves entered into a factoring and revolving
inventory loan and security agreement with Heller Financial, Inc. (AHeller@) to
sell their interest in all present and future receivables without recourse.
Breaking Waves submits all sales orders to Heller for credit approval prior to
shipment, and pays Heller 1% of the net amount of the receivable. Heller retains
from amounts payable to Breaking Waves a reserve for possible obligations such
as customer disputes and possible credit losses on unapproved receivable.
Breaking Waves may take advances of up to 85% of the purchase price on the
receivable, with interest charged at the rate of 1:% over prime. Interest
charged to expense totaled approximately $8,078 and for the three months ended
September 30, 1997. Heller 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 September 30, 1997 are as follows:
<TABLE>
<CAPTION>
Year ended
December 31,
<S> <C> <C>
1997 $ 42,380
1998 119,157
1999 119,157
2000 90,282
2001 69,657
--------------
$ 440,633
</TABLE>
Rent expense charged to operations for the three
and nine months ended September 30, 1997 amounted to approximately $37,700 and
$110,307, respectively.
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 and nine months ended September 30, 1997, Breaking
Waves incurred royalty and advertising expenses amounting to approximately
$25,500 and $76,500, respectively.
c) Concentration of risk
Breaking Waves purchases the majority of it's inventory from one vendor in
Indonesia. For the nine months ended September 30, 1997, Breaking Waves
purchased 96% of its merchandise from this vendor. Breaking Waves has four
customers which comprised 57% of net sales for the nine months ended September
30, 1997.
NOTE 4 - COMMITMENTS AND CONTINGENCIES (Cont=d)
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 September 30, 1997, the Company invested
$1,593,781 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.
<PAGE>
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 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 ADirty Laundry@. As of
September 30, 1997, the Company has presented consolidated financial statements.
RESULTS OF OPERATIONS
For the three months ended September 30, 1997 as compared to the three
months ended September 30, 1996
From July 1, 1997, to September 30, 1997 the Company's subsidiary, Breaking
Waves, generated sales amounting to $36,489 with cost of sales amounting to
$10,973. Breaking Waves generated a net loss amounting to approximately $328,000
after an estimated provision for income tax expense of approximately $31,000. Of
the total selling, general and administrative expenses amounting to $437,025,
$300,913 were incurred by Breaking Waves with the remainder amounting to
$136,112 incurred by the Company.
The major components of the total selling, general and administrative
expenses of the Company are composed of the following: $21,179 of consulting and
compensation expenses paid to officers of the Company paid in the form of common
stock; and amortization of organization costs of $6,250. The remainder of
expenses amounting to approximately $409,596 is composed of rent amounting to
$37,704; officer's salaries of $94,016; other salaries and related payroll taxes
amounting to approximately $68,879; legal and professional fees of $14,988;
miscellaneous office expenses of $80,844; and miscellaneous selling expenses of
$113,165.
For the three months ended September 30, 1997, the Company reported a
consolidated net loss amounting to $456,632 after an estimated provision for
income tax expense amounting to approximately $33,683.
For the nine months ended September 30, 1997 as compared to the nine months
ended September 30, 1996
From January 1, 1997, to September 30, 1997 the Company's subsidiary,
Breaking Waves, generated sales amounting to $3,408,774 with cost of sales
amounting to $2,168,580. Breaking Waves generated a net loss after an estimated
provision for income taxes and deferred income taxes of $64,544 amounting to
approximately $58,276. Of the total selling, general and administrative expenses
amounting to $1,647,472, $1,052,352 were incurred by Breaking Waves with the
remainder amounting to $595,120 incurred by the Company.
<PAGE>
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, 1997 as compared to the nine months
ended September 30, 1996 (Cont=d)
The major components of the total selling, general and administrative
expenses of the Company are composed of the following: $55,700 of consulting
expenses paid to an officer of the Company; $100,347 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 $18,750. The remainder of expenses
amounting to approximately $1,442,545 is composed of rent amounting to $114,807;
officer's salaries of $277,048; other salaries and related payroll taxes
amounting to approximately $255,564; legal and professional fees of $63,485,
miscellaneous office expenses of $280,805; and miscellaneous selling expenses of
$450,836.
For the nine months ended September 30, 1997, the Company reported a
consolidated net loss amounting to $637,791 after an estimated provision for
income taxes amounting to approximately $73,460.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company has a consolidated working capital
amounting to $3,867,764. 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 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 and $122,014 for the three and six months
ended September 30, 1997, respectively. The agreement with Nations was
terminated when Breaking Waves entered into a new agreement.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Cont=d)
LIQUIDITY AND CAPITAL RESOURCES (Cont=d)
On August 20, 1997, Breaking Waves entered into a factoring and revolving
inventory loan and security agreement with Heller Financial, Inc. (AHeller@) to
sell their interest in all present and future receivables without recourse.
Breaking Waves submits all sales orders to Heller for credit approval prior to
shipment, and pays Heller 1% of the net amount of the receivable. Heller retains
from amounts payable to Breaking Waves a reserve for possible obligations such
as customer disputes and possible credit losses on unapproval receivable.
Breaking Waves may take advances of up to 85% of the purchase price on the
receivable, with interest charged at the rate of 1:% over prime. Interest
charged to expense totaled approximately $8,078 for the three months ended
September 30, 1997. Heller 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 and six months ended September
30, 1997, Breaking Waves incurred royalty and advertising expenses amounting to
approximately $25,000 and $76,500, respectively.
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 and nine months
ended September 30, 1997, $15,625 and $78,125, respectively 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 and six months ended September 30,
1997, $5,554 and $22,222, respectively 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 September 30, 1997, the Company has invested $1,593,781 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.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Cont=d)
LIQUIDITY AND CAPITAL RESOURCES (Cont=d)
For the nine months ended September 30, 1997 and 1996, the Company used
cash for operating activities amounting to $332,260 and $1,682,527,
respectively. The major components of such use of cash for the nine months ended
September 30, 1997 was for the increase in Breaking Wave=s inventory of $344,920
and the loss of $637,791 and for the nine months ended September 30, 1996, the
major use of cash was $1,306,057 advanced to D.L. for production of the motion
picture. The majority of cash provided for operating activities for the nine
months ended September 30, 1997 amounting to $516,980 was provided from
increases in accounts payable. For the nine months ended September 30, 1997, the
Company used $293,483 of cash for investing purposes which was primarily for the
partial redemption of Breaking Wave=s preferred stock pursuant to the purchase
agreement. For the nine months ended September 30, 1996, $5,158,153 of cash was
provided by financing activities, primarily from proceeds from the Company=s
initial public offering, the collection of stock subscriptions receivable and
the capital contribution.
<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
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: November 18, 1997 /s/ Harold Rashbaum
Harold Rashbaum
President
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27
HOLLYWOOD PRODUCTIONS, INC.
This schedule contains summary financial information extracted from
Balance Sheet, Statement of Operations, Statement of Cash Flows and Notes
thereto incorporated in Part I, Item 1 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> dec-31-1996
<PERIOD-END> sep-30-1997
<CASH> 2,188,730
<SECURITIES> 0
<RECEIVABLES> 23,445
<ALLOWANCES> 0
<INVENTORY> 120,640
<CURRENT-ASSETS> 4,433,308
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,614,692
<CURRENT-LIABILITIES> 142,525
<BONDS> 0
0
0
<COMMON> 6,093
<OTHER-SE> 5,186,074
<TOTAL-LIABILITY-AND-EQUITY> 5,614,692
<SALES> 931,204
<TOTAL-REVENUES> 931,204
<CGS> 691,808
<TOTAL-COSTS> 691,808
<OTHER-EXPENSES> 557,242
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,742
<INCOME-PRETAX> (338,588)
<INCOME-TAX> (30,050)
<INCOME-CONTINUING> (308,538)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (308,538)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
