HOLLYWOOD PRODUCTIONS, INC.
14 East 60th Street, Suite 402
New York, New York 10022
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on January 28, 1998
To the Shareholders of HOLLYWOOD PRODUCTIONS, INC.
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of
HOLLYWOOD PRODUCTIONS, INC. ("the Corporation") will be held at the
Corporation's offices located at 14 East 60th Street, Suite 402, New York, New
York, on January 28, 1998, at 10:00 a.m.
Eastern time, for the following purposes:
1. To elect four (4) Directors to the Corporation's Board of Directors
to hold office for a period of one year or until their successors are duly
elected and qualified;
2. To vote on the proposal to reverse split the Corporation's
outstanding shares of Common Stock on a 1 for 3 basis; and
3. To transact such other business as properly may be brought before
the meeting or any adjournment thereof.
The close of business on December 15, 1997 has been fixed as the record
date for the determination of shareholders entitled to notice of, and to vote
at, the meeting and any adjournment thereof.
You are cordially invited to attend the meeting. Whether or not you
plan to attend, please complete, date, and sign the accompanying proxy, and
return it promptly in the enclosed envelope to assure that your shares are
represented at the meeting. If you do attend, you may revoke any prior proxy and
vote your shares in person if you wish to do so. Any prior proxy automatically
will be revoked if you execute the accompanying proxy or if you notify the
Secretary of the Corporation, in writing, prior to the Special Meeting of
Shareholders.
By order of the Board of Directors
Robert DiMilia, Secretary
Dated: January 5, 1998
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, AND SIGN
THE ENCLOSED PROXY, AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER TO
ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF MAILED IN
THE UNITED STATES.
<PAGE>
HOLLYWOOD PRODUCTIONS, INC.
14 East 60th Street, Suite 402
New York, New York 10022
PROXY STATEMENT
FOR
Special Meeting of Stockholders
To Be Held on January 28, 1998
This proxy statement and the accompanying form of proxy were mailed on
January 5, 1998 to the stockholders of record (as of December 15, 1997) of
Hollywood Productions, Inc., a Delaware corporation ("the Corporation"), in
connection with the solicitation of proxies by the Board of Directors of the
Corporation for use at the Special Meeting to be held on January 28, 1998 and at
any adjournment thereof.
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
Shares of the Corporation's Common Stock, par value $.001 per share
("the Common Stock"), represented by an effective proxy in the accompanying form
will, unless contrary instructions are specified in the proxy, be voted FOR the
proposal (i) to elect four (4) Directors to the Corporation's Board of Directors
to hold office for a period of one year or until their successors are duly
elected and qualified; and (ii) to reverse split the Corporation's outstanding
shares of Common Stock on a 1 for 3 basis.
Any such proxy may be revoked at any time before it is voted. A
stockholder may revoke this proxy (i) by notifying the Secretary of the
Corporation, either in writing prior to the Special Meeting or in person at the
Special Meeting; (ii) by submitting a proxy bearing a later date; or (iii) by
voting in person at the Special Meeting. An affirmative vote of a plurality of
the shares of Common Stock present in person or represented by proxy at the
Special Meeting and entitled to vote thereon is required to elect the Directors.
A stockholder voting through a proxy who abstains with respect to the election
of Directors is considered to be present and entitled to vote on the election of
Directors at the meeting, and his abstention is, in effect, a negative vote;
however, a stockholder (including a broker) who does not give authority to a
proxy to vote or who withholds authority to vote on the election of Directors
shall not be considered present and entitled to vote on the election of
Directors. A stockholder voting through a proxy who abstains with respect to
approval of any other matter to come before the meeting is considered to be
present and entitled to vote on that matter, and his abstention is, in effect, a
negative vote; however, a stockholder (including a broker) who does not give
authority to a proxy to vote or who withholds authority to vote on any such
matter shall not be considered present and entitled to vote thereon.
The Corporation will bear the cost of the solicitation of proxies by
the Board of Directors. The Board of Directors may use the services of its
Executive Officers and certain Directors to
<PAGE>
solicit proxies from stockholders in person and by mail, telegram, and
telephone. Arrangements may also be made with brokers, fiduciaries, custodians,
and nominees to send proxies, proxy statements, and other material to the
beneficial owners of the Common Stock held of record by such persons, and the
Corporation may reimburse same for reasonable out-of-pocket expenses incurred by
same in so doing.
The Annual Report on Form 10-KSB for the fiscal year ended December 31,
1997 will be mailed to shareholders when available. The Quarterly Report on Form
10-QSB for the quarter ended September 30, 1997, including unaudited financial
statements, accompanies this proxy statement as Appendix "A."
The principal executive offices of the Corporation are located at 14
East 60th Street, Suite 402, New York, New York 10022; the Corporation's
telephone number is (212) 688-9223.
Certain Reports
No person ("a Reporting Person") who during the fiscal year ended
December 31, 1997 was a Director, Officer, or beneficial owner of more than ten
percent of the Corporation's Common Stock [which is the only class of securities
of the Corporation registered under Section 12 of the Securities Exchange Act of
1934 ("the Act")], failed to file on a timely basis reports required by Section
16 of the Act during the most recent fiscal year or prior years. The foregoing
is based solely upon a review by the Corporation of (i) Forms 3 and 4 during the
most recent fiscal year as furnished to the Corporation under Rule 16a-3(d)
under the Act; (ii) Forms 5 and amendments thereto furnished to the Corporation
with respect to its most recent fiscal year; and (iii) any representation
received by the Corporation from any reporting person that no Form 5 is
required, except as described herein.
VOTING SECURITIES AND SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The securities entitled to vote at the meeting are the Corporation's
Common Stock, par value $.001 per share. The presence, in person or by proxy, of
a majority of shares entitled to vote will constitute a quorum for the meeting.
Each share of Common Stock entitles its holder to one vote on each matter
submitted to the stockholders. The close of business on December 15, 1997 has
been fixed as the record date for the determination of stockholders entitled to
notice of, and to vote at, the meeting and any adjournment thereof. At that
date, 6,092,500 shares of Common Stock were outstanding. Voting of the shares of
Common Stock is on a non-cumulative basis.
The following table sets forth information as of December 15, 1997 with
respect to the beneficial ownership of shares of Common Stock by (i) each person
(including any "group" as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended) known by the Corporation to be the
owner of more than 5% of the outstanding shares of Common Stock; (ii) each
Director; and (iii) all Officers and Directors as a group. Except to the extent
indicated in the footnotes to the following table, each of the individuals
listed below possesses sole voting power with respect to the shares of Common
Stock listed opposite his name.
<PAGE>
<TABLE>
<CAPTION>
Name And Address of Amount and Nature Percent of
Beneficial Owner Of Beneficial Owner Class (1)
- ---------------------- ------------------- --------
<S> <C> <C>
European Ventures Corp. (2) 3,601,050 59.1%
P.O. Box 47
Road Town, Tortolla, British
Virgin Islands
Harold Rashbaum (2) 157,500 (3) 2.5%
c/o Hollywood Productions, Inc.
14 East 60th Street, Suite 402
New York, New York 10022
Alain A. Le Guillou, M.D. (2) -- --
c/o Hollywood Productions, Inc.
14 East 60th Street, Suite 402
New York, New York 10022
Robert DiMilia 50,000 (4) *
c/o Hollywood Productions, Inc.
14 East 60th Street, Suite 402
New York, New York 10022
All Officers and Directors 207,500 (4) 3.3%
(3 as a Group) (2)-(5)
* Less than 1%
</TABLE>
(1) Does not give effect to the issuance of (i) 4,400,000 shares of Common
Stock reserved for issuance upon the exercise of the Warrants; (ii)
240,000 shares of Common Stock reserved for issuance upon the exercise
of the underwriter's warrants and the Warrants underlying the
underwriter's warrants; and (iii) 250,000 shares of Common Stock
reserved for issuance under the Corporation's 1995 Senior Management
Incentive Plan, except for the 75,000 shares issued thereunder and the
150,000 shares underlying options granted pursuant thereto.
(2) Harold Rashbaum is the father-in-law of Ilan Arbel, the sole officer
and director of European Ventures Corp. ("EVC").
(3) Includes (i) 50,000 shares of Common Stock under the Senior Management
Incentive Plan, pursuant to a vesting schedule, of which 25,000 shares
have vested; (ii) 100,000 shares of Common Stock underlying an option
granted under the Corporation's Senior Management Incentive Plan; and
(iii) 7,500 shares issued to H.B.R. Consultants Sales Corp. in
September 1996. See "Executive Compensation- Employment and Consulting
Agreements" and "Senior Management Incentive Plan."
(4) Includes 50,000 shares of Common Stock issuable upon the exercise of an
option granted to Robert DiMilia under the Corporation's Senior
Management Incentive Plan.
<PAGE>
It is expected that the following will be considered at the meeting and
that action will be taken thereon:
I. ELECTION OF DIRECTORS
The Board of Directors currently consists of three members elected for
a term of one year or until their successors are duly elected and qualified. In
order to ensure compliance with new continued listing requirements imposed by
the Nasdaq SmallCap Market, one additional outside Director shall be elected at
the Special Meeting.
An affirmative vote of a plurality of the shares of Common Stock
present in person or represented by proxy at the Special Meeting and entitled to
vote thereon is required to elect the Directors. All proxies received by the
Board of Directors will be voted for the election as Directors of the nominees
listed below if no direction to the contrary is given. In the event any nominee
is unable to serve, the proxy solicited hereby may be voted, in the discretion
of the proxy, for the election of another person in his stead. The Board of
Directors knows of no reason to anticipate this will occur.
The following table sets forth, as of December 15, 1997, the four
nominees for election as Directors of the Corporation:
<TABLE>
<CAPTION>
Position with Corporation; Director
Name Principal Occupation and Age Since
<S> <C> <C>
Harold Rashbaum President, CEO, and Director; 70 1996
Robert DiMilia Vice President, Secretary and 1997
Director; 51
Alain A. Le Guillou, M.D. Director; 40 1996
James B. Frakes Director; 40 *
* standing for election
</TABLE>
The Directors of the Corporation are elected annually by the
stockholders, and the Officers of the Corporation are appointed annually by the
Board of Directors. Vacancies on the Board of Directors may be filled by the
remaining Directors. Each current Director and Officer will hold office until
the next Annual Meeting of stockholders or until his successor is elected and
qualified. All outside directors receive a Director's fee of $1,000 per month
for participation as a Director. The Corporation does not have key man insurance
on the lives of any of its Officers or Directors. On January 10, 1997, Robert
Melillo and the Corporation mutually agreed to the resignation of Mr. Melillo as
the President, Chief Executive Officer, and Director of the Corporation. As of
that time, Mr. Rashbaum took over as President and Chief Executive Officer of
the Corporation. Mr. Melillo remained a consultant to the Corporation, at a
weekly fee of $600, until April 1, 1997.
<PAGE>
Harold Rashbaum has been the President, Chief Executive Officer, and a
Director of the Corporation since January 1997. He was elected President and
Chief Executive Officer when Robert Melillo, former President and Chief
Executive Officer, resigned. From May 1996 to January 1997, Mr. Rashbaum served
as Secretary and Treasurer of the Corporation. Also since May 1996, Mr. Rashbaum
has served as the Secretary, Treasurer, and a Director of D.L. Productions, Inc.
("DLP"), the production company for the Dirty Laundry movie, which company filed
for voluntary dissolution in October 1997 after completion of the movie; he
became President of DLP in January 1997. Since February 1996, Mr. Rashbaum has
also been the President and a Director of H.B.R. Consultant Sales Corp. ("HBR"),
of which his wife is the sole stockholder. Mr. Rashbaum was a consultant to Play
Co. Toys & Entertainment Corp. ("Playco"), a wholesaler and retailer of
children's toys, since July 1995. He became Chairman of the Board of Playco in
September 1996. Prior thereto, from February 1992 to June 1995, Mr. Rashbaum was
a consultant to 47th Street Photo, Inc., an electronics retailer. Mr. Rashbaum
held this position at the request of the bankruptcy court during the time 47th
Street Photo, Inc. was in Chapter 11. From January 1991 to February 1992, Mr.
Rashbaum was a consultant for National Wholesale Liquidators, Inc., a major
retailer of household goods and housewares.
Robert DiMilia has been a Director, Vice President, and Secretary of the
Corporation since January 10, 1997. Prior thereto, he was a consultant to the
Corporation with respect to the production of Dirty Laundry, the Corporation's
first motion picture. From March 1995 to May 1996, Mr. DiMilia was a media and
marketing consultant in the film industry working on a variety of projects. From
1991 to 1994, Mr. DiMilia was a Vice President for the Bon Bon Group, a national
payroll/accounting entertainment service Corporation.
Alain A. Le Guillou, M.D. has been a Director of the Corporation since May
1996. Since July 1995, Dr. Guillou has been a doctor of pediatrics at Montefiore
Medical Group. From July 1992 to June 1995, Dr. Guillou was a pediatric resident
at the University of Minnesota, Gillette Hospital, St. Paul, Minnesota. From
July 1991 to June 1992, Dr. Guillou was an intern at Montefiore Medical Center,
Bronx, New York. Dr. Guillou is the son-in-law of Harold Rashbaum.
James B. Frakes is nominated to be elected as a Director of the
Corporation. Mr. Frakes was elected Chief Financial Officer of Playco in June
1997 and was appointed as a Director of Playco to fill an existing vacancy in
August 1997. Prior thereto, from June 1990 to March 1997, Mr. Frakes was Chief
Financial Officer of Urethane Technologies, Inc. ("UTI") and two of its
subsidiaries: Polymer Development Laboratories, Inc. ("PDL") and BMC
Acquisition, Inc. These were specialty chemical companies which focused on the
polyurethane segment of the plastics industry. Mr. Frakes was also Vice
President and a Director of UTI during this period. In March 1997, three
unsecured creditors of PDL filed a petition for the involuntary bankruptcy of
PDL. This matter is pending before the United States Bankruptcy Court, Central
District of California. In 1980, Mr. Frakes obtained a Masters in Business
Administration from University of Southern California. He obtained his Bachelor
of Arts degree in history from Stanford University from which he graduated with
honors in 1978.
<PAGE>
Significant Employees
Dan Stone, 61, Chairman of the Board of Breaking Waves, Inc. from its
inception in 1991 until the consummation of the Corporation's acquisition of
Breaking Waves, Inc. in September 1996 ("the Acquisition"), became a consultant
to the Corporation in September 1996. Mr. Stone's consulting agreement
terminates on December 31, 1997. Mr. Stone has been the President and a Director
of D. Stone Industries, Inc. and Dan Stone Industries, Inc. since their
inceptions in 1981 and 1991, respectively.
Malcolm Becker, 61, has been the Vice President of design, merchandising,
and production of Breaking Waves, Inc. since its inception in 1991.
Michael Friedland, 59, has been the Vice President of marketing and sales
of Breaking Waves, Inc. since its inception in 1991.
The Corporation has agreed to indemnify its Officers and Directors with
respect to certain liabilities including liabilities which may arise under the
Securities Act of 1933. Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to Directors, Officers, and controlling
persons of the Corporation pursuant to any charter, provision, by-law, contract,
arrangement, statute or otherwise, the Corporation has been advised that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Corporation of expenses incurred or
paid by a Director, Officer, or controlling person of the Corporation in the
successful defense of any such action, suit, or proceeding) is asserted by such
Director, Officer, or controlling person of the Corporation in connection with
the Securities being registered, the Corporation will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act. The Corporation will be
governed by the final adjudication of such issue.
Board Meetings, Committees, and Compensation
During the fiscal year ended December 31, 1997, no meetings of the Board of
Directors were held. Actions were taken on three (3) occasions by unanimous
written consent of the Board of Directors, which consent was obtained in lieu of
meetings. The Corporation does not pay its Directors for attendance at Board of
Directors meetings or committee meetings. Upon the election of the directors
nominated hereunder, the Corporation shall form an audit committee, which
committee shall be comprised of the two outside directors, James Frakes and
Alain A. Le Guillou, M.D. and Harold Rashbaum as the inside director.
The Board of Directors recommends that you vote "FOR" the nominees for
Directors.
<PAGE>
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following provides certain information concerning all Plan and
Non-Plan (as defined in Item 402 (a)(ii) of Regulation S-B) compensation awarded
to, earned by, or paid by the Corporation during the period ended September 30,
1997 to each of the named executive officers of the Corporation:
<TABLE>
<CAPTION>
Summary Compensation Table
Securities Restricted Securities
Name and Principal Underlying Underlying All Other
Position Year Salary($) Options/SARS ($) Award Compensation
- ------------------ ---- --------- ---------------- --------------------- ------------
<S> <C> <C> <C> <C> <C>
Harold Rashbaum 1997 (1) 108,000 100,000 (2) 50,000 (3) --
Chief Executive Officer
President
Robert Melillo 1997 (5) 4,000 -- 25,000 (6) --
Former Chief Executive
Officer
- --------------------
</TABLE>
(1) In October 1996, Mr. Rashbaum began receiving a salary of approximately
$100,000 per annum. His salary was increased to $156,000 in March 1997.
At the closing of the Corporation's initial public offering, HBR, a
Corporation controlled by Mr. Rashbaum and owned by his wife, received
7,500 shares of Common Stock and a consulting fee of $40,000 for
services rendered prior to his becoming an Officer of the Corporation.
(2) Includes options to purchase shares of Common Stock issued in March
1997 under the Corporation's Senior Management Incentive Plan. See
"Senior Management Incentive Plan."
(3) Includes shares issued under the Senior Management Incentive Plan in
June 1996, subject to a vesting schedule. See "Senior Management
Incentive Plan."
(4) Mr. Melillo received an annual salary of $104,000 per annum through
January 10, 1997, when he resigned as an Officer and Director of the
Corporation. He continued as a consultant until April 1997 and received
a consulting fee of $600 per week.
(5) Mr. Melillo received 50,000 shares of Common Stock in the Corporation
pursuant to the Corporation's Senior Management Incentive Plan, subject
to a vesting schedule, whereby 25,000 shares would vest in each of June
of 1997 and 1998. Upon his resignation on January 10, 1997, Mr. Melillo
returned 25,000 shares to the Corporation, and the Corporation agreed
that the remaining shares should be vested.
Employment and Consulting Agreements
Prior to his becoming an Officer and Director of the Corporation, Mr.
Rashbaum provided consulting to the Corporation through HBR, a corporation of
which he is an Officer and Director and of which his wife is the sole
stockholder. HBR entered into an oral consulting
<PAGE>
agreement with the Corporation whereby it will receive 5% of the net profits of
the Motion Picture received by the Corporation. In addition, HBR received
$40,000 and 7,500 shares of the Corporation's Common Stock at the closing of the
Corporation's initial public offering. Mr. Rashbaum receives a salary of
$156,000 per annum for being an Officer of the Corporation. In addition, Mr.
Rashbaum received 50,000 shares of Common Stock under the Corporation's Senior
Management Incentive Plan. These shares vest at the rate of 25,000 shares on
each of March 1997 and 1998. Pursuant to the restricted share agreement, the
shares only vest if Mr. Rashbaum continues to provide services to the
Corporation. Shares not vested shall be returned to the Corporation's treasury.
In March 1997, pursuant to the Corporation's Senior Management
Incentive Plan, the Corporation granted (i) Mr. Rashbaum, as Chief Executive
Officer of the Corporation, an option to purchase 100,000 shares of Common Stock
at $5.125 per share; and (ii) Mr. DiMilia, as Secretary, an option to purchase
50,000 shares of Common Stock at $5.125 per share. See "Certain Relationships
and Related Transactions." Neither Mr. Rashbaum nor Mr. DiMilia have entered
employment agreements with the Corporation or any of its subsidiaries.
In January 1996, Dan Stone entered into a two year consulting agreement
with Breaking Waves, Inc. Pursuant to the agreement, Mr. Stone oversees the
operation of Breaking Waves, Inc. in return for a yearly consulting fee of
$100,000. Mr. Stone received $50,000 from the proceeds of the Corporation's
initial public offering as payment in advance for half of the 1997 consulting
fee, the balance of which fee shall have been paid in full by December 31, 1997,
at which time Mr. Stone's consulting agreement terminates.
In November 1997, Breaking Waves, Inc. entered into 3 year employment
agreements with each of Malcolm Becker and Michael Friedland. The agreements
provide for salaries of $110,000 for the terms of employment and the granting of
shares of the Corporation's Common Stock each year. The number of shares of the
Common Stock shall be equal to a Market Value (as hereinafter defined) of
$25,000 on the date of issuance, subject to a vesting schedule. The vesting
schedule shall be as follows: (i) 1/2 of the shares received on November 27,
1996 shall vest 90 days from said date with the balance vesting 270 days from
November 27, 1996; and (ii) on each subsequent annual issuance, commencing
November 27, 1997, 1/2 of the shares shall vest six months from issuance with
the balance vesting on the following anniversary. The shares vest pursuant to
restricted share agreements. "Market Value" shall mean (i) $5.00 per share with
respect to the shares issued in November 1996; and (ii) the average of the
closing bid and asked prices for a share of Common Stock for a period of 30 days
ending five days prior to the date of issuance, as officially reported by the
principal securities exchange on which the Common Stock is quoted. The
agreements include nondisclosure and non-compete clauses.
Senior Management Incentive Plan
In May 1996, the Board of Directors adopted the Senior Management
Incentive Plan ("the Management Plan") which was approved and adopted by
stockholder consent. The Management Plan provided for the issuance of up to
250,000 shares of the Corporation's Common Stock in connection with the issuance
of stock options and other stock purchase rights to Executive
<PAGE>
Officers and other key employees and consultants. The Board of Directors, upon
stockholder approval obtained at the Corporation's 1997 Annual Meeting held on
June 30, 1997, adopted a proposal to increase the shares of Common Stock
issuable under the Management Plan to 750,000 shares.
The Management Plan was adopted to provide the Board of Directors with
sufficient flexibility regarding the forms of incentive compensation which the
Corporation will have at its disposal for rewarding Executive Officers,
employees, and consultants of the Corporation (or any subsidiaries thereof) who
render significant services to the Corporation. The Management Plan provides
equity ownership, or the right to acquire equity ownership, in the Corporation
through the grant of stock options and other rights pursuant to the Management
Plan to enable the Corporation to attract and retain qualified personnel without
unnecessarily depleting the Corporation's cash reserves. The Management Plan is
designed to augment the Corporation's existing compensation programs and is
intended to enable the Corporation to offer a personal interest in the
Corporation's growth and success through awards of either shares of Common Stock
or rights to acquire shares of Common Stock to individuals who provide
significant services to the Corporation.
The Management Plan is intended to help the Corporation attract and retain
key executive management personnel whose performance is expected to have a
substantial impact on the Corporation's long-term profit and growth potential by
encouraging and assisting those persons to acquire equity in the Corporation. It
is contemplated that only employees who perform services of special importance
to the Corporation will be eligible to participate under the Management Plan. It
is anticipated that awards made under the Management Plan will be subject to
vesting periods, although the vesting periods are subject to the discretion of
the Board or an administrator of the Management Plan.
In March 1997, pursuant to the Management Plan, the Corporation granted
options to purchase 100,000 shares of Common Stock to Mr. Rashbaum and 50,000
shares to Mr. DiMilia exercisable at $5.125 per share.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 1995, in connection with the incorporation of the
Corporation, European Ventures Corporation ("EVC") acquired 5,000,000 shares of
the Corporation's Common Stock and 2,000,000 Warrants for an aggregate
consideration of $1,100,000. 1,400,000 shares of Common Stock and 2,000,000
Warrants were registered for sale in the Corporation's initial public offering.
1,398,950 of these shares and all of the Warrants have been resold to date.
In January 1996, Dan Stone entered into a two year consulting agreement
with Breaking Waves, Inc. Pursuant to the agreement, Mr. Stone oversees the
operation of Breaking Waves, Inc. in return for a yearly consulting fee of
$100,000. Mr. Stone received $50,000 from the proceeds of the Corporation's
initial public offering as payment in advance for half of the 1997 consulting
fee, the balance of which fee shall have been paid in full by December 31, 1997,
at which time Mr. Stone's consulting agreement terminates.
<PAGE>
See "Executive Compensation" for a discussion of the Corporation's
employment and consulting agreements and compensation received by management.
All transactions between the Corporation and any Officer, Director, or
5% stockholder will be on terms no less favorable than those which might be
obtained in transactions between the Corporation and independent third parties
and will be approved by a majority of the independent disinterested directors of
the Corporation.
II. REVERSE STOCK SPLIT
In December 1997, the Corporation's board of directors voted to submit
a proposal to the Corporation's shareholders to reverse split the Corporation's
shares of Common Stock on a 1 for 3 basis. Management of the Corporation is of
the opinion that a reverse split of the Corporation's stock, 1 for 3 (1 new
share for every 3 old shares), is in the best interests of the Corporation's
shareholders. All fractional shares will be rounded up or down to the nearest
whole shares. No cash will be paid for any fractions of shares.
Currently, the Corporation's Common Stock is quoted on the Nasdaq
SmallCap Stock Market ("Nasdaq"). The Corporation is required to maintain
certain Nasdaq maintenance requirements, one of which is that the shares of
Common Stock maintain a bid price of $1.00. Due to the Corporation's failure to
maintain the Nasdaq bid price requirement, the Corporation has proposed this
reverse stock split. In order to continue to have its shares of Common Stock
listed on Nasdaq, the Corporation is required to maintain (i) net tangible
assets of at least $2,000,000; (ii) a minimum bid price of $1.00; (iii) two
market makers; (iv) 300 stockholders; (v) at least 500,000 shares in the public
float; and (vi) a minimum market value of $1,000,000 for the public float. As of
September 30, 1997, the Corporation believes it met all the other requirements.
At present, the bid price of the Corporation's Common Stock is below
$1.00. The proposed reverse split is necessary, and management believes that it
is the best strategy, to ensure the Corporation's compliance with Nasdaq's
continued listing requirements.
In the event the Corporation's Common Stock is delisted from Nasdaq,
trading, if any, of the Corporation's securities will thereafter be conducted in
the over-the-counter market on the OTC Bulletin Board. Consequently, an investor
may find his securities to be less liquid, and therefore, more difficult to
transfer. He may also find it difficult to obtain accurate quotations of the
price of the Corporation's securities. In effecting this reverse stock split,
the Corporation anticipates that it will be able to obtain additional equity
capital and continue to maintain its Nasdaq listing. The reverse split will be
effected by reducing the Corporation's present issued and outstanding shares of
Common Stock from approximately 6,092,500 shares to approximately 2,030,833
shares. The effective date for purposes of calculating the reverse split will be
as soon as practicable, after the meeting date, as Nasdaq can effect the reverse
split within its systems.
The affirmative vote of the holders of a majority of the shares of the
Common Stock issued and outstanding on the record date, voting together as a
single class, is required for the approval of this proposal. The Directors and
Officers of the Corporation and other principal
<PAGE>
stockholders owning of record, beneficially, directly and indirectly, an
aggregate of approximately 60.3% of such shares outstanding on the record date,
have agreed to vote in favor of approval of this proposal; therefore, this
proposal shall be approved at the meeting.
The Board of Directors recommends that you vote "FOR" this Proposal.
FINANCIAL INFORMATION
A COPY OF THE CORPORATION'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1997 SHALL BE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION AND SHALL BE FURNISHED WITHOUT THE ACCOMPANYING EXHIBITS TO
STOCKHOLDERS, WITHOUT CHARGE, UPON WRITTEN REQUEST THEREFOR SENT TO ROBERT
DIMILIA, SECRETARY, HOLLYWOOD PRODUCTIONS, INC., 14 EAST 60TH STREET, SUITE 402,
NEW YORK, NEW YORK 10022.
III. OTHER BUSINESS
As of the date of this proxy statement, the only business which the
Board of Directors intends to present and knows that others will present at the
Special Meeting is that herein set forth. If any other matter is properly
brought before the Special Meeting or any adjournments thereof, it is the
intention of the persons named in the accompanying form of proxy to vote the
proxy on such matters in accordance with their judgment.
By Order of the Board of Directors,
Robert DiMilia
Secretary
January 5, 1998
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE AND RETURN YOUR
PROXY PROMPTLY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF IT IS MAILED
IN THE UNITED STATES OF AMERICA.
<PAGE>
Exhibit A
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>
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.
<TABLE>
<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
URRENT-ASSETS 4,433,308
PP&E 0
DEPRECIATION 0
TOTAL-ASSETS 5,614,692
CURRENT-LIABILITIES 142,525
BONDS 0
PREFERRED-MANDATORY 0
PREFERRED 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
NTEREST-EXPENSE 20,742
INCOME-PRETAX (338,588)
INCOME-TAX (30,050)
INCOME-CONTINUING (308,538)
DISCONTINUED 0
EXTRAORDINARY 0
HANGES 0
NET-INCOME (308,538)
EPS-PRIMARY (0.05)
EPS-DILUTED (0.05)
</TABLE>
