FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the Quarterly Period Ended June 30, 1995
_____________
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 NO. 0-7843
LEISURE CONCEPTS, INC.
(Exact name of registrant as specified in its Charter)
NEW YORK
--------
(State of Incorporation)
13-2691380
----------
(I.R.S. Employer Identification Number)
1414 Avenue of the Americas, New York, New York
-----------------------------------------------
(Address of Principal Executive Offices)
10019
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(Zip Code)
(212) 758-7666
--------------
(Registrant's Telephone Number, Including Area Code)
NOT APPLICABLE
--------------
(Former Name, Former Address and Former Fiscal Year if changed since last
report)
Indicate by a check mark whether the registrant: (1) has filed all annual,
quarterly and other reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or 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 X NO
________ _________
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the close of the latest practicable date.
Class Outstanding at August 10, 1995
------------------------- ------------------------------
Common Stock, $.01 Par Value 2,944,831
<PAGE>
LEISURE CONCEPTS, INC.
AND SUBSIDIARIES
INDEX
PAGE NUMBER
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Balance Sheets 1
June 30, 1995 (Unaudited) and
December 31, 1994.
Consolidated Statements of Operations 2
Six and Three Months Ended
June 30, 1995 and 1994 (Unaudited)
Consolidated Statements of Cash Flows 3
Six Months Ended
June 30, 1995 and 1994 (Unaudited)
Notes to Consolidated Financial 4
Statements (Unaudited)
Item 2: Management's Discussion and Analysis 6
of Financial Condition and Results of Operations
PART II: OTHER INFORMATION 9
<PAGE>
LEISURE CONCEPTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $3,851,848 $7,371,311
Accounts receivable, net 3,566,053 14,908,245
Film inventory-net 2,298,969 764,259
Prepaid refundable income taxes 1,315,480 565,493
Prepaid expenses and other current assets 576,060 416,142
------------- --------------
Total current assets 11,608,410 24,025,450
------------- --------------
FURNITURE, FIXTURES AND COMPUTER EQUIPMENT- (Net) 392,187 392,481
FILM INVENTORY - Noncurrent 1,448,307 1,448,307
ACCOUNTS RECEIVABLE - Noncurrent, net 2,813,330 3,055,035
SECURITY DEPOSITS AND OTHER ASSETS 147,981 455,123
------------- --------------
TOTAL ASSETS $16,410,215 $29,376,396
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Due to licensors $1,782,502 $1,800,036
Media payable 1,364,600 13,107,185
Accounts payable and accrued expenses 448,044 632,751
Current deferred tax liability 326,350 326,350
------------- --------------
Total current liabilities 3,921,496 15,866,322
NONCURRENT DEFERRED TAX LIABILITY 933,316 933,316
------------- --------------
Total liabilities 4,854,812 16,799,638
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STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value - authorized,
3,000,000 shares; none issued
Common stock, $.01 par value - authorized,
10,000,000 shares; issued, 2,944,831 shares 29,448 29,448
Additional paid-in capital 4,429,906 4,429,906
Retained earnings 7,096,049 8,117,404
------------- --------------
Total stockholders' equity 11,555,403 12,576,758
------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $16,410,215 $29,376,396
============= ==============
</TABLE>
See notes to consolidated financial statements
-1-
<PAGE>
LEISURE CONCEPTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1995 1994 1995 1994
----------- -----------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Net revenues $773,545 $503,334 $1,707,087 $2,110,286
COST AND EXPENSES:
Selling, general and administrative cost 1,737,668 1,897,054 3,621,473 3,723,607
Amortization of capitalized film cost 50,334 561,712 63,966 804,631
------------- ----------- ----------- ---------
Total cost and expenses 1,788,002 2,458,766 3,685,439 4,528,238
------------- ----------- ----------- ---------
(1,014,457) (1,955,432)(1,978,352)(2,417,952)
INTEREST INCOME 74,973 72,157 186,997 139,529
------------- ----------- ----------- ---------
LOSS BEFORE INCOME TAX (BENEFIT) (939,484) (1,883,275)(1,791,355)(2,278,423)
INCOME TAX (BENEFIT) (404,000) (810,000) (770,000) (980,000)
------------- ----------- ----------- ---------
NET LOSS ($535,484)($1,073,275)(1,021,355)(1,298,423)
============ ============ ========== ==========
PER SHARE AMOUNTS
Loss per common and dilutive
common equivalent share ($0.18) ($0.35) ($0.34) ($0.41)
============ ============ ========== ==========
Loss per common share-
assuming full dilution ($0.18) ($0.35) ($0.34) ($0.41)
============ ============ ========== ==========
Weighted average number of common and
common equivalent shares outstanding 2,984,978 3,033,505 2,985,275 3,160,336
============ ============ ========== ==========
See notes to consolidated financial statements.
</TABLE>
-2-
<PAGE>
LEISURE CONCEPTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
JUNE 30, JUNE 30,
1995 1994
------------ ------------
OPERATING ACTIVITIES:
Net loss ($1,021,355) ($1,298,423)
Adjustments to reconcile net loss to net cash
used in operating activity
Depreciation and amortization 104,530 90,493
Amortization of capitalized film cost 63,966 804,631
Changes in assets and liabilities (using)
providing cash:
Accounts receivable 11,583,897 402,565
Film inventory (1,598,676) (653,317)
Prepaid expenses and other current assets (159,918) (246,054)
Prepaid/Refundable income taxes (749,987) (987,669)
Security deposits and other assets 277,142 20,308
Due to licensors (17,534) (1,602,090)
Accounts payable and accrued expenses (184,707) 177,086
Media payable (11,742,585) 2,321,848
-------------- ------------
Net cash used in operating activities (3,445,227) (970,622)
-------------- ------------
INVESTING ACTIVITIES:
Purchase of furniture and fixtures (74,236) (30,247)
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Net cash used in investing activities (74,236) (30,247)
-------------- ------------
FINANCING ACTIVITIES:
Proceeds from exercise of stock options - 62,500
-------------- ------------
Net cash provided by financing activities - 62,500
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NET DECREASE IN CASH AND
CASH EQUIVALENTS (3,519,463) (938,369)
CASH AND CASH EQUIVALENTS, BEGINNING PERIOD 7,371,311 6,275,146
-------------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD 3,851,848 5,336,777
============== ============
See notes to consolidated financial statements.
-3-
<PAGE>
LEISURE CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1995
Note 1
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes as
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) considered necessary for a fair presentation of
the interim financial information have been included. Operating results for six
months ending June 30, 1995 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1995. For further information,
refer to the consolidated financial statements and footnotes thereto included in
Leisure Concepts, Inc.'s ("LCI" or the "Company") Form 10-K for the year ended
December 31, 1994.
Note 2
SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES: For a summary of significant
accounting policies reference is made to the Company's report on Form 10-K
previously filed for the year ended December 31, 1994.
Note 3
RECLASSIFICATIONS: Certain reclassifications have been made to the 1994
financial statements to conform to the 1995 presentation.
Note 4
PER SHARE AMOUNTS: Earnings per common and dilutive common equivalent share
are based on the weighted average number of shares and common equivalent shares
outstanding during the period. Common shares issuable upon the exercise of
options are included as common equivalent shares when their inclusion is
dilutive using the treasury stock method.
-4-
<PAGE>
Note 5
STOCK OPTIONS: In accordance with the provisions of the 1994 stock option
plan, options to purchase 100,000 shares of the Company's common stock were
granted in the first quarter of 1995 to the Chairman and Chief Executive Officer
of the Company and options to purchase 50,000 shares were granted to each of the
two outside directors. All such options were at an exercise price of $3.625 the
market price of the Company's common stock at the time of grant. In addition,
options to purchase 130,000 shares of the Company's common stock were granted in
the first quarter of 1995 to employees other than directors under the Company's
1993 and 1986 plans. Such options were at an exercise price of 2.625, the market
price of the Company's common stock at the time of grant.
Note 6
COMMITMENTS AND CONTINGENCIES:
b) Credit Facility- The Company's unsecured $5,000,000 line of credit (the
"Credit Facility") from Chemical Bank which was scheduled to expire on June 30,
1995 has been renewed through June 30, 1996. It is intended that the proceeds of
any borrowing under the Credit Facility will be used for general working capital
purposes. The Credit Facility provides for an interest rate of 1/2% over the
bank's prime rate. As of June 30, 1995 the Company had no borrowings under the
Credit Facility.
-5-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS:
The Company typically derives a substantial portion of its revenues from a
small number of properties, which properties usually generate revenues only for
a limited period of time. Because the Company's revenues are highly subject to
changing fashion in the toy and entertainment business, its licensing revenues
from year to year from particular sources are subject to dramatic increases and
decreases. It is not possible to precisely anticipate the length of time a
project will be commercially successful, if at all. Popularity of properties can
vary from months to years. As a result, the Company's revenues and net income
may fluctuate significantly between comparable periods. The Company's revenues
have historically been primarily derived from the license of toy and game
concepts. Thus a substantial portion of the Company's revenues and net income
are subject to the seasonal variations of the toy and game industry. Typically,
a majority of toy orders are shipped in the third and fourth calendar quarters.
In addition the Company's media buying subsidiary concentrates its activities on
the youth oriented market. As a result, most of its revenue is earned in the
third and fourth quarters when the majority of toy and video game advertising
occurs. As a result, in the Company's usual experience, its net income during
the second half of the year will generally be greater than during the first half
of the year. Furthermore, the Company has little control over the timing of
guarantee and minimum payments, some of which are made upon the execution and
delivery of license agreements.
Three and Six Months Ended June 30, 1995 Compared to Three and Six Months
Ended June 30, 1994
Net revenue increased 54% ($271,000) and decreased 19% ($403,000) for the
three and six month periods ended June 30, 1995 as compared to the same periods
in 1994. For the three month period increased revenue was recognized from the
Nintendo, James Bond and Polly Pocket properties offset by decreased revenue
from the World Wrestling Federation property. The six month period also
benefitted from the Nintendo and Polly Pocket increases, however these were not
sufficient to offset substantial decreases in the Swan Princess and Shadow
properties. Both of these properties were tied to the success of theatrical
motion pictures during 1994. Such theatrical releases were not sufficiently
successful to provide sustained interest in associated licensed merchandise.
-6-
<PAGE>
Licensing revenues from the Company's international subsidiary were
moderately ahead of the comparable periods in 1994 primarily due to the success
of the property "Tots TV" a British pre-school program.
Revenue from Summit Media increased over the comparable periods of 1994 as
a result of its media buying activities. Due to the seasonal nature of Summit's
business, the majority of its revenue will be recognized during the second half
of the year.
Selling, general and administrative expenses decreased by 8% ($159,386)
and 3% ($102,134) for the three and six month periods ended June 30, 1995 when
compared to the same periods in 1994. The lower level of expenditures in the
three and six month periods are principally due to the effect of cost reductions
initiated in 1994 in the Company's licensing business. These reductions were
offset to some extent by increased costs associated with expanding the
operations of Summit Media to accommodate new business.
At June 30, 1995 there were approximately $3,747,276 of capitalized film
production costs. The increase in such costs from December 31, 1994 relates to
the television series "WMAC Masters". "WMAC Masters" is a weekly syndicated
television program produced by the Company's 4Kids Productions subsidiary in
cooperation with Renaissance Atlantic Films. This weekly half hour TV program
which was syndicated by the Company's Summit Media subsidiary premiers September
16, 1995 in over 80% of the Country.
Amortization of capitalized film cost decreased by approximately 91%
($511,378) and 92% ($740,665) for the three and six month periods when compared
to the same periods in 1994. The 1994 amortization relates primarily to the
Monster Wars syndicated television program. At June 30, 1995 the percentage of
unamortized film cost of $3,747,276 expected to be amortized within the next
three years exceeds 80%. The Company periodically evaluates its anticipated
revenue from film production and, consequently, amortization rates may change as
a result of such estimates.
Interest income increased by approximately 34% ($47,000) for the six month
period ending June 30, 1995 as compared to the same period in 1994. This
increase is primarily attributable to higher yields on higher levels of invested
cash during the first three months of the year.
-7-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES:
At June 30, 1995 the Company had working capital of $7,686,914 as compared
to working capital of $8,159,128 at December 31, 1994. The decrease in working
capital of $472,214 is primarily due to the cost of funding the operating loss
of the Company's activities during the seasonally slack first half.
Cash and cash equivalents decreased by $3,519,463 from December 31, 1994.
The decrease in cash and cash equivalents is due primarily to cash expenditures
associated with funding the production of "WMAC Masters" which completes
production in August of 1995. Additional cash expenditures were required to fund
the operating losses for the six month period ended June 30, 1995.
Accounts receivable, net (current and noncurrent) decreased from
$17,963,280 at December 31, 1994 to $6,379,383 at June 30, 1995. The decrease is
primarily due to the Company's media buying activities. The seasonality of the
Company's business tends to generate higher receivables in the fourth quarter
which are generally collected in the first quarter. As a result higher
receivables at year end are converted to cash during the first quarter. There is
a corresponding decrease in media payable of approximately $11,742,585.
Amounts due to licensor, which represents the owner's share of royalties
collected, were comparable in amount at June 30, 1995 when compared to December
31, 1994.
In the opinion of management, the Company will be able to satisfy its
foreseeable financial obligations from its current working capital. In addition,
as described in Note 6 to the financial statements the Company has established a
$5,000,000 unsecured credit facility with Chemical Bank for general working
capital purposes. As of August 11, 1995 there have been no borrowings under this
facility.
-8-
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
27 Financial Data Schedule
b. Reports on Form 8-K
None
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.
Dated: August 11, 1995
LEISURE CONCEPTS, INC.
By: /s/ Joseph P. Garrity
Joseph P. Garrity
Executive Vice President
Chief Financial Officer
-9-
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
LEISURE CONCEPTS, INC.
EXHIBIT 27 Financial Data Schedule
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE COMPANY'S
UNAUDITED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<FISCAL-YEAR-END> 12-31-95
<PERIOD-END> 06-30-95
<PERIOD-TYPE> 6-MOS
<CASH> 3,851,848
<SECURITIES> 0
<RECEIVABLES> 3,819,810
<ALLOWANCES> 253,757
<INVENTORY> 0
<CURRENT-ASSETS> 11,608,410
<PP&E> 1,357,465
<DEPRECIATION> 965,278
<TOTAL-ASSETS> 16,410,215
<CURRENT-LIABILITIES> 3,921,496
<BONDS> 0
<COMMON> 29,448
0
0
<OTHER-SE> 11,525,955
<TOTAL-LIABILITY-AND-EQUITY> 16,410,215
<SALES> 0
<TOTAL-REVENUES> 1,707,087
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,791,355)
<INCOME-TAX> (770,000)
<INCOME-CONTINUING> (1,021,355)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,021,355)
<EPS-PRIMARY> (0.34)
<EPS-DILUTED> (0.34)
-10-
</TABLE>
