<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
-----------------
[ ] 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. 0-18954
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ODYSSEY PICTURES CORPORATION
----------------------------
(Exact name of registrant as specified in charter)
NEVADA 95-4269048
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(State or other juris- (I.R.S. Employer
diction of incorporation Identification No.)
or organization)
1875 Century Park East, Suite 2130, Los Angeles, CA 90067
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone No., including area code (310) 229-2430
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to the filing
requirement for at least the past 90 days. Yes x No
----- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $.01 per share --
2,736,015 outstanding shares as of February 14, 1996.
<PAGE>
ODYSSEY PICTURES CORPORATION
INDEX
Page
----
Part I - Financial Information
Consolidated Balance Sheets as of 1
December 31, 1996 and June 30, 1996
Consolidated Statements of Operations 2
for the Six and Three Month Periods Ended
December 31, 1996 and 1995
Consolidated Statements of Cash Flows 3
for the Six and Three Month Periods Ended
December 31, 1996 and 1995
Notes to Consolidated Financial Statements 5
Management's Discussion and Analysis of 6
Financial Condition and Results of Operations
Part II - Other Information 9
Signatures 12
<PAGE>
ODYSSEY PICTURES CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1996 June 30, 1996
------------ --------------
<S> <C> <C>
ASSETS:
Cash $ 260,202 $ 462,971
Accounts receivable, net 1,021,610 996,574
Note receivable 300,000
Film costs, net 257,543 1,000,968
Other assets 22,857 27,945
---------- ------------
$1,862,212 $2,488,458
---------- ------------
---------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Accounts payable and accrued expenses $1,075,740 $ 912,629
Due to producers and participants 1,349,084 3,760,142
Deferred revenues 3,000 3,000
Notes and loans payable 836,500 561,500
---------- ------------
Total liabilities 3,264,324 5,237,271
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SHAREHOLDERS' DEFICIT:
Preferred stock, par value $.10;
Authorized - 10,000,000 shares
Issued - none
Common stock, par value $.01;
Authorized - 6,666,666 shares
Issued - 2,736,015 and 2,591,242
shares 27,361 25,913
Capital in excess of par value 25,954,918 25,911,366
Accumulated deficit (27,384,391) (28,686,092)
---------- ------------
Total shareholders' deficit (1,402,112) (2,748,813)
---------- ------------
$1,862,212 $2,488,458
---------- ------------
---------- ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
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<PAGE>
ODYSSEY PICTURES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Six Months For the Three Months
Ended December 31, Ended December 31,
------------------------ ------------------------
1996 1995 1996 1995
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
REVENUES: $3,559,210 $ 108,022 $3,501,959 $ 58,002
EXPENSES:
Costs related to revenues 1,335,832 3,235,258 1,332,830 3,202,856
Selling, general and
administrative expenses 874,896 729,688 521,422 412,039
---------- ---------- ---------- ---------
2,210,728 3,964,946 1,854,252 3,614,895
---------- ---------- ---------- ---------
Operating income (loss) 1,348,482 (3,856,924) 1,647,707 (3,556,893)
OTHER INCOME (EXPENSES):
Interest income 1,055 0 1,007
Interest expense (46,781) (34,920) (23,564) (24,684)
---------- ---------- ---------- ---------
Net income (loss) $1,301,701 ($3,890,789) $1,624,143 ($3,580,570)
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
Net income (loss) per share $0.48 ($1.70) $0.60 ($1.57)
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
Weighted average common shares outstanding * 2,703,103 2,282,199 2,703,103 2,282,199
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
Fully diluted net income (loss) per share $0.39 ($1.70) $0.48 ($1.57)
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
Weighted average common shares outstanding * 3,355,603 2,282,199 3,355,603 2,282,199
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
</TABLE>
* Shares outstanding for all periods have been adjusted to give effect to a
1 for 6 reverse stock split on March 18, 1996.
The accompanying notes are an integral part of these statements.
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<PAGE>
ODYSSEY PICTURES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months
Ended December 31,
-----------------------------
1996 1995
---------- ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income income (loss) $1,301,701 ($3,890,789)
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Amortization of film costs 951,710 3,178,242
Other depreciation and amortization 13,199 814
Issuance of shares of stock to officers in payment
of deferred compensation 45,000 --
Decrease (increase) in assets:
Funds held in joint venture accounts -- 352,723
Accounts receivable, net (25,036) 325,240
Note receivable (300,000) --
Film costs (209,035) 42,957
Other 1,119 17,220
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 163,111 188,093
Due to producers and participants (2,411,058) (448,634)
Deferred revenues -- --
---------- ------------
Net cash used in
operations (469,289) (234,134)
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Cash Flows from Investing Activities:
Acquisition of fixed assets (8,480) (5,312)
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Net cash used in investing
activities (8,480) (5,312)
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Cash Flows from Financing Activities:
Note payable in settlement of Generale Bank
complaint 275,000 270,000
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Net cash provided by
financing activities 275,000 270,000
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Net (decrease) increase in cash and equivalents (202,769) 30,554
Cash and equivalents at beginning of period 462,971 43,491
---------- ------------
Cash and equivalents at end of period $260,202 $74,045
---------- ------------
---------- ------------
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
ODYSSEY PICTURES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months
Ended December 31,
-----------------------------
1996 1995
---------- ------------
<S> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for-
Interest $42,870 $ 5,408
---------- -----------
---------- -----------
Income taxes -- --
---------- -----------
---------- -----------
</TABLE>
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<PAGE>
ODYSSEY PICTURES CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996
-----------------
1. - BASIS OF FINANCIAL STATEMENT PREPARATION:
The Consolidated Financial Statements for Odyssey Pictures Corporation
and subsidiaries (collectively "Odyssey" or the "Company"), included
herein, have been prepared by the Company, without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not
misleading. These financial statements should be read in conjunction
with the consolidated financial statements and the notes thereto
included in the Company's Report on Form 10-K for the period ended
June 30, 1996.
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly (a) the financial
position as of December 31, 1996, (b) the results of operations for
the six and three month periods ended December 31, 1996 and 1995 and
(c) cash flows for the six month periods ended December 31, 1996 and
1995.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SIX AND THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
Revenues for the six month and three month periods ended December 31,
1996 increased to $3,559,210 and $3,501,959 respectively, from $108,022 and
$58,002 for the comparable 1995 six and three month periods. The increases
are primarily related to revenue recognized in the current period from the
sale of certain distribution and subdistribution rights in certain films to a
third party for $1,075,000, recognition of a gain in the amount of $2,197,468
from the cancellation of a contractual obligation related to the Company's
distribution rights in "Wuthering Heights", and recognition of a gain in the
amount of $198,567 from the settlement of an outstanding litigation with
Generale Bank (formerly known as Credit Lyonnais Bank Nederland N.V.) and
Cinecom Entertainment Group Inc.
Costs related to revenues decreased to $1,335,832 and $1,332,830
respectively, for the six and three month periods ended December 31, 1996
from $3,235,258 and $3,202,856 respectively, for the six and three month
periods ended December 31, 1995. The decrease is primarily related to the
write-off taken in the amount of $3,076,000 in the 1995 second quarter
relating to the carrying value of the Company's joint venture interest in
four theatrical motion pictures which were sold in January 1996. This was
partially offset by a write-off of film costs in the amount of $951,710
relating to the termination of the Company's distribution rights in
"Wuthering Heights" and a write-off of unrecouped distribution costs in the
amount of $256,224 relating to the sale of distribution and subdistribution
rights in certain films (as noted above).
Selling, general and administrative expenses increased $145,208 (20%) to
$874,896 for the six month period from $729,688 for the comparable 1995
period. For the 1996 three month period such expenses increased $109,383
(27%) to $521,422 from $412,039 for the 1995 three month period. The
increases are primarily due to higher legal and accounting fees and costs
related to the holding of the Company's annual shareholder meeting.
Interest expense increased to $46,781 and $23,564 respectively for the
six and three month period ended December 31, 1996 from $34,920 and $24,684
respectively for the three month period from $10,236 for the comparable 1995
three and nine month periods. The increased interest resulted from the
private placement sale of an aggregate of $312,500 principal amount of 12%
Senior Unsecured Promissory Notes in August and October 1995, the issuance of
a note payable in the amount of $70,000 in payment of legal fees and from a
discount of $8,174 paid in order to receive early payment of the second
installment on a note receivable.
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<PAGE>
The Company did not recognize any tax benefits related to its losses
from operations for either period due to its inability to carry-back such
losses to prior years.
As of December 31, 1996, the Company had a federal net operating loss
carryforward, for tax purposes, of approximately $25,000,000, expiring
through 2010, available to be used to reduce future tax liability. Due to
limitations imposed by the Internal Revenue Service, the utilization of
approximately $4,900,000 of these net operating losses will be limited to
approximately $350,000 per year.
The Company's principal activities have been the acquisition of rights
in either completed or incomplete motion pictures and the licensing of these
rights to sub-distributors in foreign countries. As of December 31, 1996,
the Company had agreements in principle with sub-distributors relating to
distribution commitments or guarantees of approximately $2.3 million that had
not been recognized in the statement of operations. The Company will
recognize these guarantees in revenues and the costs related to such revenues
when motion pictures are completed and available for delivery. It is
possible that changes in schedules and cancellations of pictures may defer
and/or reduce the amounts of revenues that will be recognized in later
periods.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company held approximately $260,000 of cash.
In many instances, the Company acquires the rights to motion picture
productions prior to their completion. As a result, there may be a
substantial delay between the time the Company enters into distribution
agreements with producers and sub-distribution agreements with foreign
sub-distributors and the time it recognizes revenues and generates cash from
each production.
In December, 1996 the Company and Paramount executed a settlement
agreement, pursuant to which Paramount agreed to cancel the Company's
contractual guarantee of $2.7 million in full, in exchange for which the
Company agreed to (i) relinquish all further distribution rights to
"Wuthering Heights", (ii) assign to Paramount all of its rights in any
outstanding distribution agreements for the film, and any receivables to be
generated therefrom; and (iii) guarantee that Paramount will collect a total
of $500,000 in sales revenue from existing distribution agreements no later
than January 15, 1997. Existing license agreements yielded approximately
$420,000 in revenue prior to January 15, 1997 (of which the Company would be
entitled to retain approximately 10% thereof in commissions), thereby
minimizing the Company's exposure under the guarantee to Paramount. However,
such net revenues are presently being held by Film Bridge International and
have not been paid over to Paramount in connection with a separate litigation
with the
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<PAGE>
Company. Accordingly, Paramount has notified the Company that it is in
default under the terms of the settlement agreement. The Company believes
that it has reached an agreement in principle with Film Bridge International
to settle the outstanding litigation and anticipates that the funds currently
being held by Film Bridge will be available for payment to Paramount within
the next 30 days.
In the past, the Company has been dependent on obtaining outside financing to
acquire distribution rights to films. New management has reduced the
Company's reliance on outside financing by placing more emphasis on acquiring
distribution rights through arrangements which require lower or no advance
payments. At present, the Company may not be able to secure distribution
rights by issuing letters of credit or advancing significant production
funds, as it has in the past.
In October 1996, the Company received the initial payment of $500,000
pursuant to an agreement in which the Company agreed to grant subdistribution
rights in, and to sell other distribution rights to, certain films in the
Company's film library for a total consideration of $1,075,000. In December,
1996 the Company received payment of the second installment in the amount of
$266,826 ($275,000 minus a discount of $8,174 for early payment) thereby
leaving a balance due the Company of $300,000, which is contractually due
eighteen months from the closing date of the agreement which was October 7,
1996.
In December, 1996, the Company settled the outstanding litigation with
Generale Bank ("Generale") (formerly known as Credit Lyonnais Bank Nederland
N.V.) and Cinecom Entertainment Group Inc. Pursuant to the settlement
agreement with Generale, the Company agreed to pay to Generale the sum of
$275,000 in complete satisfaction of the claim, payable $25,000 upon
execution of the settlement agreement, $25,000 on each of June 30 and
December 31 in the years 1997, 1998 and 1999, and $100,000 on June 30, 2000.
Interest on the installments (at the floating rate of LIBOR plus 1% per
annum) will be waived provided the Company remains in compliance with the
agreed upon payment schedule.
The Company had no material commitments for capital expenditures as of
December 31, 1996.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings:
On November 21, 1996, Jerry Silva, a former director of the
Company, commenced two actions against the Company, one in Supreme
Court of the State of New York, and one in the Civil Court of the
State of New York. The Supreme Court action seeks money damages in
the amount of $500,000 for indemnification of plaintiff as a past
officer and director of the Company, unjust enrichment, tortious
interference with plaintiff's rights to sell his shares in the
Company, and attorneys fees. The Civil Court matter is an action to
collect on a promissory note in the amount of $22,500, plus attorney
fees. The Company intends to vigorously contest both actions and to
assert affirmative defenses and counterclaims for fraud in the
inducement, failure of consideration and breach of fiduciary duty.
On November 21, 1996, the law firm of Halpern, Klein and Halpern
(counsel to Mr. Silva) commenced an action against the Company in
Civil Court of the State of New York on a returned check in the amount
of $5,000 for legal services allegedly rendered to the Company. The
check was originally issued to plaintiff in April, 1995 in connection
with the change of control of the Company at that time. The Company
has filed an Answer in the action and intends to defend the matter on
the basis of a failure of consideration.
ITEM 2. Change In Securities
In March 1995 prior management of the Company gave instructions
to the Company's transfer agent to cancel 55,329 shares of the Class A
stock and 10,496 shares of common stock pursuant to a Merger Agreement
between Double Helix and a subsidiary of the Company. After further
investigation of this transaction, current management rescinded this
instruction and authorized the transfer agent to re-issue the shares
previously cancelled.
ITEM 4. Submission Of Matters To A Vote Of Security-Holders
(a) On November 22, 1996, the Company held its annual meeting of
stockholders in respect of the fiscal year ended June 30, 1996.
(b) The following directors were elected at the annual meeting:
Robert E. Miller, Jr., Lawrence I. Schneider, Stephen R. Greenwald,
and Ira N. Smith.
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<PAGE>
(c) At the annual meeting, the following proposals were voted
upon, in addition to the election of directors:
(i) A proposal to change the name of the Company
to Odyssey Pictures Corporation ("Proposal One");
and (ii) A proposal to increase the number of
authorized common shares from 6,666,666 shares to
40,000,000 shares ("Proposal Two")
Proposal One received the following votes: 2,085,900 shares in
favor, 105,133 against, and 975 abstentions. Proposal Two received
the following votes: 2,032,707 shares in favor, 152,475 against, and
6,826 abstentions. With respect to the election of directors, Mr.
Miller received 2,170,949 votes in favor and 116,224 against; Mr.
Schneider received 2,136,949 votes in favor and 150,224 against; Mr.
Greenwald received 2,170,921 votes in favor and 116,252 against; and
Mr. Smith received 2,170,736 in favor and 116,437 against.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) 10.1 Amendment to Articles of Incorporation
filed January, 1997*
10.2 Form of Common stock Purchase Warrant,
dated December 2, 1996, between the
Company and each of G&H Media, Ltd.,
Lawrence I. Schneider and Ira N. Smith*
10.3 Form of Class A and Class B Warrants to
be issued to equity investors upon
closing of private placement*
10.4 Form of Common Stock Purchase Warrant to
be issued to Gene Miller upon closing of
private placement*
10.5 Settlement Agreement and Release between
Paramount Pictures Corporation and
Odyssey Distributors, Ltd. (a wholly
owned
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<PAGE>
subsidiary of the Company), and
Guarantee Agreement of the Company, each
dated as of September 26, 1996*
10.6 Form of Settlement Agreement with
Generale Bank Nederland, N.V., dated as
of December 18, 1996*
10.7 Form of Subscription Agreement between
the Company and the equity investors*
____________________
* Incorporated herein by reference to the Company's Registration Statement on
Form S-1, File No. 333-20701.
(b) Reports on form 8-K
None.
ITEMS 3 and 5 OF PART II ARE NOT APPLICABLE
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ODYSSEY PICTURES CORPORATION
By: \s\ Ira N. Smith
---------------------------------
Ira N. Smith
President
By: \s\ Marvin N. Grossman
----------------------------------
Marvin N. Grossman
Exec. Vice-President & Chief
Financial Officer
DATED: February 14, 1997
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 260,202
<SECURITIES> 0
<RECEIVABLES> 1,321,610
<ALLOWANCES> 0
<INVENTORY> 257,543
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,862,212
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 27,361
<OTHER-SE> (1,429,473)
<TOTAL-LIABILITY-AND-EQUITY> 1,862,212
<SALES> 3,559,210
<TOTAL-REVENUES> 3,559,210
<CGS> 1,335,832
<TOTAL-COSTS> 1,335,832
<OTHER-EXPENSES> 874,896
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,781
<INCOME-PRETAX> 1,301,701
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,301,701
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,301,701
<EPS-PRIMARY> .48
<EPS-DILUTED> .39
</TABLE>
