<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
COMMISSION FILE NUMBER 1-11976
UNAPIX ENTERTAINMENT, INC.
-----------------------------------------
(Exact name of small business issuer as
specified in charter)
Delaware 95-4404537
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification number)
200 Madison Avenue
New York, NY 10016
------------------
(Address of principal executive offices)
212-252-7600
------------------
(Issuer's Telephone number)
Check whether the issuer (1) 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 X No
--- ---
As of November 11, 1998 there were 7,446,528 shares of the Company's common
stock outstanding.
<PAGE>
UNAPIX ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
September 30,
1998
----
<S> <C>
ASSETS
Cash and cash equivalents $ 1,746
Accounts receivable, net 19,931
Film costs, net 32,093
Product inventory 2,357
Property and equipment, net 823
Other assets 4,306
Excess of cost over fair value of net assets acquired 2,872
-----
Total Assets $64,128
-------
-------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities :
Accounts payable and accrued expenses $ 6,733
Deferred income taxes 899
Royalty payable 4,589
Bank line of credit 9,401
Deferred revenue 2,663
Variable rate senior subordinated notes 2,898
10% convertible subordinated notes 13,324
------
Total Liabilities $40,507
-------
Stockholders' Equity :
Common stock $.01 par value per share; 40,000 authorized;
7,446 shares issued and outstanding 74
Preferred stock; $.01 par value; 3,000 authorized
Cumulative convertible series A 8% preferred stock,; 501 issued and
outstanding (aggregate liquidation
preference of $1,503) 5
Non-voting convertible Series B preferred stock;
300 shares issued and outstanding, (aggregate liquidation
preference of $3,000)
Additional paid-in capital 25,562
Notes receivable from equity sales (2,756)
Retained Earnings 736
---
Total Stockholders' Equity $23,621
-------
Total Liabilities and Stockholders' Equity $64,128
-------
-------
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE>
UNAPIX ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Three Months Ended September 30
1998 1997
---- ----
<S> <C> <C>
Revenues:
Licensing and distribution $3,040 $2,687
Home video 5,843 4,938
------ ------
8,883 7,625
------ ------
Operating costs:
Licensing and distribution 2,327 1,772
Home video 3,839 3,370
General and administrative expenses 3,087 1,754
------ ------
9,253 6,896
------ ------
Income (loss)from operations (370) 729
Interest and debt expense, net 408 223
------ ------
Income (loss) before taxes (778) 506
Provision for income taxes (303) 205
------ ------
Net income (loss) $ (475) $ 301
------ ------
------ ------
Net income (loss) per share
Basic $ (.07) $ .05
------ ------
------ ------
Diluted $ (.07) $ .04
------ ------
------ ------
Average number of shares
Basic 7,440 5,980
------ ------
------ ------
Diluted 7,440 6,677
------ ------
------ ------
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
UNAPIX ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Nine Months Ended September 30
1998 1997
---- ----
<S> <C> <C>
Revenues:
Licensing and distribution $ 8,839 $ 8,823
Home video 16,775 12,774
------- -------
25,614 21,597
------- -------
Operating costs:
Licensing and distribution 6,124 6,071
Home video 9,808 8,400
General and administrative expenses 8,502 5,123
------- -------
24,434 19,594
------- -------
Income from operations 1,180 2,003
Interest and debt expense, net 1,282 644
------- -------
Income (loss) before taxes (102) 1,359
Provision for income taxes (35) 567
------- -------
Net income (loss) $ (67) $ 792
------- -------
------- -------
Net income (loss) per share
Basic $ (.03) $ .12
------- -------
------- -------
Diluted $ (.03) $ .11
------- -------
------- -------
Average shares outstanding
Basic 6,537 5,744
------- -------
------- -------
Diluted 6,537 6,372
------- -------
------- -------
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
UNAPIX ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the Nine Months Ended September 30
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (67) $ 792
Adjustments to reconcile net income
to net cash used by operating activities:
Amortization and depreciation 9,985 10,390
Deferred income taxes (44) 549
Accretion of debentures discount 81 66
Film Rights received (368) -
(Increase) decrease in accounts receivable (5,575) (3,165)
Increase in product inventory (704) (671)
Increase in other assets (22) (1,988)
Increase in accounts payable and accrued expenses 979 3,696
Increase in royalties payable 844 641
------- -------
Total cash flows provided by operating activities 5,109 10,310
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Film cost expenditures (17,337) (16,270)
Purchase of property and equipment (297) (204)
Acquisition of subsidiary - (1,589)
------- -------
Total cash flows used by investing activities (17,634) (18,063)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from 10% convertible notes 4,063 1,250
Net borrowings under bank line of credit 2,608 5,677
Proceeds from employee notes receivable - 30
Proceeds from warrant and option exercises 4,825 189
Private placement expenditures (6) (10)
Preferred stock dividends (59) (21)
Advances from affiliates 700 -
Payments to affiliates (1,100) -
Proceeds from issuance of preferred shares 2,815 -
------- -------
Total cash flows from financing activities 13,846 7,115
------- -------
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
UNAPIX ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
<TABLE>
<CAPTION>
For the Nine Months Ended September 30
1998 1997
---- ----
<S> <C> <C>
NET INCREASE (DECREASE) IN CASH AND
EQUIVALENTS $1,321 $ (638)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 425 659
--- ---
CASH AND EQUIVALENTS AT END OF PERIOD $1,746 $ 21
------ ------
------ ------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Preferred stock dividend paid in common stock 36 41
Warrants issued - 81
Acquisition of subsidiary - 1,400
Conversion of accrued liability to
acquisition fund payable - 71
Exchange of debt for 10% convertible
subordinated debentures 1,000 -
Notes received for exercise of warrants 779 -
------ ------
$1,815 $1,593
------ ------
------ ------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $1,410 $ 453
------ ------
------ ------
Cash paid for taxes $ 105 $ 42
------ -------
------ -------
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE>
UNAPIX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Unapix
Entertainment, Inc. (the "Company") 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, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine-month period
ended September 30, 1998 are not necessarily indicative of the results that may
be expected for the year ended December 31, 1998. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Company's Form 10-KSB for the year ended December 31, 1997.
2. FINANCING
The Company has a revolving credit facility (the "Facility") with Imperial Bank
(the "Bank") providing for borrowings of up to $10,000,000. Loans are extended
and required to be repaid based upon the Company's outstanding accounts
receivable and other contractual rights to payment. Interest on the outstanding
loan balance accrues at a rate of 1.25% per annum in excess of the Bank's
publicly announced benchmark rate (8.5% at September 30, 1998 and 7.75% at
November 19, 1998). The Company is also required to pay an unused credit line
fee at a rate equal to .5% per annum of the amount by which the collateral base
exceeds the average daily loan balance during any calendar quarter. Outstanding
amounts under the facility are secured by a security interest in substantially
all of the Company's assets.
The facility contains restrictive covenants that require minimum tangible net
worth. The covenants also, among other things, prohibit the payment of cash
dividends on the Company's common stock, require minimum amounts of tangible net
worth and limit (a) the Company's ratio of debt to net worth on a consolidated
basis, (b) the amount of cost that the Company can incur in producing, financing
or acquiring entertainment properties, (c) the amount of cost and expenses that
the Company may incur with respect to theatrical releases of films, and (d) the
Company incurring losses for two consecutive quarters.
The term of the facility expired on September 30, 1998 but has been continued by
the Bank pending negotiation of a new two-year facility which would provide for
borrowings of up to $15,000,000 based on qualifying accounts receivable and
$5,000,000 for film productions. There can be no assurances that management will
be successful in obtaining the new financing.
In February 1998, the Company issued, in a private placement, $5,250,000
principal amount of 10% convertible subordinated notes due June 30,
2003("Notes") convertible initially into common stock at $4.75 per share. The
conversion price is subject to adjustment in certain circumstances, including
resets at September 1, 1998 and March 1, 1999 to 110% of the then current market
price of the common stock but not less than $4.00 and $3.50 respectively. The
conversion price was reset to $4.00 at September 1, 1998.
For every $1,000 principal amount converted, the holder will receive warrants to
purchase 125 shares of common stock (an aggregate of 656,250) at $6.00 per share
expiring June 30, 2003. If a holder converts the Note prior to September 1,
1999, the holder will receive an amount equal to 75% of the interest which would
have accrued from the date of conversion through September 1, 1999. The Company
also issued warrants expiring June 30, 2003 to purchase 42,500 shares of common
stock at $6.00 per share as a placement fee. Notes in the principal amount of
$900,000 were issued to certain investors in a film acquisition fund in exchange
for their interests therein.
Short term loans of $1,000,000 were obtained, of which $300,000 was received in
December 1997 and $700,000 in January 1998. Loans were extended by Mezzanine
Financial Corp. ($750,000), the Chairman ($150,000) and the Secretary ($100,000)
in order to enable the Company to fund program acquisitions in accordance with
its expansion plans pending the completion of the private offering of 10%
convertible notes. The Chairman and Secretary are also officers and directors of
Mezzanine Financial Corp. Upon completion of the offering of Notes, proceeds of
$250,000 were used to repay the loans from the Chairman and the Secretary, and
proceeds of $650,000 were used to repay Mezzanine Financial Corp. The remaining
$100,000 of the Mezzanine loan was exchanged for an equivalent amount of Notes.
On July 15, 1998, the Company consummated a private placement of 300 shares of
its non-voting Series B preferred stock and a three-year warrant to purchase
200,000 shares of common stock
7
<PAGE>
UNAPIX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
at $5.16 per share for a gross purchase price of $3,000,000. Each share of
Series B preferred stock has a stated value of $10,000 and provides for
dividends cumulatively at 6% per annum payable quarterly in cash , or, at the
Company's option, under certain circumstances, in common stock. The Series B
preferred is convertible, on or after January 16, 1999 into common stock at the
lesser of $5.16 or the average closing sales price for any two trading days
during the ten trading day period prior to conversion but not less than 80% of
the average closing sales price over the five trading days preceding July 16,
1998 subject to antidilution adjustments. Prior to January 16,1999, conversions
are only permitted at a conversion price greater than 101% of the average
closing price. Any remaining Series B preferred stock is automatically converted
into common stock on June 15, 2000. The investor has, except for certain defined
circumstances, the right of first refusal for any private placement of the
Company's common stock on any of its derivative securities prior to July 15,
1999.
The holders have registration rights and are entitled to certain specified
remedies and, under certain circumstances, are entitled to require the Company
to redeem their shares of Series B preferred stock at a premium, if the Company
does not timely comply with its obligations with respect to the preferred stock.
The Company incurred as a placement fee, $150,000 in cash and a three-year
common stock purchase warrant to purchase 50,000 shares of common stock at an
exercise price of $5.16 per share.
3. NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per basic common share ("EPS") is computed by dividing the net
income available to common shareholders by the weighted average number of common
shares outstanding.
Net income per diluted share is computed by dividing the net income available to
common shareholders, adjusted on an as if converted basis, by the weighted
average number of common shares outstanding plus potential dilutive securities.
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
--------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average basic
shares outstanding 7,440 5,980 6,537 5,744
Effect of dilutive
securities:
Options - 517 - 514
Warrants - 180 - 114
--- ---
Weighted average
dilutive shares
outstanding 7,440 6,677 6,537 6,372
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------- -------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) as reported $ (475) $ 301 $ (67) $ 792
Preferred stock dividends 78 30 128 90
------ ------ ------ ------
Total income (loss) used
for earnings per share $ (553) $ 271 $ (195) $ 702
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
8
<PAGE>
UNAPIX ENTERTAINMENT, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 1997
Revenues for the three months ended September 30, 1998 increased by 17% to
$8,883,000 from $7,625,000 in the same three month period in 1997. Licensing and
distribution revenues increased 13% from $2,687,000 in 1997 to $3,040,000 in
1998. Most of the increase in total revenues is largely the result of the
increase in home video revenues of 18% to $5,843,000, as compared to $4,938,000
in 1997. Management expects that the improvement over the prior year will
continue throughout 1998. The Company expects to recognize continued growth in
the Home Video market through the remainder of 1998. This growth should be
generated by the Unapix/Miramar Division continuing to phase into aggressive
market penetration, as well as by the Company's emphasis on distributing higher
quality films to the rental marketplace and non-fiction titles to the
sell-through marketplace.
Licensing and distribution costs increased 31% from $1,772,000 in 1997 to
$2,327,000 in 1998 which results from lower distribution fees on the mix of
licensing rights sold in the third quarter. Home video costs for the three
months ended September 30, 1998 increased by 14% to $3,839,000 from $3,370,000
as compared to the corresponding period in 1997. This increase reflects
increased royalty, amortization and other film expenses associated with the
higher levels of revenues described above.
General and administrative expenses were $3,087,000 for the three months ended
September 30, 1998, as compared to $1,754,000 in the same period in 1997, an
increase of $1,333,000. This increase is chiefly attributable to costs related
to the infrastructure required to support the Company's expansion and
diversification. These costs mainly consisted of increased staffing and office
costs to support the increased sales activity and establishment of new business
units. The Company has embarked on a cost cutting program as detailed in the
nine month discussion below.
The Company had a loss from operations of $370,000 for the three months ended
September 30, 1998, as compared to income of $729,000 in the same period in
1997. The decrease reflects higher general and administrative costs for
expanded infrastructure.
Interest expense and financing expense, net, increased to $408,000 in 1998 from
$223,000 in 1997. This increase primarily reflects the interest and related
expenses on the 10% Convertible Notes issued in the second half of 1997 and in
1998, as well as increased bank borrowings.
The Company had a loss before taxes of $778,000 for the three months ended
September 30, 1998 as compared to income before taxes of $506,000 for the
corresponding three month period in 1997. The decrease reflects the higher
general and administrative expenses increased interest cost described above.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1997
Revenues for the nine months ended September 30, 1998 increased by 19% to
$25,614,000 from $21,597,000 in the same nine month period in 1997. This
increase in revenues is largely the result of the increase in home video
revenues of 31% to $16,775,000, as compared to $12,774,000 in 1997. Management
expects that the improvement over the prior year will continue throughout 1998.
The Company expects to recognize continued growth in the Home Video market
through the remainder of 1998. This growth should be generated by the
Unapix/Miramar division continuing to phase into aggressive market penetration,
as well as by the Company's emphasis on distributing higher quality films to the
rental marketplace and non-fiction titles to the sell-through marketplace.
Home video costs for the nine months ended September 30, 1998 increased by 17%
to $9,808,000 from $8,400,000 as compared to the corresponding period in 1997.
This increase reflects increased royalty, amortization and other film expenses
associated with the higher levels of revenues described above.
General and administrative costs were $8,502,000 for the nine months ended
September 30, 1998, as compared to $5,123,000 in the same period in 1997, an
increase of $3,379,000. This increase is chiefly attributable to costs related
to the infrastructure required to support the Company's expansion and
diversification. These costs mainly consisted of increased staffing and office
costs to support the increased sales activity and establishment of new business
units.
9
<PAGE>
UNAPIX ENTERTAINMENT, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company had income from operations of $1,180,000 for the nine months ended
September 30, 1998, as compared to $2,003,000 in the same period in 1997. The
decrease reflects higher general and administrative costs for expanded
infrastructure.
Interest expense and financing expense, net, increased to $1,282,000 in 1998
from $644,000 in 1997. This increase primarily reflects the interest and related
expenses on the 10% Convertible Notes issued in the second half of 1997 and in
1998, as well as increased bank borrowings.
The Company had a loss before taxes of $102,000 for the nine months ended
September 30, 1998 as compared to income before taxes of $1,359,000 for the
corresponding nine month period in 1997. The decrease is attributable to the
increase in general and administrative expenses and interest expense noted
above.
The Company has embarked on a cost cutting program which has, to date,
identified approximately $1,700,000 in annual cost savings from operations. Part
of these savings will be invested in new areas of business and the addition of
several sales personnel which is expected to contribute to additional revenue
and earnings in 1999.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1998, operating activities provided cash
of $5,109,000 (after deducting an increase in accounts receivable of 5,575,000).
The Company used $17,634,000 in investing activities which consisted primarily
of $17,337,000 incurred in acquiring, producing and promoting new properties
for the home video rental and the licensing and distribution markets. The
additional cash requirements were primarily met by proceeds of $13,846,000
from financing activities which included $4,063,000 from private offerings of
10% Convertible Subordinated Notes, described below and proceeds of $4,825,000
from the exercise of warrants and options.
In the normal course of business the Company makes certain guarantees to
producers and other third parties as to the minimum amount such parties will
receive from the Company's distribution of their products. The Company has
committed to pay film acquisition advances and guarantees of approximately
$5,400,000 as of September 30, 1998, which amounts are payable upon delivery of
the films. The Company also expects to incur significant additional cash flow
needs relating to its continued expansion. In order to meet its future funding
needs the Company will utilize cash on-hand, operating cash flows, its line of
credit and other potential financing.
The Company's revolving credit facility (the "Facility") with Imperial Bank (the
"Bank") provides for borrowings of up to $10,000,000. Loans are extended and
required to be repaid based upon the Company's outstanding accounts receivable
and other contractual rights to payment (see footnote 2 for further details).
The proceeds from loans under the Facility have been, and will be, used for
working capital purposes, including enabling the Borrowers to acquire
distribution rights with respect to entertainment programming. As of September
30, 1998, the Company had borrowed $9,401,000 and had remaining availability of
$450,000. The facility expired September 30, 1998 and has been extended by the
Bank pending negotiation of a new two year agreement providing for total
borrowings of up to $20,000,000 (see footnote 2).
In February 1998, the Company issued, in a private placement, $5,250,000
principal amount of 10% convertible subordinated debentures due June 30, 2003
convertible initially into common stock at $4.75 per share. The conversion price
is subject to adjustment in certain circumstances, including resets at September
1, 1998 and March 1, 1999 to 110% of the then current market price of the common
stock but not less than $4.00 and $3.50 respectively. Accordingly the conversion
price was reset on September 1, 1998 to $4.00 per share. Notes in the principal
amount of $900,000 were issued to certain investors in a film acquisition fund
in exchange for their interests therein. Upon completion of the offering,
proceeds of $250,000 were used to repay the loans from the Chairman and the
Secretary, and proceeds of $650,000 were used to repay Mezzanine Financial Corp.
The remaining $100,000 of the Mezzanine loan was exchanged for an equivalent
amount of 10% convertible notes (see note 2).
In July 1998 the Company consummated a private placement of 300 shares of its
non-voting Series B preferred stock and a three year warrant to purchase 200,000
shares of common stock at $5.16 per share for a gross purchase price of
$3,000,000. Each share of Series B preferred has a stated value of $10,000 and
provides for dividends cumulatively at 6% per annum payable quarterly in cash,
or, at the Company's option, under certain circumstances, in common stock. The
series B preferred stock is convertible into common stock (see note 5). The
holders have registration rights and are entitled to certain specified remedies
and, under certain circumstances, are entitled to require the Company to redeem
their shares of Series B preferred stock at premium, if the Company does not
timely comply with its obligations with
10
<PAGE>
UNAPIX ENTERTAINMENT, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
respect to the preferred stock. The Company incurred as a placement fee,
$150,000 in cash and a three year common stock purchase warrant to purchase
50,000 shares of common stock at an exercise price of $5.16 per share.
The feature film and television licensing and distribution industries require
significant expenditures of funds to establish and expand a library of films and
programs from which revenues may be generated. The Company could be dependent
upon future financings to continue its long term plans of expansion and growth.
The Company anticipates that as its asset base grows it will secure an increased
working capital line of credit as well as explore other film acquisition
financing arrangements. The Company may also have additional debt or equity
financings.
Year 2000
The Company has undertaken a study of its technological systems to determine
their year 2000 compliance and to the extent of noncompliance, the required
remediation. The Company has generally completed this process of review. All
software in use is vendor supplied and will be upgraded to a current version and
is expected to be fully certified as year 2000 compliant prior to the end of the
third quarter of 1999. The Company believes it has identified all non-compliant
hardware and has scheduled replacements also by the end of the third quarter of
1999. The Company does not believe that the cost to complete such remediation
will be material.
An assessment of the readiness of year 2000 compliance of third party entities
such as suppliers, banking institutions, customers and others is ongoing. As
with other companies in its industry, the Company is dependent on a number of
third parties for the supply of products and services that are themselves
dependent on computers. The Company's initial assessment of compliance by third
party entities is not yet completed, and therefore, the Company has not yet
developed any related contingency plans. Currently, the Company is unable to
predict the cause of the worst case year 2000 scenario nor the likelihood of any
third party not being year 2000 compliant or the direct or indirect costs to the
Company of non-compliance by third parties.
Except for the historical information contained herein, the matters discussed
are forward-looking statements which are necessarily speculative and are subject
to risks and uncertainties which could cause actual events or results to differ
materially from those referred to in such forward-looking statements. Certain of
such risks include the following: (i) The film, television programming and audio
compact disc and tape distribution business involves a substantial degree of
risk. The success of a product depends upon unpredictable and changing factors
such as competition and audience acceptance, which may bear little or no
correlation to the Company's production and other costs. Audience acceptance of
the Company's products represents a response not only to the artistic components
of the products, but also to the level of advertising and promotion by the
distributor and availability of alternative forms of entertainment and leisure
time activities, general economic conditions and public taste, and other
intangible factors, all of which change rapidly and cannot be predicted with
certainty. In addition, as a result of the Company increasing its resources to
film and television product earlier in its production and acquisition stages,
the possibility always exists that the finished product may be different from
that which was initially envisioned. Therefore, there is a substantial risk that
some or all of the Company's products may not be commercially successful,
resulting in costs not being recouped or anticipated profits not being realized;
and (ii) The film, television programming and audio compact disc and tape
distribution and licensing industry is capital intensive and requires
significant expenditures of funds to establish a library of entertainment
properties from which revenues may be generated. The Company could be dependent
upon future financing in order to compete more effectively in the marketplace.
The Company's cash requirements have been and will continue to be significant.
If additional funding is unavailable to the Company when needed, the Company
could be required to curtail significantly one or more aspects of its operations
and the Company's business and financial condition could be materially adversely
affected. Additional factors that could affect results are described in "FACTORS
WHICH MAY AFFECT RESULTS" contained in the Company's Annual Report on Form
10-KSB for the year ended December 31, 1997 (which has been filed with the
Securities and Exchange Commission). The highlighted risks should not be assumed
to be the only things that could affect the Company's future performance. The
Company does not have a policy of updating or revising forward-looking
statements and thus it should not be assumed that silence by the Company's
management over time means that actual events are bearing out as estimated in
such forward-looking statements.
11
<PAGE>
UNAPIX ENTERTAINMENT, INC.
PART II - OTHER INFORMATION
ITEMS 1 AND 3 ARE NOT APPLICABLE
ITEM 2. CHANGES IN SECURITIES
(A) AND (B) ARE NOT APPLICABLE
In July 1998 the Company consummated a private placement of 300 shares
of its non-voting Series B preferred stock and a three year warrant to purchase
200,000 shares of common stock for a gross purchase price of $3,000,000. See
Note 2 to the Financial Statements contained herein (and the Company's Current
Report on Form 8-K for event of July 16, 1998) for a further description of such
placement.
In October 1998 the Company granted a total of 245,000 common stock
purchase options to employees, of which: 220,000 have an exercise price of
$2.375 per share; and 25,000 have an exercise price of $2.50 per share. All such
options expire in October 2008. 50,000 of such options are immediately
exercisable. 150,000 of the options will not become exercisable for
approximately 9.5 years, subject to earlier exercisability, if certain earnings
goals are achieved. The remaining options become exercisable based solely upon
the grantee's continuing to provide services to the Company. The options were
issued pursuant to the exemption contained in Section 4(2) of the Securities Act
of 1933, as amended (the "Act").
A total of 1,715 shares of common stock are issuable to a public
relations firm as partial consideration for services rendered during the third
quarter of 1998. The shares were issued pursuant to the exemption contained in
Section 4(2) of the Act.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 19, 1998, the Company held its 1998 Annual Meeting of
Stockholders at which stockholders elected David M. Fox, Robert Baruc and Scott
Hanock as directors of the Company to serve until the Company's Annual Meeting
of Stockholders in the year 2001, or until their successors are duly elected.
5,636,625 shares were voted in favor of the election of such individuals and
votes were withheld with respect to 63,280 shares. In addition to the
individuals elected as directors at the 1998 Annual Meeting, Messrs. Herbert M.
Pearlman, David S. Lawi, Lawrence Bishop and Walter M. Craig, Jr., who were
directors of the Company at the time of the 1998 Annual Meeting of Stockholders,
continue to serve as directors of the Company. Stuart J. Beck became a director
of the Company in October 1998 subsequent to the Annual Meeting.
In addition, the stockholders also approved an amendment to the
Company's 1993 Stock Option Plan (the "Plan") at the Annual Meeting. The
amendment increases the number of shares authorized for issuance under the Plan
from 875,000 shares to 1,225,000 shares. Holders of 5,430,455 shares voted in
favor of the amendment, holders of 233,016 shares voted against the amendment
and holders of 36,434 shares voted to abstain with respect to the resolution.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) Exhibits
Financial Data Schedule
(b.) Reports on Form 8-K
The Company filed a Current Report on Form 8-K, for an event
dated July 16, 1998, describing a private placement of 300
shares of its non-voting Series B preferred stock and a three
year warrant to purchase 200,000 shares of common stock for a
gross purchase price of $3,000,000.
12
<PAGE>
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
UNAPIX ENTERTAINMENT, INC.
/s/ Daniel T. Murphy
- ------------------------------
Daniel T. Murphy
Chief Financial Officer November 20, 1998
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
27 Financial Data
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000902787
<NAME> UNAPIX ENTERTAINMENT INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,746
<SECURITIES> 0
<RECEIVABLES> 19,931
<ALLOWANCES> 0
<INVENTORY> 2,357
<CURRENT-ASSETS> 0
<PP&E> 823
<DEPRECIATION> 0
<TOTAL-ASSETS> 694,128
<CURRENT-LIABILITIES> 0
<BONDS> 16,222
0
5
<COMMON> 74
<OTHER-SE> 23,542
<TOTAL-LIABILITY-AND-EQUITY> 64,128
<SALES> 0
<TOTAL-REVENUES> 25,614
<CGS> 0
<TOTAL-COSTS> 24,434
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,282
<INCOME-PRETAX> (102)
<INCOME-TAX> (35)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (67)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
