<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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 0-25308
OVERSEAS FILMGROUP, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3751702
(State or other (I.R.S. Employer
jurisdiction of incorporation or organization) Identification No.)
8800 SUNSET BLVD., THIRD FLOOR, LOS ANGELES, CA 90069
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (310) 855-1199
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 such
filing requirements for the past 90 days. Yes X No
--- ---
The number of shares of Common Stock outstanding
as of May 14, 1997 was 5,732,778.
<PAGE>
OVERSEAS FILMGROUP, INC.
INDEX
PART I - FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements ----
Consolidated Balance Sheets --
December 31, 1996 and March 31, 1997 (unaudited) 3
Consolidated Statements of Income (unaudited)
for the three months ended March 31, 1996 and March 31, 1997 4
Consolidated Statements of Cash Flows (unaudited)
for the three months ended March 31, 1996 and March 31, 1997 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signature 14
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
OVERSEAS FILMGROUP, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
1997 1996
----------- -------------
(Unaudited)
ASSETS:
Cash and cash equivalents $ 37,600 $ 353,689
Restricted cash 161,229 46,037
Accounts receivable, net of allowance for doubtful
accounts of $1,000,000 13,418,860 10,718,239
Related party receivable 413,000 413,000
Other receivables 10,000 10,000
Film costs, net of accumulated amortization 30,833,409 28,358,324
Fixed assets, net of accumulated depreciation 551,008 557,127
Other assets 359,231 347,269
----------- -----------
Total assets $45,784,337 $40,803,685
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable and accrued expenses $ 2,573,615 $ 2,623,084
Payable to producers 5,372,338 3,712,812
Note payable to shareholders 2,004,531 2,085,886
Notes payable 19,998,355 16,607,137
Deferred income taxes 3,163,000 3,030,000
Deferred revenue 174,700 553,000
----------- -----------
Total liabilities 33,286,539 28,611,919
----------- -----------
Shareholders' equity:
Preferred stock, $.001 par value, 2,000,000 shares
authorized, 0 shares outstanding
Common stock, $.001 par value, 25,000,000 share
authorized;
authorized, 5,777,778 outstanding 5,778 5,778
Additional paid-in capital 10,652,731 10,652,731
Retained earnings 1,839,289 1,533,257
----------- -----------
Total shareholders' equity 12,497,798 12,191,766
----------- -----------
Total liabilities and shareholders' equity $45,784,337 $40,803,685
----------- -----------
----------- -----------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
OVERSEAS FILMGROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
---------- ----------
Revenues $6,161,195 $6,522,687
Expenses:
Film costs 4,873,706 5,195,350
Selling, general and administrative 908,144 755,501
---------- ----------
Total expenses 5,781,849 5,950,851
---------- ----------
Income from operations 379,346 571,836
Other income (expenses):
Interest Income 164,726 110,960
Interest Expense (83,987) (82,190)
Other income 18,083 61,633
---------- ----------
Total other income (expenses) 98,822 90,403
---------- ----------
Income before income taxes 478,167 662,239
Income tax provision 172,135 36,508
---------- ----------
Net income $ 306,032 $ 625,731
---------- ----------
---------- ----------
Earnings per share $ 0.05
----------
----------
Weighted average number of common
shares outstanding 5,777,778
----------
----------
Pro forma data
Income before income taxes and additional
interest expense $ 662,239
Additional interest expense 36,884
----------
Income before income taxes 625,355
Income tax provision 225,128
----------
Pro forma net income $ 400,227
----------
----------
Pro forma earnings per share $ 0.10
----------
----------
Weighted average number of common
shares outstanding 4,177,778
----------
----------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
OVERSEAS FILMGROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 306,032 $ 625,731
Adjustments to reconcile net income to net
cash provided by operating activities -
Amortization of film costs 4,736,082 5,042,184
Depreciation of fixed assets 35,567 31,495
Change in assets and liabilities -
(Increase) in accounts receivable (2,700,621) (476,223)
(Increase) in related party receivables 0 (41,242)
(Increase) in other receivables 0 (18,699)
(Increase) in other assets (11,962) (302,868)
(Decrease) increase in accounts payable
and accrued expenses (49,469) 262,668
Increase (decrease) in payable to producers 1,659,526 (874,820)
Increase in deferred income taxes payable 133,000 0
(Decrease) increase in deferred revenue (378,300) 444,600
------------ ------------
Net cash provided by operating activities 3,729,855 4,692,826
------------ ------------
Cash flows from investing activities
Additions to film costs (7,211,167) (12,318,501)
Purchase of fixed assets (29,448) (66,051)
------------ ------------
Net cash used in investing activities (7,240,615) (12,384,552)
------------ ------------
Cash flows from financing activities
Net borrowings under credit facility 3,391,218 7,352,814
Payment on note payable to shareholders (81,355) 0
Distributions to shareholders 0 (173,200)
------------ ------------
Net cash provided by financing activities 3,309,863 7,179,614
------------ ------------
Net decrease in cash (200,897) (512,112)
Cash, cash equivalents and restricted cash
at beginning of year 399,726 2,566,599
------------ ------------
Cash, cash equivalents and restricted cash
at end of year $ 198,829 $ 2,054,487
------------ ------------
------------ ------------
Supplemental disclosure of cash flow information:
Cash paid during the quarter for:
Interest $ 530,647 $ 287,105
------------ ------------
------------ ------------
Income taxes $ 4,800 $ 30,000
------------ ------------
------------ ------------
Foreign withholding taxes $ 35,135 $ 8,927
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
OVERSEAS FILMGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
I. The accompanying unaudited consolidated financial statements of Overseas
Filmgroup, Inc. (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information
and with the instructions to Rule 10-01 of Regulation S-X. 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 only of normal
recurring adjustments) considered necessary for a fair presentation have
been included. Operating results for the three months ended March 31, 1997
are not necessarily indicative of the results that may be expected for the
year ending December 31, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996
(the "1996 Consolidated Financial Statements").
II. On October 31, 1996, the Company, a publicly-held company then known
as "Entertainment/Media Acquisition Corporation" ("EMAC") which was
formed in December 1993 in order to acquire an operating business in the
entertainment and media industry, succeeded by merger (the "Merger") to
the operations of Overseas Filmgroup, Inc. ("Pre-Merger Overseas"), a
privately-held independent film company, the operations of which were
established in 1980. For accounting and financial reporting purposes, the
Merger was considered a reverse acquisition of EMAC with Pre-Merger
Overseas as the acquirer. Accordingly, the results of operations and
financial position of the Company, for periods and dates prior to the
Merger (including March 31, 1996 and for the quarter then ended), are the
historical results of operations and financial position of Pre-Merger
Overseas for such periods and dates. Until the Merger, Pre-Merger Overseas
operated as an S Corporation for federal (but not state) income tax
purposes under Sub-chapter S of the Internal Revenue Code. As a result of
the Merger, the Company's S Corporation status was terminated effective
October 31, 1996. The Company is liable for both federal and state income
taxes from that date forward.
Pro forma net income reflects pro forma interest expense on a $2,000,000
promissory note issued in the Merger to the stockholders of Pre-Merger
Overseas, and assumed to be outstanding as of January 1, 1995, and a pro
forma income tax provision, using an effective income tax rate of 36%, to
account for the estimated income tax expense of the Company as if it had
been subject to federal as well as state income taxes at the corporate
level for the period. Pro forma net income per share has been computed
using the weighted average common shares outstanding of 4,177,778 for the
quarter ended March 31, 1996. Such pro forma shares outstanding have been
computed as the weighted average, as applicable, of 3,177,778 shares
reflecting the recapitalization of common stock as a result of the Merger
and 1,000,000 shares representing the number of new shares that would have
to be issued at the October 30, 1996 market price of $5.20 per share to
pay pro forma distributions of $3,500,000 representing actual Pre-Merger
distributions, $1,500,000 representing cash consideration received by the
stockholders of Pre-Merger Overseas in the Merger and $200,000 representing
accrual of an estimated distribution to reimburse the stockholders of
Pre-Merger Overseas for federal income taxes payable for S corporation
years pursuant to an agreement entered into in connection with the Merger.
Historical earnings per share has not been presented in view of the prior
periods S corporation status.
Pro forma net income and pro forma net income per share are not necessarily
indicative of what actual net income and net income per share would have
been had the Merger occurred as of January 1, 1995. For additional
information regarding the calculation of pro forma net income and pro forma
net income per share as a result of the Merger see the 1996 Consolidated
Financial Statements.
6
<PAGE>
OVERSEAS FILMGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
III. Film costs consist of the following:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Films in release, net of accumulated amortization $27,011,551 $25,838,106
Films not yet available for release 3,821,858 2,520,218
----------- -----------
$30,833,409 $28,358,324
----------- -----------
----------- -----------
</TABLE>
IV. The Company and the two-bank syndicate of lenders under the Company's
Credit Facility have amended the Credit Facility to extend the date of the
annual review and the expiration of the commitment to lend under the Credit
Facility, which was originally scheduled to expire on May 9, 1997, to
June 30, 1997.
V. As of March 31, 1997, the Company is committed under agreements with
certain sub-distributors to spend an aggregate of $511,000 for print and
advertising on motion pictures scheduled to be released in the domestic
theatrical market. Additionally, the Company is committed under various
acquisition agreements to pay minimum guarantees of $3,689,000 contingent
upon delivery of the respective films to the Company.
VI. Subsequent to March 31, 1997, the Company repurchased 45,000 shares of its
outstanding common stock for a total of $86,734 in connection with a share
repurchase program under which the repurchase, at management's discretion,
of up to 75,000 shares has been authorized. This transaction will be
reflected on the financial statements for the quarter ending June 30, 1997
as treasury stock.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN
THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH
STATEMENTS MAY CONSIST OF ANY STATEMENT OTHER THAN A RECITATION OF HISTORICAL
FACT AND CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS
"MAY," "EXPECT," "ANTICIPATE," "ESTIMATE" OR "CONTINUE" OR THE NEGATIVE THEREOF
OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. THE READER IS CAUTIONED
THAT ALL FORWARD-LOOKING STATEMENTS ARE NECESSARILY SPECULATIVE AND THERE ARE
CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL EVENTS OR RESULTS TO
DIFFER MATERIALLY FROM THOSE REFERRED TO IN SUCH FORWARD-LOOKING STATEMENTS.
THESE RISKS AND UNCERTAINTIES INCLUDE, AMONG OTHER THINGS, THE HIGHLY
SPECULATIVE AND INHERENTLY RISKY AND COMPETITIVE NATURE OF THE MOTION PICTURE
INDUSTRY. THERE CAN BE NO ASSURANCE OF THE ECONOMIC SUCCESS OF ANY MOTION
PICTURE SINCE THE REVENUES DERIVED FROM THE PRODUCTION AND DISTRIBUTION OF A
MOTION PICTURE (WHICH DO NOT NECESSARILY BEAR A DIRECT CORRELATION TO THE
PRODUCTION OR DISTRIBUTION COSTS INCURRED) DEPEND PRIMARILY UPON ITS ACCEPTANCE
BY THE PUBLIC, WHICH CANNOT BE PREDICTED. THE COMMERCIAL SUCCESS OF A MOTION
PICTURE ALSO DEPENDS UPON THE QUALITY AND ACCEPTANCE OF OTHER COMPETING FILMS
RELEASED INTO THE MARKETPLACE AT OR NEAR THE SAME TIME, THE AVAILABILITY OF
ALTERNATIVE FORMS OF ENTERTAINMENT AND LEISURE TIME ACTIVITIES, GENERAL ECONOMIC
CONDITIONS AND OTHER TANGIBLE AND INTANGIBLE FACTORS, ALL OF WHICH CAN CHANGE
AND CANNOT BE PREDICTED WITH CERTAINTY. THEREFORE, THERE IS A SUBSTANTIAL RISK
THAT SOME OR ALL OF THE MOTION PICTURES RELEASED, DISTRIBUTED, FINANCED OR
PRODUCED BY THE COMPANY WILL NOT BE COMMERCIALLY SUCCESSFUL, RESULTING IN COSTS
NOT BEING RECOUPED OR ANTICIPATED PROFITS NOT BEING REALIZED. THE COMPANY'S
RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1997 ARE NOT NECESSARILY
INDICATIVE OF THE RESULTS THAT MAY BE EXPECTED IN FUTURE PERIODS (INCLUDING FOR
THE YEAR ENDING DECEMBER 31, 1997). DUE TO QUARTERLY FLUCTUATIONS IN THE NUMBER
OF MOTION PICTURES FOR WHICH THE COMPANY ACQUIRES DISTRIBUTION RIGHTS AND THE
NUMBER OF MOTION PICTURES DISTRIBUTED BY THE COMPANY, AS WELL AS THE
UNPREDICTABLE NATURE OF AUDIENCE RESPONSE TO MOTION PICTURES DISTRIBUTED BY THE
COMPANY, THE COMPANY'S REVENUES, EXPENSES AND EARNINGS FLUCTUATE SIGNIFICANTLY
FROM QUARTER TO QUARTER AND FROM YEAR TO YEAR. IN ADDITION, FOR SEVERAL
REASONS, INCLUDING (i) THE LIKELIHOOD OF CONTINUED INDUSTRY-WIDE INCREASES IN
ACQUISITION, PRODUCTION AND MARKETING COSTS, (ii) THE COMPANY'S INTENT TO
GRADUALLY AND SELECTIVELY ACQUIRE RIGHTS TO PRODUCE FILMS THAT HAVE GREATER
PRODUCTION VALUES (OFTEN AS A RESULT OF LARGER BUDGETS), AND (iii) THE COMPANY'S
INCREASING ROLE AS THE PRINCIPAL FINANCIER OF A GREATER PORTION OF THE MOTION
PICTURES IT DISTRIBUTES BY PROVIDING MINIMUM GUARANTEE COMMITMENTS, THE
COMPANY'S COSTS AND EXPENSES, AND THUS THE CAPITAL REQUIRED BY THE COMPANY IN
ITS OPERATIONS AND THE ASSOCIATED RISKS FACED BY THE COMPANY ARE LIKELY TO
INCREASE IN THE FUTURE. ADDITIONAL RISKS AND UNCERTAINTIES ARE DISCUSSED
ELSEWHERE IN APPROPRIATE SECTIONS OF THIS REPORT AND IN OTHER FILINGS MADE BY
THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING, WITHOUT
LIMITATION, THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR ITS FISCAL YEAR ENDED
DECEMBER 31, 1996, AND THE COMPANY'S CURRENT REPORT ON FORM 8-K DATED FEBRUARY
24, 1997 FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION ON
FEBRUARY 25, 1997. THE RISKS HIGHLIGHTED ABOVE AND ELSEWHERE IN THIS REPORT
SHOULD NOT BE ASSUMED TO BE THE ONLY THINGS THAT COULD AFFECT FUTURE PERFORMANCE
OF THE COMPANY. THE COMPANY DOES NOT HAVE A POLICY OF UPDATING OR REVISING
FORWARD-LOOKING STATEMENTS AND THUS IT SHOULD NOT BE ASSUMED THAT SILENCE BY
MANAGEMENT OF THE COMPANY OVER TIME MEANS THAT ACTUAL EVENTS ARE BEARING OUT AS
ESTIMATED IN SUCH FORWARD-LOOKING STATEMENTS.
8
<PAGE>
GENERAL
On October 31, 1996, the Company, a publicly-held company then
known as "Entertainment/Media Acquisition Corporation" ("EMAC") which was
formed in December 1993 in order to acquire an operating business in the
entertainment and media industry, succeeded by the merger (the "Merger") to
the operations of Overseas Filmgroup, Inc. ("Pre-Merger Overseas"), a
privately-held independent film company, the operations of which were
established in 1980. For accounting and financial reporting purposes, the
Merger was considered a reverse acquisition of EMAC with Pre-Merger Overseas
as the acquirer. Accordingly, the results of operations and financial
position of the Company, for periods and dates prior to the Merger (including
March 31, 1996 and for the quarter then ended), are the historical results of
operations and financial position of Pre-Merger Overseas for such periods and
dates.
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1997 COMPARED TO QUARTER ENDED MARCH 31, 1996
Revenues decreased by $361,492 (5.5%) to $6,161,195 for the
quarter ended March 31, 1997 from $6,522,687 for the quarter ended March 31,
1996. The decrease was primarily due to a decrease in film rentals during the
quarter ended March 31, 1997 compared to the comparable period in 1996 as the
film released in the first quarter of 1996, "Antonia's Line", the winner of
the Academy Award for Best Foreign Language film of 1995 met with greater
audience acceptance than those films released in the first quarter of 1997.
Film costs as a percentage of revenues decreased to 79.1% for
the three months ended March 31, 1997, compared to 79.6% for the three months
ended March 31, 1996. The decrease is primarily due to higher write off of
abandoned development projects during the three months ended March 31, 1996.
Gross margins vary from film to film based upon many factors including the
amount of the Company's investment in a particular film. In some cases, the
Company is entitled to only a distribution fee based upon a percentage of the
film's gross revenues in a particular territory or territories and media. In
other circumstances, the Company may have a substantial investment in the
film (for example, as a result of minimum guarantee commitments, rights
acquisition costs, or print and advertising commitments) and is dependent
upon the film's actual performance in order to generate a positive gross
margin. Other factors that impact gross margins include market acceptance of
a film, the budget of the film and management's analysis of the motion
picture's prospects (which under the individual film forecast method impacts
the rate of amortization).
Selling, general and administrative expenses, net of amounts
capitalized to film costs, increased by $152,643 (20.2%) to $908,144 for the
quarter ended March 31, 1997 from $755,501 for the quarter ended March 31,
1996. The Company capitalizes certain overhead costs incurred in connection
with its acquisition of rights to a motion picture and creation of marketing
materials for a motion picture by adding such costs to the capitalized film
costs of the motion picture. The increase in selling, general and
administrative expenses, net of amounts capitalized to film costs, was
primarily due to increased personnel and increased compensation paid to
personnel in the quarter ended March 31, 1997 over that of the comparable
period in the prior year.
As a result of the above, the Company had income before taxes
for the quarter ended March 31, 1997 of $478,167 compared to income before
taxes of $662,239 for the quarter ended March 31, 1996.
The Company had net income for the quarter ended March 31, 1997
of $306,032 (reflecting an effective tax rate of 36%) compared to pro forma net
income for the quarter ended March 31, 1996 of
9
<PAGE>
$400,227. Pre-Merger Overseas was an S-Corporation for federal income tax
purposes and, accordingly, was not subject to federal income taxes in 1996
through the date of the Merger. Pro forma income for the quarter ended March
31, 1996 gives effect to the issuance of a $2,000,000 promissory note to the
stockholders of Pre-merger Overseas in the Merger and the termination of S
Corporation status as if it had occurred on January 1, 1995 (by giving effect
to assumed additional interest expense relating to the promissory note and a
pro forma effective tax rate of 36%). See Note II of "Notes to Consolidated
Financial Statements" contained herein.
LIQUIDITY AND CAPITAL RESOURCES
During the next twelve months, the Company currently intends
to acquire rights to and distribute approximately 12 to 18 films (including
approximately six to eight films to be distributed by the Company in the
domestic theatrical market through the Company's First Look Pictures
operations). The Company, alone or in conjunction with others, currently intends
to selectively finance (typically by agreeing to pay a minimum guarantee in
connection with acquisition of distribution rights by the Company) all or a
portion of the production costs of, or produce, approximately six to ten of
such films. As the motion picture business is subject to numerous
uncertainties, including, among other things, financing requirements,
personnel availability, and the release schedule of competing films, no
assurance can be given that such goals will be met (or that such goals will
not be exceeded). In addition to the Company's obligations reflected on the
balance sheet as of March 31, 1997, as of such date the Company had
contractual obligations for advances, minimum guarantee payments, and prints
and advertising spending of $4,200,000 contingent upon completion and
delivery of certain motion pictures. The Company also has guaranteed a
$325,000 loan from a bank to Neo Motion Pictures, the balance of which at
March 31, 1997 was approximately $261,000 in principal and accrued interest.
As of March 31, 1997, the Company also had deferred revenue relating to
distribution commitments and guarantees from sub-distributors of
approximately $174,700.
The Company has a revolving credit facility (the "Credit
Facility") under an agreement (the "Syndication Agreement") with Coutts & Co.
("Coutts"), as an agent and lender, and Berliner Bank A.G. London Branch
("Berliner"), as a lender. The Syndication Agreement, which is secured by
substantially all of the assets of the Company and its subsidiaries, provides
for total borrowings of $27,000,000, of which up to $5,000,000 may be
borrowed on a revolving basis for the Company's working capital needs (the
"Operating Facility"), up to $1,000,000 (the "Local Facility") is available
to be issued as letters of credit to secure a local bank line of credit (the
"Local Line"), and up to $21,000,000 may be borrowed to fund the acquisition
of motion pictures or to fund distribution costs, including print and
advertising costs, associated with motion pictures acquired by the Company
(the "Film Facilities"). The interest rate payable on borrowings under the
Syndication Agreement is 3% above the London Inter-Bank Offered Rate
("LIBOR") in effect from time to time for one, three or six months, as
requested by the Company. In addition to an annual management fee, there is a
commitment fee on the daily unused portion of the Operating Facility of 1%
per annum, and fees with respect to the Local Facility of 2% of the face
amount of issued letters of credit. Fees on the Film Facilities include 2%
of the amount of cash advances or, in most circumstances, 2% of the face
amount of each letter of credit issued under the Film Facilities, as well as
a percentage of gross receipts of the film acquired or financed payable from
the Company's net earnings from the film.
The Company borrows funds under Film Facilities on a
film-by-film basis, with each such Film Facility treated as a separate loan,
generally maturing 12 months after the first drawdown. Coutts and Berliner
must approve each separate Film Facility, such approval to be granted in
their sole discretion. Amounts available under the Film Facilities are also
available to be issued as letters of credit or bank guarantees. As of March
31, 1997, an aggregate of approximately $19,408,000 and
10
<PAGE>
was outstanding under the Film Facilities and Operating Facility at an
average interest rate on the outstanding amounts of approximately 8.5% per
annum as of March 31, 1997. $1,000,000 in face amount of letters of credit
have also been issued under the Local Facility to secure a line of credit
that the Company has received from City National Bank (under which $590,000
was outstanding at March 31, 1997 bearing interest at 7.0% per annum). If the
letters of credit are drawn upon, the Company must repay the amounts advanced
by the banks upon demand.
Amounts outstanding under the Operating Facility must be
repaid on the date that the commitment to lend under the Syndication
Agreement expires. The commitment to lend under the Syndication Agreement is
reviewed by Coutts and Berliner on an annual basis and was scheduled to
expire on May 9, 1997, the date of the annual review. The Company, Coutts and
Berliner have amended the Syndication Agreement to extend the date of the
annual review and the expiration of the commitment to lend under the
Syndication Agreement to June 30, 1997. Based upon management's discussion
with the lenders under the Credit Facility, the Company currently anticipates
that on or before June 30, 1997, the Credit Facility will be renewed for a
one or two year period. In the event that the commitment to lend under the
Credit Facility is not renewed by Coutts and Berliner upon its expiration,
management of the Company anticipates that the Company will seek to refinance
the Credit Facility by obtaining a replacement facility from another lender
or group of lenders or enter into alternative financing arrangements,
although no assurances can be given that a replacement facility or any
alternative financing arrangements will be entered into or that a replacement
facility (or a renewal of the Credit Facility or any alternative financing
arrangements) will be entered into on terms or in amounts similar to the
Credit Facility.
In April 1997, the Company authorized a stock repurchase
program whereby the Company may repurchase from time to time through July 31,
1997, as determined by management, up to 75,000 shares of the Company's
Common Stock in open market transactions. See "Item 5 - Other Information"
under Part II of this Report. As of May 15, 1997, the Company had
repurchased 45,000 shares of Common Stock (which are currently being held as
treasury stock) at an aggregate cost of $86,734.
As of March 31, 1997, the Company had cash and cash
equivalents of $37,600 compared to cash and cash equivalents of $353,689 as
of December 31, 1996. The difference reflects normal fluctuations in the
Company's collections. Additionally, at March 31, 1997, the Company had
restricted cash of $161,229 held by the Company's primary lender, to be
applied against various Film Facilities.
The Company believes that its existing capital, funds from
operations, borrowings under the Credit Facility, and other available sources
of capital will be sufficient to enable the Company to fund its planned
acquisition, distribution and overhead expenditures for the next 12 months.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable, as the Securities and Exchange Commission
phase-in date for this Item has not yet occurred.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not, as of May 14, 1997, a party to any
litigation.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
In April 1997, the Company authorized a stock repurchase
program pursuant to which the Company may repurchase from time to time
through July 31, 1997, as determined by management as market conditions
warrant, up to 75,000 shares of the Company's outstanding Common Stock
(approximately 1.3% of the 5,777,778 shares outstanding at the time the stock
repurchase plan was authorized) in open market transactions. In addition,
officers and directors of the Company may utilize their own funds to
purchase, from time to time, a comparable amount of shares in open market
transactions during the stock repurchase program. Shares repurchased by the
Company will be held in treasury or retired. As of May 14, 1997, the Company
had repurchased 45,000 shares of Common Stock. See "Item 2 -Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
3.1 Restated Certificate of Incorporation. Incorporated by reference
to Exhibit 3.1 to the Company's Current Report on Form 8-K, dated
October 25, 1996, filed with the Securities and Exchange
Commission (the Commission) on November 12, 1996.
12
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
3.2 Bylaws. Incorporated by reference to Exhibit 3.2 to the
Company's Current Report on Form 8-K, dated October 25, 1996,
filed with the Commission on November 12, 1996.
10 Letter Agreement, dated May 7, 1997, among Coutts & Co., Berliner
Bank A.G. London Branch and Overseas Filmgroup, Inc. amending
that certain Restated and Amended Syndication Agreement dated as
of October 31, 1996 among Coutts & Co., Berliner Bank A.G. London
Branch, Overseas Filmgroup, Inc. and Entertainment/Media
Acquisition Corporation. Filed herewith.
27 Financial Data Schedule (Filed electronically only). Filed
herewith.
</TABLE>
(b) The following reports on Form 8-K and 8-K/A were filed by the
Company during the quarter ended March 31, 1997.
Current Report on Form 8-K, dated February 24, 1997, filed by
the Company with the Commission on February 25, 1997, regarding, in
accordance with the Private Securities Litigation Reform Act of 1995, certain
risks and uncertainties associated with the business of the Company. Such
report included Item 5 (Other Events).
Form 8-K/A, Amendment No.1, filed by the Company with the
Commission on March 21, 1997 amending Item 8 of the Company's Current Report
on Form 8-K, dated October 25, 1996, filed with the Commission on November
12, 1996.
13
<PAGE>
SIGNATURE
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.
OVERSEAS FILMGROUP, INC.
May 14, 1997 By: /s/ William F. Lischak
----------------------------
William F. Lischak
Chief Financial Officer,
Chief Operating Officer and
Secretary, signing both in his capacity as an
executive officer of the Registrant duly
authorized to sign on behalf of the
Registrant and as Chief Financial Officer of
the Registrant.
14
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
- ------- ----------- --------
<S> <C> <C>
3.1 Restated Certificate of Incorporation. Incorporated by reference to
Exhibit 3.1 to the Company's Current Report on Form 8-K, dated October 25,
1996, filed with the Commission on November 12, 1996.
3.2 Bylaws. Incorporated by reference to Exhibit 3.2 to the Company's Current
Report on Form 8-K, dated October 25, 1996, filed with the Commission on
November 12, 1996.
10 Letter Agreement, dated May 7, 1997, among Coutts & Co., Berliner Bank A.G.
London Branch and Overseas Filmgroup, Inc. amending that certain Restated
and Amended Syndication Agreement dated as of October 31, 1996 among Coutts
& Co., Berliner Bank A.G. London Branch, Overseas Filmgroup, Inc. and
Entertainment/Media Acquisition Corporation. Filed herewith.
27 Financial Data Schedule (Filed electronically only). Filed herewith.
</TABLE>
15
<PAGE>
EXHIBIT 10
From: Coutts & Co ("we/us")
440 Strand
London, WC2R CQS
To: Berliner Bank A.G. ("Berliner")
London Branch
No. 1 Crown Court
Cheapside
London EC2V 6JP
Overseas Filmgroup, Inc. ("OFG")
8800 Sunset Boulevard
Los Angeles
CA90069
Dated May 7, 1997
Dear Sirs
We refer to the Restated and Amended Syndication Agreement ("the Agreement")
dated 9th May 1996 and made between us, Berliner, the company then called
Overseas Filmgroup, Inc. ("Old OFG") and OFG (which was then called
Entertainment/Media Acquisition Corporation). Unless expressly defined herein,
all capitalised terms shall bear the meaning ascribed to them in the
Agreement.
Pursuant to the Merger, Old OFG has merged with and into OFG which is the
surviving corporation.
It is hereby agreed that as from the date of this letter agreement, all
references to 9th May 1997 in clause 17 of the Agreement shall be deemed to
be references to 30th June 1997.
<PAGE>
It is further agreed that save as amended herein, the terms of the Agreement
shall remain unchanged and in full force and effect.
Yours faithfully,
/s/ Christopher P. Collins
- --------------------------------------------
for and on behalf of Coutts & Co.
Agreed and Accepted
/s/ Steve Robbins Klaus Wurtenberger
- --------------------------------------------
for and on behalf of Berliner Bank A.G. London Branch
/s/ William F. Lischak
- --------------------------------------------
for and on behalf of Overseas Filmgroup, Inc.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 198,829
<SECURITIES> 0
<RECEIVABLES> 13,841,860
<ALLOWANCES> 1,000,000
<INVENTORY> 30,833,409
<CURRENT-ASSETS> 0
<PP&E> 551,008
<DEPRECIATION> 758,763
<TOTAL-ASSETS> 45,784,337
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 5,778
<OTHER-SE> 12,492,020
<TOTAL-LIABILITY-AND-EQUITY> 45,784,337
<SALES> 6,161,195
<TOTAL-REVENUES> 6,161,195
<CGS> 4,873,706
<TOTAL-COSTS> 908,144
<OTHER-EXPENSES> (98,822)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 478,167
<INCOME-TAX> 172,135
<INCOME-CONTINUING> 306,032
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 306,032
<EPS-PRIMARY> .05
<EPS-DILUTED> 0
</TABLE>
