<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, 1998
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, 1998 was
5,732,778.
<PAGE>
OVERSEAS FILMGROUP, INC.
INDEX
- -------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION
PAGE
-----
Item 1. Financial Statements
Consolidated Balance Sheets --
March 31, 1998 (unaudited) and December 31, 1997 3
Consolidated Statements of Income (unaudited)
for the three months ended March 31, 1998 and March 31, 1997 4
Consolidated Statements of Cash Flows (unaudited)
for the three months ended March 31, 1998 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 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signature 13
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
OVERSEAS FILMGROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------------- ------------------
(UNAUDITED)
<S> <C> <C>
ASSETS:
-------
CASH AND CASH EQUIVALENTS $ 78,932 $ 1,179,133
RESTRICTED CASH 30,275 172,498
ACCOUNTS RECEIVABLE, NET OF ALLOWANCE FOR DOUBTFUL
ACCOUNTS OF $750,000 18,116,338 14,416,540
RELATED PARTY RECEIVABLE 281,000 281,000
FILM COSTS, NET OF ACCUMULATED AMORTIZATION 29,004,818 29,740,567
FIXED ASSETS, NET OF ACCUMULATED DEPRECIATION 372,144 408,685
OTHER ASSETS 383,687 361,897
------------------- ------------------
TOTAL ASSETS $ 48,267,194 $ 46,560,320
------------------- ------------------
------------------- ------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
-------------------------------------
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 2,163,594 $ 1,939,576
PAYABLE TO PRODUCERS 6,822,916 4,453,021
NOTE PAYABLE TO SHAREHOLDERS 2,365,246 2,161,977
NOTES PAYABLE 21,745,191 23,142,184
DEFERRED INCOME TAXES 2,593,200 2,502,200
DEFERRED REVENUE 807,750 800,250
------------------- ------------------
TOTAL LIABILITIES 36,497,897 34,999,208
------------------- ------------------
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, 5,732,778 OUTSTANDING 5,778 5,778
ADDITIONAL PAID IN CAPITAL 10,652,731 10,652,731
RETAINED EARNINGS 1,197,522 989,337
TREASURY STOCK AT COST, 45,000 SHARES (86,734) (86,734)
------------------- ------------------
TOTAL SHAREHOLDERS' EQUITY 11,769,297 11,561,112
------------------- ------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 48,267,194 $ 46,560,320
------------------- ------------------
------------------- ------------------
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
OVERSEAS FILMGROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
-------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
---- ----
<S> <C> <C>
REVENUES $ 7,032,185 $ 6,161,195
EXPENSES:
FILM COSTS 5,646,132 4,607,463
SELLING, GENERAL AND ADMINISTRATIVE 795,066 908,144
------------- ---------------
TOTAL EXPENSES 6,441,198 5,515,607
------------- ---------------
INCOME FROM OPERATIONS 590,987 645,588
OTHER INCOME (EXPENSE):
INTEREST INCOME 1,292 1,231
INTEREST EXPENSE (301,324) (186,735)
OTHER INCOME 43,279 18,083
------------- ---------------
TOTAL OTHER INCOME (EXPENSE) (256,663) (167,421)
------------- ---------------
INCOME BEFORE INCOME TAXES 334,324 478,167
INCOME TAX PROVISION 126,139 172,135
------------- ---------------
NET INCOME $ 208,185 $ 306,032
------------- ---------------
------------- ---------------
BASIC AND DILUTED EARNINGS PER SHARE $ 0.04 $ 0.05
------------- ---------------
------------- ---------------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 5,732,778 5,778,778
------------- ---------------
------------- ---------------
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
OVERSEAS FILMGROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 208,185 $ 306,032
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES -
AMORTIZATION OF FILM COSTS 5,584,637 4,736,082
DEPRECIATION OF FIXED ASSETS 36,540 35,567
CHANGE IN ASSETS AND LIABILITIES -
(INCREASE) IN ACCOUNTS RECEIVABLE (3,699,798) (2,700,621)
(INCREASE) IN OTHER ASSETS (21,790) (11,962)
INCREASE (DECREASE) IN ACCOUNTS PAYABLE
AND ACCRUED EXPENSES 224,017 (49,469)
INCREASE IN PAYABLE TO PRODUCERS 2,369,895 1,659,526
INCREASE IN DEFERRED INCOME TAXES 91,000 133,000
INCREASE (DECREASE) IN DEFERRED REVENUE 7,500 (378,300)
-------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,800,186 3,729,855
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
ADDITIONS TO FILM COSTS (4,848,886) (7,211,167)
PURCHASE OF FIXED ASSETS 0 (29,448)
-------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (4,848,886) (7,240,615)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
NET (REPAYMENT) BORROWINGS UNDER CREDIT FACILITY (1,396,993) 3,391,218
PAYMENTS ON NOTES PAYABLE TO SHAREHOLDERS (81,355)
ISSUANCE OF NOTE PAYABLE TO RELATED PARTY 203,269 0
-------------- --------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (1,193,724) 3,309,863
-------------- --------------
NET DECREASE IN CASH (1,242,424) (200,897)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
AT BEGINNING OF PERIOD 1,351,631 399,726
-------------- --------------
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
AT END OF PERIOD $ 109,207 $ 198,829
-------------- --------------
-------------- --------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE QUARTER FOR:
INTEREST $ 541,879 $ 530,647
-------------- --------------
-------------- --------------
INCOME TAXES $ 0 $ 4,800
-------------- --------------
-------------- --------------
FOREIGN WITHHOLDING TAXES $ 35,139 $ 35,135
-------------- --------------
-------------- --------------
</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 reflected in these
consolidated financial statements. Operating results for the three
months ended March 31, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998.
Certain reclassifications have been made in the 1997 consolidated
financial statements to conform to the 1998 presentation. 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, 1997 (the "1997 Consolidated Financial
Statements").
II. Film costs consist of the following:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
Films in release net of accumulated
amortization 26,159,513 26,781,682
Films not yet available for release 2,845,305 2,958,885
---------- ----------
29,004,818 29,740,567
---------- ----------
---------- ----------
</TABLE>
III. On April 14, 1998 the Company amended the terms of its Credit Facility
to, among other provisions, extend the expiration of the commitment to
lend under the Credit Facility to April 9, 1999, provide additional
availability under the Operating Facility, eliminate further borrowings
under the Film Facility portion of the Credit Facility (with the
exception of one additional film) and extend the individual maturity
dates of various Film Facilities, and waive certain debt covenant
violations. See the 1997 Consolidated Financial Statements.
The Company's ability to maintain availability under its Operating
Facilities and to pay down the Film Facilities prior to maturity is
primarily dependent upon the timing of collections on existing sales
during the next twelve months and the amount and timing of collection
on anticipated sales of the Company's current library and films which
the Company plans to release or make available to subdistributors over
the next twelve months. Management believes that existing capital, cash
flow from operations and availability under the Company's amended Credit
Facility and Local Facility will be sufficient to enable the Company to
fund its planned acquisition, distribution and overhead expenditures for
a reasonable period of time. In the event that the Company's sales and
collections during the next twelve months are less than currently
anticipated, the Company will need to either alter planned acquisition and
distribution activities, seek additional availability under its current
Credit Facility or seek alternate sources of financing.
IV. The Company is committed under various acquisition agreements to pay
minimum guarantees of $6,437,500 contingent upon delivery of the
respective films to the Company. In addition, the Company has guaranteed
payment by an independent motion picture production company of a
promissory note in the aggregate principal amount of $186,613, payable
on September 8, 1998.
6
<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," "INTEND" 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 REGISTRANT WILL NOT BE
COMMERCIALLY SUCCESSFUL, RESULTING IN COSTS NOT BEING RECOUPED OR ANTICIPATED
PROFITS NOT BEING REALIZED. THE REGISTRANT'S RESULTS OF OPERATIONS FOR THE
PERIOD ENDED MARCH 31, 1998 ARE NOT NECESSARILY INDICATIVE OF THE RESULTS THAT
MAY BE EXPECTED IN FUTURE PERIODS (INCLUDING FOR THE YEAR ENDING DECEMBER 31,
1998). DUE TO QUARTERLY FLUCTUATIONS IN THE NUMBER OF MOTION PICTURES IN
WHICH THE REGISTRANT CONTROLS THE DISTRIBUTION RIGHTS AND WHICH BECOME
AVAILABLE FOR DISTRIBUTION (AND THUS, FOR WHICH REVENUE CAN FIRST BE
RECOGNIZED) AND THE NUMBER OF MOTION PICTURES DISTRIBUTED BY THE REGISTRANT,
AS WELL AS THE UNPREDICTABLE NATURE OF AUDIENCE AND SUBDISTRIBUTOR RESPONSE
TO MOTION PICTURES DISTRIBUTED BY THE REGISTRANT, THE REGISTRANT'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 AND (II) THE REGISTRANT'S INTENT, BASED UPON ITS ONGOING
STRATEGY, TO ACQUIRE RIGHTS TO OR PRODUCE FILMS WHICH HAVE GREATER PRODUCTION
VALUES (OFTEN AS A RESULT OF LARGER BUDGETS), THE REGISTRANT'S COSTS AND
EXPENSES, AND THUS THE CAPITAL REQUIRED BY THE REGISTRANT IN ITS OPERATIONS
AND THE ASSOCIATED RISKS FACED BY THE REGISTRANT MAY INCREASE IN THE FUTURE.
ADDITIONAL RISKS AND UNCERTAINTIES ARE DISCUSSED ELSEWHERE IN APPROPRIATE
SECTIONS OF THIS REPORT AND IN OTHER FILINGS MADE BY THE REGISTRANT 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, 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 REGISTRANT.
THE REGISTRANT 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 REGISTRANT OVER TIME MEANS THAT ACTUAL EVENTS ARE BEARING OUT AS
ESTIMATED IN SUCH FORWARD-LOOKING STATEMENTS.
7
<PAGE>
GENERAL
The operations of Overseas Filmgroup, Inc. ("Overseas" or the "Company")
were established on February 11, 1980. The Company operated as a privately
held company through October 30, 1996. On October 31, 1996 the Company was
acquired, through merger, by Entertainment/Media Acquisition Corporation
("EMAC"), a publicly traded company. Concurrent with the merger, EMAC changed
its name to Overseas Filmgroup, Inc. The Company is principally involved in
the acquisition and worldwide license or sale of distribution rights to
independently produced motion pictures. Certain motion pictures are directly
distributed by the Company in the domestic theatrical market under the name
First Look Pictures ("First Look").
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1998 COMPARED TO QUARTER ENDED MARCH 31, 1997
Revenues increased by $ 870,990 (14.1%) to $ 7,032,185 for the three
months ended March 31, 1998 from $6,161,195 for the three months ended March
31, 1997. The increase was primarily due to an increase in licensing of
motion picture rights to many older films (sometimes known as "library"
titles) and to increased U.S. theatrical revenues ($590,432 for the quarter
ended March 31, 1998 compared to $127,721 in the comparable period in the
prior year) resulting from the Company's release (through First Look
Pictures) of MRS. DALLOWAY in February 1998.
Film costs as a percentage of revenues increased to 80.3% for the three
months ended March 31, 1998, compared to 74.8% (after certain reclassifications)
for the three months ended March 31, 1997. The increase results from
generally lower margins on the films generating the greatest portion of
revenues in the current three month period. 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, decreased by $113,078 (12.5%) to $795,066 for the quarter ended
March 31, 1998 from $908,144 for the quarter ended March 31, 1997. 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 decrease in selling, general and administrative expenses, net of
amounts capitalized to film costs, was primarily due to decreased personnel and
broad decreases in many areas of selling, general and administrative expenses
in the period ended March 31, 1998 compared to the comparable period in the
prior year.
Other expense increased 53.3% to $256,663 for the three months ended
March 31, 1998 compared to $167,421 (after certain reclassifications) for the
three months ended March 31, 1997 primarily as a result of increased interest
expense of $301,234 for the quarter ended March 31, 1998 compared to $186,735
for the quarter ended March 31, 1997.
As a result of the above, the Company had income before taxes for the
quarter ended March 31, 1998 of $334,324 compared to income before taxes of
$478,167 for the quarter ended March 31, 1997.
8
<PAGE>
The Company had net income for the quarter ended March 31, 1998 of $208,185
(reflecting an effective tax rate of 38%) compared to net income for the quarter
ended March 31, 1997 of $306,032 (reflecting an effective tax rate of 36%).
LIQUIDITY AND CAPITAL RESOURCES
The Company requires substantial capital for the acquisition of film
rights, the funding of distribution costs and expenses, the payment of ongoing
overhead costs and the repayment of debt. The principal sources of funds for
the Company's operations has been cash flow from operations and bank borrowings,
primarily through the Company's credit facility described below.
The Company has a credit facility (the "Credit Facility") under an
agreement with Coutts & Co. ("Coutts"), as an agent and lender, and Berliner
Bank A.G. London Branch ("Berliner"), as a lender (collectively, the
"Lenders") most recently amended in April 1998 (as amended, the "Syndication
Agreement"). The Syndication Agreement provides for i) up to $7,234,000
which can be borrowed on a revolving basis for the Company's working capital
needs (the "Operating Facility") and ii) up to $1,000,000 (the "Local
Facility") available to be issued as letters of credit to secure a local bank
line of credit (the "Local Line"). In addition, prior to the recent amendment
various additional borrowings used to fund the acquisition of specific motion
pictures, including certain distribution and/or print and advertising costs
associated with such motion pictures (the "Film Facilities") were provided.
Pursuant to the recent amendment, the Lenders and the Company agreed that the
Film Facilities would no longer be a revolving credit line and amounts repaid
cannot be reborrowed. Amounts borrowed under Film Facilities are being
repaid out of receipts relating to the licensing of distribution rights of
the specific film financed by the corresponding Film Facility as well as
certain receipts of films originally financed under Film Facilities which
have previously been repaid. 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 (the
9
<PAGE>
Company's borrowing rate being approximately 8.687% at May 13, 1998 on one
month borrowings). 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.
In addition to amounts outstanding on the Film Facilities as of May 13,
1998 ($15,261,851), an aggregate of approximately $6,000,000 was outstanding
under the Operating Facility, and $1,000,000 in face amounts of letters of
credit had been issued under the Local Facility to secure the City National
Bank credit line (under which approximately $899,000 was then outstanding at
an annual interest rate of 7.25%). As part of the recent amendment to the
Syndication Agreement, Ms. Little and Mr. Little, Co-Chairmen of the Board of
Directors and Co-Chief Executive Officers, have agreed to personally
guarantee for the benefit of the Lenders all amounts in excess of $6,000,000
(up to a maximum guarantee amount of $618,000) drawn under the Operating
Facility; provided that the guarantee will be extinguished when the amounts
outstanding under the Operating Facility are permanently reduced to less than
$6,000,000. Additionally, the Littles have agreed to defer payment on a note
issued by the Company in connection with the merger with EMAC until the
Operating Facility returns to a pre-existing limit of $5,000,000; however,
not before May 1999.
The Syndication Agreement requires that amounts outstanding under the
Operating Facility be repaid on the date that the commitment to lend under the
Syndication Agreement expires. The commitment to lend under the Syndication
Agreement expires April 9, 1999. Film facilities outstanding at March 31, 1998
mature on various dates between December 1998 and October 1999 based on the
timing of anticipated sales and collection of receivables on the related films.
Certain other film facilities are subject to review in October 1999.
During the next twelve months, the Company currently intends to acquire
rights to and distribute or act as sales agent with respect to approximately 10
to 12 films, including up to approximately three First Look Pictures releases
(but exclusive of films where the Company acquires primarily re-issue rights).
As the Company's existing credit facility does not provide available funding for
any new rights acquisition and requires the consent of the Lenders prior to the
Company entering into any new rights acquisitions or commitments to spend
amounts in connection with distribution expenses and costs for prints and
advertising, the ability of the Company to achieve such goals will depend on the
willingness of the Lenders to permit the Company to enter into new rights
acquisitions and commitments, as well as commitments for distribution expenses
and prints and advertising, and the ability of the Company to obtain other
sources of funds for its acquisition and operational activities, including
obtaining pre-sale commitments, third party equity sources and accessing funds
from financial institutions providing financing to producers based upon the
Company's estimate the value of unsold distribution rights to a motion
picture ("gap financing"). However, there can be no assurance as to the
future availability of pre-sales, equity and gap financing in amounts
sufficient to meet the Company's acquisition, financing and distribution
goals. In addition, the Company currently anticipates releasing films
through First Look Pictures, in most situations, only if outside sources of
funds are available for print and advertising expenses. As a result of the
foregoing, and because the motion picture business and the Company's
operations are subject to numerous additional uncertainties, including among
other things, the specific financing requirements of various film projects,
the audience response to completed films, competition from companies within
the motion picture industry and in other entertainment media (many of which
have significantly greater financial and other resources than the Company)
and the release schedules of competing films, no assurance can be given that
the Company's acquisition, financing and distribution 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, 1998, as of such date the Company had contractual obligations
for advances and minimum guarantee payments of $6,437,500 contingent upon
completion and delivery of certain motion pictures. As of March 31, 1998, the
Company also had deferred revenue relating to distribution commitments and
guarantees from sub-distributors of approximately $807,750.
The Company has guaranteed a loan from a bank to Neo Motion Pictures due
on September 8, 1998, the principal balance of which at May 14, 1998 was
approximately $186,613 in principal and accrued interest.
As of March 31, 1998, the Company had cash and cash equivalents of $78,932
compared to cash and cash equivalents of $1,179,133 as of December 31, 1997.
The difference primarily reflects repayment of borrowings under the Company's
Credit Facility. Additionally, at March 31, 1998, the Company had restricted
cash of $30,275 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 twelve months. In the
event that the motion pictures released or distributed by the Company during
such period do not meet with sufficiently positive distributor and audience
response, sales and licensing of distribution rights to films in the
Company's film library and films which the Company plans to release or make
available to subdistributors during such period are less than anticipated or
the Company is not able to exploit various sources of capital (such as
pre-sales and gap financing) to the extent anticipated, the Company will
likely need to significantly reduce its currently planned level of
acquisitions and distribution activities and overhead and will likely need to
obtain additional sources of capital. The Company is currently exploring
obtaining additional sources of capital (including equity and debt
financing). There can be no assurance, however, that such additional capital
will be available or available on terms advantageous to the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable, as the Securities and Exchange Commission phase-in date for
this Item with respect to the Company has not yet occurred.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not, as of May 14, 1998, a party to any litigation.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
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.
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 Amendment, dated April 14, 1998 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. Incorporated by
reference to Exhibit 10.24 of the Company's
Annual Report filed on Form 10-K for the
11
<PAGE>
fiscal year ended December 31, 1997.
10.1 Loan Agreement dated as of February 15, 1998
between the Company and Ellen Dinerman Little
and Robert B. Little. Incorporated by reference
to Exhibit 10.31 of the Company's Annual Report
filed on Form 10-K for the fiscal year ended
December 31, 1997.
27 Financial Data Schedule (Filed electronically
only). Filed herewith.
(a)No reports on Form 8-K were filed by the Company during the quarter
ended March 31, 1998.
12
<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, 1998 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.
13
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------
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. Incorporated by
referenced to Exhibit 10.24 of the Company's Annual Report
filed on Form 10-K for the fiscal year ended December 31,
1997.
10.1 Loan Agreement dated as of February 15, 1998 between the Company
and Ellen Dinerman Little and Robert B. Little. Incorporated by
reference to Exhibit 10.31 of the Company's Annual Report filed
on Form 10-K for the fiscal year ended December 31, 1997.
27 Financial Data Schedule (Filed electronically only). Filed
herewith.
14
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
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0
0
<COMMON> 5,778
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