<PAGE>
U.S. 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, 1996
Commission File No 1-13084
BYRON PREISS MULTIMEDIA COMPANY, INC.
---------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
New York 13-3676574
---------------------------- ----------------
(State of Incorporation) (I.R.S. Employer
Identification
number)
24 West 25th Street
New York, New York 10010
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip code)
(212) 989-6252
-------------------------------
(Issuer's telephone number)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 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
--- ---
The number of shares outstanding of the issuer's class of common equity, as of
the latest practical date is 4,261,875 shares of common stock par value $.001
per share as of November 12, 1996
Page 1 of 13 pages
<PAGE>
BYRON PREISS MULTIMEDIA COMPANY, INC.
FORM 10-QSB
INDEX
PART I FINANCIAL INFORMATION PAGE
- ------ --------------------- ----
Item 1. Financial Statements:
Consolidated Balance Sheet as of September 30, 1996. 3
Consolidated Statements of Operations for three and
nine months ended September 30, 1996 and 1995. 4
Consolidated Statements of Changes in Shareholders' Equity
for the nine months ended September 30, 1996. 5
Consolidated Statement of Cash Flows for the
the nine months ended September 30, 1996 and 1995. 6
Notes to Consolidated Financial Statements. 7-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 10-12
PART II
Sinatures 13
Page 2 of 13 pages
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
BYRON PREISS MULTIMEDIA COMPANY, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30,
1996
(unaudited)
------------
ASSETS
CURRENT ASSETS:
Cash and Cash equivalents $ 2.305.774
Accounts receivable 835,083
Other current assets 143,157
------------
Total current assets 3,284,014
PREPUBLICATION COSTS AND RIGHTS PURCHASED, net 4,569,828
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, less
accumulated depreciation of $353,102 591,630
OTHER ASSETS 582,283
------------
Total assets $ 9,027,755
============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,284,577
Deferred income 1,625,496
Other current liabilities 718,928
------------
Total current liabilities 3,629,001
DEFERRED INCOME --
------------
OTHER LONG-TERM LIABILITIES 3,629,001
Total liabilities
SHAREHOLDERS' EQUITY:
Preferred Stock, 5,000,000 shares authorized
-0- shares issued and outstanding --
Common stock, 30,000,000 shares authorized,
4,261,875 shares issued and outstanding,
.001 par value 4,262
Additional paid-in-capital 10,638,371
Retained deficit (5,243,879)
------------
Total shareholders' equity 5,398,754
------------
Total liabilities and shareholders' equity $ 9,027,755
============
The accompanying notes are an integral part of this balance sheet
Page 3 of 13 pages
<PAGE>
BYRON PREISS MULTIMEDIA COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET REVENUES $1,304,224 $ 946,956 $3,223,524 $2,856,984
COST OF REVENUE 1,309,608 880,132 2,968,881 1,944,600
---------- ---------- ---------- ----------
Gross profit/(loss) (5,384) 66,824 254,643 912,384
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 949,233 832,050 2,888,192 1,164,719
---------- ---------- ---------- ----------
Loss from
operations 954,617 765,226 2,633,549 1,252,335
OTHER INCOME, net 26,759 91,690 118,908 252,731
---------- ---------- ---------- ----------
Net loss $ 927,858 $ 673,536 $2,514,641 $ 999,604
========== ========== ========== ==========
NET LOSS PER WEIGHTED AVERAGE
SHARES OUTSTANDING $ 0.22 $ 0.16 $ 0.59 $ 0.25
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING 4,261,875 4,261,875 4,261,875 4,008,973
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
Page 4 of 13 pages
<PAGE>
BYRON PREISS MULTIMEDIA COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(unaudited)
Additional
Common Paid-in Retained
Stock Capital Deficit Total
------- ----------- ------------ -----------
BALANCE,
December 31, 1995 $4,262 $10,723,371 ($2,729,238) $7,998,395
Expenses related to
warrant registration (85,000) (85,000)
Net loss for the
nine months ended
Sept 30, 1996 (2,514,641) (2,514,641)
------- ----------- ------------ -----------
BALANCE,
Sept 30, 1996 $4,262 $10,638,371 $(5,243,879) $5,398,754
======= =========== ============ ==========
The accompanying notes are an integral part of these statements
Page 5 of 13 pages
<PAGE>
BYRON PREISS MULTIMEDIA COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,1996 AND 1995
(Unaudited)
For the nine months ended
Sept 30,
---------------------------
1996 1995
---------------------------
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net Loss $(2,514,641) $ (999,604)
Adjustments to reconcile net loss to net
cash provided by operating activities-
Depreciation and amortization:
Fixed assets and organizational costs 47,991 150,909
Prepublication costs and rights purchased 2,943,212 1,780,772
Changes in operating assets and liabilities-
Accounts receivable 243,348 689,109
Other assets (369,783) (24,961)
Accounts payable and accrued expenses 393,597 (202,745)
Deferred income and customer deposits 860,729 111,279
Other liabilities 144,730 51,379
----------- -----------
Net Cash provided by operating activities 1,749,183 1,230,722
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of marketable securities 5,455,931 --
Purchase of marketable securities (4,473,221) (1,449,485)
Prepublication costs and rights purchased (4,856,620) (3,140,869)
Acquisition of fixed assets (77,619) (302,897)
----------- -----------
Net cash used in investing activities (3,951,529) (4,893,251)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net (85,000) 5,884,845
----------- -----------
Net cash (used) provided by financing
activities (85,000) 5,884,845
----------- -----------
Net (decrease) increase in cash and cash
equivalents (2,287,346) 2,222,316
CASH AND CASH EQUIVALENTS, beginning of period 4,593,120 1,229,045
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 2,305,774 $ 3,451,361
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the six months for-
Taxes $ 15,750 $ 11,214
Interest $ 1,695 2,468
The accompanying notes are an integral part of these statements.
Page 6 of 13 pages
<PAGE>
BYRON PREISS MULTIMEDIA COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
1. FINANCIAL STATEMENTS
The balance sheet as of September 30, 1996 and the related statements of
operations, statements of changes in shareholders' equity and statement of cash
flows for the periods ended September 30,1996 and 1995 have been prepared by the
Company, without audit. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly its
financial position, results of operations and cash flows as of September 30,
1996 and 1995 have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these financial statements
be read in conjunction with the December 31,1995 audited financial statements
and notes thereto. The results of operations for the three months and nine
months ended September 30, 1996 are not necessarily indicative of the operating
results for the full year.
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, Byron Preiss Multimedia On-Line
Services, Inc. and Byron Preiss Multimedia Holdings, Inc.
Revenue Recognition
Copublishing Arrangements -- Revenues related to the development of CD-ROM
titles under copublishing agreements are recorded upon completion and delivery
of each title. Revenues from the sale of CD-ROM and book titles to end users are
recorded upon shipment.
Sale of Titles -- Revenues related to the sale of titles not covered by
copublishing agreements (which are generally made by distributors) are recorded
upon shipment to end users, subject to an appropriate reserve for returns. As at
September 30, 1996, the Company maintained a reserve of $651,882 which is
included in other current liabilities. Subsequent to the delivery of the titles,
the Company does not have any material nor significant obligations.
Page 7 of 13 pages
<PAGE>
Equipment and Leasehold Improvements
Equipment is stated at cost. For financial reporting purposes, equipment is
being depreciated over five years using the straight-line method. Leasehold
improvements will be amortized over the term of the lease for office space,
which is six months, or the life of the improvement, whichever is shorter. The
Company exercised its out option relating to its office lease and has
subsequently extended the lease through March 31, 1997.
Cash and Cash Equivalents
Highly liquid investments purchased with an original maturity of three months or
less are considered cash equivalents.
Marketable Securities
The Company has adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") no. 115," Accounting for Certain Investments in Debt and
Equity Securities," which require investments in debt and marketable equity
securities other than investments accounted for by the equity method to be
categorized as either trading, available-for-sale or held-to-maturity which are
stated at amortized cost.
Prepublication Costs and Rights Purchased
Prepublication costs are capitalized and represent the time and expense relating
to work performed in order to get a working product ready for sale. For
financial reporting purposes, generally, these costs will be charged to
operations as revenues are earned on the related titles, but in no event over a
period longer than eighteen months.
Rights purchased represent prepaid royalty expenses and relate to contracts
between the Company and various third parties which enable the Company to use
the said parties' material to create and produce products that contain such
material. For financial reporting purposes, these costs will be charged to
operations as revenues are earned on the related titles, but in no event over a
period longer than eighteen months.
The Company continually evaluates whether events and circumstances have occurred
that indicate the remaining useful life of prepublication costs or rights
purchased may warrant revision or that the remaining balances may not be
recoverable, using an estimate of undiscounted cash flows over the remaining
life of the related products. The Company's management believes, based on theses
continuing analyses, that all capitalized prepublication costs and rights
purchased will be fully realized.
Deferred Income
Deferred income primarily represents amounts received under copublishing
relationships. These amounts are recorded as deferred income pending the final
testing and acceptance of each title.
Page 8 of 13 pages
<PAGE>
Net Loss Per Weighted
Average Shares Outstanding
Net loss per weighted average shares outstanding is computed based on the
weighed average number of common shares outstanding during the period. All
common stock equivalents were determined to be antidilutive.
3. RELATED PARTY TRANSACTIONS
Byron Preiss, a principal shareholder, Director and CEO of the Company, is also
the owner and CEO of Byron Preiss Visual Publications, Inc. ("BPVP"). On January
1, 1995, the Company entered into the Management Services Agreement with BPVP
covering the use of certain services, office space, employees and office
equipment. The Agreement was subsequently amended to provide for termination on
December 31, 1996.
Page 9 of 12 pages
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations:
Three months and nine months ended September 30, 1996 compared to three months
and nine months ended September 30, 1995
Net Revenues: For the three months ended September 30, 1996, the Company
reported total revenues of $1,304,224 and for the nine months ended September
30, 1996, reported $3,223,524 as compared to $946,956 and $2,856,984
respectively, for the comparable prior year periods. Revenues for the quarter
ended September 30, 1996 attributable to the Company's copublishing
relationships with both Simon & Schuster Interactive and Penguin Electronic
Publishing which included the release of three new titles, totalled $1,025,000.
For the nine months ended September 30, 1996 copublishing revenues amounted to
$2,281,838. The Company completed the following new CD-ROM titles during the
quarter ended September 30, 1996 including American Heritage: The History of the
United States for Young People an American History reference disc for young
people, The Inside-Outside World a treasure hunt game for children based on the
popular book series by Roxie Munro and The Timetables of Technology, a 3D
exploration of technology from the discovery of fire in the Stone Age to the
creation of the Internet in the Information Age.
Under the Company's licensing agreements with Marvel Entertainment Group,
revenues from books totalled $430,649 for the quarter ended September 30, 1996
and $828,217 for the nine months ended September 30, 1996. Included in the
Company revenues for the third quarter are revenues from books including
X-Men:Mutant Empire Book 2: Sanctuary, The Ultimate X-Men, Spider-Man Goblin's
Revenge, Spider-Man & the Incredible Hulk: Rampage (Doom's Day Book 1). Marvel
Super Thriller books distributed by Pocket Books include: Midnight Justice,
Deadly Cure and You Are Spider-Man vs The Sinister Six.
At this time, the Company anticipates completing five additional new CD-ROM
titles under its copublishing relationships and three new CD-ROM titles under
its distribution relationship with Simon & Schuster Interactive. These titles
include Spider-Man The Sinister Six featuring the #1 rated Super Hero from
Marvel Comics, Westworld 2000 an interactive action/strategy game based on the
science-fiction film Westworld, written and directed by Michael Crichton,
American Heritage: Lincoln, the exploration of the life and times of one of
America's most revered presidents, Forbes Corporate Warrior Game a fast-paced
action game in which the player competes for wealth and power as he masters the
fundamentals of big business, and two CD-ROMs in the Scientific American Library
series, The Universe: From Quarks to the Cosmos, and Illusion: The Doors of the
Mind, and Total Television the multimedia encyclopedia spanning the entire
history of television. Also at this time, the Company anticipates under its
agreement with Marvel Entertainment Group, to publish three additional books
during the fourth quarter: two books with Putnam Berkely Group Inc. and one with
Pocket Books which include Spider-Man: The Octopus Agenda, Iron Man: Operation
A.I.M. and Iron Man Steel Terror.
Page 10 of 13 pages
<PAGE>
Cost of Revenues. Cost of Revenues for the quarter ended September 30, 1996 was
$1,309,608 or 100% of Revenues and for nine months ended September 30, 1996 Cost
of Revenues was $2,968,881 or 92% of Revenues. Cost of Revenues for the quarter
ended September 30, 1996 for approximately the same amount as Net Revenues for
the quarter ended September 30,1996 due to the fact that a major portion of all
development costs associated with the release of new titles is included in Cost
of Revenues during the third quarter and nine months ended September 30,1996.
Product demand and related sales of CD-ROM titles generally peaks during the
holiday season which is from November through January.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the quarter ended September 30, 1996 was $ $949,233
and for the nine months ended September 30, 1996 was $2,888,192 as compared to
$832,050 and $2,164,719 respectively for the prior year comparable periods. The
increase of $117,183 or 14% for the quarter ended September 30, 1996 is largely
attributable to an increase in Royalty expense ($149,000) Advertising ($56,000)
and Salaries ($38,000) offset by a reduction in legal expenses ($128,000). The
increase for the nine months ended September 30, 1996 is primarily due to an
increase in salaries ($172,000), Advertising ($142,000) Royalty expense
($186,000) and Research & Development costs ($144,000).
Other Income. Other income (interest income) decreased to $26,759 for the three
months ended September 30, 1996 as compared to $91,690 for the comparable period
and decreased to $118,908 for the nine months ended September 30, 1996 as
compared to $252,731 for the comparable prior year period a year ago. Interest
income declined due to the Company having a lesser amount of invested funds from
the proceeds of a twenty percent investment in the Company by Viacom
International Inc.
Liquidity and Capital Resources. The Company's balance sheet at September 30,
1996 reflects a fair condition with cash and cash equivalents totalling
$2,305,774 and accounts receivables of $835,083. The Company has no debt and its
Shareholders' Equity is $5,398,754. At this time, the Company believes its
existing cash, cash equivalents and anticipated cash flow from operations will
be adequate to meet the Company's cash requirements for the remainder of fiscal
1996 and for the first two months of 1997. For the first half of 1997 the
Company's cash flow is dependent upon the success of sales during the fourth
quarter of 1996 and the first quarter of 1997 as well as funds received in
connection with the Company entering into contemplated new development projects
in the near term. At this time, the Company continues to pursue a variety of
financing alternatives including, but not limited, to private placements, bank
financing and strategic alliances to finance the operations of the Company and
to finance potential acquisitions in the foreseeable future. There can be no
assurance that Company will generate sufficient funds from operations in the
future or that any of such financing alternatives will be available or available
on terms acceptable to the Company. The Company continues its discussions with
Time Warner in connection with the termination of the Time Warner Interactive
Group ("TWIG") Agreement relating to, among other things, (i) certain disputed
amounts claimed by TWIG to be due by the Company to TWIG which are allegedly
for, among other things, manufacturing, marketing and distribution fees due by
the Company in connection with the Time Warner Agreement and (ii) the Company's
belief that
Page 11 of 13 pages
<PAGE>
TWIG has failed to fulfill certain of its material obligations to the Company
under the Time Warner Agreement. Although the Company continues its discussions
with TWIG in connection therewith, there can be no assurance that this matter
can be resolved amicably by the parties.
Page 12 of 13 pages
<PAGE>
SIGNATURE
In accordance with the requirements of the Securities and Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BYRON PREISS MULTIMEDIA COMPANY, INC.
Date: November 13,1996 By: /s/ Byron Preiss
Byron Preiss, Chief Executive Officer,
President and Executive Officer
Date November 13, 1996 By: /s/ James R. Dellomo
James R. Dellomo, Chief
Financial Officer
Page 13 of 13 pages
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,305,774
<SECURITIES> 0
<RECEIVABLES> 835,083
<ALLOWANCES> 0
<INVENTORY> 77,470
<CURRENT-ASSETS> 3,284,014
<PP&E> 944,732
<DEPRECIATION> 353,102
<TOTAL-ASSETS> 9,027,755
<CURRENT-LIABILITIES> 3,629,001
<BONDS> 0
0
0
<COMMON> 4,262
<OTHER-SE> 10,638,371
<TOTAL-LIABILITY-AND-EQUITY> 9,027,755
<SALES> 3,223,524
<TOTAL-REVENUES> 3,223,524
<CGS> 2,968,881
<TOTAL-COSTS> 5,857,073
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,514,641)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,514,641)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,514,641)
<EPS-PRIMARY> (0.59)
<EPS-DILUTED> (0.59)
</TABLE>
