<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
March 31, 1997
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 7,174,438 shares of common stock par value $.001
per share as of May 12, 1997
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 March 31, 1997. 3
Consolidated Statements of Operations for three
months ended March 31, 1997 and 1996. 4
Consolidated Statements of Changes in Shareholders' Equity
for the three months ended March 31, 1997. 5
Consolidated Statement of Cash Flows for the
the three months ended March 31, 1997 and 1996. 6
Notes to Consolidated Financial Statements. 7-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 10-12
PART II
Signatures 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
<TABLE>
<CAPTION>
March 31,
1997
------------
(unaudited)
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,385,266
Accounts receivable, net 967,206
Inventory 361,434
Other current assets 73,927
------------
Total current assets 3,787,833
PREPUBLICATION COSTS AND RIGHTS PURCHASED 3,055,722
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net 676,384
EXCESS OF PURCHASE PRICE OVER ASSETS 2,489,888
OTHER ASSETS 224,285
------------
Total assets $ 10,234,112
============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,444,896
Deferred income 807,844
Current portion of convertible note 159,261
Other current liabilities 369,822
------------
Total current liabilities 2,781,823
ROYALTY PAYABLE 300,000
CONVERTIBLE DEBENTURES (Note 3) 2,000,000
CONVERTIBLE NOTE (Note 4) 1,590,739
------------
Total liabilities 6,672,562
SHAREHOLDERS' EQUITY:
Preferred Stock, 5,000,000 shares authorized; 0 shares
issued and outstanding --
Common stock, 30,000,000 shares authorized,
4,661,875 shares issued and outstanding,
$.001 par value 4,662
Additional paid-in capital 11,029,041
Retained deficit (7,472,153)
------------
Total shareholders' equity 3,721,550
------------
Total liabilities and shareholders' equity $ 10,234,112
============
</TABLE>
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
March 31,
1997 1996
----------- -----------
<S> <C> <C>
NET REVENUES $ 573,098 $ 644,691
COST OF REVENUE 685,856 328,528
Gross (loss) profit (112,758) 316,163
----------- -----------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,093,756 875,318
Loss from operations (1,206,514) (559,155)
OTHER INCOME, net 23,466 53,041
----------- -----------
Net loss $(1,183,048) $ (506,114)
=========== ===========
NET LOSS PER WEIGHTED AVERAGE SHARES
OUTSTANDING $ (0.27) $ (0.12)
=========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING 4,310,764 4,261,875
=========== ===========
</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 THREE MONTHS ENDED MARCH 31, 1997
(unaudited)
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained
Stock Capital Deficit Total
------ ---------- -------- -----
<S> <C> <C> <C> <C>
BALANCE,
December 31, 1996 $4,262 $10,789,441 $(6,289,105) $ 4,504.598
Purchase of
Dolphin, Inc. 400 399,600 400,000
Net loss for the
three months ended
March 31, 1997 (1,183,048) (1,183,048)
------ ----------- ----------- -----------
BALANCE,
March 31, 1997 $4,662 $11,189,041 $(7,472,153) $ 3,721,550
------ ----------- ----------- -----------
------ ----------- ----------- -----------
</TABLE>
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 THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 31,
--------------------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net Loss $(1,183,048) $ (506,114)
Adjustments to reconcile net loss to net
cash provided by operating activities-
Depreciation and amortization:
Equipment, leasehold improvements, and
organization costs 57,064 22,424
Prepublication costs and rights purchased 323,176 92,933
Changes in operating assets and liabilities-
Accounts receivable 1,324,115 (472,772)
Inventory 32,566 69,438
Other assets (7,326) --
Accounts payable and accrued expenses (380,527) (283,317)
Other current 135,407 161,570
Deferred income 119,777 524,998
----------- -----------
Net cash provided/(used) by operating actv. 421,204 (390,840)
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of marketable securities -- 4,515,531
Purchase of Dolphin, Inc (600,000) --
Purchase of marketable securities (4,473,221)
Prepublication costs and rights purchased (633,682) (1,296,839)
Acquisition of fixed assets (15,467) (69,011)
----------- -----------
Net cash used in investing activities (1,249,149) (1,323,540)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible debenture (net) 1,840,000 --
Fees related to purchase of Dolphin, Inc. (8,787) --
----------- -----------
Net cash provided by financing actv. 1,831,213 --
----------- -----------
Net (decrease) increase in cash and
cash equivalents 1,003,268 (1,714,380)
CASH AND CASH EQUIVALENTS, beginning of year 1,381,998 4,593,120
CASH AND CASH EQUIVALENTS, end of period $ 2,385,266 $ 2,878,740
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for-
Taxes $ 10,160 7,125
Interest 23,497 373
Non-cash Investing and Financing:
Common Stock - Dolphin Acquisition $ 400,000 --
7% Convertible Note - Dolphin Acquisition 1,750,000 --
</TABLE>
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
MARCH 31, 1997 AND 1996
1. FINANCIAL STATEMENTS
The balance sheet as of March 31, 1997 and the related statements of operations,
statements of changes in shareholders' equity and statement of cash flows for
the periods ended March 31, 1997 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 March 31, 1997 and 1996 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 31,1996 audited financial statements
and notes thereto. The results of operations for the three months ended March
31, 1997 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, Dolphin, Inc., Virtual Comics, Inc.,
Byron Preiss Multimedia On-Line Services, Inc. and Byron Preiss Multimedia
Holdings, Inc. Dolphin Inc. was acquired on March 21, 1997 and Virtual Comics,
Inc. was incorporated in the State of Delaware in November 1996. Byron Preiss
Multimedia On-Line Services, Inc. and Byron Preiss Multimedia Holdings, Inc.,
have had no activity. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Revenue Recognition
Development Revenue - Revenues related to the development of CD-ROM
titles and book titles are recorded upon completion and delivery of each title.
Revenues from the sale of CD-ROM and books 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 appropriate reserve for returns.
According to distributor agreements, accounts receivable from distributors for
such sales are to be remitted net of return reserves. Subsequent to the
delivery of the titles, the Company does not have any material or significant
obligations. The Company's sales of titles occur primarily with two of its
distributors under agreements.
Page 7 of 13 pages
Equipment and Leasehold Improvements
<PAGE>
Equipment is stated at cost. For financial reporting purposes, equipment is
being depreciated over five years using the straight-line method. Leasehold
improvements are amortized over the shorter of the term of the lease or the
useful life of the improvement.
Cash and Cash Equivalents
Highly liquid investments purchased with an original maturity of three months or
less are considered cash equivalents.
Inventory
Inventory is stated at the lower of cost (first-in, first-out) or market.
Prepublication Costs and Rights Purchased
Prepublication costs are capitalized and represent the time and expense relating
to work performed in order to prepare a working product ready for sale. 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.
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.
Net Loss Per Weighted
Average Shares Outstanding
Net loss per weighted average shares outstanding is computed based on the
weighted average number of common shares outstanding during the period. All
common stock equivalents were determined to be antidilutive.
Page 8 of 13 pages
<PAGE>
3. Convertible Debentures
On February 5, 1997, the Company completed the sale of 8.0% convertible
debentures ("Debentures") due January 31, 1999 in the aggregate principal amount
of $2,000,000 in reliance upon the exemption from registration under Regulation
S afforded by the Securities Act of 1933. In connection with the sale, the
Company received net proceeds in the amount of approximately $1,840,000
(excluding legal, accounting and other miscellaneous expenses). During April
1997, in accordance with the notices of conversion, the Debentures were
presented to the Company by each holder of Debentures and the Company issued and
delivered 2,512,563 shares of Common Stock representing approximately 35% of the
Company's issued and outstanding shares of Common Stock.
4. Convertible Note
On March 21,1997, the Company acquired all the issued and outstanding
capital stock of Dolphin, Inc., a New Jersey corporation. (See note 6) As part
of the purchase price, the Company issued to the principal shareholder, Andrew
K. Gardner, a $1,750,000 7% Convertible Note due March 1, 2001. The outstanding
principal balance of this Note together with interest accruing thereon, is
repayable in thirty-nine equal monthly installments of $53,087.35 commencing
January 2, 1998.
5. RELATED PARTY TRANSACTIONS
Byron Preiss, a principal shareholder and CEO of the Company, is also the owner
and CEO of Byron Preiss Visual Publications, Inc. ("BPVP") and co-owner of
General Licensing Company, Inc. and Byron Preiss/Richard Ballantine, Inc. These
companies function as book producers, acquiring licenses from authors and
institutions. Byron Preiss Multimedia Company Inc. has purchased several such
licenses from said companies upon terms, including royalties in certain cases,
which the Company believes are as favorable as the terms which the Company could
have obtained in dealing with unaffiliated parties, and will have the
opportunity to purchase additional licenses under similar terms and conditions.
The Company also contract public relations and marketing services from Hilsinger
Mendelson, Inc., on a project by project basis, whose president is the spouse of
Byron Preiss.
6. ACQUISITION. On March 21, 1997, the Company acquired all the issued and
outstanding capital stock of Dolphin, Inc., a New Jersey corporation, for total
consideration of $2,750,000 consisting of $600,000 in cash, a $1,750,000 7%
convertible note and 400,000 shares of the Company's common stock valued at
$1.00 per share. The acquisition has been accounted for as a purchase and the
excess of the purchase price over the net assets acquired is currently being
evaluated to determine the appropriate allocation. Dolphin is a custom software
development company serving customers in need of high quality, interactive
education and training software products. Such tailored products are used for
educational and training purposes of students, teachers, researchers, medical
professionals, and workers across a broad foray of industries.
Page 9 of 13 pages
<PAGE>
PROFORMA WITH DOLPHIN, INC.
Unaudited
The following reflects the financial results if Dolphin, Inc.
acquisition had occurred on January 1, 1997 and 1996.
<TABLE>
<CAPTION>
For the three months ended
MARCH 31, 1997 MARCH 31, 1996
-------------- --------------
<S> <C> <C>
Revenues $ 886,345 $ 1,181,816
Loss from operations (1,284,553) (428,035)
Net loss (1,260,770) (376,008)
Loss per weighted average
shares outstanding $ (0.27) $ (0.09)
Weighted Average shares
outstanding 4,705,386 4,261,875
</TABLE>
5. SEGMENT INFORMATION. In 1996, due to increased competition in the consumer
software market and increasing consumer demand in the Company's book titles, the
Company changed its strategy from a vertical approach of selling CD-ROMs to
placing more emphasis on its book publishing operations and effectively
segmented its primary operation into interactive multimedia development and book
publishing.
In the table set forth below, information regarding operations for
each of the Company's industry segments as of March 31, 1997 is as follows:
<TABLE>
<CAPTION>
Three months ending March 31, 1997 (000's omitted)
----------------------------------
Interactive
Multimedia Book
Development Publishing Consolidated
----------- ---------- ------------
<S> <C> <C> <C>
Net Revenues $ 289 $ 284 $ 573
========
Loss from operations (853) (330) $ (1,183)
Other income, net 23
--------
Net loss $ 1,160
========
Identifiable assets 8,739 1,400 $ 10,139
Corporate assets 95
--------
$ 10,234
========
Depreciation and amortization of
equipment and leasehold
improvements $ 41 $ 16 $ 57
Capital expenditures 11 4 15
</TABLE>
Page 10 of 13 pages
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations:
Three months ended March 31, 1997 compared to three months
and three months ended March 31,1996
Net Revenues: For the three months ended March 31, 1997, the Company
reported total net revenues of $573,098 as compared to $644,691 for the prior
comparable period. The decrease in total net revenues can be partially
attributed to lower sales price of its CD-ROM titles. The Company did not
release any new CD-ROM titles during the first quarter ending March 31, 1997.
Interactive Multimedia net revenues accounted for $289,000 or 50% of net
revenues for the first quarter ending March 31, 1997 as compared to 458,173 or
71% of net revenues for the first quarter ending March 31, 1996. Books
accounted for net revenues of $284,000 or 50% of net revenues as compared to
$186,518 or 29% of net revenues for the comparable quarter a year ago.
Under both the Company's co-publishing and distribution arrangements
with Simon & Schuster, CD-ROM net revenues totalled $241,859 for the three
months ending March 31, 1997 compared to $158,985 for the same three month
period ending March 31, 1996. Under the Company's licensing agreements with
Marvel Entertainment Group two new books were released during the first quarter
ending March 31, 1997 including Spiderman-Iron Man - Doomsday #2 and X-Men:
Mutant Empire Book #3: Salvation. Revenues from books under this agreement
totalled $237,197 for the first quarter of 1997 as compared to $186,518 in the
prior comparable quarter ending March 31, 1996.
Under a co-publishing arrangement with Pocket Books, a division of
Simon & Schuster, the Company completed and distributed three additional books
including Iron Man: Steel Terror, Spiderman: Global Terror, and Spiderman:
Lizard's Rage. Revenues from books under this arrangement totalled $47,301 for
the first quarter ending March 31, 1997. Since this is a relatively new
arrangement, no books were completed in the first quarter of 1996.
Cost of Revenues. Cost of revenues increased to $685,856 for the three
months period ending March 31, 1997, up from $328,528 for the comparable period
ending March 31, 1996. The dollar increase in the cost of revenues is
attributable to both the increase in the number of units of CD-ROMs and books
titles sold during the quarter. In 1996 the Company elected to defer certain
development costs and amortize those costs over various periods up to and
including eighteen months. Therefore, the increase in cost of revenues can also
be partially attributed to: (i) as noted above, the amortization of certain
deferred development costs over eighteen months; (ii) the cost of localization
of existing titles; and (iii) updating and the revision of certain of the
company's CD-ROM titles.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the quarter ended March 31, 1997 was $1,093,756 as
compared to $875,318 for the prior comparable period ending March 31, 1996. The
increase of $218,438 or 24% for the quarter ended March 31, 1997 is largely
attributable to increased expenses relating to the Company's financial public
relations activities ($105,000), increased advertising
Page 11 of 13 pages
<PAGE>
expenses ($50,123) and the write off of research and development expenses
($59,623).
Other Income. Other income decreased to $23,466 for the three months ended
March 31, 1997 as compared to $53,041 for the comparable period a year ago due
principally to less funds being available for investment.
New Accounting Standard. In February 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards no. 128, "Earnings per
Share." This Statement establishes standards for computing and presenting
earnings per share ("EPS") and applies to all entities with publicly held common
stock or potential common stock. This Statement replaces the presentation of
primary EPS and fully diluted EPS with a presentation of basic EPS and diluted
EPS, respectively. Basic EPS excludes dilution and is computed by dividing
earnings available to common stockholders by the weighted-average number of
common shares outstanding for the period. Similar to fully diluted EPS, diluted
EPS reflects the potential dilution of securities that could share in the
earnings. This statement is not expected to have a material effect on the
Company's reported EPS amounts. This Statement is effective for the Company's
financial statements for the year ended December 31, 1997.
Liquidity and Capital Resources. The Company's balance sheet at March 31, 1997
reflects a fair condition with cash and cash equivalents totalling $2,385,266
and accounts receivable totalling $967,206. On February 5, 1997, the Company
completed a Regulation S financing covering the sale of 8.0% Convertible
Debentures due January 31, 1999 in the aggregate principal amount of $2,000,000.
In April 1997, the Debentures were converted into common stock of the Company
(See Note 3 to the Financial Statements). At this time, the Company believes its
existing cash, cash equivalents and anticipated cash flow from operations and
from co-publishing relationships will be adequate to meet the Company's cash
requirements for the balance of 1997. At this time, the Company is pursuing
various potential acquisitions, and in order to complete these acquisitions or
to fund the future operations of these acquisitions as well as the Company, the
Company may be required to raise additional capital. There can be no assurance
that the Company will generate sufficient funds from operations or from its
co-publishing relationships in the future or that any such financing
alternatives will be available or available on commercially acceptable terms to
the Company.
FORWARD-LOOKING INFORMATION. Statements contained in this Form 10-QSB that are
not historical facts, including, but not limited to, statements found in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations, are forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995 that involve
a number of risks and uncertainties. The actual results of the future events
described in such forward-looking statements in this Form 10-QSB could differ
materially from those stated in such forward-looking statements. Among the
factors that could cause actual results to differ materially are: the Company's
ability to successfully develop, distribute and market titles increasingly
intense competition in the interactive multimedia development and book
publishing industries and other risks detailed from time to time in the
Company's periodic earnings releases and reports filed with the Securities and
Exchange Commission, as well as the risks and uncertainties discussed in this
Form 10-QSB.
Page 12 of 13 pages
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
BYRON PREISS MULTIMEDIA COMPANY, INC.
Date: May 13, 1997 By: /s/ Byron Preiss
-------------------------------------
Byron Preiss, Chief Executive Officer,
President and Executive Officer
Date May 13, 1997 By: /s/ James R. Dellomo
-----------------------
James R. Dellomo, Chief
Financial Officer
Page 13 of 13 pages
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the Company's
Consolidated Balance Sheet and Consolidated Statement of Operations and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,385,266
<SECURITIES> 0
<RECEIVABLES> 967,206
<ALLOWANCES> 0
<INVENTORY> 361,434
<CURRENT-ASSETS> 3,787,833
<PP&E> 676,384
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,234,112
<CURRENT-LIABILITIES> 2,781,823
<BONDS> 2,000,000
0
0
<COMMON> 4,662
<OTHER-SE> 11,029,041
<TOTAL-LIABILITY-AND-EQUITY> 10,234,112
<SALES> 573,098
<TOTAL-REVENUES> 573,098
<CGS> 685,856
<TOTAL-COSTS> 1,779,612
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,183,048)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,183,048)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,183,048)
<EPS-PRIMARY> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>