<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
June 30, 1998
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 8,359,379 shares of common stock par value $.001
per share as of August 7, 1998.
Page 1 of 18 pages
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BYRON PREISS MULTIMEDIA COMPANY, INC.
FORM 10-QSB
INDEX
PART I FINANCIAL INFORMATION PAGE
- ------ --------------------- ----
Item 1. Financial Statements:
Consolidated Balance Sheet as of June 30, 1998. 3
Consolidated Statements of Operations for three months
and six months ended June 30, 1998
and 1997 4-5
Consolidated Statement of Changes in Shareholders' Equity
for six months ended June 30, 1998. 6
Consolidated Statements of Cash Flows for the
the six months ended June 30, 1998 and 1997. 7-8
Notes to Consolidated Financial Statements. 9-12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 13-16
PART II
Item 1. Legal Proceedings 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Page 2 of 18 pages
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PART I FINANCIAL INFORMATION
- ----------------------------
Item 1. Financial Statements
BYRON PREISS MULTIMEDIA COMPANY,INC. AND SUBSIDIARIES
-----------------------------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
<TABLE>
<CAPTION>
June 30,
1998
----------------
(unaudited)
ASSETS
------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 425,734
Accounts receivable, net 1,173,403
Inventory 234,960
Other current assets 268,852
----------
Total current assets 2,102,949
PREPUBLICATION COSTS AND RIGHTS PURCHASED 877,797
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net 533,086
GOODWILL, net of accumulated amortization 3,011,516
OTHER ASSETS 874,278
----------
Total assets $ 7,399,626
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $1,713,254
Current maturities of long-term debt 1,489,373
Liabilities from discontinued operations 680,365
Deferred income 313,286
Other current liabilities 132,327
----------
Total current liabilities 4,328,605
LONG TERM DEBT, less current maturities 2,350,276
OTHER LONG-TERM LIABILITIES 169,779
----------
Total liabilities 6,848,660
----------
MINORITY INTEREST 179,736
SHAREHOLDERS' EQUITY:
Preferred Stock, 5,000,000 shares authorized;
0 shares issued and outstanding
Common Stock, 30,000,000 shares authorized; 8,359,379
shares issued and outstanding, $.001 par value 8,359
Additional paid-in-capital 15,475,561
Accumulated deficit (15,112,690)
----------
Total shareholders' equity 371,230
----------
Total liabilities and shareholders' equity $ 7,399,626
============
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
Page 3 of 18 pages
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BYRON PREISS MULTIMEDIA COMPANY, INC. AND SUBSIDIARIES
------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
NET REVENUES $ 2,500,537 $ 1,165,129 $ 4,028,476 $ 1,722,932
COST OF REVENUES 1,490,923 885,936 2,474,548 1,221,547
------------- ----------- ------------- -----------
Gross profit from
continuing operations 1,009,614 279,193 1,553,928 501,385
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,240,850 1,451,469 2,286,340 2,263,950
------------- ----------- ------------- -----------
Loss from continuing oper.
before interest ( 231,236) (1,172,276) ( 732,412) (1,762,565)
INTEREST EXPENSE (INCOME) .............. 135,016 ( 17,056) 213,138 ( 40,522)
Loss from continuing
operations ........................ ( 366,252) (1,155,220) ( 945,550) (1,722,043)
DISCONTINUED OPERATIONS:
Loss from discontinued
operations ( 1,850) (2,148,959) (159,361) (2,765,184)
------------- ----------- ------------- -----------
Net loss $ (368,102) $(3,304,179) $(1,104,911) $(4,487,227)
============= =========== ============= ===========
NET LOSS PER SHARE INFORMATION:
BASIC NET LOSS PER SHARE:
Continuing operations $ (0.05) $ (0.17) $ (0.12) $ (0.32)
Discontinued operations (0.00) (0.32) (0.02) (0.50)
------------- ----------- ------------- -----------
Total $ (0.05) $ (0.49) $ (0.14) $ (0.82)
============= =========== ============= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Page 4 of 18 pages
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BYRON PREISS MULTIMEDIA COMPANY, INC. AND SUBSIDIARIES
------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
-----------------------------------------------
(unaudited)
-----------
continued
- ---------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
DILUTED NET LOSS PER SHARE:
Continuing operations $ (0.05) $ (0.17) $ (0.12) $ (0.32)
Discontinued operations (0.00) (0.32) (0.02) (0.50)
----------- ------------ ------------ ----------
Total $ (0.05) $ (0.49) $ (0.14) $ (0.82)
=========== ============ ============ ==========
COMMON SHARES USED IN COMPUTING PER SHARE
AMOUNTS:
Basic 8,044,040 6,677,448 7,857,497 5,500,644
========== =========== =========== =========
Diluted 8,044,040 6,677,448 7,857,497 5,500,644
========== =========== =========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Page 5 of 18 pages
<PAGE>
BYRON PREISS MULTIMEDIA COMPANY, INC. AND SUBSIDIARIES
------------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
---------------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1998
--------------------------------------
(unaudited)
-----------
<TABLE>
<CAPTION>
Additional
Common Paid-in Accumulated
Stock Capital Deficit Total
----- ----------- --------- -------
<S> <C> <C> <C> <C>
BALANCE,
December 31, 1997 $7,399 $14,618,221 $(14,007,779) $ 617,841
Purchase of High Text
Interactive, Inc. net assets 150 189,400 -- 189,550
Purchase of OnRamp
School Productions, Inc. 400 359,600 -- 360,000
Conversion of debt and accrued
interest into shares 410 308,340 -- 308,750
Net loss for the six
months ended June 30, 1998 -- -- (1,104,911) (1,104,911)
------ --------- ----------- ------------
BALANCE,
June 30, 1998 $8,359 $15,475,561 $(15,112,690) $ 371,230
====== =========== ============ =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Page 6 of 18 pages
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BYRON PREISS MULTIMEDIA COMPANY, INC. AND SUBSIDIARIES
------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
-----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,104,911) $(4,487,227)
Adjustments to reconcile net loss to net
cash provided by operating activities-
Depreciation and amortization 281,790 179,527
Amortization of prepublication costs
and rights purchased 1,373,539 1,543,682
Minority interest in loss of consolidated
subsidiary ( 14,233) --
Amortization of discount on convertible
debentures 4,723 --
Amortization of debt issuance costs 95,085 --
Changes in operating assets and liabilities
Accounts receivable ( 212,507) 939,498
Inventory ( 48,004) 70,508
Other assets ( 184,447) 27,794
Accounts payable and accrued expenses 206,752 ( 800,047)
Liabilities from discontinued operations ( 34,817) 1,000,000
Other current liabilities ( 238,198) 48,513
Deferred income ( 406,992) 129,025
Other long-term liabilities 109,071 512,899
---------- ---------
Net cash used in
operating activities ( 173,149) (835,828)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash paid for acquisitions -- ( 600,000)
Purchase of equipment and leasehold improv ( 101,598) ( 38,981)
Prepublication costs and rights purchased ( 907,414) ( 323,596)
----------- -----------
Net cash used in investing activities (1,009,012) ( 962,577)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from financings 759,872 1,872,344
Repayment of debt ( 345,223) --
----------- -----------
Net cash provided by financing
activities 414,649 1,872,344
Net (decrease) increase in cash and ----------- -----------
cash equivalents ( 767,512) 73,939
CASH AND CASH EQUIVALENTS, beginn. of period 1,193,246 1,381,998
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 425,734 $1,455,937
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Page 7 of 18 pages
<PAGE>
BYRON PREISS MULTIMEDIA COMPANY, INC. AND SUBSIDIARIES
------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
-----------------------------------------------
(continued) (unaudited)
- ----------- -----------
<TABLE>
<CAPTION>
1998 1997
-------------------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for-
Interest $ 79,675 $ 45,406
============== ============
Income taxes $ 8,845 $ 11,558
============== ============
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING
ACTIVITIES:
Debt issued for acquisition $ -- $ 1,750,000
============== ============
Stock issued for acquisitions $ 550,000 $ 400,000
============== ============
Debentures converted to equity $ 300,000 --
============== ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Page 8 of 18 pages
<PAGE>
BYRON PREISS MULTIMEDIA COMPANY, INC. AND SUBSIDIARIES
------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1998 AND 1997
----------------------
1. CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
The balance sheet as of June 30, 1998 and the related statements of
operations, statement of changes in shareholders' equity and statements of
cash flows for the periods ended June 30, 1998 and 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 June 30,
1998 and 1997 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 31,1997 audited
financial statements and notes thereto. The results of operations for the
three and six months ended June 30,1998 are not necessarily indicative of the
operating results for the full year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owed subsidiaries, Dolphin, Inc., Multi
Dimensional Communications, Inc., New Media Schoolhouse, Inc., its majority-
owned subsidiary, Virtual Comics, Inc., Internet Education Group, Inc. and
two wholly owned subsidiaries, Byron Preiss Multimedia Holding, Inc. and
Byron Preiss Multimedia On-Line Services, Inc. (inactive). In March 1998, the
Company merged OnRamp School Productions, Inc. into Internet Education Group,
Inc. a wholly owned subsidiary. All significant intercompany accounts and
transactions have been eliminated in consolidation.
RECLASSIFICATION
----------------
Certain prior year amounts have been reclassified to conform to the current
year presentation.
NET LOSS PER SHARE
------------------
Effective December 31, 1997, the Company adopted SFAS No. 128 "Earnings Per
Share". In accordance with SFAS No. 128, net loss per common share amounts
("basic EPS") were computed by dividing net loss by the weighted average
number of common shares outstanding and contingently issuable shares (which
satisfy certain conditions) and excluded any potential dilution. Net loss per
common share amounts-assuming dilution ("diluted EPS") were computed by
reflecting potential dilution from the exercise of stock options and warrants.
SFAS No. 128 requires the presentation of both basic EPS and diluted EPS on
the face of the income statement. Net loss per share amounts
Page 9 of 18 pages
<PAGE>
for the same prior-year periods have been restated to conform with the
provisions of SFAS No. 128; however, the result of that restatement was not
material. Basic net loss per common share is computed by dividing the
Company's net loss by the weighted average common shares outstanding for each
year presented. Diluted net loss per common share is equal to Basic net loss
per common share for each year presented as the effect of all outstanding
stock options and warrants outstanding was antidilutive.
COMPREHENSIVE INCOME
--------------------
During the quarter ended March 31, 1998, the Company adopted SFAS No. 130.
"Reporting Comprehensive Income," which requires companies to report all
changes in equity during a period, except those resulting from investments by
owners, and distributions to owners for the period in which they are
recognized. Comprehensive income is the total of net income and all other
nonowner changes in equity (or other comprehensive income) such as unrealized
gains/losses on securities classified as available-for-sale, foreign currency
transaction adjustments and minimum pension liability adjustments.
Comprehensive and other comprehensive income must be reported on the face of
annual financial statements or in the case of interim reporting, in the
footnotes to the financial statements. For the six month periods ended June
30, 1998 and 1997, the Company's operations did not give rise to material
items includible in comprehensive income which were not already included in
net income. Accordingly, the Company's comprehensive income is the same as its
net income for all periods presented.
3. DISCONTINUED OPERATIONS
-----------------------
In March 1998, the Company adopted a plan to discontinue operations dedicated
to the development, marketing and sale of entertainment software in the retail
market, which includes the sale of Virtual Comics, Inc. Management has
restructured the Company to specialize in the development and marketing of
educational software as well as the publishing of books and software for the
educational and consumer markets. This decision was made due to declining
revenues, high operating costs, and increased competition in the entertainment
software marketplace. As a result, the Company recorded a charge against
earnings at December 31, 1997 of approximately $4,700,000 and for the six
months ended June 30,1998 an additional charge of $159,361. The Company plans
to fully carry out its plan to exit the entertainment software market during
the remainder of 1998.
4. ACQUISITIONS
------------
In February 1998, the Company acquired certain net assets of High Text
Interactive, Inc. for 150,000 common shares of the Company for a total
purchase price of $189,550.
In February 1998, the Company entered into a letter of intent with New Century
Education Corporation ("NCEC") whereby the Company will acquire all the issued
and outstanding stock for approximately $2,000,000 in cash, less
Page 10 of 18 pages
<PAGE>
any outstanding debt of NCEC, and newly issued Preferred Stock of the Company
with a stated value of $9,375,000 and convertible into approximately
$3,000,000 of the Company's common stock. The Company is in the process of
attempting to raise the necessary capital in order to finalize the purchase of
New Century Education Corporation. At this time there can no assurance that
the Company will be successful in raising the necessary capital to complete
the acquisition.
On March 5, 1998, the Company acquired OnRamp School Productions, Inc.
("OnRamp") for 400,000 common shares of the Company for a total purchase price
of $360,000. Subsequent to the purchase, OnRamp changed its name to the
Internet Education Group, Inc. As there have been no significant revenues from
this operation, the Company initiated an evaluation of its various technology
rights and costs. Management expects to complete its evaluation of this
operation and its funding needs prior to the issuance of its fiscal third
quarter Form 10QSB.
5. SEGMENT INFORMATION.
--------------------
Due to increased competition in the consumer entertainment software market and
increasing consumer demand for the Company's book titles, the Company changed
its strategy from a vertical approach of selling entertainment CD- ROMs to
placing more emphasis on its book publishing operations, and effectively
segmented its primary operations into educational multimedia development and
book publishing. Although certain of the published book titles may eventually
migrate into digital formats, operating information of all book titles has
been included in the book publishing segment detailed below as such titles
have not been specifically identified.
The Company's educational multimedia operations are dedicated to the
development of products for use on digital mediums, including CD-ROMs, on-line
services and other electronic formats.
The book publishing operations are based on the creation of original material
using licensed trademarked characters and books using original or licensed
properties.
In the table set forth below, information regarding operations for
each of the Company's industry segments as of June 30, 1998 is as follows:
<TABLE>
<CAPTION>
Six months ending June 30, 1998 (000's omitted)
-------------------------------
Education
Multimedia Book
Development Publishing Consolidated
----------- ---------- ------------
<S> <C> <C> <C>
Net Revenues $ 2,991 $ 1,037 $ 4,028
========
Loss from operations ( 688) (44) ( 732)
Other income/(expense) (net) ( 213)
Loss from discontinued operations ( 159)
---------
Net loss $( 1,105)
=========
</TABLE>
Page 11 of 18 pages
<PAGE>
<TABLE>
<CAPTION>
SEGMENT INFORMATION
(continued)
<S> <C> <C> <C>
Identifiable assets $6,143 $1,162 $ 7,305
Corporate assets 95
--------
$ 7,400
Depreciation and amortization of ========
equipment and leasehold
improvements $ 84 $ 29 $113
Capital expenditures $ 102 $ -- $102
</TABLE>
6. LONG-TERM DEBT
--------------
Acquisition Financing:
-----------------------
7% convertible note payable in 39 monthly
installments commencing January 2, 1998
original amount of $1,750,000 $1,480,769
6% convertible notes payable in 24 monthly
installments commencing February 1, 1998
original amount of $375,000 300,091
Financing:
----------
6% convertible debenture, due November 30, 1999 $1,300,000
11% demand secured convertible note 500,000
miscellaneous notes 258,789
----------
3,839,649
Less-Current maturities (1,489,373)
Long-term debt, less current maturities $2,350,276
==========
7. LEGAL PROCEEDINGS
-----------------
The Company has been named a defendant in an action commenced by Bushinghall,
Ltd ("Bushinghall") in the Supreme Court in the State of New York, County of
New York. Bushinghall has alleged that the Company has materially breached a
registration rights agreement between the Company and Bushinghall (the
"Registration Rights Agreement) by its failure to register the shares (the
"Bushinghall Shares") underlying the $1.3 million 6% convertible debentures
due November 30, 1999 (the "Bushinghall Notes") with the Securities and
Exchange Commission. Bushinghall is seeking damages of not less than $130,000
in addition to an unstated amount of direct damages. (see Management
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources, for further discussion.
Page 12 of 18 pages
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations:
----------------------
THREE AND SIX MONTHS ENDED JUNE 30, 1998 AS COMPARED TO
-------------------------------------------------------
THREE AND SIX MONTHS ENDED JUNE 30, 1997
----------------------------------------
Net Revenues from Continuing Operations. Revenues from continuing
operations for the three months ended June 30, 1998 more than doubled to
$2,500,537 up from $1,165,129 for the prior comparable period. For the six
months ended June 30, 1998 revenues from continuing operations increased 128%
to $4,028,476, up from $1,722,932 for the same period a year ago. The increase
in revenues for both the three and six months ended June 30, 1998 can be
attributed to the inclusion of revenues from its subsidiary, Dolphin, Inc, an
educational software developer acquired in March 1997 totalling $1,243,483 for
the six months ended June 30, 1998 and Multi Dimensional Communications, Inc.
and New Media Schoolhouse, Inc. which are respectively publishers and direct
marketers of proprietary and third party education titles totalling
approximately $560,913 for the same six month period. Under a contract to
provide the development of a web site, video and book, the Company recorded
net revenues of $595,000 for the six month period ending June 30, 1998, and
with revenues from two CD-ROMs (X-Files: Unrestricted Access and Total
Titanic) the Company recorded total revenues of $523,915 for the same six
month period.
Under the Company's agreements with Marvel Entertainment Group, the Company
co- published and distributed with the Putnam Berkley Group, Inc. a number of
books generating revenues totalling $565,643 for the six months ended June 30,
1998.
Under the Company's co-publishing and distribution arrangements with Pocket
Books, a division of Simon & Schuster, the Company generated revenues
totalling $199,294 for the six months ended June 30, 1998.
Cost of Revenues from Continuing Operations. Cost of revenues for the three
months ended June 30, 1998 increased to $1,490,923 as compared to $885,936 for
the same period a year ago. Cost of revenues for the six months period ended
June 30, 1998 totalled $2,474,548 as compared to $1,221,547 for the comparable
period ended June 30, 1997. The dollar increase in the cost of revenues is
principally attributed to the inclusion of newly acquired subsidiaries, as
noted above. The gross profit from continuing operations for the three months
ended June 30,1998 increasing to 40.4% as compared to 24.0% for the comparable
period a year ago. For the six months ended June 30, 1998 the gross profit
from continuing operations increased to 38.6%, up from 29.1% for the same
period a year ago. The improvement can be attributed to the Company's
restructuring from a company whose primary business was the development and
sale of entertainment and edutainment software titles for sale at retail into
a digital educational and publishing company whose margins are higher.
Selling, General and Administrative Expenses from Continuing Operations.
Selling, General and Administrative expenses from continuing operations for
the three and six months ended June 30, 1998 was $1,240,850 and $2,286,340
respectively, as compared to $1,451,469 and $2,263,950 respectively for the
prior year comparable periods. As a percentage of revenues from continuing
operations,
Page 13 of 18 pages
<PAGE>
selling, general and administrative expenses declined to 49.6% and 56.8%,
respectively for the three and six months ended June 30, 1998 as compared to
124.6% and 131.4%, respectively for the same periods a year ago. The decrease
in selling, general and administrative expenses for both the three and six
month periods can be attributed to a reduction in overhead and staffing
expenses of the parent company slightly offset by the inclusion of selling,
general and administrative expenses of the newly acquired subsidiaries.
Interest Expense/Income. Net interest expense totalled $135,016 for the three
months ended June 30,1998 and $213,138 for the six months ended June 30, 1998
as compared to net interest income of $17,056 and $40,522 respectively for the
same periods a year ago. The increase in interest expense is principally due
to interest costs (including non-cash charges) associated with the issuance of
convertible notes and debentures in late fiscal 1997.
Liquidity and Capital Resources. The Company has approximately $1,599,137 of
cash and cash equivalents and accounts receivables as of June 30, 1998. The
Company's working capital deficit of approximately $2,225,656 at June 30,
1998, includes deferred income of $313,286, which management expects to be
earned this fiscal year. During the first six months of 1998, $173,149 of cash
was used in operating activities compared to the prior comparable six month
period when $835,828 was used by operating activities. A significant reduction
in net loss for the current three and six month periods was offset by net
changes in operating assets and liabilities.
Net cash used in investing activities was ($1,009,012) for the first six
months of 1998 as compared to ($962,577) for the comparable six month period a
year ago. While the amount remained constant, the mix changed from $600,000
being used for the acquisition of Dolphin Inc. in 1997 offset by an increase
in the purchase of equipment ($62,617), and prepublication costs and rights
purchased ($583,818) in 1998.
Net cash provided from financing activities in 1998 was $414,649, representing
the proceeds from a secured demand convertible debenture as well as a $150,000
note to partially finance working capital of a subsidiary. In the comparable
1997 period, proceeds were obtained through the issuance of a convertible
debenture.
In December 1997, the Company entered into a Securities Purchase Agreement,
whereby it may issue up to $2.8 million in convertible debentures subject to
certain conditions. Under this agreement, the Company issued, in December
1997, $1.3 million of 6% convertible debentures due November 30, 1999 (the
"Bushinghall Note"). At this time, management of the Company is attempting to
renegotiate the terms of the Agreement and the Bushinghall Note or the Company
will repay the Bushinghall Note with the proceeds from a new financing.
However, the Company did not register the shares of common stock underlying
the Bushinghall Note pursuant to a registration rights agreement.
The Company's failure to file such a registration statement has led to a legal
action against the Company for allegedly failing to comply with the terms of
the registration rights agreement. The amount of the action is for an amount
of not less than $130,000. In addition, the Company has been requested to
convert $400,000 of the $1.3 million debenture into common stock of the
Company.
Page 14 of 18 pages
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Management, after discussions with special legal counsel, has deemed it to be
in the best interest of the Company and its shareholders not to register the
shares underlying the Bushinghall Note or comply with Bushinghall's request.
Recently, management has met with a representative of the debenture holder and
its investment banker in an attempt to resolve the matter. However, there can
be no assurances that there will be a favorable resolution to this matter. As
a result of this situation the Company's management has been unable to raise
the necessary capital or new financing in order for it to provide the
necessary cash flow to operate its subsidiaries efficiently or to make timely
payments of its debt obligations. The failure to resolve this matter could
result in a material adverse effect to the business and operations of the
Company.
Management has undertaken cost cutting actions, including the elimination of
nonessential personnel. At this time, management continues to evaluate
additional cost cutting measures with tight control over all selling, general
and administrative expenses.
In order to fund operations of the parent company as well as certain
subsidiaries, including the payment of certain acquisition notes, the Company
will be required to raise additional capital. There can be no assurance that
the Company will be successful in raising such additional capital, that such
additional capital will be available on a timely basis or available on
commercially acceptable terms to the Company or without causing substantial
dilution to shareholders. The failure by the Company to currently raise
capital for each of the purposes discussed above will result in a material
adverse effect to the business and operations of the Company.
The Company is not current in its payments under certain notes issued in
connection with prior acquisitions of material subsidiaries and may be in
technical default under other notes. The Company is actively engaged in
attempting to raise funds in order to make any required payments under the
notes. There can be no assurance that the Company will be successful in
raising such funds, the failure of which will have an immediate material
adverse effect of the business and operations of the Company. Furthermore,
there can be no assurance that the Company will be able to pay the amount owed
under said notes in the event that the holders thereof demand payment of the
amounts due pursuant to the terms thereof.
In July 1998 the Company was advised by the NASDAQ Listing Qualifications
Board that to continue listing of the Company's common stock on the Nasdaq
SmallCap Market, it must maintain a closing bid greater than or equal to
$1.00. The Company has been provided by NASDAQ ninety calendar days ending
October 20,1998 in which to retain compliance. In order to comply, the
Company's common stock during the ninety day grace period must reflect a
closing bid price of $1.00 or greater for ten consecutive trading days. Also
in July 1998, the Company was advised by NASDAQ that it has determined not to
grant the Company's request for an extension of time to comply with NASDAQ's
net tangible assets/market capitalization/net income requirement. On July 27,
1998 the Company, in accordance with NASDAQ requirements, has requested an
oral hearing to discuss continued listing on the Nasdaq SmallCap Market.
Management believes that its liquid assets of cash, cash equivalents and
accounts
Page 15 of 18 pages
<PAGE>
receivable and its expected future cash flows from its subsidiaries, the
continued reduction in administrative expenses together with anticipated
outside sources of financing will provide enough funds necessary to continue
operating through the first quarter of 1999 ending March 31, 1999.
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.
PART II
- -------
Item 1. Legal Proceedings
- -----
The Company has been named a defendant in an action commenced by
Bushinghall, Ltd. ("Bushinghall") in the Supreme Court in the State of New
York, County of New York. Bushinghall has alleged that the Company has
materially breached a registration rights agreement between the Company and
Bushinghall (the "Registration Rights Agreement") by its failure to register
the shares (The "Bushinghall Shares") underlying the $1.3 million 6%
convertible debentures due November 30, 1999 (the "Bushinghall Notes") with
the Securities and Exchange Commission. Busininghall is seeking damages of not
less than $130,000 in addition to an unstated amount of direct damages.
Management intends to vigorously defend against the foregoing claim. See
Management Discussion and Analysis of Financial Resources, for further
discussion.
Item 5. Other Information
- ------
On June 16, 1998 the Company completed a private placement of its 11%
Convertible Secured Demand Note in the aggregate principal amount of $500,000.
The note was sold to one accredited institutional investor pursuant to a
Demand Convertible Secured Promissory Note Agreement dated as of June 15,
1998. The note is collateralized by a security interest in certain of the
Company's accounts receivable and intangible assets. Subject to certain
restrictions, the Note may be converted into shares of Common Stock at the
option of the Holder anytime at a conversion price equal to the lesser of
$.875 or the product of .80 times the closing bid price of the Common Stock on
the day of conversion. The Company paid a 6% or $30,000 financial consulting
fee for arranging the transaction.
Page 16 of 18 pages
<PAGE>
Item 6.
- -------
EXHIBITS & REPORTS ON FORK 8-K
------------------------------
a. Exhibits
The following Exhibit is hereby filed as part of this Quarterly
Report on form 10QSB:
Exhibit No. Description
----------- -----------
27.1 Financial Data Schedule
b. Reports on Form 8-K None
Page 17 of 18 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 August 18, 1998 By: /s/ Byron Preiss
-------------------------
Chief Executive Officer,
President and Executive
Officer
Date: August 18, 1998 By: /s/ James R. Dellomo
------------------------
Chief Financial Officer
Page 18 of 18 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 425,734
<SECURITIES> 0
<RECEIVABLES> 1,173,403
<ALLOWANCES> 0
<INVENTORY> 234,960
<CURRENT-ASSETS> 2,102,949
<PP&E> 1,410,883
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,399,626
<CURRENT-LIABILITIES> 4,328,605
<BONDS> 0
0
0
<COMMON> 8,359
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,399,626
<SALES> 4,028,476
<TOTAL-REVENUES> 4,028,476
<CGS> 2,474,548
<TOTAL-COSTS> 2,286,340
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (213,138)
<INCOME-PRETAX> (1,104,911)
<INCOME-TAX> 0
<INCOME-CONTINUING> (945,550)
<DISCONTINUED> (159,361)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,104,911)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
