<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
<TABLE>
<S> <C>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM ___________ TO ___________
Commission file number 0-23958
------------------------
CINERGI PICTURES ENTERTAINMENT INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 95-4247952
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2308 BROADWAY
SANTA MONICA, CALIFORNIA 90404
(Address of principal executive (Zip Code)
offices)
</TABLE>
Registrant's telephone number, including area code: (310) 315-6000
------------------------
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 / /
As of May 15, 1997, there were 13,446,874 shares of the Registrant's Common
Stock outstanding.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CINERGI PICTURES ENTERTAINMENT INC.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
-------------
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets--December 31, 1996 and
March 31, 1997 (unaudited)................................................................... 3
Condensed Consolidated Statements of Operations (unaudited) for the three months ended March
31, 1996 and March 31, 1997.................................................................. 5
Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended March
31, 1996 and March 31, 1997.................................................................. 6
Notes to Condensed Consolidated Financial Statements (unaudited)............................. 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........ 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk................................... 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................................ 18
Item 2. Changes in Securities........................................................................ 18
Item 3. Defaults Upon Senior Securities.............................................................. 18
Item 4. Submission of Matters to a Vote of Security Holders.......................................... 18
Item 5. Other Information............................................................................ 18
Item 6. Exhibits and Reports on Form 8-K............................................................. 19
Signature............................................................................................... 20
</TABLE>
2
<PAGE>
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CINERGI PICTURES ENTERTAINMENT INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
-------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents........................................................ $ 27,364,000 $ 25,407,000
Restricted cash.................................................................. 5,654,000 4,182,000
Accounts receivable.............................................................. 10,850,000 16,024,000
Accounts receivable, related parties............................................. 799,000 612,000
Film costs, less accumulated amortization........................................ 103,792,000 92,704,000
Property and equipment, at cost, less accumulated depreciation................... 4,819,000 4,531,000
Other assets..................................................................... 3,270,000 2,481,000
-------------- --------------
TOTAL ASSETS................................................................. $ 156,548,000 $ 145,941,000
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable............................................................... $ 2,141,000 $ 2,259,000
Accrued interest............................................................... 23,000 51,000
Accrued residuals & participations............................................. 13,045,000 11,232,000
Deferred revenue............................................................... 46,568,000 29,312,000
Capital lease obligation....................................................... 291,000 --
Loans payable.................................................................. 6,026,000 15,365,000
Notes and amounts payable to related parties................................... 49,747,000 54,195,000
-------------- --------------
TOTAL LIABILITIES............................................................ $ 117,841,000 $ 112,414,000
-------------- --------------
-------------- --------------
</TABLE>
3
<PAGE>
CINERGI PICTURES ENTERTAINMENT INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
-------------- --------------
(UNAUDITED)
<S> <C> <C>
Common Stock with certain redemption features, $.01 par value,
744,682 (1996) and 0 (1997) shares issued and outstanding less
notes receivable from related parties amounting to $900,000 (1996) and $0
(1997)......................................................................... $ 2,100,000 $ --
Commitments & Contingencies (Note 4)............................................. -- --
STOCKHOLDERS' EQUITY
Preferred Stock, $.01 par value, 5,000,000 shares authorized,
no shares issued and outstanding............................................. -- --
Common Stock, $.01 par value, 20,000,000 shares authorized, 13,074,533 (1996)
and 13,446,874 (1997) shares issued and outstanding.......................... 131,000 135,000
Additional Paid-in Capital..................................................... 65,548,000 68,094,000
Retained Deficit............................................................... (29,072,000) (34,252,000)
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY................................................... 36,607,000 33,977,000
Receivable from shareholder.................................................... -- (450,000)
-------------- --------------
$ 36,607,000 $ 33,527,000
-------------- --------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY......................................... $ 156,548,000 $ 145,941,000
-------------- --------------
-------------- --------------
</TABLE>
NOTE: The balance sheet at December 31, 1996 has been derived from the audited
consolidated financial statements at that date but does not include all the
information and footnotes required by generally accepted accounting principals
for complete financial statements.
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
CINERGI PICTURES ENTERTAINMENT INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1996 1997
------------- -------------
<S> <C> <C>
Revenues
Feature films.................................................................... $ 37,105,000 $ 26,525,000
Fee income....................................................................... 11,000 --
------------- -------------
37,116,000 26,525,000
Cost and expenses:
Amortization of film costs, residuals & participations........................... 36,335,000 27,344,000
Selling, general & administrative expenses....................................... 1,476,000 3,519,000
------------- -------------
Operating loss..................................................................... (695,000) (4,338,000)
Interest expense................................................................... (176,000) (1,133,000)
Interest income.................................................................... 234,000 291,000
------------- -------------
Net loss........................................................................... $ (637,000) $ (5,180,000)
------------- -------------
------------- -------------
Net loss per share................................................................. $ (0.04) $ (0.39)
------------- -------------
------------- -------------
Weighted average number of shares outstanding...................................... 14,192,000 13,451,000
------------- -------------
------------- -------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
CINERGI PICTURES ENTERTAINMENT INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
1996 1997
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.......................................................................... $ (637,000) $ (5,180,000)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation.................................................................... 294,000 304,000
Amortization of unearned compensation........................................... 312,000 --
Film cost amortization.......................................................... 33,686,000 25,688,000
Changes in operating assets and liabilities:
Accounts receivable........................................................... 617,000 (5,174,000)
Accounts receivable, related parties.......................................... (48,000) 187,000
Film cost additions........................................................... (39,726,000) (14,600,000)
Other assets.................................................................. 764,000 789,000
Accounts payable and accrued interest......................................... 5,410,000 146,000
Accrued residuals and participations payable.................................. 352,000 (1,813,000)
Deferred revenue.............................................................. (8,070,000) (17,256,000)
-------------- --------------
Net cash used in operating activities............................................. (7,046,000) (16,909,000)
INVESTING ACTIVITIES
Purchase of property and equipment................................................ (31,000) (16,000)
-------------- --------------
Net cash used in investing activities............................................. (31,000) (16,000)
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
CINERGI PICTURES ENTERTAINMENT INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
1996 1997
-------------- --------------
<S> <C> <C>
FINANCING ACTIVITIES
Increase in loans payable......................................................... $ 19,815,000 $ 18,555,000
Payments on loans payable......................................................... (19,196,000) (9,216,000)
Decrease in restricted cash....................................................... -- 1,472,000
Increase in notes and amounts payable to related parties.......................... 238,000 5,210,000
Payments on notes and amounts payable to related parties.......................... (544,000) (762,000)
Payments on capital lease obligation.............................................. (575,000) (291,000)
-------------- --------------
Net cash (used in) provided by financing activities............................... (262,000) 14,968,000
-------------- --------------
Decrease in cash.................................................................. (7,339,000) (1,957,000)
Cash and cash equivalents at beginning of year.................................... 29,832,000 27,364,000
-------------- --------------
Cash and cash equivalents at end of period........................................ $ 22,493,000 $ 25,407,000
-------------- --------------
-------------- --------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes.................................................................... $ 23,000 --
</TABLE>
THREE MONTHS ENDING MARCH 31, 1996
Visual effects equipment amounting to $1,102,000 was purchased under a
capital lease agreement.
THREE MONTHS ENDING MARCH 31, 1997
In January 1997, the Company repurchased 372,341 shares of Common Stock of
the Company in exchange for the forgiveness of a note amounting to $450,000.
See Notes to Condensed Consolidated Financial Statements.
7
<PAGE>
CINERGI PICTURES ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 1997
NOTE 1--PREPARATION OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements of
Cinergi Pictures Entertainment Inc. (the "Company" or "CPEI") have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 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
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended March 31, 1997 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1997. For further information, refer to the consolidated
financial statements and footnotes thereto included in CPEI's Annual Report on
Form 10-K ("Annual Report") filed with the Securities and Exchange Commission.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
NET LOSS PER COMMON SHARE. The per share data for the three month periods
ended March 31, 1996 and 1997 are based on the weighted average number of common
and common share equivalents outstanding during the period. Common Stock with
certain redemption features are considered common share equivalents. Stock
options and warrants are considered common share equivalents if dilutive.
RECENT DEVELOPMENTS. In February 1997, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 128, Earnings Per Share, which is effective for
annual and interim financial statements issued for periods ending after December
15, 1997 and early adoption is not permitted. When adopted, the statement will
require restatement of prior years' earnings per share ("EPS"). SFAS No. 128 was
issued to simplify the standards for calculating EPS previously found in APB No.
15, Earnings Per Share. SFAS 128 replaces the presentation of primary EPS with a
presentation of basic EPS. The new rules also require dual presentation of basic
and diluted EPS on the face of the statement of operations for companies with a
complex capital structure. For the Company, basic EPS will exclude the dilutive
effects of stock options and warrants. Diluted EPS for the Company will reflect
all potential dilutive securities. Under the provisions of SFAS 128, basic and
diluted EPS would have been the same as the reported amounts.
NOTE 3--FILM COSTS
Film costs consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
-------------- --------------
<S> <C> <C>
Released, less amortization.................................. $ 52,077,000 $ 63,854,000
Completed, not released...................................... 37,025,000 --
In production................................................ 9,373,000 22,602,000
Development.................................................. 5,317,000 6,248,000
-------------- --------------
$ 103,792,000 $ 92,704,000
-------------- --------------
-------------- --------------
</TABLE>
The film costs in production at March 31, 1997, includes $12,885,000
relating to BROADWAY BRAWLER.
8
<PAGE>
CINERGI PICTURES ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
March 31, 1997
NOTE 4--COMMITMENTS AND CONTINGENCIES
In December 1995, the U.S. Attorney for the Central District of California
served subpoenas (Subpoenas) on the Company relating to a grand jury
investigation of federal tax aspects of various transactions involving Andrew G.
Vajna, President, Chief Executive Officer and Chairman of the Board of Directors
of the Company, and certain other persons and entities (the Investigation). The
Company believes the Investigation is focusing primarily on (i) the 1988 and
1989 personal tax returns of Mr. Vajna and the tax returns of certain other
persons and entities, and (ii) the ongoing audits of Mr. Vajna's tax returns
since 1990 by the Internal Revenue Service. The Company has not been identified
by the U.S. Attorney as being a target of the Investigation; however, there can
be no assurance that the Company's status will not change in the future. The
Company engaged counsel to represent it in connection with the Investigation and
is in the process of responding to the Subpoenas. Given the uncertainty of the
Investigation, there is currently no basis upon which to estimate the impact, if
any, the Investigation may have on the Company.
Pursuant to Article Tenth of the Company's Restated Certificate of
Incorporation, Article V of the Company's Bylaws, indemnity agreements entered
into between the Company and certain of its officers and directors, and the
provisions of Section 145 of the Delaware General Corporation Law, the Company
is advancing the expenses of certain of its employees, officers and directors
other than Mr. Vajna (Indemnitees) which they may incur in connection with the
Investigation. As of May 15, 1997, the Company had advanced an aggregate of
$192,000 on behalf of the Indemnitees. The Indemnitees have undertaken to
reimburse the Company for their expenses if it is ultimately determined that
they are not entitled to be indemnified. In addition, Mr. Vajna has undertaken
to reimburse the Company under certain circumstances with respect to the
expenses of the Indemnitees. Given the current uncertainty regarding the scope
and duration of the Investigation and the amount of expenses which may be
incurred by the Indemnitees in connection with the Investigation, there is no
basis upon which to estimate the financial impact which the foregoing may have
on the Company.
In February 1997, the Company ceased production on the motion picture,
BROADWAY BRAWLER after commencement of principal photography and entered into
discussions with certain parties involved in the production, including Buena
Vista Pictures Distribution, Inc. ("BVPD"), a performer in the film and an
affiliate of such individual, regarding settlement of various obligations
("Shutdown Costs") incurred in connection with the production and shut down of
the film. As a result of agreements entered into among such parties, on May 15,
1997, the Company was relieved of the obligation to repay $3,000,000 in advances
which had been made by BVPD as part of funding production of the film, the
Company transferred its BROADWAY BRAWLER subsidiary and the Company's rights in
the film to the performers affiliate, the Company was paid an aggregate of
$11,821,000 representing Shutdown Costs incurred or committed to by the Company
and payment for the transfer of the production subsidiary and the film rights.
Of the $11,821,000 paid to the Company, approximately $8,466,000 was immediately
used by the Company to repay the debt incurred under the Credit Facility in
connection with production of the film, and the Company was indemnified for
additional Shutdown Costs it may bear, subject to certain limited exceptions and
limitations. The Company was not reimbursed for overhead otherwise allocable to
production of the film.
The Company has settled legal proceedings with Le Film Office ("LFO") which
had arisen with respect to a $3,071,000 minimum guarantee advance payable by LFO
to the Company upon delivery of THE SHADOW CONSPIRACY to LFO pursuant to an
output arrangement then in effect between the Company and
9
<PAGE>
CINERGI PICTURES ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
March 31, 1997
NOTE 4--COMMITMENTS AND CONTINGENCIES (CONTINUED)
LFO. In August and September 1996, respectively, LFO obtained first a temporary
restraining order and then a preliminary injunction in California Superior
Court, Los Angeles, California (the "Court") preventing the Company, the
international sales company handling the international distribution of THE
SHADOW CONSPIRACY, and one of the lenders under the Company's credit facility,
from drawing down the letter of credit securing LFO's minimum guarantee advance
on the basis of LFO's allegations that the Company failed to give proper notice
to LFO for extending the delivery date of THE SHADOW CONSPIRACY. The parties
agreed to stay the Court proceedings and submit the dispute to binding
arbitration by the American Film Marketing Association which occurred on April
17, 1997. On April 18, 1997 and before a decision could be rendered in the
arbitration, the Company and LFO entered into a settlement agreement whereby the
parties agreed to reduce the minimum guarantee advance from $3,071,000 to
$2,300,000, which was subsequently paid on May 12, 1997 by LFO (which will
distribute the film in France). On May 13, 1997, the Court proceeding was
dismissed and the arbitration proceeding was terminated.
Trial is scheduled for August 11, 1997, in Los Angeles Superior Court, in a
lawsuit by Laurence Fishburne and the LOA Productions, Inc., Mr. Fishburne's
loan-out corporation, against the Company, a subsidiary of the Company and
Randolph M. Paul, Senior Vice President, Business Affairs and a Director of the
Company. The action, for breach of oral contract, fraud and deceit, and civil
conspiracy and declaratory relief, was originally filed on July 11, 1994. The
plaintiffs claim that the Company entered into an oral contract for Mr.
Fishburne to appear in the motion picture, DIE HARD WITH A VENGEANCE, but
repudiated the contract the following day. On September 4, 1994, the Company
successfully demurred to all of the plaintiffs' causes of action except the
breach of contract claim, and on November 29, 1994, the Company successfully
demurred to an amended complaint for bad faith denial of existence of contract.
On December 29, 1994, the Company and the other defendants answered the First
Amended Complaint for breach of contract, fraud and deceit and civil conspiracy.
Summary adjudication has been obtained in favor of Mr. Vajna, who was named as
an additional defendant in the original complaint. Plaintiffs are claiming
damages of $1,750,000, representing the fixed compensation to which they alleged
they are entitled, additional compensatory damages of up to $350,000 and general
and punitive damages. The Company believes it has meritorious defenses and is
defending the action vigorously.
The Company is a party to various other legal proceedings arising in the
ordinary course of its business. The Company does not currently believe that any
such proceedings will have a material adverse effect on the Company's operations
or financial condition.
The Company has a "first-look" arrangement with Oliver Stone and certain of
his affiliated entities pursuant to which Mr. Stone submits to the Company all
theatrical motion picture projects owned or controlled by Mr. Stone for the
Company's development and consideration of possible production and, as
consideration for Mr. Stone's submitting such projects to the Company, the
Company pays certain amounts annually to Mr. Stone for overhead and development.
The Walt Disney Company has reimbursed the Company for all amounts payable to
Mr. Stone through February 10, 1997. However, pursuant to the agreement between
the Company and Walt Disney Pictures and Television, a subsidiary of The Walt
Disney Company for the sale of substantially all of the films in the Company's
motion picture library and certain other assets to Walt Disney Pictures and
Television (see Note 5 below), the Company will be responsible for all payments
due to Mr. Stone from February 10, 1997 through expiration of the arrangement on
10
<PAGE>
CINERGI PICTURES ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
March 31, 1997
NOTE 4--COMMITMENTS AND CONTINGENCIES (CONTINUED)
February 10, 1998. The Company currently estimates the payments due under Mr.
Stone's agreement during such period will be approximately $1,875,000.
In 1996, the Company and Hollywood Pictures Company (HPC), a subsidiary of
The Walt Disney Company, entered into a Financing and Distribution Agreement
whereby the Company is financially obligated to pay to HPC the lesser of 50% of
the cost of the motion picture tentatively entitled DEEP RISING or $22,500,000
(the "Cinergi Amount"), in exchange for (i) a 50% equity participation in such
motion picture and (ii) a sales fee for international distribution of such
motion picture. In connection with the Company's April 1997 agreement with Walt
Disney Pictures and Television, upon consummation of the sale of substantially
all of the films in the Company's motion picture library and certain other
assets to Walt Disney Pictures and Television, the Company will no longer be
obligated to pay the Cinergi Amount, will relinquish the equity participation
and sales fee, and will no longer serve as sales agent with respect to such
motion picture.
The Company was not in compliance with three covenants under the Company's
credit facility (the minimum consolidated net worth covenant, the limitation on
capital expenditures and the limitation on unallocated overhead costs) at
December 31, 1996 and one covenant under the credit facility (the minimum
consolidated net worth covenant) at March 31, 1997 and is therefore in default
under the credit facility. The Company has requested waivers of the December
defaults and intends to seek a waiver of the March default, however, there can
be no assurance that the lenders, under the credit facility, will grant such
waivers. If the lenders were to accelerate the amounts outstanding under the
credit facility as a result of such defaults, such acceleration would also
constitute a default under the Company's term loan agreements with BVPD. The
Company, however, believes that it currently has sufficient resources to satisfy
the amounts outstanding under the credit facility in the event the lenders were
to accelerate the amounts outstanding thereunder as a result of such defaults.
NOTE 5--SUBSEQUENT EVENTS
On April 3, 1997, the Company entered into a Purchase and Sale agreement
(the "Library Sale Agreement") with Walt Disney Pictures and Television, a
subsidiary of The Walt Disney Company, to sell to Walt Disney Pictures and
Television substantially all of the films in the Company's motion picture
library and certain other assets (referred to herein as the "Film Library Sale";
"Disney" is used herein to refer to Walt Disney Pictures and Television and/or
its affiliates, including The Walt Disney Company, as applicable). In exchange
for the assets being sold to Disney, Disney has agreed to relinquish its equity
interest in the Company (555,556 shares of the Company's Common Stock and a
warrant to purchase 150,000 shares of the Company's Common Stock at an exercise
price of $9.00 per share) and cancel its outstanding loans and outstanding
interest to the Company (approximately $38,433,000 as of March 31, 1997). In
addition, Disney has agreed to assume with respect to the films and rights
therein being sold to Disney all residuals and participation obligations, as
well as all scheduled obligations relating to the Company's existing
exploitation agreements. Disney has also agreed to assume the outstanding debt
under the Company's credit facility relating to the soon to be completed AN ALAN
SMITHEE FILM (one of the films included in the Film Library Sale), up to a
maximum amount of $10,000,000 (which the Company anticipates will not be
exceeded), and the Company has agreed to transfer to Disney all minimum
guarantee payments and any overages paid or to be paid with respect to such
film.
11
<PAGE>
CINERGI PICTURES ENTERTAINMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
March 31, 1997
NOTE 5--SUBSEQUENT EVENTS (CONTINUED)
The film library being sold to Disney includes primarily all of the
Company's rights (except minimum guarantee payments for films other than AN ALAN
SMITHEE FILM) to the following eleven motion pictures: MEDICINE MAN, TOMBSTONE,
RENAISSANCE MAN, COLOR OF NIGHT, JUDGE DREDD, THE SCARLET LETTER, NIXON, EVITA
(excluding soundtrack rights, which will be retained by the Company), AMANDA,
THE SHADOW CONSPIRACY, and AN ALAN SMITHEE FILM. Disney will also retain
overages otherwise payable to the Company by Disney after January 1, 1997 with
respect to certain distribution rights to DIE HARD WITH A VENGEANCE previously
licensed to Disney. In addition, upon consummation of the Film Library Sale, the
Company's twenty-five film domestic distribution arrangement with BVPD, under
which nine films have been delivered, will be terminated.
The Film Library Sale is subject to numerous conditions, including, among
other things, completion of certain due diligence by Disney, expiration of any
applicable Hart-Scott-Rodino waiting period, and the approval of the Company's
stockholders. The Library Sale Agreement and related Film Library Sale may also
be terminated by the Company or Disney in certain circumstances, including,
among other things, upon failure to consummate the Film Library Sale by
September 15, 1997. Management of the Company (including Chairman of the Board
and Chief Executive Officer, Andrew G. Vajna), which owns approximately 43.7% of
the outstanding Common Stock of the Company, has agreed to vote its shares in
favor of the transaction in accordance with the terms of the Library Sale
Agreement.
On April 3, 1997, the Company also announced that it does not presently
intend to commence production on any additional motion pictures (although the
Library Sale Agreement does not preclude the Company, pending consummation of
the Film Library Sale, from commencing production on films that would not be
distributed by Disney) and that it is in the process of considering its
alternatives assuming consummation of the Film Library Sale to Disney. Such
alternatives include disposing of those assets which are not being sold to
Disney, in one or a series of transactions.
Not included in the Film Library Sale to Disney are the Company's slate of
approximately forty development projects, the Company's visual effects facility,
the EVITA soundtrack rights and Cinergi's rights in DIE HARD WITH A VENGEANCE
(which the Company owns with Twentieth Century Fox which controls the sequel
rights to the film).
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH
STATEMENTS MAY CONSIST OF ANY STATEMENT OTHER THAN A RECITATION OF HISTORICAL
FACT AND CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS
"MAY," "EXPECT," "ANTICIPATE," "ESTIMATE" OR "CONTINUE" OR THE NEGATIVE THEREOF
OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. THE READER IS CAUTIONED
THAT ALL FORWARD-LOOKING STATEMENTS ARE NECESSARILY SPECULATIVE AND THERE ARE
CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL EVENTS OR RESULTS TO
DIFFER MATERIALLY FROM THOSE REFERRED TO IN SUCH FORWARD-LOOKING STATEMENTS. THE
COMPANY HAS ENTERED INTO AN AGREEMENT TO SELL SUBSTANTIALLY ALL OF THE FILMS IN
THE COMPANY'S MOTION PICTURE LIBRARY AND CERTAIN OTHER ASSETS TO WALT DISNEY
PICTURES AND TELEVISION AND IS CONSIDERING ITS ALTERNATIVES ASSUMING
CONSUMMATION OF SUCH SALE (WHICH INCLUDE DISPOSING OF ADDITIONAL ASSETS IN ONE
OR A SERIES OF TRANSACTIONS). THE AGREEMENT TO SELL SUBSTANTIALLY ALL OF THE
FILMS IN THE COMPANY'S MOTION PICTURE LIBRARY IS SUBJECT TO NUMEROUS CONDITIONS
AND MAY ALSO BE TERMINATED IN CERTAIN CIRCUMSTANCES. NO ASSURANCES CAN BE GIVEN
THAT SUCH SALE OR ANY ADDITIONAL SALE OF ASSETS OR OTHER TRANSACTIONS WILL BE
CONSUMMATED. IN ADDITION, THE COMPANY ALSO HAS ANNOUNCED THAT IT DOES NOT
PRESENTLY INTEND TO COMMENCE PRODUCTION ON ANY ADDITIONAL MOTION PICTURES. AS A
RESULT, THE COMPANY'S RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1997
ARE NOT NECESSARILY INDICATIVE OF THE RESULTS THAT MAY BE EXPECTED IN FUTURE
PERIODS (INCLUDING FOR THE YEAR ENDING DECEMBER 31, 1997). ADDITIONAL RISKS AND
UNCERTAINTIES ARE DISCUSSED ELSEWHERE IN APPROPRIATE SECTIONS OF THIS REPORT AND
IN OTHER FILINGS MADE BY THE COMPANY WITH THE SECURITIES AND EXCHANGE
COMMISSION, INCLUDING, WITHOUT LIMITATION, THE COMPANY'S ANNUAL REPORT ON FORM
10-K FOR ITS FISCAL YEAR ENDED DECEMBER 31, 1996. THE RISKS HIGHLIGHTED ABOVE
AND ELSEWHERE IN THIS REPORT SHOULD NOT BE ASSUMED TO BE THE ONLY THINGS THAT
COULD AFFECT FUTURE PERFORMANCE OF THE COMPANY. THE COMPANY DOES NOT HAVE A
POLICY OF UPDATING OR REVISING FORWARD-LOOKING STATEMENTS AND THUS IT SHOULD NOT
BE ASSUMED THAT SILENCE BY MANAGEMENT OF THE COMPANY OVER TIME MEANS THAT ACTUAL
EVENTS ARE BEARING OUT AS ESTIMATED IN SUCH FORWARD-LOOKING STATEMENTS.
GENERAL
As indicated under Note 5 to "Notes to Condensed Consolidated Financial
Statements (unaudited)" under Item 1 above, in April 1997, the Company entered
into the Library Sale Agreement with Disney, to sell to Disney, subject to
certain conditions (including completion of certain due diligence by Disney,
expiration of any applicable Hart-Scott-Rodino waiting period, and the approval
of the Company's stockholders) and termination in certain circumstances
(including upon failure to consummate the Film Library Sale by September 15,
1997), substantially all of the films in the Company's motion picture library
and certain other assets. Upon consummation of the Film Library Sale, the
Company's twenty-five film domestic distribution arrangement with BVPD, an
affiliate of Disney, under which nine films have been delivered, will be
terminated. The Company has also announced that it does not presently intend to
commence production on any additional motion pictures and that it is in the
process of considering its alternatives assuming consummation of the Film
Library Sale to Disney, including disposing of those assets which are not being
sold to Disney, in one or a series of transactions. In connection therewith, the
Company is presently in discussions regarding the potential sale of a
substantial portion of the assets that would remain assuming consummation of the
Film Library Sale. Not included in the Film Library Sale to Disney are the
Company's slate of approximately forty development projects, the Company's
visual effects facility and Cinergi's rights in DIE HARD WITH A VENGEANCE (which
the Company owns with Twentieth Century Fox which controls the sequel rights to
the film). In addition to Note 5 to "Notes to Condensed Consolidated Financial
Statements (unaudited)" under Item 1 above, see the Company's Annual Report on
Form 10-K for its fiscal year ended December 31, 1996, its Current Report on
Form 8-K dated April 3, 1997 filed by the Company with the Securities and
Exchange Commission on April 4, 1997, and the Library Sale Agreement (Exhibit 2
hereto) for additional information regarding the Film Library Sale and the
Library Sale Agreement.
13
<PAGE>
The Company currently anticipates that any decision made regarding its
alternatives assuming consummation of the Film Library Sale will effectively
result, after provision for the Company's remaining liabilities, in a cash
payment to the Company's stockholders in exchange for their equity interests in
the Company. However, no assurance can be given that the Film Library Sale or
any additional transactions will be consummated or that a cash payment of any
type will be made to the Company's stockholders and no assurances can be given
as to the amount of any cash payment, if made. No agreements have been entered
into or record date set with respect to any additional transactions, and any
such transaction or series of transactions would be subject to, among other
things, consummation of the Film Library Sale and receipt of applicable,
including stockholder, approvals. Assuming consummation of the Film Library Sale
and receipt of all applicable approvals with respect to any additional
transactions, the amount of any payment to the Company's stockholders would
depend upon, among other things, the terms of such additional transactions
(including any transactions to dispose of the Company's remaining assets) and
the provisions made to satisfy the Company's remaining liabilities. The Company
does not anticipate that any payment will be made to the Company's stockholders
until at least the third or fourth quarter of 1997. However, any such payment
could be significantly delayed depending upon, among other things, the form of
any additional transactions and the time required to obtain any necessary
approvals. Any such delay could reduce the amount of any payment ultimately to
be made to the Company's stockholders.
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1997 COMPARED TO QUARTER ENDED MARCH 31, 1996
Feature film revenues decreased from $37,105,000 for the quarter ended March
31, 1996 to $26,525,000 for the quarter ended March 31, 1997. Feature film
revenues for the quarter ended March 31, 1996 principally included revenues from
the international theatrical availability of NIXON and from domestic
pay-per-view and foreign overages from DIE HARD WITH A VENGEANCE. Feature film
revenues for the quarter ended March 31, 1997 resulted mainly from revenues from
the theatrical release of THE SHADOW CONSPIRACY.
Amortization of film costs, residuals and participations decreased from
$36,335,000 for the quarter ended March 31, 1996 to $27,344,000 for the quarter
ended March 31, 1997 primarily due to the decrease in feature film revenue
recognized in the quarter ended March 31, 1997 as compared to the quarter ended
March 31, 1996. The amortization of film costs, residuals and participations for
the quarter ended March 31, 1997, included an adjustment of $771,000 to reduce
the cost of one film, THE SHADOW CONSPIRACY (which was released in 1997), to its
net realizable value as a result of the settlement agreement between LFO and the
Company (pursuant to which the minimum guarantee advance payable by LFO with
respect to the film was reduced by $771,000). The Company estimates the total
projected revenues to be received from the exploitation of a motion picture in
all territories and media. As revenues from a motion picture are recognized, the
percentage of revenues recognized to total projected revenues is applied to film
costs for such motion picture to record amortization. Where applicable,
unamortized film costs for a picture are written down to net realizable value
for such picture based upon the Company's appraisal of current market
conditions.
Selling, general and administrative ("SG&A") expenses (excluding production
overhead costs capitalized to film costs) increased from $1,476,000 for the
quarter ended March 31, 1996 to $3,519,000 for the quarter ended March 31, 1997.
The increase is due primarily to no production overhead being capitalized into
film costs in the first quarter of 1997 in light of the Company's agreement to
sell substantially all of the films in its motion picture library, including AN
ALAN SMITHEE FILM which is the only film currently in production, and certain
other assets to Disney and the Company's current intention not to commence
production on additional motion pictures. In 1996 and prior periods, the Company
capitalized production overhead incurred in connection with the production of a
motion picture by adding such costs to the capitalized film costs of the motion
picture. Production overhead being capitalized to film costs was $1,664,000 for
the first quarter of 1996. The total of SG&A expenses and production overhead
costs
14
<PAGE>
capitalized to film costs increased from $3,140,000 for the quarter ended March
31, 1996 to $3,519,000 for the quarter ended March 31, 1997 primarily due to the
Company paying a bonus to an executive (the Executive Vice President, Chief
Operating Officer, and Chief Financial Officer of the Company) during the
quarter ended March 31, 1997 pursuant to an amendment of such executive's
employment agreement.
Interest expense increased from $176,000 for the quarter ended March 31,
1996 to $1,133,000 for the quarter ended March 31, 1997 primarily because no
interest expense for the quarter ended March 31, 1997 was capitalized to film
costs in light of the Company's agreement to sell substantially all of the films
in its motion picture library, including AN ALAN SMITHEE FILM which is the only
film currently in production, and certain other assets to Disney and the
Company's current intention not to commence production on additional motion
pictures. In 1996 and prior periods, the Company capitalized applicable interest
expense incurred in connection with the production of each motion picture. The
Company determined the amount of interest expense to be capitalized to each
motion picture in production by multiplying the average cumulative film cost of
each motion picture in a given period by the overall effective interest rate
paid by the Company on the aggregate amount of debt outstanding for such period.
Interest expense, including interest capitalized to film costs, decreased from
$1,552,000 for the quarter ended March 31, 1996 to $1,133,000 for the quarter
ended March 31, 1997. This decrease was primarily due to the lower average
outstanding balance of the Company's production loans in the quarter ended March
31, 1997 as compared to the quarter ended March 31, 1996. Two films were in
various stages of production during the first quarter of 1997 as compared to
three films during the first quarter of 1996.
Interest income increased from $234,000 for the quarter ended March 31, 1996
to $291,000 for the quarter ended March 31, 1997 due to higher cash balances
during the first quarter of 1997 compared to the first quarter of 1996.
As a result of the above, the Company incurred a net loss for the quarter
ended March 31, 1997 of $5,180,000 as compared to a net loss of $637,000 for the
quarter ended March 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a Credit, Security, Pledge and Guaranty Agreement dated as
of August 16, 1994 with The Chase Manhattan Bank ("Chase") and a syndicate of
lenders (collectively, the "Lenders") which provides the Company with a
revolving credit facility (the "Credit Facility") initially in the amount of
$150,000,000, but which has been reduced to $50,000,000 at the request of the
Company in order to conserve fees on the unused portion of the commitment in
light of the Company's present intention not to commence production on any
additional motion pictures. The Credit Facility (which is secured by
substantially all of the assets of the Company) matures on February 28, 1999. As
of March 31, 1997, approximately $15,365,000 in borrowings were outstanding
under the Credit Facility, net of cash retained from the collection of deposits
of minimum guarantee advances. As of the same date, the interest rate on the
amounts outstanding under the Credit Facility was approximately 7.15% per annum.
Under the Credit Facility, the Lenders have committed to make loans available
until August 31, 1997, although the Company does not currently contemplate any
additional borrowings under the Credit Facility.
Substantially all of the amounts outstanding under the Credit Facility as of
March 31, 1997 relate to borrowings incurred in the production of the soon to be
completed AN ALAN SMITHEE FILM and in the production of BROADWAY BRAWLER. In
February 1997, after commencement of principal photography, the Company ceased
production on the motion picture BROADWAY BRAWLER and entered into discussions
with certain parties involved with the production, including BVPD, a performer
in the film and an affiliate of such individual, regarding settlement of various
obligations ("Shutdown Costs") incurred in connection with the production and
shut down of the film. As a result of agreements entered into among such
parties, on May 15, 1997, the Company was relieved of the obligation to repay
$3,000,000 in advances which had been made by BVPD as part of funding production
of the film, the Company transferred its BROADWAY BRAWLER production subsidiary
and the Company's rights in the film to the performer's affiliate, the
15
<PAGE>
Company was paid an aggregate of $11,821,000 representing Shutdown Costs
incurred or committed to by the Company and payment for the transfer of the
production subsidiary and the film rights and the Company was indemnified for
additional Shutdown Costs it may bear, subject to certain limited exceptions and
limitations. The Company was not reimbursed for overhead or interest expense
otherwise allocable to production of the film. Of the $11,821,000 paid to the
Company, approximately $8,466,000 was immediately used by the Company to repay
the debt incurred under the Credit Facility in connection with production of the
film. As indicated below, pursuant to the Library Sale Agreement Disney has
agreed to assume the outstanding debt under the Credit Facility relating to AN
ALAN SMITHEE FILM (up to a maximum of $10,000,000, which the Company anticipates
will not be exceeded) upon consummation of the Film Library Sale. The Company,
therefore, currently anticipates that no significant amounts will be outstanding
under the Credit Facility assuming consummation of the Film Library Sale.
The Company was not in compliance with three covenants under the Credit
Facility (the minimum consolidated net worth covenant, the limitation on capital
expenditures and the limitation on unallocated overhead costs) at December 31,
1996 and one covenant under the Credit Facility (the minimum consolidated net
worth covenant) at March 31, 1997 and is therefore in default under the Credit
Facility. The Company has requested waivers of the December defaults and intends
to seek a waiver of the March default, however, there can be no assurance that
the Lenders will grant such waivers. If the Lenders were to accelerate the
amounts outstanding under the Credit Facility as a result of such defaults, such
acceleration would also constitute a default under the Company's term loan
agreements with BVPD described below. The Company, however, believes that it
currently has sufficient resources to satisfy the amounts outstanding under the
Credit Facility in the event the Lenders were to accelerate the amounts
outstanding thereunder as a result of such defaults.
The Company previously entered into term loan agreements with BVPD to
finance a portion of the costs of COLOR OF NIGHT, THE SCARLET LETTER, NIXON, THE
SHADOW CONSPIRACY and EVITA. Each loan must be repaid with accrued interest on
or before the earlier of (i) four years after the loan proceeds are first made
available to the Company or (ii) three years after the initial domestic
theatrical release of the applicable picture. Each of these loans are secured by
rights to distribute the respective motion picture in the Americas and, except
for the term loan with respect to COLOR OF NIGHT which is personally guaranteed
by Mr. Vajna, certain other distribution rights related to other motion pictures
financed by BVPD. THE COLOR OF NIGHT term loan with a balance of $6,265,000 at
March 31, 1997 was scheduled to mature in May 1997, however, Disney has agreed
pursuant to the Library Sale Agreement that no repayment of such loan or any
other term loan is required unless the Library Sale Agreement is terminated.
None of the remaining currently outstanding term loans with BVPD mature in the
ordinary course in the next twelve months. At March 31, 1997, the aggregate
amount outstanding under all term loans from BVPD plus accrued interest was
approximately $38,433,000.
The Company also has an outstanding promissory note in favor of Valdina
Corporation N.V. ("Valdina") which is currently due and payable and under which
an aggregate of $3,393,000 in principal and accrued interest was outstanding at
March 31, 1997.
Management estimates that the direct negative cost of the one motion picture
currently in production and scheduled for release in 1997 (AN ALAN SMITHEE FILM,
which is now in post-production) will be approximately $9,500,000 (of which,
through March 31, 1997, $7,845,000 in direct negative costs had been incurred).
The Company estimates, based on information currently available to management,
that it will receive in excess of $9,500,000 in advances and minimum guarantees
with respect to such 1997 release and, therefore, the Company currently
anticipates that it will not have made an aggregate direct investment in such
picture, through the date of its release, excluding capitalized interest and
overhead. There can be no assurance that the motion picture will be completed or
that completion will occur in accordance with the anticipated schedule or
budget, as the production, completion and distribution of motion pictures is
subject to numerous uncertainties, including financing requirements, personnel
availability and the release schedule of competitive films. Adjustments to the
advances and minimum guarantees may occur on the
16
<PAGE>
above motion picture with respect to currently licensed territories, although it
is not possible to estimate at the present time whether the amount of such will
be significant and whether as a result of any such adjustments the Company will
have made an aggregate direct investment (excluding capitalized interest and
overhead) in such film. In the event the Film Library Sale is consummated,
Disney has agreed to assume the outstanding debt under the Company's Credit
Facility relating to AN ALAN SMITHEE FILM (up to a maximum of $10,000,000, which
the Company anticipates will not be exceeded), and the Company will transfer to
Disney all minimum guarantees and any overages paid or to be paid with respect
to the film.
The Company and HPC have an arrangement whereby the Company is financially
obligated to pay to HPC the lesser of 50% of the cost of the motion picture
tentatively entitled DEEP RISING or $22,500,000 (the "Cinergi Amount") in
exchange for (i) a 50% equity participation in DEEP RISING and (ii) a sales fee
for international distribution of such motion picture. In connection with the
Library Sale Agreement, upon consummation of the Film Library Sale, the Company
will no longer be obligated to pay the Cinergi Amount, will relinquish the
equity participation and sales fee, and will no longer serve as sales agent with
respect to such motion picture. In the event the Film Library Sale is not
consummated, the Company currently anticipates that it will have obtained
sufficient advances and minimum guarantees with respect to its interest in the
film to satisfy the payment obligation.
The Company has a "first-look" arrangement with Oliver Stone and certain of
his affiliated entities (collectively, "Stone") pursuant to which Stone submits
to the Company all theatrical motion picture projects owned or controlled by
Stone for the Company's development and consideration of possible production
and, as consideration for Stone's submitting such projects to the Company, the
Company pays certain amounts annually to Stone for overhead and development.
Disney has reimbursed the Company for all amounts payable to Stone through
February 10, 1997, however, pursuant to the Library Sale Agreement, if the Film
Library Sale is consummated, the Company will be responsible for all payments
due to Stone from February 10, 1997 through expiration of the arrangement in
February 1998. The Company currently estimates the payments due under the Stone
Agreement during such period will be approximately $1,875,000.
As the Company does not presently intend to commence production on any
additional motion pictures, management of the Company is currently considering,
and is beginning to implement, reductions in personnel to achieve staff size
commensurate with the Company's current level of activity.
At March 31, 1997, the Company had cash on hand of approximately $25,407,000
(exclusive of restricted cash of approximately $4,182,000 consisting primarily
of amounts due to HPC from deposits received by the Company in connection with
the international distribution of DEEP RISING pursuant to the arrangement
between the Company and HPC described above).
The Company believes that its existing capital, funds from operations and
other available sources of capital (including cash on hand), will be sufficient
to enable the Company to fund its overhead related expenditures and currently
intended reduced level of activities for the next 12 months.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable, as the Securities and Exchange Commission phase-in date for
this Item with respect to the Company has not yet occurred.
17
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company has settled legal proceedings with Le Film Office ("LFO") which
had arisen with respect to a $3,071,000 minimum guarantee advance payable by LFO
to the Company upon delivery of THE SHADOW CONSPIRACY to LFO pursuant to an
output arrangement then in effect between the Company and LFO. In August and
September 1996, respectively, LFO obtained first a temporary restraining order
and then a preliminary injunction in California Superior Court, Los Angeles,
California (the "Court") preventing the Company, the international sales company
handling the international distribution of THE SHADOW CONSPIRACY, and one of the
Lenders under the Company's Credit Facility, from drawing down the letter of
credit securing LFO's minimum guarantee advance on the basis of LFO's
allegations that the Company failed to give proper notice to LFO for extending
the delivery date of THE SHADOW CONSPIRACY. The parties agreed to stay the Court
proceedings and submit the dispute to binding arbitration by the American Film
Marketing Association which occurred on April 17, 1997. On April 18, 1997 and
before a decision could be rendered in the arbitration, the Company and LFO
entered into a settlement agreement whereby the parties agreed to reduce the
minimum guarantee advance from $3,071,000 to $2,300,000, which was subsequently
paid on May 12, 1997 by LFO (which will distribute the film in France). On May
13, 1997, the Court proceeding was dismissed and the arbitration proceeding was
terminated.
Two purported class action lawsuits, which had been filed on May 13, 1996 in
the Superior Court of California for the County of Los Angeles by alleged
stockholders of the Company (and later consolidated into one action), against
the Company and certain of its current and former executive officers and
directors were dismissed pursuant to an order of the Court dated January 16,
1997. The lawsuits had alleged, among other things, that the defendants
negligently misrepresented (or omitted) material facts about the business,
financial condition, future growth and profitability of the Company in
connection with the Company's 1995 public offering of Common Stock, and in
alleged statements by certain of the individual defendants.
See also Note 4 of "Notes to Condensed Consolidated Financial Statements
(unaudited)" set forth herein.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
The Company was not in compliance with three covenants under its Credit
Facility (the minimum consolidated net worth covenant, the limitation on capital
expenditures and the limitation on unallocated overhead costs) at December 31,
1996 and one covenant under the Credit Facility (the minimum consolidated net
worth covenant) at March 31, 1997 and is therefore in default under the Credit
Facility. The Company has requested waivers from the Lenders under the Credit
Facility of the December defaults and intends to seek a waiver of the March
default, however, there can be no assurance that the Lenders will grant such
waivers. See "Item 2--Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" under Part
I of this Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
18
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits.
<TABLE>
<C> <S>
2 Purchase and Sale Agreement, dated April 3, 1997, by and between the
Company and Cinergi Productions N.V. Inc. and Walt Disney Pictures and
Television Incorporated. Incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K, dated April 3, 1997, filed with the
Securities and Exchange Commission on April 4, 1997.
10.1 Stock Purchase Agreement, dated as of January 2, 1997, by and between
Ziffren, Brittenham, Branca & Fischer and the Company. Incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form 8-K,
dated December 30, 1996, filed with the Securities and Exchange
Commission on January 9, 1997.
10.2 Amendment to Restated Employment Agreement of Warren Braverman, dated as of
January 1, 1997, by and between Warren Braverman and the Company.
Incorporated by reference to Exhibit 10.3 to the Company's Current Report
on Form 8-K, dated December 30, 1996, filed with the Securities and
Exchange Commission on January 9, 1997.
27. Financial Data Schedule (filed electronically only). Filed herewith.
</TABLE>
b) The following report on Form 8-K was filed by the Company during the
quarter ended March 31, 1997:
Current Report on Form 8-K, dated December 30, 1996, filed by the Company
with the Securities and Exchange Commission on January 9, 1997 reporting
under "Item 5--Other Events" the repurchase by the Company of an
aggregate of 744,682 shares of Common Stock of the Company from two
stockholders and the amendment of the employment agreement of Warren
Braverman, the Company's Chief Operating Officer, Chief Financial Officer
and Executive Vice President.
19
<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.
<TABLE>
<S> <C> <C>
CINERGI PICTURES ENTERTAINMENT INC.
By: /s/ WARREN BRAVERMAN
-----------------------------------------
Warren Braverman, EXECUTIVE VICE
PRESIDENT, CHIEF OPERATING OFFICER AND
CHIEF FINANCIAL OFFICER, SIGNING BOTH IN
HIS CAPACITY AS EXECUTIVE VICE PRESIDENT
ON BEHALF OF REGISTRANT AND AS CHIEF
May 19, 1997 FINANCIAL OFFICER OF REGISTRANT
</TABLE>
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 3 THROUGH 5 OF THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 25,407
<SECURITIES> 0
<RECEIVABLES> 16,636
<ALLOWANCES> 0
<INVENTORY> 92,704
<CURRENT-ASSETS> 132,780
<PP&E> 7,719
<DEPRECIATION> 3,188
<TOTAL-ASSETS> 145,941
<CURRENT-LIABILITIES> 64,132
<BONDS> 0
135
0
<COMMON> 0
<OTHER-SE> 33,392
<TOTAL-LIABILITY-AND-EQUITY> 145,941
<SALES> 26,525
<TOTAL-REVENUES> 26,816
<CGS> 27,344
<TOTAL-COSTS> 30,863
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,133
<INCOME-PRETAX> (5,180)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,180)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,180)
<EPS-PRIMARY> (.39)
<EPS-DILUTED> (.39)
</TABLE>
