<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number: 0-24294
MEDIA ARTS GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0354419
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
521 Charcot Ave, San Jose, California 95131
(Address of principal executive offices and zip code)
Registrant's telephone number: (408) 324-2020
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of the Registrant's Common Stock, $0.01
par value, was 13,047,204 at September 30, 1998.
This report consists of 16 pages of which this page is number 1.
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MEDIA ARTS GROUP, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
------
<S> <C>
Part I: Financial Information
Item 1: Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of
March 31, 1998 and September 30, 1998 3
Condensed Consolidated Statements of Income for the Three
and Six Month Periods Ended September 30, 1997 and 1998 4
Condensed Consolidated Statements of Cash Flows for
the Six Month Periods Ended September 30, 1997 and 1998 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 3: Quantitative and Qualitative Disclosures
About Market Risk 12
Part II: Other Information
Item 1: Legal Proceedings 13
Item 2: Changes in Securities 13
Item 3: Defaults upon Senior Securities 13
Item 4: Submission of Matters to a Vote of Security Holders 13
Item 5: Other Information 14
Item 6: Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
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MEDIA ARTS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
March 31, September 30,
1998 1998
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,401 $ 6,277
Short-term investments -- 3,898
Accounts receivable, net 15,919 19,069
Inventories 9,094 15,162
Prepaid expenses and other current assets 2,404 3,141
Deferred income taxes 1,878 2,039
--------- ---------
Total current assets 45,696 49,586
Property and equipment, net 5,397 8,658
Other assets 246 233
--------- ---------
$ 51,339 $ 58,477
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,804 $ 5,114
Commissions payable 1,003 1,436
Accrued royalties 653 1,024
Accrued compensation costs 3,881 3,326
Accrued expenses 2,469 2,871
Income taxes payable 2,210 2,462
--------- ---------
Total current liabilities 15,020 16,233
Convertible notes 1,200 1,200
--------- ---------
Total liabilities 16,220 17,433
--------- ---------
Stockholders' equity:
Common Stock 85 85
Additional paid-in capital 35,410 35,855
Retained earnings (accumulated deficit) (376) 7,768
Treasury stock -- (2,664)
--------- ---------
Total stockholders' equity 35,119 41,044
--------- ---------
$ 51,339 $ 58,477
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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MEDIA ARTS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
1997 1998 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 17,224 $ 29,595 $ 30,413 $ 55,934
Cost of sales 5,684 9,208 9,892 18,274
--------- --------- --------- ---------
Gross profit 11,540 20,387 20,521 37,660
--------- --------- --------- ---------
Operating expenses:
Selling and marketing 4,424 8,159 7,766 14,748
General and administrative 3,120 5,547 5,914 10,120
--------- --------- --------- ---------
Total operating expenses 7,544 13,706 13,680 24,868
--------- --------- --------- ---------
Operating income 3,996 6,681 6,841 12,792
Interest income (expense) (475) 235 (1,163) 366
Foreign exchange gains (losses) 45 -- (16) --
Gain on sale and leaseback 997 -- 997 --
--------- --------- --------- ---------
Income before income taxes 4,563 6,916 6,659 13,158
Provision for income taxes 1,690 2,643 2,455 5,014
--------- --------- --------- ---------
Net income $ 2,873 $ 4,273 $ 4,204 $ 8,144
========= ========= ========= =========
Net income per share:
Basic $ 0.26 $ 0.33 $ 0.38 $ 0.63
Diluted $ 0.25 $ 0.31 $ 0.37 $ 0.58
Shares used in net income per
share computation:
Basic 11,031 12,904 11,032 12,936
Diluted 11,298 13,838 11,296 13,987
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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MEDIA ARTS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended September 30, 1997 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,204 $ 8,144
Adjustments to reconcile to net cash
provided by continuing operating activities:
Depreciation 520 949
Amortization of intangibles 486 14
Deferred income taxes (49) (161)
Provision for returns and allowances 403 357
Provision for losses on accounts receivable (429) (58)
Changes in assets and liabilities:
Accounts receivable (838) (3,364)
Receivables from related parties 114 (27)
Inventories (625) (5,670)
Prepaid expenses and other current assets (429) (738)
Accounts payable (268) 179
Commissions payable (2) 433
Accrued compensation costs 1,017 (555)
Income taxes payable and refundable, net 4,427 252
Accrued expenses 1,075 393
Accrued royalties 183 371
--------- ---------
Net cash provided by continuing operating activities 9,789 519
Net cash provided by discontinued operations 890 --
--------- ---------
Net cash provided by operations 10,679 519
--------- ---------
Cash flows from investing activities:
Acquisitions of property and equipment (841) (4,205)
Acquisition of gallery, net of cash acquired -- (321)
Purchases of short-term investments -- (3,898)
--------- ---------
Net cash used in investing activities (841) (8,424)
--------- ---------
Cash flows from financing activities:
Repayments of borrowings under line of credit (2,655) --
Repayment of notes payable (2,392) --
Proceeds from issuance of common stock 15 445
Purchases of common stock -- (2,664)
--------- ---------
Net cash used in financing activities (5,032) (2,219)
--------- ---------
Net increase (decrease) in cash and cash equivalents 4,806 (10,124)
Cash and cash equivalents at beginning of period 374 16,401
--------- ---------
Cash and cash equivalents at end of period $ 5,180 $ 6,277
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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MEDIA ARTS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Basis of Presentation
The consolidated financial statements of Media Arts Group, Inc. (the
"Company") include the accounts of its wholly owned subsidiaries,
Lightpost Publishing, Inc. and Thomas Kinkade Stores, Inc. The Company
designs, manufactures, markets and retails branded art-based home
accessories, collectibles and gift products based on the works of the
artist Thomas Kinkade.
The condensed interim financial statements of Media Arts Group, Inc. have
been prepared by the Company without audit. Certain information and
footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to rules and regulations of the Securities
and Exchange Commission. The information included in this report should
be read in conjunction with the Company's audited financial statements
and notes thereto included in the Company's Annual Report on Form 10-K.
In the opinion of management, the accompanying unaudited interim
financial statements reflect all material adjustments (consisting solely
of normal recurring adjustments) necessary for a fair presentation of the
financial position, operating results and cash flows for the periods
presented. The results of the interim period ended September 30, 1998 are
not necessarily indicative of the results that may be expected for the
entire fiscal year which ends March 31, 1999.
NOTE 2 - Net income per share
The following summarizes the effects of the assumed issuance of dilutive
securities on weighted average shares for basic net income per share (in
thousands).
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
1997 1998 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Weighted average number of
shares - basic 11,031 12,904 11,032 12,936
Incremental shares from assumed
issuance of stock options 267 934 264 1,051
--------- --------- --------- ---------
Weighted average number of
shares - diluted 11,298 13,838 11,296 13,987
========= ========= ========= =========
</TABLE>
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NOTE 3 - Short-term investments
Short-term investments are comprised of debt obligations of U.S.
financial institutions with contractual maturities of over three months
but less than one year and have been classified "available-for-sale." At
September 30, 1998, the fair value of the Company's investments
approximated cost.
NOTE 4 - Inventories
Inventories consisted of (in thousands):
<TABLE>
<CAPTION>
March 31, September 30,
1998 1998
--------- ---------
<S> <C> <C>
Raw materials $ 993 $ 2,729
Work-in-process 8 7
Finished goods 8,093 12,426
--------- ---------
$ 9,094 15,162
========= =========
</TABLE>
NOTE 5 - Subsequent Events
On October 30, 1998 the Company authorized the repurchase of an
additional 800,000 shares of the Company's Common Stock under the
Company's stock repurchase program, bringing the number of shares
authorized for repurchase to an aggregate of 1,000,000 shares. All
200,000 shares of the Company's Common Stock that were authorized to be
repurchased under the Company's stock repurchase program on July 16, 1998
were repurchased by the Company during the quarter ended September 30,1998
at an average price of $13.32.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information set forth below should be read in conjunction with the
unaudited condensed consolidated financial statements and notes thereto
included in Part I - Item 1 of this Quarterly Report and the Company's
Annual Report on Form 10-K for the year ended March 31, 1998 which
contains the audited financial statements and notes thereto for the years
ended March 31, 1996, 1997 and 1998 and Management's Discussion and
Analysis of Financial Condition and Results of Operations for those
respective periods.
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Forward looking statements in this Quarterly Report on Form 10-Q as well
as the Company's Annual Report on Form 10-K for the year ended March 31,
1998, are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Stockholders are cautioned that
all forward-looking statements pertaining to the Company involve risks and
uncertainties, including, without limitation, the risks discussed below
and other risks detailed from time to time in the Company's periodic
reports and other information filed with the Securities and Exchange
Commission.
RESULTS OF OPERATIONS
Net Sales
Net sales for the quarter ended September 30, 1998 were $29.6 million, a
71.8% increase compared to the $17.2 million reported for the quarter
ended September 30, 1997. Wholesale sales increased by 89.6% to $22.7
million and retail sales increased by 31.6% to $6.9 million for the
September 1998 quarter as compared to the September 1997 quarter.
Wholesale sales increased primarily due to the number of Signature
Galleries increasing from 45 at the end of September 1997 to 116 at the
end of September 1998, as well as increased average sales to Signature
Gallery customers. The remainder of the increase in wholesale sales was
due to increased sales to existing accounts as well as upgrades of those
accounts to higher dealership levels. Retail sales increased due to an
increase in the number of company-owned stores from 15 as of September 30,
1997 to 26 as of September 30, 1998, as well as a shift towards higher
priced products. Comparable store sales per square foot for company-owned
stores were $329 in the September 1998 quarter compared to $313 for the
September 1997 quarter. Net sales for the six months ended September 30,
1998 were $55.9 million, up 83.9% from $30.4 million during the six months
ended September 30, 1997. Wholesale sales increased 113.6% for the six
months ended September 30, 1998 as compared to the six months ended
September 30, 1997 primarily as a result of the increase in Signature
Galleries and increased average sales to Signature Gallery customers.
Retail sales increased 21.2% for the six months ended September 30, 1998
as compared to the six months ended September 30, 1997 primarily as a
result of the increase in company-owned stores and a shift towards higher
priced products.
Gross Profit
Gross profit increased by $8.9 million, or 76.7%, to $20.4 million for
the quarter ended September 30, 1998 in comparison to the $11.5 million
reported for the quarter ended September 30, 1997. Gross profit was
$37.7 million for the six months ended September 30, 1998 compared to
$20.5 million in the prior year. The Company's consolidated gross margin
was 68.9% and 67.3% for the three and six month periods ended September
30, 1998, respectively, compared to 67.0% and 67.5% for the same periods
in the prior year, respectively. The increase in absolute terms in gross
profit was due to a higher proportion of retail sales, lower manufacturing
costs as a percentage of sales due to higher sales and efficiencies gained
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from more evenly distributing manufacturing production over the first six
months of the fiscal year. The softening in gross margin on a percentage
basis for the six months ended September 1998 compared to the same period
in the prior year is due to a larger increase in wholesale sales relative
to retail sales during the first three months of the current fiscal year.
Selling and Marketing Expenses
Selling and marketing expenses were $8.2 million and $14.7 million for
the three and six month periods ended September 30, 1998, respectively,
compared to $4.4 million and $7.8 million for the same periods in the
prior year. As a percentage of net sales, selling and marketing expenses
were 27.6% and 26.4% for the three and six month periods ended September
30 ,1998, respectively, compared to 25.7% and 25.5% for the same periods
in the prior year. Selling and marketing expenses increased in absolute
dollars and as a percentage basis primarily due to increased sales
compensation costs resulting from increased net sales and the addition of
sales personnel and increases in advertising and promotional costs.
General and Administrative Expenses
General and administrative expenses were $5.5 million and $3.1 million for
the September 1998 and 1997 quarters, respectively, and were $10.1 million
and $5.9 million for the six month periods ended September 30, 1998 and
1997, respectively. Expressed as a percentage of net sales, general and
administrative expenses for the September 1998 quarter were 18.7% compared
to 18.1% in the September 1997 quarter, and were 18.1% for the six months
ended September 1998 compared to 19.4% in the prior year. The increase in
general and administrative expenses in absolute terms was primarily due to
increased compensation costs and facility costs related to expansion of
capacity. General and administrative expenses for the six months ended
September 30, 1998 decreased as a percentage of sales from the same period
in the prior year due to economies of scale from increased sales levels.
Interest Income (Expense)
Interest income was $235,000 and $366,000 for the three and six months
ended September 30, 1998, respectively, compared to interest expense of
$475,000 and $1.2 million for the same periods in the prior year. The
increase in interest income as compared to the prior year was due to
increased cash and cash equivalents and short-term investments balances
and repayment of debt using proceeds from the Company's February 1998
public offering.
Provision for Income Tax
The provision for income taxes was $2.6 million and $5.0 million for the
quarter and six months ended September 1998, respectively, compared to
$1.7 million and $2.5 million for the same periods in the prior year. The
Company's effective income tax rate for the quarter and six months ended
September 30, 1998 was 38.2% and 38.1%, respectively, compared to 37.0%
and 36.9% for the same periods in the prior year.
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Seasonality; Fluctuations in Quarterly Results
The Company's business has experienced, and is expected to continue to
experience, significant seasonal fluctuations in net sales and income.
The Company's net sales historically have been highest in the December
quarter and lower in the subsequent March and June quarters. Despite
overall increases in annual net sales in fiscal 1997, net sales in the
December 1996 quarter were $15.5 million and net sales in the subsequent
March 1997 and June 1997 quarters were $11.5 million and $13.2 million,
respectively. Net sales in the December 1997 quarter were $26.8 million
and sales in the subsequent March 1998 and June 1998 quarters were $25.4
million and $26.3 million, respectively. Management believes that the
seasonal effect is due primarily to customer buying patterns, particularly
with respect to holiday purchases, and is typical of the home decorative
accessories, collectibles and gift product industries. The Company
expects these seasonal trends to continue in the foreseeable future.
The Company's quarterly operating results have fluctuated significantly in
the past and may continue to fluctuate as a result of numerous factors,
including demand for the art of Thomas Kinkade and the Company's Thomas
Kinkade products (including new product categories and series), the
Company's ability to achieve its expansion plans, the timing, mix and
number of new product releases, the timing of the opening of new Thomas
Kinkade Stores and the expensing of the associated pre-opening costs, the
successful implementation of the Thomas Kinkade Signature Gallery program
and expansion of distribution generally, the Company's ability to
implement strategic business alliances, the Company's ability to hire and
train new manufacturing, sales and administrative personnel, continued
implementation of manufacturing efficiencies, timing of product deliveries
and the incurrence of other operating costs. In addition, since a
significant portion of the Company's net sales are generated from orders
received in the quarter, net sales in any quarter are substantially
dependent on orders booked in that quarter. The Company's results may
also fluctuate based on extraordinary events. Accordingly, the results of
operations in any quarter will not necessarily be indicative of the
results that may be achieved for a full fiscal year or any future quarter.
Fluctuations in operating results may also result in volatility in the
price of the Company's Common Stock.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of funds in the first six months of fiscal
1999 has been from its operations. The Company's working capital as of
September 30, 1998 was $33.4 million, compared to $30.7 million as of
March 31, 1998.
Net cash provided by operations for the first six months of fiscal 1999
was $519,000 consisting primarily of income from operations adjusted
by increases in accounts receivable and inventory. The Company increased
inventory in anticipation of seasonally higher demand and increased
distribution. Accounts receivable increased as a result of an increase
in certain dealer categories which receive preferential payment terms.
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Net cash provided by operations for the first six months of fiscal 1998
was $10.7 million consisting primarily of income from continuing
operations adjusted by an increase in income taxes payable.
Net cash used in investing activities was $8.4 million for the first six
months of fiscal 1999 and primarily related to purchases of securities
for $3.9 million and capital expenditures for property and equipment for
$4.2 million. Net cash used in investing activities was $841,000 in the
first six months of fiscal 1998. The Company anticipates that total
capital expenditures in fiscal 1999 will be approximately $8.0 million,
and will relate primarily to continued manufacturing and infrastructure
investments, as well as to the opening of new retail locations.
Net cash used in financing activities was $2.2 million in the first six
months of fiscal 1999 compared to $5.0 million in the first six months of
fiscal 1998. Cash used in financing activities during the first six
months of fiscal 1999 related primarily to the purchase of shares of the
Company's Common Stock under the Company's continuing stock repurchase
program. Net cash used in financing activities during the first six
months of fiscal 1998 was related primarily to the repayment of borrowings
under credit lines and notes payable.
The Company has a $10 million line-of-credit facility with a bank (the
Senior Debt). Borrowing capacity under the Senior Debt facility is based
upon eligible accounts receivable and inventory and aggregated $10.0
million as of September 30, 1998. There were no outstanding borrowings
under this credit facility as of September 30, 1998.
The Company's working capital requirements in the foreseeable future will
change depending on the rate of the Company's expansion, the Company's
operating results and any other adjustments in its operating plan as
needed in response to competition, acquisition opportunities or unexpected
events. The Company believes that existing borrowing capacity under its
line of credit, together with revenues from operations, will be sufficient
to meet the Company's working capital requirements through fiscal 1999.
However, there can be no assurance that the Company will not seek
additional capital in the future as a result of expansion or otherwise.
YEAR 2000 COMPLIANCE
The Company's Year 2000 Project (the "Project") is proceeding on schedule.
The Project is addressing the issue of computer programs and embedded
computer chips being unable to distinguish between the year 1900 and the
year 2000. The Company has conducted a review of its information
technology ("IT") and non-IT systems to identify those areas that could
be affected by the Year 2000 issue, and has developed a comprehensive,
risk-based plan. This plan addresses both IT and non-IT systems and
products, as well as dependencies on those with whom the Company does
significant business.
In connection with the Project, the Company has completed an inventory
and risk-assessment of its computer systems and related technology, and
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has begun the testing and remediation process. The Company's main IT
system consists of JD Edwards software, an IBM AS400 and a PC-based
network. In fiscal 1998 the Company upgraded its JD Edwards software to
be Year 2000 compliant, and in the September quarter upgraded both the
IBM AS400 and substantially all of its PC's to be Year 2000 compliant.
The Company expects to complete the Project by mid-1999. However, the
Company cannot guarantee that its compliant systems will not encounter
difficulties when attempting to interface or interconnect with third
party systems, whether or not those systems are claimed to be "compliant"
and the Company cannot guarantee that such failure to interface or
interconnect will not have a materially adverse effect on the Company's
operations. The Company has also completed an inventory and risk
assessment of its outside vendors and has identified those key vendors
that represent a significant risk to the Company. The Company is
currently in the process of communicating with these vendors to determine
their Year 2000 readiness. The Company is also preparing contingency
plans in the event of non-compliance by those key vendors. The Company
believes the Year 2000 risk with its suppliers is low because many of the
vendors are small manufacturers with relatively simple business systems.
The Company expects to identify any significant vendor-compliance problems
by the first quarter of 1999 and to resolve those issues by the end of the
third quarter. Despite this approach, there can be no guarantee that the
systems of other companies on which the Company is reliant will be
converted in a timely manner, or that a failure by another company to
convert would not have a materially adverse effect on the Company.
The total cost associated with required modifications to become Year 2000
compliant is not expected to be material to the Company's financial
position. The estimated total cost of the Year 2000 Project is
approximately $1 million, which includes upgrade of the Company's JD
Edwards software, IBM AS400 and PC-based network. The total amount
expended on the Project through September 30, 1998, was approximately
$750,000. The estimated future cost of completing the Year 2000 Project
is estimated to be approximately $250,000.
The Company presently believes that with modification to existing software
and conversion to new software, the Year 2000 problem will not pose
significant operational risk. While the Company cannot accurately predict
a "worst case scenario" with regard to its Year 2000 issues, the failure
by the Company and/or vendors to complete Year 2000 compliance work in a
timely manner could have a materially adverse effect on the Company's
operations. The Company is in the process of assessing these risks and
uncertainties and developing appropriate contingency plans and procedures
in an attempt to minimize the effects of such a scenario.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - Not
Applicable
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PART II - Other Information
ITEM 1. LEGAL PROCEEDINGS - Not Applicable
ITEM 2. CHANGES IN SECURITIES - Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Media Arts Group, Inc. was convened on
September 17, 1998.
(b) The following directors were elected to hold office until the next
annual meeting:
Votes
Nominee Votes Withheld
Kenneth E. Raasch 12,240,413 55,632
Thomas Kinkade 12,248,895 47,150
Michael L. Kiley 12,246,315 49,730
Norman T. Mahoney 12,245,865 50,180
Norman A. Nason 12,246,165 49,880
W. Michael West 12,249,005 47,040
(c) The following matters were voted upon at the meeting:
The approval of the Company's 1998 Stock Incentive Plan which
succeeds the Company's Employee Stock Option Plan and the Company's
Stock Option Plan for Directors. The number of shares reserved for
issuance under the 1998 Stock Incentive Plan is 500,000 plus the
number of shares remaining available for grant under the Employee
Stock Option Plan and the Stock Option Plan for Directors.
Votes for - 8,739,395, against - 1,687,393, abstain - 8,903
Broker nonvote - 1,860,354
The approval to grant an option to purchase 600,000 shares of
Common Stock to Thomas Kinkade.
Votes for - 9,914,684, against - 441,856, abstain - 13,865
Broker nonvote - 1,925,640
The approval of the Company's Employee Qualified Stock Purchase
Plan for which 125,000 shares will be reserved.
Votes for - 10,202,666, against - 222,972, abstain - 10,053
Broker nonvote - 1,860,354
The approval of an amendment to the Company's amended and restated
certificate of incorporation to increase the number of authorized
shares of Common Stock from 20,000,000 to 80,000,000.
Votes for - 10,870,668, against - 1,412,749, abstain - 12,628
Broker nonvote - 0
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The selection and ratification of PricewaterhouseCoopers LLP as the
Company's independent public accountants for the fiscal year ending
March 31, 1999.
Votes for - 12,276,675, against - 14,080, abstain - 5,290
Broker nonvote - 0
ITEM 5. OTHER INFORMATION - Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 3 - Amended and Restated Certificate of Incorporation
(b) Exhibit 27 - Financial Data Schedule (EDGAR version only)
(c) Reports on Form 8-K - none
14
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MEDIA ARTS GROUP, INC.
SIGNATURES
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.
MEDIA ARTS GROUP, INC.
(Registrant)
By /s/ Raymond A. Peterson
--------------------------------------
Raymond A. Peterson
Chief Executive Officer
By /s/ Greg H.L. Nash
--------------------------------------
Greg H.L. Nash
Senior Vice President &
Chief Financial Officer
Date: November 13, 1998
15
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EXHIBIT INDEX
Exhibit Number
3 Amended and Restated Certificate of Incorporation
27 Financial Data Schedule
16
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CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
MEDIA ARTS GROUP, INC.
Media Arts Group, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, at a meeting
duly held on June 22, 1998, adopted a resolution proposing and declaring
advisable the following amendment to the Amended and Restated Certificate
of Incorporation of said corporation:
RESOLVED, that the Restated Certificate of Incorporation of Media Arts
Group, Inc. be amended by changing the Fourth Article thereof so that, as
amended, said Article shall be and read as follows:
"Fourth: The total number of shares of stock which the Corporation shall
have authority to issue is 80,000,000 shares of Common Stock, each having
a par value of one penny ($.01), and 1,000,000 shares of Preferred Stock,
each having a par value of one ($.01).
The Board of Directors is expressly authorized to provide for the issuance
of all or any shares of the Preferred Stock in one or more classes or
series, and to fix for each such class or series such voting powers, full
or limited, or no voting powers, and such distinctive designations,
preferences and relative, participating, optional or other special rights
and such qualifications, limitations or restrictions thereof, as shall be
stated and expressed in the resolution or resolutions adopted by the Board
of Directors providing for the issuance of such class or series and as may
be permitted by the GCL, including, without limitation, the authority to
provide that any such class or series may be (i) subject to redemption at
such time or times and at such price or prices; (ii) entitled to receive
dividends (which may be cumulative or non-cumulative) at such rates, on
such conditions, and at such times, and payable in preference to or in
such relation to, the dividends payable on any other class or classes or
any other series; (iii) entitled to such rights upon the dissolution of,
or upon any distribution of the assets of, the Corporation; and/or (iv)
convertible into, or exchangeable for, shares of any other class or
classes of stock, or of any other series of the same or any other class
or classes of stock, of the Corporation at such price or prices or at such
rates of exchange and with such adjustments; all as may be stated in such
resolution or resolutions."
SECOND: That at a meeting of stockholders of said corporation, held on
September 17, 1998, the stockholders approved said amendment.
1
<PAGE> 2
THIRD: That the aforementioned amendment was duly adopted in accordance
with the applicable provisions of Section 242 of the General Corporation
Law of the State of Delaware.
IN WITNESS WHEREOF, said corporation has caused this certificate to be
signed by James F. Landrum, Jr., its Senior Vice President, General
Counsel & Corporate Secretary, this 29th day of September, 1998.
MEDIA ARTS GROUP, INC.
By /s/ James F. Landrum, Jr.
--------------------------------------
James F. Landrum, Jr.
Snr. VP, General Counsel & Corporate Secretary
2
<PAGE> 3
CERTIFICATE OF MERGER
Pursuant to Section 252 of the General Corporation Law of the State of
Delaware, the following Certificate of Merger is adopted for the purposes
of effecting a merger in accordance such laws.
The undersigned corporation, Media Arts Group, Inc., is a for-profit
corporation duly organized, existing and in good standing under the laws
of the State of Delaware.
THE CORPORATION DOES HEREBY CERTIFY:
FIRST: That the name, state of incorporation and total stock of each of
the constituent corporations of the merger is as follows:
Number of
State of Shares of Par
Name of Corporation Incorp. Class/Series Authorized Stock Value
Media Arts Group, Inc. Delaware Common 20,000,000 $0.01
Media Arts Group, Inc. Delaware Preferred 1,000,000 $0.01
John Hine Studios, Inc. Texas Common 1,000 No Par
Lightpost Publishing, Inc. California Common 10,000,000 $0.002
SECOND: That a Merger Agreement and Plan of Merger between the parties to
the merger has been approved, adopted, certified, executed and
acknowledged by each of the constituent corporations in accordance with
the provisions of subsection (c) of Section 252 of the General Corporation
Law of the State of Delaware.
THIRD: Media Arts Group, Inc. is the parent corporation of subsidiary
entities John Hine Studios, Inc. and Lightpost Publishing, Inc
FOURTH: The surviving corporation of the merger is Media Arts Group, Inc.
The disappearing corporations are John Hine Studios, Inc. and Lightpost
Publishing, Inc.
FIFTH: The certificate of incorporation of Media Arts Group, Inc., the
surviving corporation, shall remain unamended.
SIXTH: That the executed Merger Agreement and Plan of Merger is on file
at the principal place of business of the surviving corporation, Media
Arts Group, Inc. The address of the principal place of business of the
surviving corporation is Ten Almaden Blvd., Ninth floor, San Jose,
California 95113,
SEVENTH: That a copy of the Merger Agreement and Plan of Merger will be
furnished by the surviving corporation, on request and without cost, to
any stockholder of any constituent corporation.
EIGHT: The Merger Agreement and Plan of Merger was duly approved by the
Board of Directors of the corporation on March 27, 1996.
3
<PAGE> 4
NINTH: No shareholder approval was required, as Media Arts Group, Inc.
is the parent company and sole (100%) shareholder of both subsidiary
disappearing corporations Lightpost Pub1ishing, Inc. and John Hine
Studios, Inc.
TENTH: The merger will become effective on March 31, 1996.
We, Kenneth E. Raasch, as President of Media Arts Group, Inc., and Susan
Edstrom, as Secretary of Media Arts Group, Inc., approve, adopt, and
certify the above Certificate of Merger.
We further declare under penalty of perjury under the laws of the State
of California and Delaware that the matters set forth in this certificate
are true and correct of our own knowledge.
By /s/ Kenneth E. Raasch
-----------------------------
Dated: March 27, 1996 Kenneth Raasch, President
Media Arts Group, Inc.
By /s/ Susan Edstrom
-----------------------------
Dated: March 27 1996 Susan Edstrom, Secretary
Media Arts Group, Inc.
4
<PAGE> 5
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
MEDIA ARTS GROUP, INC.
Media Arts Group, Inc., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation (hereinafter, "Corporation") is: Media
Arts Group, Inc. The Corporation was originally incorporated under the
name MEDIA ARTS GROUP, Inc. and the date of filing of its original
certificate of incorporation with the Secretary of State was April 28,
1993.
2. The text of the Certificate of Incorporation is hereby amended
and restated to read as follows:
FIRST: The name of the Corporation is: Media Arts Group, Inc.
SECOND: The address of the registered office of the corporation in the
State of Delaware is: 15 East North Street, in the City of Dover, County
of Kent. The name of its registered agent at that address is:
Incorporating Service, Ltd.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law (the "GCL") of the State of Delaware as set forth in
Title 8 of the Delaware Code.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is 20,000,000 shares of Common Stock, each having
a par value of one penny ($.01), and 1,000,000 shares of Preferred Stock,
each having a par value of one penny ($.01). Effective upon the date of
the filing of this Amended and Restated Certificate of Incorporation,
each share of Common Stock of this Corporation outstanding as of such
date shall represent 1.054505 shares of Common Stock.
The Board of Directors is expressly authorized to provide for the issuance
of all or any shares of the Preferred Stock in one or more classes or
series, and to fix for each such class or series such voting powers, full
or limited, or no voting powers, and such distinctive designations,
preferences and relative, participating, optional or other special rights
and such qualifications, limitations or restrictions thereof, as shall be
stated and expressed in the resolution or resolutions adopted by the Board
of Directors providing for the issuance of such class or series and as may
be permitted by the GCL, including, without limitation, the authority to
provide that any such class or series may be (i) subject to redemption at
such time or times and at such price or prices; (ii) entitled to receive
dividends (which may be cumulative or non-cumulative) at such rates, on
such conditions, and at such times, and payable in preference to or in
such relation to, the dividends payable on any other class or classes or
any other series; (iii) entitled to such rights upon the dissolution of,
5
<PAGE> 6
or upon any distribution of the assets of, the Corporation; and/or (iv)
convertible into, or exchangeable for, shares of any other class or
classes of stock, or of any other series of the same or any other class
or classes of stock, of the Corporation at such price or prices or at such
rates of exchange and with such adjustments; all as may be stated in such
resolution or resolutions.
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for
further definition, limitation and regulation of the powers of the
Corporation and of its directors and stockholders:
1. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors.
2. In furtherance and not in limitation of powers conferred by statue,
the board of directors is expressly authorized to adopt, amend, or repeal
the By-Laws of this Corporation.
3. The number of directors of the Corporation shall be as from time to
time fixed by, or in the manner provided in, the By-Laws of the
Corporation. Election of directors need not be by written ballot unless
the By-laws so provide.
4. No director shall be personally liable to the Corporation or any of
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty
of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law, (iii) pursuant to Section 174 of the GCL,
or (iv) for any transaction from which the director derived an improper
personal benefit. Any repeal or modification of this Article FIFTH by
the stockholders of the Corporation shall not adversely affect any right
or protection of a director of the corporation existing at the time of
such repeal or modification with respect to acts or omissions occurring
prior to such repeal or modification.
5. In addition to the powers and authorities hereinbefore or by statute
expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation, subject, nevertheless, to the
provisions of the GCL, this Amended and Restated Certificate of
Incorporation, and any By-Laws adopted by the stockholders, provided,
however, that no By-Laws hereafter adopted by the stockholders shall
invalidate any prior act of the directors which would have been valid if
such By-Laws had not been adopted.
SIXTH: Meetings of stockholders may he held within or without the State
of Delaware, as the By-Laws may provide. The books of the Corporation
may be kept (subject to any provision contained in the GCL) outside the
State of Delaware at such place or places as may be designated from time
to time by the Board of Directors or in the By-Laws of the Corporation.
6
<PAGE> 7
SEVENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate
of Incorporation, in the manner now or hereafter prescribed by statute,
and all rights conferred upon stockholders herein are granted subject to
this reservation.
3. This Amended and Restated Certificate of Incorporation has been
duly adopted in accordance with the provisions of Sections 228, 242 and
245 of the GCL.
IN WITNESS WHEREOF, Media Arts Group, Inc. has caused this certificate to
be signed by its duly authorized officer as of this 10th day of June 1994.
Media Arts Group, Inc.
By /s/ Kenneth E. Raasch
----------------------------------
Kenneth E. Raasch
Chief Executive Officer
and President
Attest:
By: /s/ Susan C. Edstrom
-----------------------------------
Susan C. Edstrom
Secretary
7
<PAGE> 8
CERTIFICATE OF INCORPORATION
OF
MEDIA ARTS GROUP, INC.
FIRST: The name of the Corporation is: MEDIA ARTS GROUP, Inc.
(hereinafter the "Corporation")
SECOND: The address of the registered office of the Corporation in the
State of Delaware is: 15 East North Street, in the City of Dover, County
of Kent. The name of its registered agent at that address is:
Incorporating Service, Ltd.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law of the State of Delaware as set forth in Title 8 of the
Delaware Code (the "GCL")
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is 10,000,000 shares of Common Stock, each having
a par value of one penny ($.01), and 1,000,000 shares of Preferred Stock,
each having a par value of one penny ($.0l).
The Board of Directors is expressly authorized to provide for the
issuance of all or any shares of the Preferred Stock in one or more
classes or series, and to fix for each such class or series such voting
powers, full or limited, or no voting powers, and such distinctive
designations, preferences and relative, participating, optional or other
special rights and such qualifications, limitations or restrictions
thereof, as shall be stated and expressed in the resolution or resolutions
adopted by the Board of Directors providing for the issuance of such class
or series and as may be permitted by the GCL, including, without
limitation, the authority to provide that any such class or series may be
(i) subject to redemption at such time or times and at such price or
prices; (ii) entitled to receive dividends (which may be cumulative or
non-cumulative) at such rates, on such conditions, and at such times, and
payable in preference to or in such relation to, the dividends payable on
any other class or classes or any other series; (iii) entitled to such
rights upon the dissolution of, or upon any distribution of the assets of,
the Corporation; and/or (iv) convertible into, or exchangeable for, shares
of any other class or classes of stock, or of any other series of the same
or any other class or classes of stock, of the Corporation at such price
or prices or at such rates of exchange and with such adjustments; all as
may be stated in such resolution or resolutions.
FIFTH: The name and mailing address of the Sole Incorporator is as
follows: Mark A. Pruner, 1206 "Q" Street, Suite 1, Sacramento,
California, 95814.
SIXTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for
8
<PAGE> 9
further definition, limitation and regulation of the powers of the
Corporation and of its directors and stockholders:
1. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors.
2. The directors shall have concurrent power with the stockholders to
make, alter, amend, change, add to or repeal the By-Laws of the
Corporation.
3. The number of directors of the Corporation shall be as from time to
time fixed by, or in the manner provided in, the By-Laws of the
Corporation. Election of directors need not be by written ballot unless
the By-Laws so provide.
4. No director shall be personally liable to the Corporation or any of
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty
of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law, (iii) pursuant to Section 174 of the GCL,
or (iv) for any transaction from which the director derived an improper
personal benefit. Any repeal or modification of this Article SIXTH by
the stockholders of the Corporation shall not adversely affect any right
or protection of a director of the Corporation existing at the time of
such repeal or modification with respect to acts or omissions occurring
prior to such repeal or modification.
5. In addition to the powers and authorities hereinbefore or by statute
expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation, subject, nevertheless, to the
provisions of the GCL, this Certificate of Incorporation, and any By-Laws
adopted by the stockholders, provided, however, that no By-Laws hereafter
adopted by the stockholders shall invalidate any prior act of the
directors which would have been valid if such By-Laws had not been
adopted.
SEVENTH: Meetings of stockholders may be held within or without the
State of Delaware, as the By-Laws may provide. The books of the
Corporation nay be kept (subject to any provision contained in the GCL)
outside the State of Delaware at such place of places as may be designated
from time to time by the Board of Directors or in the By-Laws of the
Corporation.
EIGHTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in
the manner now or hereafter prescribed by statute, and all rights
conferred upon stockholders herein are granted subject to this
reservation.
I, THE UNDERSIGNED, being the Sole Incorporator hereinbefore named, for
the purpose for forming a corporation pursuant to the GCL, do make this
9
<PAGE> 10
Certificate, hereby declaring and certifying that this is my act and deed
and the facts herein stated are true, and accordingly have hereunto set
my hand this 27th day of April 1993.
By /s/ Mark A. Pruner
-----------------------------------
MARK A. PRUNER
Sole Incorporator
10
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