<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the quarterly period ended June 30, 1996
-------------
OR
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission file number 0-25488
THE L.L. KNICKERBOCKER CO., INC.
(Name of Small Business Issuer in its Charter)
CALIFORNIA 33-0230641
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
30055 COMERCIO 92688
Rancho Santa Margarita, CA (Zip Code)
(Address of Principal Executive Offices)
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714)858-3661
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
Common Stock, No Par Value NASDAQ
National Market System
Common Stock Purchase Warrants NASDAQ
National Market System
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
NONE
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of the registrant's Common Stock, as of
August 12, 1996 was 15,153,204.
Transitional Small Business Disclosure Format Yes No X
--- ---
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
<S> <C>
PART I
------
1. FINANCIAL INFORMATION............................................... 1
A. Condensed Income Statements (unaudited) for the three and six
month periods ended June 30, 1996 and June 30, 1995............ 1
B. Condensed Balance Sheets at June 30, 1996 (unaudited) and
December 31, 1995.............................................. 2
C. Condensed Statements of Cash Flows (unaudited) for the six
month periods ended June 30, 1996 and June 30, 1995............ 4
D. Notes to Condensed Financial Statements........................ 5
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................................. 9
A. General Business Description................................... 9
B. Results of Operations.......................................... 10
C. Liquidity and Capital Resources................................ 12
PART II
-------
6. EXHIBITS AND REPORTS ON FORM 8-K.................................... 13
SIGNATURES.......................................................... 13
</TABLE>
i
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Sheet 1
PART I. FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements
- ------ --------------------
THE L.L. KNICKERBOCKER CO., INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
(unaudited)
<TABLE>
<CAPTION>
Six months ended June 30, Six months ended June 30,
------------------------- -------------------------
1996 1995 1996 1995
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Sales, net of returns $ 7,422,060 $ 2,405,463 10,580,888 $ 4,350,905
Cost of sales 3,886,905 1,216,029 5,292,050 2,127,481
--------------- --------------- --------------- ---------------
Gross profit 3,535,155 1,189,434 5,288,838 2,223,424
Selling, general and administrative
expenses 2,263,274 1,125,895 3,527,733 1,817,173
--------------- --------------- --------------- ---------------
Income from operations 1,271,881 63,539 1,761,105 406,251
Interest and other income (expense),
net (7,978) 48,257 36,487 69,861
--------------- --------------- --------------- ---------------
Income before provision for income
taxes 1,263,903 111,796 1,797,592 476,112
Provision for income taxes 505,561 44,718 719,037 194,087
--------------- --------------- --------------- ---------------
Net income 758,342 67,078 1,078,555 282,025
=============== =============== =============== ===============
Net income per share (See
footnotes 7 and 8) $ 0.05 $ 0.01 $ 0.07 $ 0.03
=============== =============== =============== ===============
Weighted average common
shares outstanding 16,859,566 11,854,285 16,514,166 11,097,710
=============== =============== =============== ==============
</TABLE>
Page 1
<PAGE>
Sheet 1
THE L.L. KNICKERBOCKER CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1996
----------------------------------------------------------
Adjustments
As previously Pursuant to December 31,
reported Amendment As Amended 1995
--------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
(See Note 10) (unaudited)
ASSETS
Cash and cash equivalents $ 3,807,348 $ 3,807,348 $ 2,469,750
Accounts receivable 7,290,632 7,290,632 5,456,701
Inventories 2,438,351 2,438,351 413,576
Prepaid expenses 1,375,339 1,375,339 1,244,885
Other current assets 433,953 433,953 805,461
------------ --------------- ------------ ------------
Total current assets $ 15,345,623 $ 15,345,623 $ 10,390,373
Property and equipment, net 957,564 957,564 226,574
Investments 6,219,052 (3,100,700) 3,118,352 590,000
Other assets 4,808,109 4,808,109 6,667
------------ -------------- ------------ ------------
$ 27,330,348 $ (3,100,700) $ 24,229,648 $ 11,213,614
============ ============== ============ ============
</TABLE>
Page 2
<PAGE>
Sheet 1
THE L.L. KNICKERBOCKER CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1996
-----------------------------------------------------
Adjustments December 31,
As previously Pursuant to 1995
reported Amendment As Amended (unaudited)
------------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
LIABILITIES AND (See note 10)
STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued
expenses $ 3,765,241 $ 3,765,241 $ 984,805
Commissions and royalties payable 1,111,685 1,111,685 407,503
Notes payable 1,645,205 1,645,205
Income taxes payable 1,083,484 1,083,484 1,066,941
Other current liabilities 273,729 273,729 83,917
----------- ------------ ------------ -------------
-
Total current liabilities $ 7,879,344 $ 7,879,344 $ 2,543,166
-
Deferred income 127,777 127,777 50,854
Deferred income taxes 19,450 19,450 19,450
------------ ------------ ------------ -------------
-
Total long-term liabilities: $ 147,227 $ 147,227 $ 70,304
-
Stockholders' equity: -
Common Stock 11,274,055 (3,100,700) 8,173,355 6,574,677
Additional paid-in capital 5,175,700 5,175,700 250,000
Retained earnings 2,854,022 2,854,022 1,775,467
------------ ------------ ------------ -------------
-
Total stockholders' equity $ 19,303,777 $ (3,100,700) $ 16,203,077 $ 8,600,144
------------ ------------ ------------ -------------
-
$ 27,330,348 $ (3,100,700) $ 24,229,648 $ 11,213,614
============ ============ ============ =============
</TABLE>
Page 3
<PAGE>
Sheet 1
<TABLE>
<CAPTION>
THE L.L. KNICKERBOCKER CO., INC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
1996 1995
--------------- ---------------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income $ 1,078,555 $ 282,025
Adjustments to reconcile net income
to net cash provided by (used in) operations:
Depreciation 27,000 13,635
Amortization 55,747 1,667
Amortization of deferred revenue 33,333 (38,889)
Reserve for discontinuance of operations (60,762)
(Increase) decrease in:
Accounts receivable (1,564,320) (1,810,584)
Inventories (206,028) 73,573
Advances to affiliates 218,689 -
Other current assets (220,160) (489,919)
Other assets (724,436)
Increase (decrease) in:
Accounts payable and accrued expenses 731,924 (13,242)
Commissions payable 405,433 86,923
Income taxes payable 16,543 (271,742)
Reserve for legal settlement (12,500)
--------------- ---------------
Net cash provided by (used in) operating
activities $ (208,482) $ (2,179,053)
Cash flow used for investing activities:
Purchases of machinery and equipment (57,857) (81,170)
Other assets - (10,000)
--------------- ---------------
Net cash provided by (used in) investing activities $ (57,857) $ (91,170)
Cash flow provided by (used in) financing activities:
Proceeds from note payable $ 32,981
Proceeds from exercise of common stock
purchase warrants 1,598,678 4,332,152
Repayments on note payable to stockholder (94,132)
Receipt (payment) of royaty commitment (27,722) (15,000)
Deferred offering costs (116,525)
Net cash provided by (used in) financing activities $ 1,603,937 $ 4,106,495
--------------- ---------------
Net increase (decrease) in cash 1,337,598 1,836,272
Cash, beginning of period 2,469,750 106,553
--------------- ---------------
Cash, end of period $ 3,807,348 $ 1,942,825
============== ==============
</TABLE>
Noncash investing and financing activity - The Company received 800,000 shares
of common stock in exchange for performing marketing services.
The Company has recorded an asset for the discounted value of the stock
received and a deferred revenue liability which is amortized to income over
the term of the marketing agreement.
Page 4
<PAGE>
THE L.L. KNICKERBOCKER CO., INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1: As contemplated by the Securities and Exchange Commission under Item
- -------
310(b) of Regulation S-B, the accompanying financial statements and footnotes
have been condensed and therefore do not contain all disclosures required by
generally accepted accounting principles.
NOTE 2: Basis of Presentation:
- -------
The information set forth in these consolidated financial statements is
unaudited except for the December 31, 1995 balance sheet. These statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information, the instructions to Form 10-Q and Rule 10-01 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.
The accompanying consolidated financial statements consolidate the accounts of
Krasner Group, Inc. ("Krasner") which was acquired on June 18, 1996. There were
no intercompany transactions.
In the opinion of management, all adjustments, consisting only of normal
recurring accruals, necessary for a fair presentation have been included. The
results of operations for the six months ended June 30, 1996 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1996. For further information, refer to the financial statements and notes
thereto included in the Company's annual report for the year ended December 31,
1995.
NOTE 3: Acquisition:
- ------
On June 18, 1996, the Company acquired the business, assets and properties of
Krasner Group, Inc., a Delaware corporation ("TKG"), a manufacturer and
wholesaler of costume jewelry and women's fashion accessories. TKG was acquired
pursuant to an Agreement of Purchase and Sale dated June 18, 1996 (the
"Agreement") by and among TKG, TKG's stockholders: Martin P. Krasner and Ina
Ostrow, as Trustees U/I DTD 2/5/85 FBO Martin P. Krasner, Martin and Stephanie
Krasner, as Trustees U/I DTD June 15, 1970, Joan Glaser, as Executor of the
Estate of Murray Glaser, F. William Graham, Consumer Venture Partners I, L.P.,
Donald F. Swanson, as Trustee, Donald F. Swanson Revocable Trust U/A Dated
December 22, 1988, and the Company. Pursuant to the Agreement, the company
acquired from the above named stockholders all of the capital stock of TKG.
Following the acquisition, the Company intends to operate TKG as a subsidiary of
the Company, and TKG shall continue to operate under its current name in its
current line of business.
The consideration for the acquisition consisted of (a) $1,375,000 payable in
value of common stock purchase warrants of the Company's Common Stock to the
holders of preferred stock of TKG in equal installments of $ 275,000 payable on
June 18, 1996, September 30, 1996, December 31, 1996, March 31, 1997,
5
<PAGE>
and June 30, 1997, (b) $358,489 payable on June 18, 1996 in value of common
stock purchase warrants of the Company's Common Stock to the holders of common
stock of TKG, (c) a contingent amount of $330,000 payable in value of common
stock purchase warrants of the Company's Common Stock to the holders of the
preferred stock of TKG upon the future liquidation of the first $300,000 of
closing inventory of TKG, (d) a contingent amount equal to approximately
$2,000,000 payable quarterly to Martin P. Krasner, as Trustee of the above
referenced trusts, in value of common stock purchase warrants of the Company's
Common Stock upon the future liquidation of the closing inventory of TKG, (e)
the guarantee by the Company of the repayment of TKG's line of credit with its
lending institution, IBJ Shroder Bank & Trust Company, which totaled
approximately $1,800,000 on April 28, 1996; in connection with the guarantee,
the Company will provide a $500,000 deposit to IBJ Schroder for the purpose of
collateralizing the line of credit; such account shall bear interest at market
rates and belong to the Company, (f) the Company will arrange substitute
financing of the line of credit for TKG no later than September 30, 1996, (g)
the Company will pay to an unrelated individual, Jason Workman,, a finders fee
in connection with the acquisition in the amount of $275,000 payable in value of
common stock purchase warrants of the Company's Common Stock payable on June 18,
1996, (h) the Company will grant to Richard Ogust an aggregate of $308,000
payable in value of common stock purchase warrants of the registrant's Common
Stock to be delivered in equal installments on June 18, 1996 and June 18, 1997
in connection with a liability owed to Richard Ogust by TGK, and (I) the
registrant will grant to key employees of TKG at June 18, 1996 warrants to
purchase 20,987 share of the Common Stock of the Company at the exercise price
of $7.75 per share. With respect to the contingent amounts above, warrants will
be issued in the quarter following inventory liquidation on a basis of $1 in
warrant value of the registrant's Common Stock per $1 in cash received by the
registrant from the liquidation of the closing inventory of TKG. Value in
connection with each share of common stock covered by a warrant means the
difference between the average closing bid price of the Company's Common shares
for the five trading days immediately preceding the date of delivery of the
warrant and the exercise price of the warrant.
Martin Krasner, as president of TKG, signed a 5 year employment contract with
TKG with annual compensation of $225,000 and eligibility to participate in the
stock plan of the registrant and a bonus program to be determined.
The assets acquired by the registrant include the operating lease for the TKG
office in New York City, the operating lease for a manufacturing facility in
Providence, Rhode Island, the fixtures, furnishings, equipment and lease hold
improvements located in the office and manufacturing facilities, the various
trademarks and contracts with celebrities for endorsement of products . All such
assets were used by TKG in the operation of the costume jewelry and fashion
accessory manufacturing and wholesaling business and registrant intends to
continue the use of such assets in the operation of the costume jewelry and
fashion accessory manufacturing and wholesaling business.
The transaction was accounted for under the purchase method. While management is
not aware of any adjustments that would currently be required, the allocation of
the purchase price will be adjusted to the extent that amounts differ from their
estimates in accordance with Statements of Financial Accounting Standards
No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises".
The results of operations for the 6 months ended June 30, 1996 include the
Krasner Group, Inc. operations as of June 18, 1996.
6
<PAGE>
NOTE 3: Acquisition (continued):
- ------
On a proforma basis, if the Companies had been combined as of the beginning of
the fiscal year, sales for the six month period ended June 30, 1996 were
$13,921,715 and net income after tax was $945,914 or $.06 share. On a proforma
basis, if the Companies had been combined as of the beginning of the fiscal
year, sales for the six month period ended June 30, 1995 were $11,479,044 and
net income after tax was $16,042 or $.002 share. The unaudited proforma
financial information presented above is not necessarily indicative of either
the results of operations that would have occurred had the acquisition been at
the beginning of the periods presented or of future results of operations of the
consolidated companies. The above 6 month periods ended June 30, 1996 and 1995
include Krasner Group, Inc.'s activity from January 29, to June 30, or 5 months
of activity.
NOTE 4: On March 13, 1996, the Company entered into an agreement to acquire 40%
- -------
of the outstanding common stock of Pure Energy Corporation, a privately held
corporation. Under the terms of the agreement, the company's Chief Executive
Officer will assume the post of Chairman and Chief Executive Officer of Pure
Energy Corporation. The Company will receive the 40% interest in exchange for
its commitment to fund up to $1,000,000 of further development and marketing
costs associated with Pure Energy Corporation's product and by issuing in April
1996 400,000 stock options exercisable in the following manner, 200,000
exercisable at $8.50 per share and 200,000 at $12.00 per share. The Company
shall account for the performance of the investment on the funding commitment on
the equity method of accounting.
NOTE 5: The Company capitalizes certain direct-response advertising costs and
- -------
amortizes such costs over a four month period beginning on the date the
advertisment airs. The four month period approximates the period during which
future period revenues are expected to be received from each direct-response
advertising campaign. The nature of the direct-response advertising costs are
primarily advertising and design costs associated with print advertisements.
NOTE 6: The Company completed a five-for-one split of common stock on August
- -------
31, 1995. Earnings per share for the quarters ended June 30, 1996 and June 30,
1995 are presented on a post split basis. Earnings per share was computed based
on the weighted average number of common shares and equivalents outstanding
during the quarters ended June 30, 1996 and June 30, 1995. Primary and fully
diluted earnings per share are approximately the same. The calculation of
primary weighted average common shares outstanding is as follows:
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1996 1995
-----------------------
<S> <C> <C>
Weighted average common shares
outstanding during the period 14,648,647 11,854,285
Incremental shares assumed to be
outstanding related to stock options
and warrants granted 2,210,919 0
---------- ----------
Weighted average common shares
and equivalents outstanding 16,859,566 11,854,285
========== ==========
</TABLE>
7
<PAGE>
The Company had outstanding on a post-split basis 4,767,500 stock warrants and
options which were not included in quarterly earnings per share calculations
prior to June 30, 1995 because they were considered antidilutive based upon the
market price of the stock on that date. Subsequent to June 30, 1995, as a result
of an increase in the market price for the Company's stock, the warrants and
options were no longer antidilutive. Therefore, the earnings per share
calculation at June 30, 1996 includes the warrants and options because at the
time of the calculation the warrants and options were not antidilutive based
upon the market price of the Company's stock on such date.
NOTE 7: On February 7, 1996, the Company acquired 49% of Grant King
- --------
International, Co. Ltd. located in Bangkok, Thailand. The Company acquired the
interest in Grant King International, Co. Ltd. by issuing 300,000 warrants
exercisable at $5.50 per share. The Company has recorded an asset in the amount
of $250,000 representing the ascribed value of the Company's investment in Grant
King International, Co. Ltd. Additionally, on June 21, 1996, the Company
acquired the remaining 51% interest in Grant King International, Ltd. for
$414,000 in cash.
NOTE 8: In October 1995, the Financial Accounting Standards Board issued
- -------
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation", which will be effective for the Company beginning
January 1, 1996. SFAS No. 123 requires expanded disclosures of stock-based
compensation arrangements with employees and encourages (but does not require)
compensation cost to be measured based on the fair value of the equity
instrument awarded. Companies are permitted, however, to continue to apply APB
Opinion No. 25, which recognizes compensation cost based on the intrinsic value
of the equity instrument awarded. The Company will continue to apply APB Opinion
No. 25 to its stock based compensation awards to employees and will disclose the
required pro forma effect on net income and earnings per share.
NOTE 9: On June 21, 1996, the Company entered into an agreement to acquired
- -------
certain assets of S.L.S Trading Co., Ltd for $650,000 paid with $150,000 in cash
and $500,000 in stock warrants. The effective date of the transaction is July 1,
1996.
NOTE 10: Explanation of adjustments to amend Financial Statements:
- --------
An adjustment was made to subtract $3,100,700 from Investment in subsidiaries
and Capital stock representing an elimination entry which was not made upon the
filing of the original Form 10-QSB for the quarter ended June 30, 1996.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
The following discussion should be read in conjunction with the financial
statements and the notes thereto appearing elsewhere in this Form 10-QSB.
GENERAL
The Company develops a diverse line of consumer products, contracts for the
manufacture of those products to the Company's specifications, and markets those
products to customers. The Company's strength and history has been its strategy
in marketing to the Home Shopping Industry by identifying the industry's key
product segments (i.e. collectibles, environmental systems, jewelry, health and
beauty) and building Brand recognition within those product segments. The
Company brings a celebrity or spokesperson to enhance the appeal of the product.
Using this strategy, the Company was the first to bring celebrities to the home
shopping industry. The Company's celebrity programs have included products
endorsed by Marie Osmond, Annette Funicello, Bob Mackie, Farrah Fawcett, Angie
Dickinson, Richard Simmons, Phyllis Diller, Joan Collins, and Rue McClanahan.
The Company plans to expand celebrity programs introducing new key product
segments.
The Company also sells consumer products beyond the Home Shopping Industry
through other direct response marketing channels such as print media
advertising, infomercials, and direct mail campaigns. The Company has also
developed product distribution through retail stores and retail catalog
accounts.
As a result of the Company's experience and knowledge in the area of electronic
retailing, the Company provides consulting services to outside companies in all
facets of direct response marketing; such as designing packaging, identifying
and negotiating celebrity endorsement, producing infomercials and advertising
spots, and overseeing entire marketing campaigns.
The Company is actively involved in the development of an alternative fuel
through its 40% ownership of the Pure Energy Corporation. Pure Energy
Corporation is in the process of developing a proprietary alternative fuel that
would produce the lowest possible emissions at the lowest cost to the public.
The Company, through its joint venture with Paxson Communications Corporation,
is currently developing infomercials for several new products and services. The
Company believes that the joint venture will provide synergistic opportunites
for strategic growth.
The Company is in the process of developing with Richard Simmons a collectible
line of angels called "Such an Angel". The Company anticipates revenue from
this source to be in the first quarter of 1997, although no assurance can be
given in this regard.
The Company cancelled plans to market a patented, painless hair removal system,
called "Classy Lady". The Company cancelled marketing the painless hair removal
system due to long delays in obtaining FDA approval.
The Company, on June 18, 1996, acquired 100% of the outstanding common stock of
Krasner Group, Inc., a costume jewelry manufacturer and wholesaler. The
acquisition of Krasner Group, Inc. will allow the Company to penetrate the large
jewelry market in the home shopping industry. The Company also acquired the
remaining interest in Grant King International, Ltd, a jewelry design and
development company located in Bangkok, Thailand. The Company also acquired the
operations of S.L.S. Trading Company, a stone cutting and wholesaling company,
also located in Bangkok, Thailand. S.L.S. Trading Company is known for its
famous "Blue Topaz" semi-precious stones. The integration of the U.S. and
Thailand jewelry operations is expected to give the Company an advantage in the
lucrative home shopping jewelry market, although no assurance can be given in
this regard.
9
<PAGE>
The Company, on July 15, 1996, signed a letter of intent to acquire equity
interests in Self-Heating Container Corporation and Insta-Heat, Inc., a related
corporation. The Company will receive distribution rights for a product that
self-heats canned liquids and meals on demand by pressing a button.
The intent of the Company in signing the above agreements is to identify and
introduce new, marketable products while expanding the Company's distribution
network.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
revenues represented by items included in the Company's Statements of
Operations.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30
--------------------------------------------------------
1996 1995 1996 1995
--------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue 100.0% 100.0% 100.0% 100.0%
Cost of revenue 52.4 50.6 50.0 48.9
Gross profit 47.6 49.4 50.0 51.1
Operating expenses 30.5 46.8 33.3 41.8
Operating income 17.1 2.6 16.6 9.3
Interest/other income (0.1) 2.0 0.3 1.6
Net Income 10.2 2.8 10.2 6.5
</TABLE>
THE FOLLOWING COMPARISONS ARE FOR THE QUARTERS ENDED JUNE 30, 1996 AND JUNE 30,
1995.
Revenues
Second quarter revenues increased 209% from $2,405,463 in 1995 to $7,422,060 in
1996. The increase in revenues was due primarily to an increase in sales from
both the Marie Osmond collectible doll line and the Annette Funicello
collectible bear line. Revenues from the Marie Osmond collectible doll line
increased from $1,806,582 in 1995 to $5,588,867 in 1996, or 209%. The increase
in Marie Osmond doll sales is primarily due to continued brand recognition of
the Marie Osmond name and the Company's strategy of marketing dolls personally
sculpted by Marie Osmond and dolls with other personal connections with the
celebrity. Revenues from the Annette Funicello bear line increased from
$230,588 in 1995 to $601,159 in 1996, or 161%. The "Guardian Angel" line of
Annette Funcello bears continues to grow with the majority of second first
quarter 1996 Annette Funicello bear sales coming from this series of bears.
The Company also recognized $1,285,272 in revenue from the sale of jewelry
through its acquisitions of Krasner Group, Inc. and Grant King International.
Revenues from the Ionizer decreased from $324,885 in 1995 to $123,100 in 1996.
Gross profit
Gross profit increased 197% from $1,189,434 in 1995 to $3,535,155 in 1996 due
primarily to the growth in revenues from the Marie Osmond collectible doll
program, Annette Funcello collectible bear program, and the addition of jewelry
programs. The Company has successfully attained improved pricing on porcelain
dolls to the point where gross profit margins can exceed 60% on certain dolls.
Gross profit also increased from direct response revenues where products are
sold at retail prices, as opposed to wholesale prices to the home shopping
industry. The overall gross profit percentage of the Company decreased from
49.4% in 1995 to 47.60% in 1996. The decrease in gross profit is primarily
attributable to sales of costume jewelry, which have a lower gross profit
percentage than the Company's collectible products.
10
<PAGE>
Selling, general and administrative expenses
Total selling, general and administrative expenses increased from $1,125,895 in
1995 to $2,263,274 in 1996. The percentage of sales represented by these
expenses decreased from 46.8% to 30.5%. The primary reason for the decrease as
a percentage of sales is the Company's focus on maintaining overhead to
manageable levels. The overall dollar amount of expenses increased primarily
due to the increase in commissions which increase in amount corresponding to
increases in revenues, and advertising and promotion increased due to extensive
travel involved in developing new programs and concepts as well as attending
trade shows. Remaining expenses in this category were in proportion to the
corresponding revenues between 1995 and 1996.
Other income (expense)
Other income (expense) decreased from $48,257 in 1995 to $(7,978) in 1996 as a
result of an increase in interest expense due to the line of credit outstanding
of Krasner Group, Inc., a wholly-owned subsidiary of the Company.
Net Income
As a result of the foregoing factors, net income increased 1,031% to $758,342
for the three month period ended June 30, 1996 from net income of $67,078 for
the three month period ended June 30, 1995.
THE FOLLOWING COMPARISONS ARE FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND JUNE
30, 1995.
Revenues
Revenues increased 143% from $4,350,905 in 1995 to $10,580,888 in 1996. The
increase in revenues was due primarily to an increase in sales from both the
Marie Osmond collectible doll line and the Annette Funicello collectible bear
line. The increase in Marie Osmond doll sales is primarily due to continued
brand recognition of the Marie Osmond name and the Company's strategy of
marketing dolls personally sculpted by Marie Osmond and dolls with other
personal connections with the celebrity. Revenues from the Annette Funicello
bear line increased from due to the continued popularity of the "Guardian
Angel" line. The Company also recognized $1,285,272 in revenue from the sale of
jewelry through its acquisitions of Krasner Group, Inc. and Grant King
International.
Gross profit
Gross profit increased 138% from $2,223,424 in 1995 to $5,288,838 in 1996 due
primarily to the growth in revenues from the Marie Osmond collectible doll
program, Annette Funcello collectible bear program, and the addition of jewelry
programs. Gross profit also increased from direct response revenues where
products are sold at retail prices, as opposed to wholesale prices to the home
shopping industry. The overall gross profit percentage of the Company decreased
slightly due to the lower gross profit associated with the costume jewelry
line. As a result of the foregoing, the overall gross profit percentage of the
Company decreased from 51.1% in 1995 to 50.0% in 1996.
Selling, general and administrative expenses
Total selling, general and administrative expenses increased from $1,817,173 in
1995 to $3,527,733 in 1996. The percentage of sales represented by these
expenses decreased from 41.8% to 33.3%. The primary reason for the decrease as
a percentage of sales is the Company's focus on managing its overhead. The
overall dollar amount of expenses increased primarily due to the increase in
commissions that increase in amount corresponding to increases in revenues and
advertising and promotion increased due to extensive travel involved in
developing new
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programs and concepts as well as attending trade shows. Remaining expenses in
this category were in proportion to the corresponding revenues between 1995 and
1996.
Other income (expense)
Other income (expense) decreased from $69,861 in 1995 to $36,487 in 1996 as a
result of an increase in interest expense due to a line of credit outstanding
with Krasner Group, Inc., the Company's wholly-owned subsidiary.
Net Income
As a result of the foregoing factors, net income increased 282% to $1,078,555
for the six month period ended June 30, 1996 from net income of $282,025 for the
six month period ended June 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow used in operations was $208,481 due to the increase in inventory and
other current assets associated with the acquisition of Krasner Group, Inc.
Cash used in operations also was impacted by the increased growth in sales
volume in both the Marie Osmond doll program and the Annette Funicello teddy
bear line, which caused accounts receivable to increase from December 31, 1995.
The Company's liquidity increased due to the influx of capital from the exercise
of stock options and warrants and due to the increase in profits experienced
during the first six months of 1996. The combination of the above factors
resulted in an overall increase in working capital from $7,847,207 at December
31, 1995 to $7,466,279 at June 30, 1996. The current ratio for the Company
decreased from 4.09 at December 31, 1995 to 1.95 at June 30, 1996. The decrease
in the Company's current ratio is primarily attributed to the assumption of
Krasner Group, Inc.'s line of credit of $1,645,205.
The Company currently has approximately 34,328 warrants remaining to be
exercised of the 2,050,000 originally issued. Additionally, the Company
currently has 307,500 warrants remaining to be exercised associated with the
overallotment of shares in connection with the intial public offering. The
infusion of cash from the initial public offering and the subsequent exercise of
the common stock warrants has improved the liquidity of the Company
considerably. Additionally, the Company has outstanding 1,321,250 options to
acquire common stock held by various celebrities, spokespersons, consultants,
and officers and directors of the Company exercisable at $.75 per share. The
Company expects to receive additional funds from the exercise of these shares.
The above exercise of warrants and options should contribute to the liquidity
and working capital of the Company.
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PART II. OTHER INFORMATION
---------------------------
Item 4 - Submission of Matters to a Vote of Securtity Holders.
On June 25, 1996, the Company held its Annual Meeting of Shareholders.
The meeting involved the election of Directors of the Company. Mr. Lowell W.
Paxon was newly elected to the Board, While Louis L. Knickerbocker, Anthony P.
Shutts, Farrah Fawcett, Gerald A. Margolis, and William R. Black were re-elected
to the Board.
A brief description of each matter voted on and number of votes cast is
as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1) Election of Directors: FOR WITHHOLD
Louis L. Knickerbocker 13,052,632 10,557
Anthony P. Shutts 13,052,632 10,557
Farrah Fawcett 13,050,737 12,452
Gerald A. Marolis 13,052,632 10,557
William R. Black 13,052,132 11,057
Lowell W. Paxson 13,052,632 10,557
</TABLE>
Item 6 - Exhibits and Reports of Form 8-K.
- ------
(b) Reports of Form 8-K
-------------------
A Form 8-K was filed in July of 1996 in connection with the Company's
acquisition of Krasner Group, Inc.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
THE L.L. KNICKERBOCKER CO., INC.
Date: August 12, 1996 By: /s/ ANTHONY P. SHUTTS
-------------------------
Anthony P. Shutts
Chief Financial Officer
Signing on behalf of the registrant and as
principal financial and accounting officer.
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