SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 29, 1996
Commission file number 1-13656
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OMNI MULTIMEDIA GROUP, INC.
(Exact name of small business issuer as specified in its charter)
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Delaware 04-2729490
(State of Organization) (I.R.S. Employer
Identification Number)
50 Howe Avenue
Millbury, Massachusetts 01527
(508) 865-4451
(Address, including zip code, and telephone number,
including area code, of issuer's principal executive offices)
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and 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
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Number of Shares Outstanding
as of August 1, 1996
Common Stock, $.01 par value 3,889,950 shares
Series A Preferred Stock, $.01 par value 1,050 shares
OMNI MULTIMEDIA GROUP, INC.
INDEX
PART I. FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS PAGE
Condensed Consolidated Balance Sheet -
as of March 30, 1996 (Audited) and June 29, 1996 (Unaudited)................ 1
Condensed Consolidated Statements of Operations (Unaudited)
for the three months ended July 1, 1995 and June 29, 1996................... 3
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the three months ended July 1, 1995 and June 29, 1996................... 4
Notes to Condensed Consolidated Financial Statements.......................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................ 7
PART II. OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS................................................... 9
ITEM 2. CHANGES IN SECURITIES............................................... 9
ITEM 3. DEFAULTS UPON SENIOR SECURITIES..................................... 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS................. 9
ITEM 5. OTHER INFORMATION................................................... 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................... 9
SIGNATURES....................................................................10
OMNI MULTIMEDIA GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
June 29, March 30,
1996 1996
(Unaudited) (Audited)
----------- ---------
<S> <C> <C>
Current Assets
Cash and cash equivalents $11,448,781 $ 5,706,822
Accounts receivable, net of
allowance for doubtful accounts
of $40,000 at June 29, 1996 and $25,000
at March 30, 1996 $ 1,267,000 1,306,212
Stock Subscription -- 1,790,374
Inventories 879,306 966,665
Prepaid expenses and other
current assets 784,003 812,103
Refundable income taxes 15,850 --
Deferred tax assets, net 101,844 101,844
------------- --------------
14,496,784 10,684,020
Property and equipment, net 16,033,080 8,427,275
Due from related parties 540,117 532,761
Other assets, net 1,009,337 954,230
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$32,079,318 $20,598,286
============= ==============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
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OMNI MULTIMEDIA GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
June 29, March 30,
1996 1996
(Unaudited) (Audited)
----------- ---------
<S> <C> <C>
Current liabilities
Accounts payable 1,306,775 1,775,225
Line of credit 613,253 1,068,967
Current portion of long-term debt
and capital lease obligations 1,832,000 1,025,600
Accrued expenses 290,177 332,561
Income taxes payable -- 109,063
-------------- --------------
4,042,205 4,392,416
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Long-term debt 3,125,469 2,207,479
Capital lease obligations 5,147,414 1,760,919
Deferred tax liability 141,761 141,761
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Stockholders' Equity
Convertible Preferred Stock; $.01 par value;
1,000,000 shares authorized; 1,050 Series
A shares issued and outstanding 11 --
Common Stock, $.01 par value; 14,000,000
shares authorized; 3,889,950 shares issued
and outstanding 38,899 38,899
Additional paid-in-capital 21,017,626 11,635,675
Retained earnings (accumulated deficit) (1,398,867) 421,137
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19,657,669 12,095,711
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$32,079,318 $20,598,286
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
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OMNI MULTIMEDIA GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 29, July 1,
1996 1995
--------------- -------------
<S> <C> <C>
Net sales
Cost of goods sold $ 2,432,189 $ 2,261,658
Gross profit (loss) 2,911,317 1,759,091
--------------- -------------
(479,128) 502,567
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Operating expenses
Selling 640,860 340,882
General and administrative 679,605 402,004
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1,320,465 742,886
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Loss from operations (1,799,593) (240,319)
Other income 96,143 20,760
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(1,703,450) (219,559)
Other expenses, net
Interest expense 82,130 46,633
Other expenses, net 34,424 1,505
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116,554 48,138
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Loss before income taxes (1,820,004) (267,697)
Income tax benefit -- 456
--------------- -------------
Net loss $(1,820,004) $ (268,153)
=============== ==============
Net loss per share $ (0.47) $ (0.11)
Weighted average common shares outstanding 3,889,950 2,498,500
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
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OMNI MULTIMEDIA GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 29, July 1,
1996 1995
--------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,820,604) $ (268,153)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 413,320 94,724
Provision for losses on accounts receivable 15,000 --
Gain on disposal of fixed asset (590) --
Decrease in accounts receivable 24,212 179,148
(Increase) decrease in inventories 87,359 (734,864)
Decrease in prepaid expenses
and other current assets 28,100 197,166
Increase in refundable income taxes (15,850) --
Increase in other assets (71,663) (750,401)
Increase (decrease) in accounts payable (468,450) 103,711
Decrease in accrued expenses (42,384) (77,578)
Decrease in income taxes payable (190,063) --
-------------- -------------
Net cash used in operating activities (2,041,023) (1,256,247)
-------------- -------------
Cash flows from investing activities:
Expenditures for property and equipment (3,806,076) (241,949)
Proceeds from sale of fixed assets 18,100 --
-------------- -------------
Net cash used in investing activities (3,787,976) (241,949)
-------------- -------------
Cash flows from financing activities:
Repayments on long-term borrowing and capital
lease obligations (211,958) (52,264)
Repayments on notes payable - redeemable
Common Stock -- (346,000)
Repayments on notes payable - redeemable
Preferred Stock -- (298,000)
Repayment on Interim Financing -- (325,000)
Proceeds from long term borrowing 1,094,500 --
Repayments on revolving line of credit, net (455,714) (1,176,544)
Decrease in subscription receivable 1,790,374 --
Proceeds from issuance of Convertible Preferred Stock 9,381,962 --
-4-
Proceeds from issuance of Common Stock -- 4,072,496
Increase in due from related parties (7,356) (12,312)
Increase in debt issue costs (20,850) --
------------ -------------
Net cash provided by financing activities 11,570,958 1,862,376
------------ -------------
Increase in cash and cash equivalents 5,741,959 364,180
Cash and cash equivalents, beginning of period 5,706,822 266,674
------------ -------------
Cash and cash equivalents, end of period $11,448,781 $ 630,854
=========== ==========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
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OMNI MULTIMEDIA GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of OMNI MultiMedia Group, Inc. (the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete consolidated financial
statements.
In the opinion of management, all adjustments (consisting solely of
normal recurring adjustments) considered necessary for a fair statement of the
interim financial data have been included. Results from operations for the three
month period ended June 29, 1996 are not necessarily indicative of the results
that may be expected for the fiscal year ending March 29, 1997.
For further information, refer to the consolidated financial statements
and the footnotes thereto for the year ended March 30, 1996, contained in the
Company's Annual Report on Form 10- KSB as amended.
Net income (loss) per share is computed based upon the weighted average
number of common and dilutive common equivalent shares outstanding during the
period.
NOTE 2. SIGNIFICANT EVENT
In May 1996, the Company completed a Private Placement (the "Private
Placement"), which raised approximately $9,400,000 in net proceeds through the
sale of 1,050 shares of Series A Preferred Stock. The Private Placement was
completed to provide the Company with additional equity financing for possible
acquisitions and to provide additional net worth to reduce the current cost of
bank and equipment lease financings, as well as for general working capital
purposes.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The Company provides a wide range of software duplication and
fulfillment services for major software producing firms serving the general
computer user and users within the specific fields of financial services and
insurance services. The software duplication and fulfillment services of the
Company include inbound telemarketing, packaging, printing, direct shipment and
a wide array of software duplication services for clients. In addition, the
Company has recently developed an extensive online multimedia catalog featuring
popular software and CD-ROM titles, as well as related hardware peripherals, and
has introduced this catalog on the Internet.
GENERAL
The following discussion and analysis should be read in conjunction
with the Condensed Consolidated Financial Statements of the Company (including
the Notes thereto) included under Item 1 of this report.
RESULTS OF OPERATIONS
Three Months Ended June 29, 1996 ("First Quarter 1997") Compared to
Three Months Ended July 1, 1995 ("First Quarter 1996")
Net sales increased to $2,432,189 for First Quarter 1997, an increase
of 7.5% over net sales of $2,261,658 in First Quarter 1996. During First Quarter
1997, the Company concentrated its efforts in completing its CD-ROM
manufacturing facility and in hiring sales staff and manufacturing personnel to
run this new manufacturing operation. As a result, the Company deferred
accepting orders until the new facility was fully operational, which occurred at
the very end of the fiscal quarter. Virtually all of the Company's net sales
during First Quarter 1997 were from software duplication and related printing
activities. Now fully operational with several CD-ROM manufacturing lines
running, the Company expects revenues from its CD-ROM manufacturing operations
to significantly increase during the current quarter and expects continued
increased production from the facility over time. Management estimates that this
facility as currently configured can produce approximately $35 to $40 million in
annual revenues from the manufacture of CD-ROM titles. In addition, the facility
has room for additional capacity and management expects to add additional
capacity over time on an as-needed basis.
In addition, during First Quarter 1997, the Company's 4CD's electronic
catalog appeared on the Internet on a trial basis. Advertising on the Internet
for 4CD's has recently commenced and the Company expects increased revenues from
4CD's to appear in the current quarter.
During First Quarter 1997, cost of goods sold was $2,911,317, an
increase of 65.5% over cost of goods sold of $1,759,091 during First Quarter
1996. This increase in cost of goods sold was due primarily to staffing of the
CD-ROM manufacturing operations and depreciation expense on CD-ROM equipment. At
the end of First Quarter 1997, the Company employed 179 people, of which 150
were in manufacturing and related operations. In contrast, at the end of First
Quarter 1996, the Company employed only 125 people, of which 101 were in
manufacturing operations. Due to the complex nature of the Company's CD-ROM
operations, employees must be extensively trained and the manufacturing
equipment certified. This increase in staffing, together with the deferral of
customer orders, resulted in gross margins of ($479,128) during First Quarter
1997 compared to a gross margin of $502,567 in First Quarter 1996.
Selling expenses in First Quarter 1997 were $640,860, an 88% increase
over operating expenses of $340,882 in First Quarter 1996. This increase was due
to increased advertising activities, as well as increased sales staffing in
anticipation of full CD-ROM production and increased staffing for the 4CD's
electronic catalog.
General and administrative expenses were $679,605 in First Quarter
1997, an increase of 69.1% over general and administrative expenses of $402,004.
This increase was due primarily to increases in administrative staffing,
principally MIS, as well as increased travel, consulting, public relations and
professional fees.
As a result of increases in manufacturing operations, and increased
sales, general and administrative expenses, the Company incurred a loss from
operations of $1,799,593 in First Quarter
-7-
1997, as contrasted to a loss from operations of $240,319 in First Quarter 1996.
Other income, primarily interest income from the proceeds of the
Company's public warrants exercised at the end of Fiscal 1996 and interest
income from the Private Placement completed on May 28, 1996, resulted in other
income of $96,143 in First Quarter 1997, as contrasted to other income of
$20,760 in First Quarter 1996. Interest expense for First Quarter 1997 was
$82,130, from $46,633 in First Quarter 1996 due to an increased level of debt
and capital lease obligations. Other expense, primarily key person life
insurance expense, was $34,434 in First Quarter 1997 as compared to $1,505 in
First Quarter 1996, reflecting an increased level of insurance coverage.
As a result of the factors described above, the Company incurred a net
loss of $1,820,004 in First Quarter 1997 as compared to a net loss of $268,153
in First Quarter 1996. This translates to a net loss of $.47 per share in First
Quarter 1997 as contrasted to a net loss of $.11 per share in First Quarter
1996. During First Quarter 1997, there were 3,889,950 common shares outstanding
on a weighted average basis, as contrasted to 2,498,500 shares issued and
outstanding on a weighted average basis for First Quarter 1996.
LIQUIDITY AND CAPITAL RESOURCES
During First Quarter 1997, the Company completed the sale of 1,050
shares of its Series A Preferred Stock, resulting in net proceeds to the Company
of approximately $9,400,000. As a result of the Private Placement, stockholders'
equity, offset by a net loss of approximately $1,800,000, increased to
$19,657,669 from $12,095,711 at March 30, 1996.
During First Quarter 1997, property and equipment increased to
$16,033,080 from $8,437,275 due to the increases related to the CD-ROM facility,
which includes equipment financed under capital lease obligations of
approximately $3,500,000. Additional proceeds from the exercise of the Company's
public warrants were used to increase cash to $11,448,781 from $5,706,822 at
March 30, 1996. As a result, the Company's current ratio increased to 3.59:1
from 2.43:1 at March 30, 1996.
Subsequent to the end of First Quarter 1997, the Company announced it
had entered into letters of intent to acquire software replication and CD-ROM
manufacturing facilities in California and Minnesota. Management expects to
issue a combination of cash and stock to acquire these assets. Completion of
both acquisitions is anticipated over the next 60 days. In addition, the Company
also recently announced a stock repurchase plan whereby the Company may
repurchase up to $3,000,000 of its common stock in open market transactions.
Management anticipates that its current cash position, together with
cash generated from anticipated results of operations and credit and equipment
lease facilities will be adequate for at least the next 12 months. The Company
routinely explores acquisitions and, although not currently anticipated, the
Company may seek additional capital to finance future acquisitions or strategic
partnerships.
-8-
PART II. OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS.
[Not applicable.]
ITEM 2. CHANGES IN SECURITIES.
[Not applicable.]
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
[Not applicable.]
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
No matters have been submitted to a vote of security-holders during the
period covered by this report.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit 11. Statement regarding computation of per share
earnings.
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the period
covered by this report.
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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.
OMNI MULTIMEDIA GROUP, INC.
Date: August 12, 1996 By: /s/ Paul F. Johnson
------------------------------
Paul F. Johnson, President and
Chief Executive Officer
Date: August 12, 1996 By: /s/ Robert E. Lee
-----------------------------
Robert E. Lee, Treasurer and
Chief Financial Officer
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Exhibit 11
OMNI MULTIMEDIA GROUP, INC.
COMPUTATION OF NET LOSS PER SHARE
Three Months Ended
---------------------------
June 29, July 1,
1996 1995
-------------- ----------
Net loss $(1,820,004) $ (268,153)
============ ===========
Primary weighted common shares outstanding:
Common Stock 3,889,950 2,498,500
Stock options1 - -
Stock warrants1 - -
------------ -----------
Weighted average shares 3,889,950 2,498,500
============ ===========
Net loss per share ($0.47) ($0.11)
============ ===========
_____________
(1) Inclusion of stock options and warrants in the weighted average share
calculation would have an anti-dilutive effect on the calculation for
the three months ended July 1, 1995 and June 29, 1996, and has
therefore been excluded.
