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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
/X/ Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended July 31, 1997
/ / Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ________ to ________
Commission file number 0-26120
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IMPRINT RECORDS, INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
TENNESSEE 62-1587889
- -------------------------- ---------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
CUMMINS STATION, 209 10TH AVENUE SOUTH, SUITE 500, NASHVILLE, TN 37203
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(Address of Principal Executive Offices)
(615) 244-9585
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(Issuer's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
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
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As of September 12, 1997, the Company had outstanding 4,738,000 shares of
common stock, no par value.
Traditional Small Business Disclosure Format (check one):
Yes X No
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IMPRINT RECORDS, INC.
BALANCE SHEET
JULY 31, 1997
ASSETS
Current assets:
Cash and cash equivalents $ 15,219
Accounts receivable 587,160
Inventory, net of obsolescence reserve of $265,620 27,268
Other current assets 16,019
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645,666
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Fixed assets, net 330,794
Other assets 18,884
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$ 995,344
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LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable and accrued expenses $ 1,033,790
Note payable, bank 250,000
Loans payable, related parties 200,000
Deferred revenue 248,694
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Total current liabilities 1,732,484
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Commitments and contingencies
Shareholders' deficiency:
Common stock, no par value;
authorized, 9,000,000 shares;
issued and outstanding, 4,738,000 shares 6,301,792
Additional paid-in capital 577,425
Deficit (7,616,357)
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( 737,140)
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$ 995,344
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See notes to financial statements. 2
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IMPRINT RECORDS, INC.
STATEMENTS OF OPERATIONS
Three Three Six Six
months ended months ended months ended months ended
July 31, 1997 July 31, 1996 July 31, 1997 July 31, 1996
------------- ------------- ------------- -------------
Record sales,
net of returns
and allowances $ 26,767 $ - $ 425,337 $ -
Production
revenue 18,806 - 18,806 -
----------- ----------- ----------- -----------
45,573 - 444,143 -
Cost of sales
and production
revenue 182,703 - 413,227 -
----------- ----------- ----------- -----------
Gross profit
(loss) (137,130) - 30,916 -
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Artist
development
and promotion 472,826 848,465 938,216 1,612,313
General and
administrative
expenses 458,531 500,072 869,171 1,070,778
----------- ----------- ----------- -----------
931,357 1,348,537 1,807,387 2,683,091
----------- ----------- ----------- -----------
Loss from
operations (1,068,487) (1,348,537) (1,776,471) (2,683,091)
----------- ----------- ----------- -----------
Interest expense (7,312) - (7,312) -
Interest income 390 41,603 2,956 103,320
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(6,922) 41,603 (4,356) 103,320
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Net loss ($1,075,409) ($1,306,934) ($1,780,827) ($2,579,771)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net loss per
common stock
share ($.23) ($.28) ($.38) ($.54)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average
shares
outstanding 4,738,000 4,738,000 4,738,000 4,738,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
See notes to financial statements. 3
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IMPRINT RECORDS, INC.
STATEMENTS OF CASH FLOWS
Six months Six months
ended ended
July 31, 1997 July 31, 1996
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Cash flows from operating activities:
Net loss ($1,780,827) ($ 2,579,771)
Adjustments to reconcile net loss
to net cash used in operating activities:
Amortization and depreciation 49,514 47,067
Inventory reserve 229,586 -
Changes in assets and liabilities:
Accounts receivable, net (137,006) -
Inventory 145,469 (165,126)
Other current assets 44,502 67,797
Other assets - 40,291
Accounts payable and accrued expenses 218,312 (76,834)
Deferred revenue 248,694 -
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Net cash used in operating activities (981,756) (2,666,576)
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Cash flows from investing activities:
Leasehold improvements - (639)
Furniture and equipment - (101,197)
Investments purchased, commercial paper - -
Investments sold, commercial paper - 999,733
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Cash provided by investing activities - 897,897
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Cash flows from financing activities:
Proceeds of note payable 250,000 -
Proceeds of loans payable 200,000 -
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Net cash provided by financing activities 450,000 -
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Decrease in cash 531,756 1,768,679
Cash and cash equivalents, beginning 546,975 4,405,672
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Cash and cash equivalents, ending $ 15,219 $ 2,636,993
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Supplemental disclosures:
Taxes paid $ 2,595 $ 14,595
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Interest paid $ 0 $ 0
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See notes to financial statements. 4
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IMPRINT RECORDS, INC.
NOTES TO FINANCIAL STATEMENTS
1. The condensed financial statements at July 31, 1997 and for the three and
six month periods ending July 31, 1997 and 1996 are unaudited and reflect
all adjustments (consisting only of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair presentation of the
financial position and operating results for the interim periods. The
condensed financial statements should be read in conjunction with the
financial statements and notes thereto, together with management's
discussion and analysis of financial condition and results of operations,
contained in the Imprint Records, Inc.'s ("Company") Form 10-KSB for the
fiscal year ended January 31, 1997. The results of operations for the
three and six months ended July 31, 1997 are not necessarily indicative of
the results for the entire fiscal year ending January 31, 1998.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company, a Tennessee corporation, was engaged in the music recording
and production business. The Company developed new and emerging Country
music artists targeted for the Country music market. During July 1997, the
Company suspended its Country music recording operations.
During July 1997, the Company launched Imprint Entertainment as a new
division to engage in the production and distribution of television, film
and multimedia projects.
REVENUE RECOGNITION:
Sales of records are recognized upon transfer of title, which coincides
with shipment of products to retail outlets and other trade channels. A
provision for expected returns is recorded at the time a sale is
recognized. Revenue from production and distribution projects is
recognized on a percentage of completion method for each production and
distribution project.
2. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable $ 209,883
Accrued expenses 379,801
Accrued returns and allowance 436,793
Accrued interest expense 7,313
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$1,033,790
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3. NOTE PAYABLE, BANK:
The note payable, bank is due on June 16, 1998 and bears interest at the
prime rate (8.5% at July 31, 1997). Two officers/directors/shareholders of
the Company have guaranteed the note.
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IMPRINT RECORDS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
4. LOANS PAYABLE: RELATED PARTIES
Two officers/directors/shareholders loaned the Company $100,000 each. The
loans bear interest at prime plus 1% and are payable on demand.
5. DEFERRED REVENUE:
Deferred revenue relates to one production project:
Costs incurred $ 15,874
Estimated earnings 2,932
--------
18,806
Less billing to date 267,500
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Deferred revenue $248,694
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Imprint Records, Inc. (the "Company") was formed and operated until
July 1997 as a Country music recording company. At the beginning of July the
Company launched Imprint Entertainment as a new division to engage in the
production and distribution of television, film and multimedia projects. At
that time the Company suspended its Country music recording operations.
CORPORATE OPERATIONS
The Company is currently staffed by Roy Wunsch, Chief Executive
Officer, Bud Schaetzle, President and five additional people; three production
associates, a bookkeeper and an administrative assistant.
In connection with the suspension of its music recording operations
the Company laid off eight executives in July 1997. Two other executives
resigned from the Company in August 1997. As a result of staff reductions,
the Company has significantly reduced operational expenses in the music
recording business.
PRODUCTION OPERATIONS
Over the next twelve months the Company intends to seek contracts
and engagements to produce television series, specials, films and other media
and multimedia video productions. In July and August, the Company began the
process of identifying, developing and marketing projects to the TV and film
industry.
TELEVISION
In July 1997 the Company signed its first production contract and
received its first production moneys for Kathie Lee Gifford's "We Need A Little
Christmas", which is scheduled to air in prime time on the CBS television
network on December 12, 1997 at 10pm EST. The one-hour special will be "live"
from the Beaver Creek Center for the Performing Arts near Vail, Colorado, and
will feature a multi-star cast of performers.
The Company is currently in negotiations for three other production
agreements to produce television specials. In addition, the Company is in
preliminary discussions with various television and cable networks to develop
and produce other television specials and other forms of television
programming. No assurances can be given that the Company will reach
agreement to produce the television specials in negotiation or that the
projects will succeed, or that the Company will be selected to produce the
other television projects currently in preliminary discussion.
FILM
The Company feels it may be possible to enter into movie production
during 1998. The following activities have been undertaken in this regard.
The Company has acquired exclusive rights to produce, in partnership
with a noted animator, a multi-million dollar animated feature film. The
Company is working with representatives at the William Morris Agency in Beverly
Hills to cast actors as voice talent, and discussions have begun with a number
of theatrical distributors who have exhibited interest in releasing the film.
If this project moves forward on schedule, it may be produced in 1998 and
released in the first or second quarter of 1999. The Company may also produce a
soundtrack album to accompany the film if the
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film is produced.
The Company has identified several literary properties for development
as movies. The Company is currently in negotiations to acquire the exclusive
rights to two books, and the life story of a public figure, for possible
adaptation as films. The William Morris Agency is also exploring the
acquisition of rights for the Company to remake a film from the 1950's.
Production partnerships with several existing producers and directors are being
considered. The Company is also reviewing a number of existing screenplays and
film concepts for possible production.
There is no assurance that the Company will be successful in securing
the acting and distribution agreements necessary to produce any films or that it
will be able to secure the financing necessary for such productions.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $15,219 and $2,636,993 at
July 31, 1997 and 1996, respectively. Net cash used in operating activities was
$981,756 for the six months ended July 31, 1997, compared to $2,666,576 for the
six months ended July 31, 1996. The decrease in cash used in operating
activities was due mostly to an increase (from zero) in accounts receivable, and
a narrower loss from operations, due mostly to spending constraints imposed by
the Company's liquidity shortage and the fact that the Company incurred no
artist or production costs for new albums during the period.
The Company currently does not have adequate cash to continue
operating for an extended period of time. On May 15, the Company received a
loan from Stanley O. Schaetzle, President and Treasurer of the Company in the
total amount of $100,000. In August 1997 the Company repaid $35,000 against the
total loan amount of $100,000. On May 30, the Company received a loan from Roy
W. Wunsch, Chairman, Chief Executive Officer and Secretary in the total amount
of $100,000. Additionally, on June 16, 1997 NationsBank of Tennessee, N.A. (the
"Bank") extended a $250,000 revolving line of credit to the Company. The rate
of interest on the line of credit is the prime rate established by the Bank from
time to time and is payable quarterly. All of the outstanding principal under
the line of credit is payable in full on June 16, 1998. Messrs. Wunsch and
Schaetzle have unconditionally guaranteed payment of the line of credit.
The Company is currently operating and anticipates continuing to
finance its operations during the next twelve months from revenues received from
existing and anticipated production agreements and arrangements. The Company is
currently receiving revenue from its first production agreement (see "Production
Operations -- Television"). In order to improve the Company's liquidity, Roy
W. Wunsch, Chairman, Chief Executive Officer and Secretary of the Company, and
Stanley O. Schaetzle, President and Treasurer of the Company, have continued to
temporarily defer 100% of their salaries. Certain amounts with respect to
medical and other benefits continue to be paid by the Company on Messrs. Wunsch
and Schaetzle's behalf.
COMPARISON OF SIX MONTHS ENDING JULY 31, 1997 AND 1996
Record sales, net of returns and allowances, were $425,337 for the six
months ended July 31, 1997, as compared to zero ($0) for the six months ended
July 31, 1996, at which time the Company had not yet released any of its
artists' albums. During this six month period, the Company released 1 album.
Revenue associated with the new division, Imprint Entertainment, was
$18,806 for the six months ending July 31, 1997 under a percentage of completion
method of recognizing revenue as compared to zero ($0) for the six months ended
July 31, 1996 at which time the Company did not have a production division.
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Artist development and promotion expenses were $938,216 for the six
months ended July 31, 1997, as compared to $1,612,313 for the six months ended
July 31, 1996, a decrease of $674,097 or 42%, due primarily to the fact that
more albums were in the production stage during the prior period. General and
administrative expenses totalled $869,171 for the six months ended July 31,
1997, as compared to $1,070,778 for the six months ended July 31, 1996, a
decrease of $201,607 or 19%, due primarily to constraints imposed by the
Company's liquidity position, salary cuts taken by senior officers and the
beginning of the suspension of the Company's music record recording business.
Interest income for the six months ended July 31, 1997 was $2,956, as
compared to $103,320 for the comparable period in the prior year. The greater
interest income for the prior fiscal period is largely attributable to the
earnings on the investment of the net proceeds remaining on hand from the
Company's initial public offering.
COMPARISON OF THREE MONTHS ENDING JULY 31, 1997 AND 1996
Record sales, net of returns and allowances, were $26,767 for the
three months ended July 31, 1997, as compared to zero ($0) for the three months
ended July 31, 1996, at which time the Company had not yet released any of its
artists' albums. During this three month period, the Company released no new
albums.
Revenue associated with the new division, Imprint Entertainment, was
$18,806 for the three months ending July 31, 1997 under a percentage of
completion method of recognizing revenue as compared to zero ($0) for the three
months ended July 31, 1996 at which time the Company did not have a production
division.
Artist development and promotion expenses were $472,826 for the three
months ended July 31, 1997, as compared to $848,465 for the three months ended
July 31, 1996, a decrease of $375,639 or 44%, due primarily to the fact that
more albums were in the production stage during the prior period. General and
administrative expenses totalled $458,531 for the three months ended July 31,
1997, as compared to $500,072 for the three months ended July 31, 1996, a
decrease of $41,541 or 8%, due primarily to constraints imposed by the Company's
liquidity position, salary cuts taken by senior officers and the beginning of
the suspension of the Company's music record recording business.
As a result of the factors described above, the net loss was
$1,075,409 for the three months ended July 31, 1997, or $.23 per share, as
compared to $1,306,934 or $.28 per share, for the comparable period in 1996.
Interest income for the three months ended July 31, 1997 was $390, as
compared to $41,603 for the comparable period in the prior year. The greater
interest income for the prior fiscal period is largely attributable to the
earnings on the investment of the net proceeds remaining on hand from the
Company's initial public offering.
SAFE HARBOR PROVISION REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report contains so-called forward-looking statements
(within the meaning of the Private Securities Litigation Reform Act of 1995),
the occurrence or non-occurrence of which entail substantial risks and
uncertainties. When used herein, the words "anticipate," "intend," "plan,"
"believe," "hope," "estimate" and "expect," and any similar words or phrases as
they relate to the Company or its operations, are intended to identify such
forward-looking statements. Several significant variables could cause the
Company's actual results, performance or achievement for fiscal 1998 and beyond
to deviate materially from those set forth in such forward-looking statements.
These
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factors include but are not limited to: the commercial success of Imprint's
new television, film and multimedia production and distribution division,
relationships with film, television and music distributors, producers and
other industry professionals, attraction and retention of key personnel,
general economic and business conditions, and new competitors and increased
competition from existing competitors in the recorded music and entertainment
production and distribution industries.
10
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PART II
OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company's Annual Meeting of Stockholders took place on June
10, 1997 at the Company's offices in Nashville, Tennessee.
(b) The stockholders of the Company elected the following four
individuals as Directors of the Company, which four individuals
constitute the entire Board of Directors of the Company:
Roy W. Wunsch
Stanley O. Schaetzle, Jr.
Frank M. Bumstead
Charles M. Flood, Jr.
(c) The stockholders of the Company took action on two proposals at
the Annual Meeting, including the election of Directors. The
vote tabulation for each was as follows:
1. ELECTION OF DIRECTORS
FOR WITHHELD
------- --------
Roy W. Wunsch 4,219,633 67,260
Stanley O. Schaetzle, Jr. 4,222,513 64,380
Frank M. Bumstead 4,221,313 64,880
Charles M. Flood, Jr. 4,222,313 64,580
2. SELECTION OF DRUCKER, MATH & WHITMAN, P.C., AS COMPANY'S
AUDITORS FOR FISCAL YEAR ENDING JANUARY 31, 1998
For: 4,253,293
Against: 7,900
Abstain: 25,700
ITEM 5 - OTHER INFORMATION
The Company was delisted by NASDAQ after falling below the $2,000,000
minimum asset requirement in July 1997. The Company now trades on the OTC
Bulletin Board.
On or about May 27, 1997, the Company's Redeemable Warrants were
delisted by Nasdaq for lack of a second market maker for the warrants.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT INDEX
27 Financial Data Schedule
(b) The Company filed Form 8-K on July 30, 1997 reporting on Item 5.
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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.
IMPRINT RECORDS, INC.
DATE: September 12, 1997 By: /s/ Roy W. Wunsch
-----------------------------------
Roy W. Wunsch, Chairman
and Chief Executive Officer
DATE: September 12, 1997 By: /s/ Stanley O. Schaetzle, Jr.
-----------------------------------
Stanley O. Schaetzle, Jr.
President
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EXHIBIT INDEX
EXHIBIT PAGE NO.
27 Financial Data Schedule
13
<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND>
Financial Statements of Imprint Records, Inc. as of July 31, 1997 and for the
three months ending July 31, 1997.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> MAY-01-1997
<PERIOD-END> JUL-31-1997
<CASH> 15
<SECURITIES> 0
<RECEIVABLES> 587
<ALLOWANCES> 0
<INVENTORY> 27
<CURRENT-ASSETS> 16
<PP&E> 476
<DEPRECIATION> 145
<TOTAL-ASSETS> 995
<CURRENT-LIABILITIES> 1,732
<BONDS> 0
0
0
<COMMON> 6,302
<OTHER-SE> (7,039)
<TOTAL-LIABILITY-AND-EQUITY> 995
<SALES> 46
<TOTAL-REVENUES> 46
<CGS> 183
<TOTAL-COSTS> 183
<OTHER-EXPENSES> 931
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> (1,075)
<INCOME-TAX> 0
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<NET-INCOME> (1,075)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> (.23)
</TABLE>
