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 April 30, 1997
|_| Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ________ to ________
Commission file number 0-26120
IMPRINT RECORDS, INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Tennessee 62-1587889
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(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 |_|
As of June 13, 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
APRIL 30, 1997
ASSETS
Current assets:
Cash and cash equivalents $ 171,335
Accounts receivable 167,974
Inventory, net of obsolescence reserve of $87,346 210,893
Other current assets 38,270
-----------
588,472
-----------
Fixed assets, net 354,045
-----------
Other assets 20,390
-----------
$ 962,907
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 624,638
-----------
Commitments and contingencies
Shareholders' equity:
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 (6,540,948)
-----------
338,269
-----------
$ 962,907
===========
See notes to financial statements.
2
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IMPRINT RECORDS, INC.
STATEMENTS OF OPERATIONS
Three months Three months
ended ended
April 30, 1997 April 30, 1996
-------------- --------------
Sales, net of returns and allowances $ 398,570 $ --
Cost of goods sold 230,524 --
----------- -----------
Gross profit 168,046 --
----------- -----------
Artist development and promotion 465,390 763,848
General and administrative expenses 410,640 570,706
----------- -----------
876,030 1,334,554
----------- -----------
Loss from operations (707,984) (1,334,554)
Interest income 2,566 61,717
----------- -----------
Net loss ($ 705,418) ($1,272,837)
=========== ===========
Net loss per common stock share ($ .15) ($ .27)
=========== ===========
Weighted average shares outstanding 4,738,000 4,738,000
=========== ===========
See notes to financial statements.
3
<PAGE>
IMPRINT RECORDS, INC.
STATEMENTS OF CASH FLOWS
Three months Three months
ended ended
April 30, 1997 April 30, 1996
-------------- --------------
Cash flows from operating activities:
Net loss ($ 705,418) ($1,272,837)
Adjustments to reconcile net loss
to net cash used in operating activities:
Amortization 24,757 22,685
Changes in assets and liabilities:
Accounts receivable (154,613) --
Inventory 191,430 --
Other current assets 22,251 56,888
Other assets -- 8,562
Accounts payable and accrued expenses 245,953 19,620
----------- -----------
Net cash used in operating activities (375,640) (1,165,082)
----------- -----------
Cash flows from investing activities:
Leasehold improvements -- (639)
Furniture and equipment -- (101,196)
Investments sold, commercial paper -- 999,733
----------- -----------
Net cash provided by investing activities -- 897,898
----------- -----------
Decrease in cash (375,640) (267,184)
Cash and cash equivalents, beginning 546,975 4,405,672
----------- -----------
Cash and cash equivalents, ending $ 171,335 $ 4,138,488
=========== ===========
See notes to financial statements.
4
<PAGE>
IMPRINT RECORDS, INC.
NOTES TO FINANCIAL STATEMENTS
1. The condensed financial statements at April 30, 1997 and for the three
month periods ending April 30, 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 Company's Form 10-KSB for the fiscal year ended January
31, 1997. The results of operations for the three months ended April 30,
1997 are not necessarily indicative of the results for the entire fiscal
year ending January 31, 1998.
2. Accounts payable and accrued expenses:
The components of accounts payable and accrued expenses as of April 30,
1997 are as follows:
Accounts payable $103,471
Accrued expenses 194,550
Accrued returns and allowance 326,617
--------
$624,638
========
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<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
The Company estimates that it currently has cash on hand and liquid
assets to meet its operating requirements for only the next sixty days.
The Company's revenues from operations were greater in the three
months ended April 30, 1997 than in the same period in the prior fiscal year, at
which time the Company had yet to realize any revenues from operations. Revenues
from operations increased over the prior period primarily due to increased sales
of the Company's artists' albums, particularly Jeff Wood's album, Between the
Earth and the Stars.
The Company has licensing agreements with various entities to
distribute the Company's artists' releases in Brazil, Canada and the United
Kingdom. The Company also has an agreement with the Columbia House Record Club
for Columbia House to market the Company's recordings through its direct mail
catalogs. Revenues derived from the international licensing agreements are
generally calculated at a flat rate per unit sold or as a percentage of retail
sales by the licensee, net of returns, and revenue therefrom is recognized by
the Company upon notification by the licensee to the Company of net retail sales
for a particular period. The Company anticipates receiving the first revenues
from these agreements, which the Company believes initially will be quite
modest, in the third quarter of the current fiscal year.
The Company records revenues from sales of its music recordings when
those recordings are shipped to retail music outlets. In accordance with
industry practice, the Company's albums are sold on a returnable basis. The
Company, as a development stage entity, had no historical basis upon which to
estimate its provision for future returns and allowances, and thus, prior to the
three month period ended April 30, 1997, estimated its returns and allowances
using actual sales data for its recordings taken from statistics compiled by
SoundScan, a market research company that compiles retail sales data for
recorded music. Now that the Company has had some revenues from operations in
each of the last three fiscal quarters, it has some history of returns upon
which to base its provision for returns and allowances. Based upon that history,
the Company uses, and the financial statements for the three month period ended
April 30, 1997 reflect, an estimated return rate of 35%.
A significant and recurring funding requirement the Company faces is
for artists' and repertoire expenses, which include recording costs, advances to
artists, and in some cases, certain promotional expenses. The Company makes
significant payments each period for recording costs and advances to artists in
the effort to preserve, and hopefully enhance, its artist roster. These costs
may be recouped from the royalties payable to the artist, assuming future album
sales of a magnitude sufficient to generate royalties.
Liquidity
The Company's cash and cash equivalents were $171,335 and $4,138,488
at April 30, 1997 and 1996, respectively. Net cash used in operating activities
was $375,640 for the three months ended April 30, 1997, compared to $1,165,082
for the three months ended April 30, 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. During the months of May and June, the
Company has received loans from each of Roy W. Wunsch, Chairman, Chief Executive
Officer and Secretary, and Bud Schaetzle, President and Treasurer of the Company
in the amount of
6
<PAGE>
$100,000. The Company estimates that it currently has cash on hand and liquid
assets to meet its operating requirements for only the next sixty days.
In order to improve the Company's liquidity, Roy W. Wunsch,
Chairman, Chief Executive Officer and Secretary of the Company, and Bud
Schaetzle, President and Treasurer of the Company, have agreed to temporarily
defer 100% of their salaries. Certain amounts with respect to certain medical
and other benefits continue to be paid by the Company on Messrs. Wunsch and
Schaetzle's behalf.
There was no financing or investing activity during the three months
ended April 30, 1997.
Capital Resources
Other than routine trade accounts payable and accrued expenses, the
Company had no outstanding debt at April 30, 1997.
The Company is pursuing outside sources of capital to finance its
business following the end of the 60 day period for which it currently has cash
on hand to finance operations. The Company has not secured additional capital at
this time and there can be no assurance that such capital will be secured or, if
available, will be available to the Company on commercially satisfactory terms.
In addition, the Company is focusing on its short-term liquidity and capital
requirements only at this time and any financing the Company is able to obtain
will most likely be sufficient to enable the Company to continue operations for
a few months at best; the longer-term capital required to grow the Company's
operations would be significant and is currently beyond the scope of management
to predict.
If the Company is unable to secure additional financing to address
its short-term liquidity requirements within the time frame outlined above, it
may have to suspend its operations until such financing can be arranged, or it
may have to cease operations altogether.
Results of Operations
Sales, net of returns and allowances, were $398,570 for the three
months ended April 30, 1997, as compared to zero ($0) for the three months ended
April 30, 1996, at which time the Company had not yet released any of its
artists' albums. During the three months ended April 30, 1997, the Company
recognized $11,245 in revenues from its international licensing agreements.
During this three month period, the Company released no new albums.
Returns and allowances were $214,615 for the three months ended
April 30, 1997, or 35% of gross sales. Gross profit was $168,046 for the same
period, or 27.4% of gross sales.
Artist development and promotion expenses were $465,390 for the
three months ended April 30, 1997, as compared to $763,848 for the three months
ended April 30, 1996, a decrease of $298,458 or 39.1%, due primarily to the fact
that more albums were in the production stage during the prior period. General
and administrative expenses totalled $410,640 for the three months ended April
30, 1997, as compared to $570,706 for the three months ended April 30, 1996, a
decrease of $160,066 or 28.0%, due primarily to constraints imposed by the
Company's liquidity position.
As a result of the factors described above, loss from operations was
$705,418 for the three months ended April 30, 1997, or $.15 per share, as
compared to $1,272,837 or $.27 per share, for the comparable period in 1996.
7
<PAGE>
Interest income for the three months ended April 30, 1997 was
$2,566, as compared to $61,717 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 factors include but are not limited to: the commercial success of
Imprint's new and existing artists, relationships with Imprint artists, and
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 industry.
8
<PAGE>
PART II
OTHER INFORMATION
ITEM 5 - OTHER INFORMATION
Because the Company's total assets had fallen below the required $2
million for continued listing, on May 21, 1997, the Company received a letter
from Nasdaq informing the Company that, unless it was able to demonstrate to
Nasdaq that it would soon be in compliance again as to its total assets, or
present a viable plan to achieve that goal, Nasdaq would be forced to delist the
Company's Common Stock. The Company has made a proposal to Nasdaq to return to
compliance. At the time of this report, the Company is awaiting Nasdaq's review
of that proposal.
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 has not filed any reports on Form 8-K.
9
<PAGE>
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: June 13, 1997 By: /s/ Roy W. Wunsch
-----------------------------
Roy W. Wunsch, Chairman
and Chief Executive Officer
DATE: June 13, 1997 By: /s/ Wayne Halper
-----------------------------
Wayne Halper, Chief Financial
Officer/Vice President -
Business Development
10
<PAGE>
EXHIBIT INDEX
Exhibit Page No.
- ------- --------
27 Financial Data Schedule
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from financial
statements of Imprint Records, Inc. as of April 30, 1997 and for the quarter
ended April 30, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> APR-30-1997
<CASH> 171
<SECURITIES> 0
<RECEIVABLES> 168
<ALLOWANCES> 0
<INVENTORY> 211
<CURRENT-ASSETS> 588
<PP&E> 476
<DEPRECIATION> 122
<TOTAL-ASSETS> 963
<CURRENT-LIABILITIES> 625
<BONDS> 0
0
0
<COMMON> 6302
<OTHER-SE> (5964)
<TOTAL-LIABILITY-AND-EQUITY> 963
<SALES> 399
<TOTAL-REVENUES> 399
<CGS> 231
<TOTAL-COSTS> 231
<OTHER-EXPENSES> 876
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (705)
<INCOME-TAX> 0
<INCOME-CONTINUING> (705)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (705)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
