United States
Securities and Exchange Commission
WASHINGTON, D. C. 20549
FORM 10-QSB
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended October 31, 1996
OR
| | TRANSACTION REPORT PURSUANT TO 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number 0-28158
KIDEO PRODUCTIONS, INC.
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(Exact name of small business issuer as specified in its charter)
DELAWARE 13-3729350
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
611 Broadway, Suite 523, New York, New York 10012
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(Address of principal executive office) (zip Code)
212-505-6605 FAX 212-505-2142
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(Issuer's telephone number including area code)
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 December 10, 1996 2,939,014 shares of the issuer's common stock were
outstanding.
This report contains 9 pages.
<PAGE>
KIDEO PRODUCTIONS, INC.
FORM 10-QSB
INDEX
PART I. Financial Information: Page No.
Consolidated Balance Sheet - October 31, 1996
and July 31, 1996......................................... 3
Consolidated Statement of Operations - three months ended
October 31, 1996 and 1995................................. 4
Consolidated Statement of Cash Flows - three months ended
October 31, 1996 and 1995................................. 5
Notes to the Consolidated Financial Statements............. 6
Management's Discussion and Analysis or Plan of Operation.. 7
PART II. Other Information.......................................... 9
Signatures................................................. 9
Exhibit 11.1 .............................................. 10
2
<PAGE>
KIDEO PRODUCTIONS, INC.
CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
at October 31, at July 31,
1996 1996*
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents .................... $ 1,359,397 $ 2,857,097
Accounts receivable .......................... 246,858 94,572
Prepaid expenses ............................. 311,449 139,720
----------- -----------
Total current assets ..................... 1,917,704 3,091,389
Property and equipment, net .................... 748,307 558,034
Capitalized content costs ...................... 753,575 431,861
Other assets ................................... 318,182 286,427
----------- -----------
Total assets ............................. $ 3,737,768 $ 4,367,711
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable ............................. $ 203,628 $ 58,988
Accrued expenses ............................. 192,218 270,532
Capital leases, current portion .............. 173,862 147,173
Unearned revenue ............................. 521,058 225,131
----------- -----------
Total current liabilities ................ 1,090,766 701,824
Capital leases, long term portion .............. 74,733 80,318
----------- -----------
Total liabilities ........................ 1,165,499 782,142
----------- -----------
Shareholders' Equity
Common Stock, $.0001 par value;
authorized 15,000,000 shares,
issued and outstanding 2,939,014 shares
at July 31, 1996 and October 31, 1996 ...... 294 294
Additional paid-in capital ................... 8,737,136 8,737,136
Accumulated deficit .......................... (6,165,161) (5,151,861)
----------- -----------
Shareholders' (Deficiency) Equity ........ 2,572,269 3,585,569
----------- -----------
Total liabilities and shareholders' equity ..... $ 3,737,768 $ 4,367,711
=========== ===========
</TABLE>
* Derived from the Form 10-KSB
See accompanying notes.
3
<PAGE>
KIDEO PRODUCTIONS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three months ended
October 31, October 31,
1996 1995
----------- -----------
<S> <C> <C>
Sales ................................................................ $ 105,801 $ 126,871
Cost of sales ........................................................ 175,453 133,689
----------- -----------
Gross profit (loss) .................................................. (69,652) (6,818)
Selling expenses ..................................................... 444,372 200,746
General and administrative expenses .................................. 528,046 207,849
----------- -----------
Loss from operations ................................................. (1,042,070) (415,413)
Other income (expense), net .......................................... 28,770 (10,920)
Non recurring expenses related to debt extinguished in
connection with the Initial Public Offering ......................... (51,633)
----------- -----------
Net loss ............................................................. $(1,013,300) $ (477,966)
=========== ===========
Pro forma financial information
Net loss ........................................................... $ (477,966)
Pro forma adjustments for employment agreements .................... (64,000)
-----------
Pro forma net loss for the three months ended October 31, 1995 ..... $ (541,966)
===========
Net loss per share ................................................... $ (0.34)
===========
Pro forma net loss per share ......................................... $ (0.40)
===========
Weighted average number of shares outstanding ........................ 2,939,014
===========
Pro forma weighted average number of shares outstanding .............. 1,302,373
===========
</TABLE>
See accompanying notes
4
<PAGE>
KIDEO PRODUCTIONS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three months ended
October 31, October 31,
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ..................................................... $(1,013,300) $ (477,966)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization of operating assets .......... 98,138 100,478
Effect of changes in operating assets and liabilities:
Accounts receivable ..................................... (152,286) (263,257)
Prepaid expenses and other current assets ............... (171,729) 20,765
Other assets ............................................ (35,985) (9,183)
Accounts payable ........................................ 144,640 32,521
Accrued expenses ........................................ (78,314) (16,793)
Unearned revenue ........................................ 295,927 336,555
----------- ----------
Net cash used in operating activities ........................ (912,909) (276,880)
----------- ----------
Cash flows from investing activities:
Purchase of property and equipment ........................... (284,181) (54,048)
Increase in capitalized content costs ........................ (321,714) --
----------- ----------
Net cash used in investing activities ........................ (605,895) (54,048)
----------- ----------
Cash flows from financing activities:
Proceeds from bridge notes ................................... -- 300,000
Net proceeds from issuances of capital stock ................. -- 32,125
Proceeds from long term debt ................................. -- 32,125
Proceeds from lease financing ................................ 72,753 --
Repayment of loans payable - related parties ................. -- 200
Principal payments on capital leases ......................... (51,649) (23,079)
----------- ----------
Net cash provided by financing activities .................... 21,104 341,371
----------- ----------
Net increase in cash ........................................... (1,497,700) 10,443
Cash and cash equivalents at the beginning of the period ....... 2,857,097 61,137
----------- ----------
Cash and cash equivalents at the end of the period ............. $ 1,359,397 $ 71,580
=========== ==========
</TABLE>
See accompanying notes.
5
<PAGE>
KIDEO PRODUCTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The interim financial data is unaudited; however, in the opinion of
management, the interim data includes all adjustments, consisting of all normal
recurring adjustments necessary for a fair statement of results for the interim
periods. The financial statements included herein have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures included herein
are adequate to make the information presented not misleading. Operating results
for the three months ended October 31, 1996 are not necessarily indicative of
the results that may be expected for the year ended July 31, 1997.
The organization and the business of the Company, accounting policies
followed by the Company and other information are contained in the notes to the
Company's consolidated financial statements filed as part of the Company's
annual report for the year ended July 31, 1996 on Form 10-KSB. This quarterly
report should be read in conjunction with such annual report.
For comparability, certain July 31, 1996 amounts have been reclassified
where appropriate to conform to the financial statement presentation used at
October 31, 1996.
6
<PAGE>
KIDEO PRODUCTIONS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The information set forth in "Management's Discussion and Analysis or Plan
of Operation" below includes "forward-looking statements" within the meaning of
Section 21E of the Securities and Exchange Act of 1934, as amended, and is
subject to the safe harbor created by that section. Readers are cautioned not to
place undue reliance on these forward-looking statements as they speak only as
of the date hereof.
Results of Operations
The following discussion should be read in conjunction with the Company's
consolidated financial statements and notes thereto.
Sales
For the quarter ended October 31, 1996 approximately 4,100 personalized
videos were produced and recorded as sold as compared to 4,800 personalized
videos for the quarter ended October 31, 1995.
Sales income for the quarter ended October 31, 1996 was $105,800 resulting
in a decrease of $21,100 from $126,900 recorded for the quarter ended October
31, 1995. Retail and catalogue sales were down $12,000 and $32,600 respectively
for the quarter ended October 31, 1996 as compared to the quarter ended October
31, 1995. Direct sales increased 75%, or $23,600 from $31,500 in the three
months ended October 31, 1995 to $55,100 in three months ended October 31, 1996.
The increase in direct sales is due to several direct marketing initiatives in
print, direct mail and telemarketing as well as a higher level of consumer
awareness.
Cost of Sales
Cost of sales increased $41,800, from $133,700 for the three months ended
October 31, 1995 to $175,500 for the three months ended October 31, 1996. These
costs reflect increased fixed expenses of rent, depreciation on additional
equipment, the hiring of a manufacturing manager and additional expenditures
incurred in producing two new video titles.
Selling Expenses
Selling expenses increased $243,700, from $200,700 in the quarter ended
October 31, 1995 to $444,400 for the quarter ended October 31, 1996. Marketing
and promotional programs accounted for approximately $238,500 of the increase.
Payroll costs related to direct marketing and customer service increased as the
Company built its infrastructure. These cost increases were offset by decreases
in the costs of producing retail packaging and in commissions paid to third
party salespersons.
General and Administrative Expenses
General and administrative expenses increased $299,300, from $228,700 in
the quarter ended October 31, 1995 to $528,000 in the quarter ended October
31, 1996. The primary causes of this increase were in development expenses
related to enhancing the technology used to personalize videos, costs incurred
in connection with the Company's customer and production databases, increased
staffing and increased professional fees. The development and database expenses
are expected to be ongoing as the Company expands its video title offerings and
production volume.
For the quarter ended October 31, 1996 the Company had interest, dividend,
and miscellaneous income of $37,500, mostly related to its cash and cash
equivalent deposits.
7
<PAGE>
Liquidity and Capital Resources
The Company's working capital decreased $1,562,600 from $2,389,500 at July
31, 1996 to $826,900 at October 31, 1996. This resulted from a net operating
loss of $1,013,300 offset by $98,100 in non-cash charges for depreciation and
amortization and the use of $62,600 to build working capital exclusive of cash
and cash equivalents. An additional $605,900 was spent on the purchase of
property, equipment and capitalized content cost. Long term leases for capital
equipment loans, net of principal payments, generated an additional $21,100.
The Company's capital requirements in connection with its development of
new product, infrastructure and marketing activities have been and will continue
to be significant. The Company anticipates, based on its currently proposed
plans and assumptions relating to its operations (including assumptions
regarding the progress and timing of its new product development efforts), that
the Company's working capital, together with anticipated revenues from
operations and its current cash and cash equivalent balances, will be sufficient
to fund the Company's operations and capital requirements to July 31, 1997. In
the event the Company's plans change or its assumptions change or prove to be
inaccurate, however, the Company could be required to seek additional financing
sooner than currently anticipated. The Company has no current arrangements with
respect to, or potential sources of any additional financing, and it is not
anticipated that existing stockholders will provide any portion of the Company's
future financing requirements. Consequently, there can be no assurance that any
additional financing will be available to the Company when needed, on
commercially reasonable terms, or at all.
8
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material changes in the litigation reported in the
Company's annual report on Form 10-KSB for the year ended July 31, 1996
as filed.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
None.
Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Kideo Productions, Inc.
Date: December 10, 1996 By: \S\ Richard L. Bulman
------------------------------------
Richard L. Bulman
President & Chief Executive Officer
Date: December 10, 1996 By: \S\ Robert J. Riscica
------------------------------------
Robert J. Riscica
Vice President & Chief Financial Officer
9
KIDEO PRODUCTIONS, INC.
Statement of Computation of Loss Per Share
Exhibit 11.1
(In thousands, except per share amounts)
For the three months ended October 31, 1996:
Net Loss $ (1,013.3)
Weighted average shares outstanding during the period 2,939
----------
Net loss per share (($1013.3)/2,939) ............................ $ (0.34)
==========
For the three months ended October 31, 1995:
Net Loss $ (478)
Pro forma Adjustments:
Reduce net loss for interest on debt assumed
to be converted 25
Increase net loss for the effects of certain
officer contracts, if such contracts were in
effect as of the beginning of the period. (64)
----------
Pro forma net loss .............................................. $ (517)
==========
Shares oustanding at the beginning of the period 617
Shares issued during the period at less than the
IPO price, assumed outstanding for the entire period 93
$1 million Convertible Debentures, assumed converted,
as of the beginning of the period 280
Shares assumed issued from conversion of Preferred Stock 280
Shares assumed issued from exercise of warrants, net of
treasury stock assumed acquired from the proceeds 32
Pro forma shares outstanding, all as of the beginning ----------
of the period presented ........................................ 1,302
==========
----------
Pro forma net loss per share (($517)/1,302) ..................... $ (0.40)
==========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Kideo
Productions, Inc. and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> OCT-31-1996
<CASH> 1,359,397
<SECURITIES> 0
<RECEIVABLES> 246,858
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,917,704
<PP&E> 1,307,450
<DEPRECIATION> 559,143
<TOTAL-ASSETS> 3,737,768
<CURRENT-LIABILITIES> 1,090,766
<BONDS> 74,733
0
0
<COMMON> 294
<OTHER-SE> 2,571,975
<TOTAL-LIABILITY-AND-EQUITY> 3,737,768
<SALES> 105,801
<TOTAL-REVENUES> 143,302
<CGS> 175,453
<TOTAL-COSTS> 972,418
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,731
<INCOME-PRETAX> (1,013,300)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,013,300)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,013,300)
<EPS-PRIMARY> (0.34)
<EPS-DILUTED> (0.34)
</TABLE>
