SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended: April 30, 2000
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _______________________ to ______________________
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
------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
611 Broadway, Suite 523, New York, New York
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(Address of Principal Executive Offices)
212-505-6605
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(Registrant's Telephone Number, Including Area Code)
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(Former Name, Address and Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant: (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 19, 2000 4,318,322 shares of the issuer's common stock were
oustanding.
<PAGE>
KIDEO PRODUCTIONS, INC.
CONSOLIDATED BALANCE SHEET
(unaudited)
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
at April 30, at July 31,
2000 1999*
---------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents (including restricted cash of $75,000
at April 30, 2000 and July 31, 1999) ........................... $ 83 $ 86
Accounts receivable trade ...................................... 3 112
Inventory ...................................................... 31 49
Prepaid expenses ............................................... 47 132
---------------------------
Total current assets ......................................... 164 379
Property and equipment, net ........................................ 93 152
Capitalized content costs, net ..................................... 48 195
Other assets ....................................................... 69 151
---------------------------
Total assets ................................................. $ 374 $ 877
===========================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Accounts payable ............................................... $ 989 $ 876
Accrued expenses ............................................... 672 401
Capital leases, current portion ................................ 8
Unearned revenue ............................................... 491 684
Convertible notes payable ($1,700,001 net of $15,000 discount at
January 31, 2000 and $1,400,000 net of $139,000 of discount
at July 31, 1999) .............................................. 1,685 1,261
---------------------------
Total current liabilities .................................... 3,837 3,230
Capital leases, long term portion .................................. -- 4
---------------------------
Total liabilities ............................................ $ 3,837 $ 3,234
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Shareholders' Deficit
Common Stock, $.0001 par value; authorized 15,000,000 shares,
issued and outstanding 4,318,322 shares at April 30, 2000
and 3,775,886 shares at July 31, 1999 .......................... -- --
Additional paid-in capital ..................................... 11,547 11,118
Accumulated deficit ............................................ (15,010) (13,475)
---------------------------
Shareholders' Deficit .......................................... (3,463) (2,357)
---------------------------
Total liabilities and shareholders' deficit .................. $ 374 $ 877
===========================
</TABLE>
* Derived from the Form 10-KSB
See accompanying notes.
<PAGE>
KIDEO PRODUCTIONS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Three months ended Nine months ended
---------------------------- ----------------------------
April 30, April 30, April 30, April 30,
2000 1999 2000 1999
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Sales ................................... $ 386 $ 902 $ 1,994 $ 4,007
Cost of sales ........................... 283 532 1,022 1,831
---------------------------- ----------------------------
Gross profit ............................ 103 370 972 2,176
Selling expenses ........................ 184 391 837 1,464
General and administrative expenses ..... 393 359 1,174 1,052
----------- ----------- ----------- ----------
Loss from operations .................... (474) (380) (1,039) (340)
Other expense, net ...................... (163) (143) (579) (452)
---------------------------- ----------------------------
Loss before tax benefit
and extraordinary item .................. (637) (523) (1,618) (792)
Tax Benefit ............................. 29
---------------------------- ----------------------------
Loss before extraordinary item .......... (637) (523) (1,589) (792)
Extraordinary item-gain on extinguishment
of debt, net of taxes ................... 54
---------------------------- ----------------------------
Net loss ................................ $ (637) $ (523) $ (1,535) $ (792)
============================ ============================
Net Loss per share, basic & diluted:
Before tax benefit and extraordinary
Item .................................... $ (0.15) $ (0.14) $ (0.39) $ (0.21)
============================ ============================
Net Loss per share, basic & diluted...... (0.15) (0.14) (0.37) (0.21)
============================ ============================
Weighted average number of shares
outstanding basic and diluted ....... 4,318,222 3,775,886 $ 4,131,441 $ 3,775,886
=========== =========== =========== ===========
</TABLE>
See accompanying notes
<PAGE>
KIDEO PRODUCTIONS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS (DEFICIENCY) EQUITY
(unaudited)
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Common Stock Additional Shareholders
----------------------- Paid-In Accumulated (Deficiency)
Shares Amount Capital Deficit Equity
========= ========= ========== =========== ============
<S> <C> <C> <C> <C> <C>
Balance at July 31, 1999 .......... 3,775,886 $ -- $ 11,118 $ (13,475) $ (2,357)
========= ========= ========= ========= =========
Discount to fair market value of
the August 1999, convertible notes
payable on the conversion to
common stock ..................... 173 173
Issuance of warrants in connection
with August 1999, Financing ...... 33 33
Conversion of warrants to common
stock ............................ 263,059 --
Conversion of debt to common
stock ............................ 279,377 223 223
Net Loss ......................... (1,535) (1,535)
========= ========= ========= ========= =========
Balance at April 30, 2000 ......... 4,318,322 $ -- $ 11,547 $ (15,010) $ (3,463)
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
<PAGE>
KIDEO PRODUCTIONS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Nine months ended
----------------------
April 30, April 30,
2000 1999
----------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ..................................................... $(1,535) $ (792)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization ................................ 206 687
Amortization of Loan Discount and Deferred Debt Costs ........ 249 --
Changes in operating assets and liabilities:
Accounts receivable .......................................... 109 (121)
Inventory .................................................... 18 2
Prepaid expenses and other current assets .................... 85 42
Other assets ................................................. 82 (38)
Accounts payable ............................................. 419 189
Accrued expenses ............................................. 271 435
Unearned revenue ............................................. (193) 80
----------------------
Net cash (used in) provided by ooperating activities (289) 484
----------------------
Cash flows from investing activities:
Purchase of property and equipment ........................... -- (130)
----------------------
Net cash used in investing activities ....................... -- (130)
----------------------
Cash flows from financing activities:
Proceeds from Convertible debt, net .......................... 294 --
Proceeds from short term debt ................................ (8) 100
Principal payments on capital leases ......................... -- (44)
Principal payments on convertible debt ....................... -- (373)
----------------------
Net cash provided by (used in) financing activities ......... 286 (317)
----------------------
Net (decrease) increase in cash and cash equivalents .................... (3) 37
Cash and cash equivalents at the beginning of the period ............... 86 82
----------------------
Cash and cash equivalents at the end of the period ...................... $ 83 $ 119
======================
</TABLE>
See accompanying notes
<PAGE>
KIDEO PRODUCTIONS, INC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1.
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 nine months
ended April 30, 2000 are not necessarily indicative of the results that may be
expected for the fiscal year ending July 31, 2000.
The organization and 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 fiscal year ended July 31, 1999 on Form 10-KSB. This quarterly report
should be read in conjunction with such annual report.
Note 2.
The Company has incurred substantial operating losses since its inception,
resulting in an accumulated deficit of approximately $15,010,000 as of April 30,
2000. The Company believes that it will continue to operate at a loss until such
time as its operations generate sufficient revenues to cover its costs. The
report of independent public accountants on the Company's consolidated financial
statements for the fiscal year ended July 31, 1999 contains an explanatory
paragraph stating that the Company's consolidated financial statements have been
prepared assuming that the company will continue as a going concern, while
noting that the Company's recurring losses from operations and net working
capital deficiency raise substantial doubt about its ability to continue as a
going concern. The consolidated financial statements do not include any
adjustments that might result should the company be unable to continue as a
going concern.
Note 3.
On September 17, 1999 and October 1, 1999, in a cashless conversion of warrants
to purchase 550,000 shares of Common Stock, the Company issued 263,059 shares of
common stock to certain shareholders.
Note 4.
On December 17, 1999, the Company issued 279,377 shares of Common Stock to one
vendor in exchange for payment in full of an outstanding payable balance along
with accrued interest. The extinguishment of the debt resulted in an
extraordinary gain due to the excess of the total amount due over the fair value
of the shares of Common Stock on the date of issuance.
Note 5.
Due to continued depressed operating results, the Company's working capital was
not sufficient to meet its debt service needs. Consequently, on September 30,
1999, December 31, 1999 and March 31 2000 the Company was unable to and did not
make interest payments due on certain promissory notes issued in May 1999 (the
"May 1999 Notes") and August 1999 (the "August 1999 Notes"). The interest
payments (including penalties for non-payment) due on the May notes and the
August notes were $153,949 and $20,656 respectively. The principal on the May
1999 notes was due to be repaid in four payments commencing on February 15, 2000
and ending on May 15, 2000. The company failed to make any of the payments and
the full principal amount of $1,400,000
5
<PAGE>
plus accrued interest and penalties remain outstanding. The total liability
relating to the May 1999 note is $1,553,950. Therefore, the respective
financings are currently in default.
Pursuant to the terms of the notes, upon the event of default, the entire
indebtness and accrued interest, at the option of the holder, will become
immediately due and payable. In addition, the Company has signed a security
agreement whereby the noteholders were granted a security interest in all of the
Company's assets. To date no action has been taken by the noteholders in regard
to the default on the May & August notes.
Subsequent Event
On May 5, 2000 the Company issued 625,000 shares of Common Stock and warrants to
purchase a further 625,000 shares of the Company's Common Stock at $.40 per
share for an aggregate consideration of $250,000. The Company used the proceeds
from this financing as working capital for general corporate purposes.
The Company failed to make a principal repayment due on May 31, 2000 of $45,000
relating to the August 1999 note.
6
<PAGE>
KIDEO PRODUCTIONS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
General
The Company was organized in August 1993 to develop, manufacture and market
personalized videos for children. The process of mass-producing individual
videos featuring a subject's likeness and spoken name was developed internally
by the Company. The Company claims proprietary rights in its technologies and
productions process. In April 1997, the Company was issued a U.S. patent
relating to its digital process (Patent No. 5,523,587). Since its inception the
Company has expanded its personalized product line to include books, stickers,
posters and calendars featuring licensed and proprietary characters in some
products.
The Company has incurred substantial operating losses since its inception,
resulting in an accumulated deficit of approximately $14,979,000 as of April 30,
2000. The Company believes that it will continue to operate at a loss until such
time as when its operations generate sufficient revenues to cover its costs. The
report of independent public accountants on the Company's consolidated financial
statements for the fiscal year ended July 31, 1999 contains an explanatory
paragraph stating that the Company's consolidated financial statements have been
prepared assuming that the Company will continue as a going concern, while
noting that the Company's recurring losses from operations and net working
capital deficiency raise substantial doubt about its ability to continue as a
going concern. The consolidated financial statements do not include any
adjustments that might result should the Company be unable to continue as a
going concern.
On September 26, 1997, Nasdaq advised the Company that the Company's Common
Stock and Warrants had been delisted from the Nasdaq SmallCap Market. The Nasdaq
decision was based upon the Company's failure to meet the "total assets" and
"capital and surplus" requirements for continued listing on the Nasdaq SmallCap
Market.
The information set forth in "Management's Discussion and Analysis" below
includes "forward-looking statements" within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended, and is subject to the safe harbor
created by that section. Readers are cautioned not to place undue influence on
these forward-looking statements, as they speak only as of the date hereof.
Revenue Recognition
The Company develops, produces and markets personalized children's educational
video tapes and books featuring licensed and proprietary characters. These
products, along with personalized stickers, posters and calendars are currently
being sold through television shopping networks, various catalogs, direct sales
and e-commerce. All customer orders, regardless of their source, are processed
at the Company's manufacturing plant in New York City.
The Company generally records an account receivable and a corresponding
liability for unearned revenue for personalized product order kits shipped to
television shopping networks, mail order houses, catalogs and other retail
vendors. Revenue is recognized on the accrual basis when the personalized
product is shipped to the ultimate consumer.
Our business is seasonal in nature, with a large portion of our net sales
occurring in the second quarter as a result of the holiday shopping season.
7
<PAGE>
Results of Operations
The following discussion should be read in conjunction with the Company's
financial statements and notes thereto appearing elsewhere in this report.
Nine month comparisons: Comparison of the nine month fiscal period from August
1, 1999 through April 30, 2000, ("Current Period") against the nine month fiscal
period from August 1, 1988 through April 30, 1999, ("Prior Period"):
Sales: Sales decreased 50% in the Current Period to $1,994,000 as compared to
$4,007,00 in the Prior Period. Direct to consumer sales decreased in the Current
Period 41% or a decrease of $837,000 to $1,204,000 while vendor-based sales
(catalog, mail order houses and television shopping networks) decreased 60% or
$1,194,000 to $790,000 in the Current Period. Sales decreased in all categories
primarily do to the lack of new products and no current promotions on the
shopping networks or direct to the consumer TV advertising as compared to the
Prior Period, which had such promotions for the then newly, licensed Barney
tape.
Personalized tape sales were down 48% to $1,741,000 in the Current Period as
compared to $3,414,000 in the Prior Period and accounted for 87% of total
revenue. Direct to consumer tape sales decreased 36% from the Prior Period to
$1,021,000 and vendor-sourced tape sales decreased 61% from the Prior Period to
$719,000.
Personalized book, sticker, calendar and poster sales decreased 57% or $340,000
from the Prior Period to $253,000 in the Current Period. Sales of ancillary
products were less then 1% and have not been significant to date.
Cost of Sales: The Company had a gross profit of 49% or $972,000 in the Current
Period as compared to 54% in the Prior Period. The cost of raw materials and
direct labor have decreased, due to significantly lower sales volumes. Fixed
costs decreased $155,000 or 27% in the Current Period as compared to the Prior
Period as a direct result of lower volumes. These reductions were in payroll and
related expenses of $84,000, depreciation of $75,000, shipping expenses of
$17,000, and creative expenses of $13,000. These decreases were partially offset
by an increase in facility expense of $30,000. Royalty expense decreased in the
Current Period by 31% or $127,000 to $279,000, which is directly attributed to
the reduced sales volume offset by the monthly write-off of the Disney royalty
advance, which expired on April 30, 2000.
Selling expenses: Selling expenses decreased $626,000 or 43% for the Current
Period to $837,00 as compared to $1,464,000 in the Prior Period. The decrease
was mostly due to volume related decline in sales and fulfillment related
expenses of $325,000, shipping expenses of $200,000 and $110,000 in media and
promotional expenses. These decreases were partially offset by an increase in
customer service expense of $9,000.
General and administrative expenses: The Company's general and administrative
expenses increased $122,000 or 12% to $1,174,000 in the Current Period from
$1,053,000 in the Prior Period. Increased expenses included overall
infrastructure expenses of $67,000 for rent, telephone and travel; professional
fees of $40,000, website development and maintenance expense of $34,000, and
development expense of $18,000. These expenses were offset by decreases in
payroll and related expenses of $29,000, depreciation of $11,000.
Operating loss: The loss from operations was $1,535,000 in the Current Period as
compared to an operating loss of $792,000 in the Prior Period.
Management continues to pursue strategic marketing alliances with the intent of
reducing its financial risk in direct-to-consumer promotions and to develop a
broader based distribution for the Company's products. There can be no
assurances that these objectives will continue to be achieved.
8
<PAGE>
Other (expense): The Current Period reflects an expense of $579,000 which is
primarily due to amortization of discount and deferred debt expense of the
convertible debt in regard to the May 1999 and the August 1999, Financings along
with debt and lease interest expenses over interest income.
Net loss: The net loss in the Current Period was $1,535,000 or $0.37 basic and
diluted loss per share on 4,131,441 average shares of common stock outstanding,
as compared to the Prior Period net loss of $792,000 or $0.21 basic and diluted
loss per share on 3,775,886 average shares of common stock outstanding.
Three-month comparison: Comparison of the quarter from February 1, 2000 through
April 30, 2000, ("Current Quarter") against the quarter from February 1, 1999
through April 30, 1999 ("Prior Quarter"):
Sales: Sales decreased 57% in the Current Quarter to $386,000 as compared to
$902,000 in the Prior Quarter. Sales decreases were seen from all sources across
the board. Direct to the consumer sales decreased $200,000 or 41% to $287,000 in
the Current Quarter from Prior Quarter sales of $487,000. Vender-sourced sales
decreased 77% to $97,000 in the Current Quarter as compared to $415,000 in the
Prior Quarter.
Sales decreased in all categories primarily do to the lack of new products and
no current promotions on the shopping networks or direct to the consumer TV
advertising as compared to the Prior Quarter.
In the Current Quarter, tape sales decreased 55% or $434,000 to $357,000 as
compared to the Prior Quarter and represented 92% of total revenue for the
period. Direct to consumer tape sales decreased 31% or $120,000 to $264,000 and
vender-sourced sales decreased 77% or $314,000 to $93,000.
Personalized book, sticker, calendar and poster sales decreased $83,000 or 75%
to $28,000 in the Current Quarter. Sales of ancillary products were less then 1%
and have not been significant to date.
Cost of Sales: The Company had a gross profit of 27% or $103,000 in the Current
Quarter as compared to 41% in the Prior Quarter. The cost of raw materials and
direct labor have decreased, due to significantly lower sales volume. Fixed
costs decreased $73,000 or 33% in the Current Quarter as compared to the Prior
Quarter as a direct result of lower volumes. These reductions were in
depreciation expense of $28,000, supervisory expense of $19,000 payroll and
related expense of $12,000, and content amortization of $10,000. These decreases
were offset by increases in facility expense of $7,000. Royalty expense for the
Current Quarter decreased $35,000 to $74,000, which is primarily due to the
lower sales volume offset by a monthly charge for the Disney royalty advance,
which expired on April 30, 2000.
Selling expenses: Selling expenses decreased by $207,000 or 53% to $184,000 in
the Current Quarter from $391,000 in the Prior Quarter. The decrease was mostly
due to volume related reductions in and selling and related expenses of $120,000
and shipping expense of $35,000. In addition, media and promotional costs
decreased $50,000 in the Current Quarter over the Prior Quarter.
General and administrative expenses: The Company's general and administrative
expenses increased $34,000 or 9% to $393,000 in the Current Quarter from
$360,000 in the Prior Quarter. Increases were in product development of $42,000,
of which $28,000 related to the write off of previous capitalized development
expense, rent $10,000, telephone $8,000 and website design of $4,000. These
expenses were offset by decreases in payroll and related payroll expense of
$14,000 and professional fees of $9,000, and sundry expenses of $7,000 in the
Current Quarter as compared to the prior period.
Operating loss: The loss from operations was $474,000 in the Current Quarter as
compared to $380,000 in the Prior Quarter.
Other (expense): The Current Quarter reflects an expense of $163,000 as compared
to $143,000 in the Prior Quarter. This is primarily due to amortization of
discount and deferred debt expense of the convertible debt in
9
<PAGE>
regard to the May 1999 and the August 1999, Financings along with debt and lease
interest expenses over interest income.
Extraordinary item: The company issued shares of Common Stock in exchange for
payment in full of an outstanding accounts payable balance and accrued interest.
The gain represents the excess of the debt over the value of the shares of
Common Stock at the date of issuance.
Net loss: The net loss in the Current Quarter was $637,000 or $0.15 basic and
diluted loss per share on 4,138,222 average shares of common stock outstanding,
as compared to the Prior Quarter net loss of $523,000 or $0.14 basic and diluted
loss per share on 3,775,886 average shares of common stock outstanding.
Liquidity and Capital Resources
The Company's net cash used in operations for the Current Period was $289,000
as compared to $484,000 provided by operations in the Prior Period. There were
no investments in capital projects or content costs by the Company in the
Current Period. In August 1999, the Company closed an additional $300,000 of
financing with the proceeds used for working capital. As of April 30, 2000 the
Company had a working capital deficiency of $3,673,000.
The Company's capital requirements in connection with its development of new
product, infrastructure and marketing activities have been and continue to be
significant. The Company anticipates, based on its currently proposed plans and
assumptions relating to its operations, that anticipated revenues from
operations and its current cash and cash equivalent balances, are not sufficient
to fund the Company's operations and capital requirements. The Company is
currently seeking additional financing. The Company has no current arrangements
with respect to any additional financing, and it is not anticipated that
existing stockholders will provide any portion of the Company's financing
requirements. Consequently, there can be no assurance that any additional
financing will be available to the Company as currently needed, on commercially
reasonable terms, or at all.
The Company has failed to make interest and principal payments due on certain
promissory notes and consequently these financings are in default. The Company
was unable to and did not make interest payments due on September 30th, 1999,
December 31, 1999 and March 31, 2000 on certain promissory notes issued in May
1999 (the "May Note") and August 1999 (the "August Note"). The interest payments
(inlcuding penalties for non-payment) due on the May note and the August note
were $153,949 and $20,657, respectively. The principal on the May note was due
to be repaid in four payments commencing on February 15th 2000 and ending on May
15, 2000. The company failed to make any of the payments and the full principal
amount of $1,400,000 plus accrued interest and penalties remains outstanding.
The total liability relating to the May 99 financing is $1,553,950. The Company
failed to make a principal repayment due on May 31, 2000 of $45,000 relating to
the August note. The Company is required to make further principal repayments on
the August Note totaling $255,000 on or before August 31, 2000. Under the terms
of the August Note the Company is required to pay penalty interest on any amount
of principal or interest that is due but unpaid.
Pursuant to the terms of the notes, upon the event of default, the entire
indebteness and accrued interest, at the option of the holder, will become
immediately due and payable. In addition, the Company has signed a security
agreement whereby the noteholders were granted a security interest in all of the
Company's assets. To date no action has been taken by the noteholders in regard
to the default on the May or August notes.
The Company's material commitments and plans for capital expenditures at the
present time are driven by order volume. Currently, the Company's sales volume
can be met with existing production equipment, and increases in volume can be
met by adding additional shifts with existing equipment. Capital expansion for
additional production equipment will be driven by increases in sales volume and
will be funded by such revenues and any available equipment financing
agreements.
Because the Company has operated at a loss since its inception and has not
generated sufficient revenue from its operations to fund its activities, it has,
to date, been substantially dependent on loans from its stockholders and private
and public offerings of its securities to fund its operations.
August 1999 Financing
On August 27, 1999, the Company entered into a Note and Warrant Purchase
Agreement (the "August 1999 Financing"). In consideration for $300,000 the
Company issued, (1) a convertible note having a principal amount of $300,000 due
at various times through August 31, 2000 and (2) warrants to purchase an
aggregate of 300,000 shares of Common Stock of the Company, exercisable through
August 31, 2004 at an exercise price of $.80 per share. The fair market value of
the warrants were treated as additional discount on the issuance of the note and
accordingly are netted against the principal amount outstanding and amortized
over the life of the debt. The discount resulting from the beneficial conversion
feature of the note was expensed at issuance. The funds were applied towards
prior payables and working capital. The Company filed a Registration Statement
on Form S-3 with the Securities and Exchange Commission to register the
underlying securities of this agreement and such registration statement was
declared effective on November 30, 1999.
10
<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, 1999 as
filed.
Item 2. Changes in Securities
On May 5, 2000 the Company issued 625,000 shares of Common Stock and
warrants to purchase a further 625,000 shares of the Company's Common
Stock at $.40 per share for an aggregate consideration of $250,000. The
Company used the proceeds from this financing as working capital for
general corporate purposes.
Item 3. Defaults upon Senior Securities
The Company has failed to make interest and principal payments due on
certain promissory notes and consequently these financings are in default.
The Company was unable to and did not make interest payments due on
September 30th, 1999, December 31, 1999 and March 31, 2000 on certain
promissory notes issued in May 1999 (the "May Note") and August 1999 (the
"August Note"). The interest payments (inlcuding penalties for
non-payment) due on the May note and the August note were $153,949 and
$20,657, respectively. The principal on the May note was due to be repaid
in four payments commencing on February 15th 2000 and ending on May 15,
2000. The company failed to make any of the payments and the full
principal amount of $1,400,000 plus accrued interest and penalties remains
outstanding. The total liability relating to the May 99 financing is
$1,553,950. The Company failed to make a principal repayment due on May
31, 2000 of $45,000 relating to the August note. The Company is required
to make further principal repayments on the August Note totaling $255,000
on or before August 31, 2000. Under the terms of the August Note the
Company is required to pay penalty interest on any amount of principal or
interest that is due but unpaid.
Pursuant to the terms of the notes, upon the event of default, the entire
indebteness and accrued interest, at the option of the holder, will become
immediately due and payable. In addition, the Company has signed a
security agreement whereby the noteholders were granted a security
interest in all of the Company's assets. To date no action has been taken
by the noteholders in regard to the default on the May or August notes.
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
(a) Exhibit 27 -- Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter for which this
report is filed.
11
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Signatures
In accordance with 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.
Kideo Productions, Inc.
Date: June 19, 2000 By: /s/ Richard L. Bulman
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Richard L. Bulman
President & Chief Executive Officer
(Principal Executive Officer)
Date: June 19, 2000 By: /s/ Richard D. Bulman
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Richard D. Bulman
Secretary & Chief Financial Officer
(Principal Financial Officer)
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