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 June 30, 1998
OR
[ ] 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 0-26676
MULTIMEDIA CONCEPTS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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<CAPTION>
<S> <C>
Delaware 13-3835325
(State or other jurisdiction of Incorporation (I.R.S. Employer Identification No.)
or Organization No.)
</TABLE>
1410 Broadway, Suite 1602, New York, New York 10018
(Address of Principal Executive Offices)
(212) 391-1111
(Registrant's Telephone Number, Including Area Code)
N/A
(Former name, former address, and former fiscal year,
if changed since last report)
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
State the number of shares of each of the issuer=s classes of common equity
outstanding as of the latest practicable date: Common Stock, $.001 per share:
3,005,000 shares outstanding as of August 31, 1998.
<PAGE>
MULTIMEDIA CONCEPTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONTENTS
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Page
Number
PART 1- FINANCIAL INFORMATION
ITEM 1- FINANCIAL STATEMENTS
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Consolidated balance Sheets as of June 30, 1998 (Unaudited)
and March 31, 1998 3
Consolidated statements of Operations (Unaudited) for the three
months ended June 30, 1998 and June 30, 1997 4
Consolidated statements of Cash Flows (Unaudited) for the three
months ended June 30, 1998 and June 30, 1997 5
Notes to Financial Statements (Unaudited) 6
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 9
PART II- OTHER INFORMATION 12
Signatures 13
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2
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MULTIMEDIA CONCEPTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of June 30, 1998 and March 31, 1998
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents .............................. $ 1,689,040 $ 1,635,058
Restricted certificate of deposit ...................... 250,000 250,000
Accounts receivable .................................... 348,873 404,288
Inventories ............................................ 9,402,294 7,929,061
Prepaid expenses and other current assets .............. 166,744 189,516
Loans and advances-affiliate ........................... 89,815 89,815
------------ ------------
Total current assets ............................ 11,946,766 10,497,738
------------ ------------
PROPERTY AND EQUIPMENT-NET ............................... 3,044,688 2,782,386
------------ ------------
OTHER ASSETS:
Restricted certificate of deposit ....................... 2,000,000 2,000,000
Advances to equity investee ............................. 140,000 140,000
Due from affiliates ..................................... 90,000 --
Deposits and other assets ............................... 181,869 330,459
------------ ------------
2,411,869 2,470,459
------------ ------------
Total assets .................................... $ 17,403,323 $ 15,750,583
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ........................................ $ 5,539,382 $ 3,593,811
Accrued expenses and other liabilities .................. 284,064 53,526
Current portion of notes payable ........................ 262,293 350,000
------------ ------------
Total current liabilities .............. 6,085,739 3,997,337
------------ ------------
LONG-TERM LIABILITIES:
Borrowings under financing agreement .................... 6,521,695 5,445,198
Note payable, net of current portion .................... 71,541 500,000
Deferred rent liability ................................. 114,903 110,351
------------ ------------
Total long-term liabilities ..................... 6,708,139 7,055,549
Total liabilities ............................... 12,793,878 11,052,886
MINORITY INTEREST IN SUBSIDIARIES (Note 3) .............. 2,814,046 2,713,709
------------ ------------
STOCKHOLDERS= EQUITY:
Common stock, $.001 par value; 10,000,000
shares authorized, 3,005,000 shares issued
and outstanding ....................................... 3,005 3,005
Additional paid-in capital ............................. 13,102,005 13,102,005
Retained earnings (Deficit) ............................. (11,309,611) (11,121,022)
------------ ------------
1,795,399 1,983,988
------------ ------------
Total liabilities and stockholders' equity ...... $ 17,403,323 $ 15,750,583
============ ============
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The accompanying notes are an integral part of these consolidated financial
statements
3
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MULTIMEDIA CONCEPTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended
June 30, June 30,
1998 1997
----- -----
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REVENUES, net sales ................................ $ 7,319,749 $ 1,041,435
----------- --------
COSTS AND EXPENSES:
Cost of sales ..................................... 4,404,422 757,886
Operating expenses ................................ 2,751,073 126,329
Depreciation and amortization ..................... 188,652 --
----------- --------
Total operating expenses .................. 7,344,147 884,215
----------- --------
OPERATING INCOME (LOSS) ............................ (24,398) 157,220
----------- --------
OTHER INCOME
Interest income ................................... 12,500 654
----------- --------
INTEREST EXPENSE:
Interest and finance charges ..................... 138,452 --
Amortization of debt issuance costs .............. 27,200 --
Total interest expense 165,652 --
----------- --------
INCOME (LOSS) BEFORE
MINORITY INTERESTS ............................... (177,550) 157,874
Minority interests (Note 3) ..................... 100,337 --
----------- --------
NET INCOME (LOSS) .................................. $ ( 77,213) $157,874
=========== ========
Basic and Diluted income and (loss) per common
share before minority interests .................. $ (.06) $ .05
Minority interests in net income (loss) of
consolidated subsidiaries ........................ .03 --
----------- --------
Basic and Diluted income (loss) per common share ... $ (.03) $ .05
=========== ========
Weighted average number of common shares outstanding 3,005,000 3,005,000
=========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
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MULTIMEDIA CONCEPTS INTERNATIONAL, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash
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Three Months Ended
June 30, June 30,
1998 1997
----- ------
CASH FLOWS FROM OPERATING ACTIVITIES:
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Net income (loss) ........................................... $ (177,550) $ 157,784
----------- -----------
Adjustments to reconcile net loss to cash (used)
provided for operating activities:
Depreciation and amortization ............................. 188,652 1,500
Deferred rent ............................................. 4,552 --
Minority interests in net losses of subsidiaries .......... 100,337 --
Changes in assets and liabilities:
Decrease in Accounts receivable ............................. 55,415 145,363
(Increase) in Merchandise inventories (1,473,323) (581,272)
Decrease in prepaid expenses and other current assets ...... 22,772 --
Decrease in deposits and other assets ....................... 148,680 (50)
Increase in accounts payable ................................ 1,945,571 187,570
Increase in accrued expenses and other liabilities .......... 230,538 17,385
----------- -----------
Total adjustments .................................. 1,223,194 (229,504)
----------- -----------
Net cash provided by operating activities .......... 1,045,644 (71,720)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ......................... (461,993) --
----------- -----------
Net cash provided by( used for) investing activities (461,993) --
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under financing agreement of subsidiary ..... 1,076,497 --
Repayment of notes payable of subsidiary ................... (1,516,166) --
Loans receivable-officer ................................... -- (83,172)
Loans received from (repaid to) affiliate .................. (90,000) (162,000)
----------- -----------
Net cash provided by (used for) financing activities (529,669) (245,172)
----------- -----------
NET INCREASE (DECREASE) IN CASH ............................. 53,982 (316,892)
Cash, beginning of period ................................... 1,635,058 591,577
----------- -----------
Cash, end of period ......................................... $ 1,689,040 $ 274,685
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid ............................................... $ 165,652 $ --
Taxes paid .................................................. $ -- $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE>
MULTIMEDIA CONCEPTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1- BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and the instructions to Form 10-QSB.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for more complete financial statements.
In the opinion of management, the interim financial statements include all
adjustments considered necessary for a fair presentation of the Company's
financial position and the results of its operations for the three months ended
June 30, 1998, and are not necessarily indicative of the results to be expected
for the full fiscal year. For further information, refer to the Company's Annual
report on Form 10-KSB for the six months ended March 31, 1998, as filed with the
Securities and Exchange Commission.
In December, 1997, the Company's Board of Directors voted to
change the end of the Company's fiscal year from September 30th to March 31st.
The financial statements for the three months ended June 30, 1997 have not been
restated to reflect the acquisition of United Textiles & Toys Corp.
Note 2- DESCRIPTION OF COMPANY:
Multimedia Concepts International, Inc. (the "Company") is a Delaware
corporation which was organized in June 1994 under the name U.S. Food
Corporation. The Company changed its name to American Eagle Holdings Corporation
in April 1995 and then to its present name in June 1995. The Company was
initially formed as a holding company for the purpose of forming an integrated
clothing design, manufacturing, and distribution operation. The Company is
currently, in principle, a holding company for its two operating subsidiaries;
(i) its wholly owned subsidiary U.S. Apparel Corp. ("USAC") and (ii) its
majority owned subsidiary Play Co. Toys & Entertainment Corp. ("Play Co.")
through its ownership of 78.5% of the outstanding shares of common stock of
United Textiles and Toys Corp. ("UTTC"), which owns 59.1% of Play Co. All
references to the "Company" refer to USAC, UTTC, and Play Co. unless otherwise
required by the context.
In February 1997, the Company formed a wholly-owned subsidiary, USAC, a New
York corporation, to design and manufacture a line of private label cotton
"T-shirts" and "polo" type tops predominantly for men.
In January 1998, UTTC issued 3,571,429 shares of its common stock to the
Company in full repayment of certain loans aggregating $1,000,000 previously
made by the Company to UTTC. This conversion of debt to equity was performed at
a price of $.28 per share. As a result of the transaction, the Company acquired
78.5% ownership of UTTC.
4
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MULTIMEDIA CONCEPTS INTERNATIONAL, INC. AND SUBSIDIAIRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3- MINORITY INTERESTS:
The Company owns a majority interest (78.5%) in United Textiles, which in
turn owns a majority interest (59.1%) in Play Co. The minority interest
liability represents the minority shareholders' portion (21.5%) of United
Textiles equity and (40.9%) of Play Co.'s equity at June 30, 1998.
Note 4- INVESTMENT BY U.S. STORES CORP.:
On January 20, 1998, U.S. Stores Corp. (AU.S. Stores@) acquired 1,465,000
shares of the Company's Common Stock. U.S. Stores was incorporated on November
10, 1997. The Company's President is also President and Director of U.S. Stores.
After this transaction, U.S. Stores held an aggregate of 1,868,000 shares of the
Company's Common Stock, or 63% of the outstanding shares, effectively making the
Company a subsidiary of U.S. Stores.
On February 28, 1998, American Telecom Corporation (AAmerican Telecom@)
acquired 100% of the outstanding common shares of U.S. Stores. American Telecom
was incorporated on July 11, 1997. The Company's President is also President and
Director of U.S. Stores. After this transaction, American Telecom effectively
obtained beneficial control of the Company and its subsidiaries.
In April 1998, American Telecom in a transaction in which shares were
exchanged, exchanged all of its outstanding common shares with American Telecom,
PLC, a publicly traded company in Great Britain. After this transaction,
American Telecom effectively became a subsidiary of American Telecom, PLC.
Additionally, as part of this transaction, American Telecom, PLC acquired 100%
of the outstanding common shares of U.S. Stores, thereby effectively making U.S.
Stores a direct subsidiary of American Telecom, PLC.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS:
Results of Operations
Statements contained in this report which are not historical facts may be
considered forward looking information with respect to plans, projections, or
future performance of the Company as defined under the Private Securities
Litigation Reform Act of 1995. These forward looking statements are subject to
risks and uncertainties which could cause actual results to differ materially
from those projected.
Three months ended June 30, 1998 compared to the three months ended June
30, 1997:
Consolidated sales for the three months ended June 30, 1998 were
$7,319,749. The consolidated sales for the three months ended June 30, 1998
include sales of Play Co. in the amount of $6,357,395, and sales reported by
U.S. Apparel amounting to $961,040.
Consolidated cost of sales for the three months ended June 30, 1998 were
$4,404,422, or 60.2%, of sales. The component breakdown of this category was as
follows:
U.S. Apparel $ 698,090
Play Co. 3,706,331
Consolidated operating expenses were $2,751,073, or 37.6%, of sales for the
three months ended June 30, 1998.
Consolidated depreciation and amortization expense in the three months
ended June 30, 1998 was $188,652.
Consolidated interest expense amounted to $165,652 for the three months
ended June 30, 1998.
For the three months ended June 30, 1998, subsequent to the adjustment for
the minority interest in the net losses of subsidiaries, the Company reported a
consolidated net loss of $77,213, or $.03 per common share.
Liquidity and Capital Resources
At June 30, 1998, the Company reported cash and cash equivalents of
$1,689,040, working capital of $5,861,027 and stockholders' equity of
$1,795,399.
At March 31, 1998, the Company reported cash and cash equivalents of
$1,635,058, working capital of $6,500,401 and stockholders' equity of
$1,983,988.
The Company has generated operating losses for the past several years and
has historically financed those losses and its working capital requirements
through loans. There can be no assurance that the Company or any of its
subsidiaries will be able to generate sufficient revenues or have sufficient
controls over expenses and other charges to achieve profitability.
During the three months ended June 30, 1998, operating activities provided
funds in the amount of $1,045,644. The Company's consolidated net loss was
$177,550, before adjustment for the minority interest in the net losses of
subsidiaries.
The Company used $461,993 in investing activities in the three months ended
June 30, 1998, primarily as a result of the Company's Play Co. subsidiary
purchasing property and equipment in relation to new store openings.
The Company used $529,669 in financing activities.
<PAGE>
As a result of these activities, the Company reported a consolidated
increase in cash of $53,982.
Year 2000
The Company does not believe that the impact of the year 2000 computer
issue will have a significant impact on its operations or financial position.
Furthermore, the Company does not believe that it will be required to
significantly modify its internal computer computer systems.
However, if internal systems do not correctly recognize date information
when the year changes to 2000, there could be adverse impact on the Company's
operations. Furthermore, there can be no assurance that another equity's failure
to ensure year 2000 capability would not have an adverse effect on the Company.
Trends affecting liquidity, capital resources and operations
As a result of its planned merchandise mix change to emphasize specialty
and educational toys, Play Co. enjoyed significant sales and gross profits in
the three months ended June 30, 1998.
Play Co.'s current sales efforts focus primarily on a defined geographic
segment consisting of the southern California area and the southwestern United
States. Its future financial performance will depend upon (i) continued demand
for toys and hobby items and management's ability to adapt to continuously
changing customer preferences and the market for such items, (ii) on general
economic conditions within Play Co.'s geographic area, as same may be expanded,
(iii) Play Co.'s ability to choose locations for new stores, (iv) Play Co.'s
ability to purchase products at favorable prices and on favorable terms, and (v)
the effects of increased competition.
The toy and hobby retail industry faces a number of potentially adverse
business conditions including price and gross margin pressures and market
consolidation. Play Co. competes with a variety of mass merchandisers,
superstores and other toy retailers, including Toys 'R' Us, Kay Bee Toy Stores,
Wal-Mart and K-Mart. Competitors that emphasize specialty and educational toys
include Disney Stores, Warner Bros. Stores, Learning Smith, Lake Shore, Zainy
Brainy and Noodle Kidoodle. There can be no assurance that Play Co.'s business
strategy will enable it to compete effectively in the toy industry or that Play
Co. will be able to generate sufficient revenues or have sufficient control over
expenses and other charges to increase profitability.
U.S. Apparel's sales are generated from short-term purchase orders from
customers who place orders on as-needed basis. U.S. Apparel typically
manufactures its products upon receipts of orders from customers and delivers
finished goods within four weeks of receipt of an order. U.S. Apparel generally
manufactures 10% more goods than is ordered by customers in anticipation of
reorders from customers.
U.S. Apparel has been able to purchase raw materials from a variety of
suppliers.
Inflation and seasonality
The impact of inflation on the Company's results of operations has not been
significant. Each subsidiary attempts to pass on increased costs by increasing
product prices over time.
Play Co.'s operations are highly seasonal with approximately 3-40% of its
net sales falling within Play Co.'s third quarter, which coincides with the
Christmas selling season. Play Co. intends to open stores throughout the year,
but generally before the Christmas selling season. Play Co. intends to open
stores throughout the year, but generally before the Christmas selling season,
which will make Play Co.'s third quarter sales an even greater percentage of the
total year's sales.
U.S. Apparel's operations are generally not seasonal and are generally
spread throughout the year.
6
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PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings: None
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
Exhibits: None
Reports on Form 8-K: None
7
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: September 17, 1998
Multimedia Concepts International, Inc.
(Registrant)
\s\ Ilan Arbel
Ilan Arbel
President
\s\ Allean Goode
Allean Goode
Treasurer
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<ARTICLE> 5
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MULTIMEDIA CONCEPTS INTERNATIONAL, INC.
EXHIBIT 27
FINANCIAL DATA SCHEDULE
ARTICLE 5 OF REGULATION S-X
The schedule contains summary financial information extracted from the financial
statements for the three months ended December 31, 1997 and is qualified in
its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> mar-31-1998
<PERIOD-END> jun-30-1998
<CASH> 1,689,040
<SECURITIES> 0
<RECEIVABLES> 348,873
<ALLOWANCES> 0
<INVENTORY> 9,402,294
<CURRENT-ASSETS> 11,946,766
<PP&E> 6,708,692
<DEPRECIATION> (3,664,004)
<TOTAL-ASSETS> 17,403,323
<CURRENT-LIABILITIES> 6,085,739
<BONDS> 0
0
0
<COMMON> 3,005
<OTHER-SE> 1,792,394
<TOTAL-LIABILITY-AND-EQUITY> 17,403,323
<SALES> 7,319,749
<TOTAL-REVENUES> 7,332,249
<CGS> 4,404,422
<TOTAL-COSTS> 4,404,422
<OTHER-EXPENSES> 2,751,073
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 165,652
<INCOME-PRETAX> (77,213)
<INCOME-TAX> 0
<INCOME-CONTINUING> (77,213)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (77,213)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
