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 December 31, 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 Small Business Issuer as Specified in its Charter)
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Delaware 13-3835325
(State or Other Jurisdiction of I.R.S. Employer Identification No.)
Incorporation or Organization)
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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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares of each of the issuer's classes of common equity
outstanding as of the latest practicable date: Common Stock, $0.001 per share:
3,005,000 shares outstanding as of February 22, 1999.
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MULTIMEDIA CONCEPTS INTERNATIONAL, INC. AND SUBSIDIARIES
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page Number
Item 1. FINANCIAL STATEMENTS
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Consolidated Balance Sheets as of December 31, 1998 (unaudited) and March 31, 1998 3
Consolidated Statements of Operations (unaudited) for the
Three and Nine Months Ending December 34, 1998 and December 31, 1997
Consolidated Statements of Cash Flows (unaudited) for the Nine
Months Ended December 31, 1998 and5December 31, 1997
Notes to Financial Statements (unaudited) 6-8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 9-11
PART II. OTHER INFORMATION 12
Item 1. LEGAL PROCEEDINGS 12
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 12
Item 3. DEFAULTS UPON SENIOR SECURITIES 12
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12
Item 5. OTHER INFORMATION 12
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
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The accompanying notes are an integral part of these
consolidated financial statements
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MULTIMEDIA CONCEPTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 1998 and March 31, 1998
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<CAPTION>
Dec. 31, March 31,
1998 1998
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents .......................................................................... $ 2,216,918 $ 1,635,058
Restricted certificate of deposit .................................................................. -- --
Accounts receivable ................................................................................ 285,129 404,288
Inventories ........................................................................................ 10,913,770 7,929,061
Prepaid expenses and other current assets .......................................................... 1,742,357 189,516
Loans and advances-affiliate ....................................................................... 360,000 89,815
Total current assets ..................................................................... 15,518,174 10,247,738
PROPERTY AND EQUIPMENT-NET ......................................................................... 4,345,314 2,782,386
OTHER ASSETS:
Restricted certificate of deposit .................................................................. -- --
Advances to equity investee ........................................................................ 140,000 140,000
Due from affiliates ................................................................................ (175,388) --
Deposits and other assets .......................................................................... 2,407,030 2,580,459
2,371,642 2,720,459
Total assets ............................................................................. $ 22,235,130 $ 15,750,583
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................................................... $ 8,098,761 $ 3,593,811
Accrued expenses and other liabilities ............................................................. 875,943 53,526
Current portion of notes payable ................................................................... 405,965 350,000
Total current liabilities ..................................................................... 9,380,669 3,997,337
LONG-TERM LIABILITIES:
Borrowings under financing agreement ............................................................... 7,754,215 5,445,198
Note payable, net of current portion ............................................................... 620,030 1,500,000
Deferred rent liability ............................................................................ 124,005 110,351
Total long-term liabilities .............................................................. 8,498,250 7,055,549
Total liabilities ........................................................................ 17,878,919 11,052,886
MINORITY INTEREST IN SUBSIDIARIES (Note 3) ......................................................... 2,556,145 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) ........................................................................ (11,304,944) (11,121,022)
1,800,066 1,983,988
Total liabilities and stockholders' equity ............................................... $ 22,235,130 $ 15,750,583
============ ============
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MULTIMEDIA CONCEPTS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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For the Three Months Ended For the Nine Months Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1998 1997 1998 1997
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REVENUES, net sales ....................... $ 15,275,152 $ 234,501 $ 29,254,456 $ 2,068,973
COSTS AND EXPENSES:
Cost of sales ........................... 8,907,103 128,547 17,087,346 1,630,554
Operating expenses ...................... 4,602,710 179,906 10,698,168 307,364
Effect of non-cash dividends paid by
subsidiary .......................... 477,973 -- 1,229,752 --
Total operating expenses ........ 13,987,786 308,453 29,015,266 1,937,918
OPERATING INCOME (LOSS) ................... 1,287,366 (73,952) 239,190 131,055
OTHER INCOME
Interest and other income ............... 3,649 20,136 63,930 169,321
INTEREST EXPENSE:
Interest and finance charges .............. 221,860 -- 517,172 --
Amortization of debt issuance costs ....... 73,032 -- 127,434 --
Total interest expense .......... 294,892 -- 644,606 --
INCOME (LOSS) BEFORE MINORITY INTERESTS
996,123 (53,816) (341,486) 300,376
Minority interests (Note 3) .............. 455,388 -- 157,564 --
NET INCOME (LOSS) ......................... 540,735 (53,816) (183,922) 300,376
============ ============ ============ ==========
Basic and diluted income and (loss)
per common share before minority interest
$ .331 $ (.018) $ (.114) $ .10
Minority interest in net income (loss) of
consolidated subsidiary ................ $ .152 $ -- $ (.052) $ --
Basic and diluted income (loss) per common
Share .................................. $ .179 $ (.018) $ (.062) $ .10
============ ============ ============ ============
Weighted average number of common shares
Outstanding ............................ 3,005,000 3,005,000 3,005,000 3,005,000
============ ============ ============ ============
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MULTIMEDIA CONCEPTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash
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Nine Months Ended
Dec. 31, Dec. 31,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
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Net income (loss) ................................................................. $ (183,922) $ 300,376
Adjustments to reconcile net loss to cash (used) provided for operating activities:
Depreciation and amortization .................................................. 707,891 15,449
Deferred rent .................................................................. 13,654 --
Minority interests in net losses of subsidiaries ............................... (157,564) --
Changes in assets and liabilities:
(Increase) decrease in advances to suppliers ...................................... -- 537,656
Decrease in accounts receivable ................................................... 119,159 (153,969)
(Increase) in merchandise inventories ............................................. (2,984,709) (64,000)
Decrease in prepaid expenses and other current assets ............................. (1,552,841) --
Decrease in deposits and other assets ............................................. 173,429 (50)
Increase in accounts payable ...................................................... 4,534,300 (125,405)
Increase in accrued expenses and other liabilities ................................ 822,417 17,175
Total adjustments ....................................................... 1,675,736 226,856
Net cash provided by operating activities ............................... 1,491,814 527,232
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ................................................ (2,300,169) --
Net cash provided by (used for) investing activities .................... (2,300,169) --
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans and advances-officer ........................................................ -- 542,994
Net borrowings under financing agreement of subsidiary ............................ 2,309,017 --
Repayment of notes payable of subsidiary .......................................... (824,005) --
Loans received from (repaid to) affiliate ......................................... (94,797) (589,735)
Net cash provided by (used for) financing activities .................... 1,390,215 (46,741)
NET INCREASE (DECREASE) IN CASH ................................................... 581,860 480,491
Cash, beginning of period ......................................................... 1,635,058 591,577
Cash, end of period ............................................................... $ 2,216,918 $ 1,072,068
===========
Supplemental disclosure of cash flow information:
Interest paid ..................................................................... $ 644,806 $ --
Taxes paid ........................................................................ $ -- $ --
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MULTIMEDIA CONCEPTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
(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
instruction 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 nine months ended December 31, 1998 and
are not necessarily indicative of the results to be expected for
the 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.
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. In June 1994,
the Company acquired 55% of the outstanding shares of common
stock of American Eagle Industries Corp., which acquired 100% of
the outstanding shares of Match II, Inc. The Company also
acquired 34% of the issued and outstanding common stock of Multi
Media Publishing Corp. in June 1995.
In December 1996, the Company held a special meeting of its
shareholders who authorized the Company to sell or dispose of its
shares in American Eagle Industries Corp. (and its subsidiary,
Match II, Inc.) or effect the dissolution thereof. These
subsidiaries had ceased operations in September 1996. In January
1997, in accordance with the vote of its shareholders, the
Company terminated its financing and business relationships with
these subsidiaries.
In December 1996, the shareholders also authorized the
Company to dispose of its 34% interest in an unconsolidated
subsidiary, Multi Media Publishing Corp., which had no revenues
or operations. In January 1997, in accordance with the vote of
its shareholders, the Company terminated all business
relationships with this entity; however, it intends to seek the
return of certain funds it had advanced.
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NOTE 2 - DESCRIPTION OF COMPANY (continued):
In January 1997, the Company formed a new wholly-owned
subsidiary, U.S. Apparel Corp. ("U.S. Apparel"), which is engaged
in the design and manufacture of a line of T-shirts and other
tops, predominately for men. U.S. Apparel began operations in
January 1997.
On January 2, 1998, the Company acquired 3,571,429 shares of
the outstanding common stock of United Textiles and Toys Corp.
("United Textiles"), a company of which the Company's President
is also President, Chief Executive Officer, and a Director. The
issuance of these shares at a price of $0.28 per share ($0.01
above the closing price on December 31, 1997) was made in
conjunction with a conversion into equity of United Textiles'
$1,000,000 debt owed to the Company for a loan made by the
Company. As a result of this transaction, the Company owns 78.5%
of the outstanding shares of common stock of United Textiles,
effectively making United Textiles a subsidiary of the Company.
United Textiles was a company engaged in the design,
manufacturing, and marketing of a variety of lower priced women's
dresses, gowns, and separates for special occasions and formal
events. In March 1998, United Textiles, having sustained
continuous losses, discontinued operating activities.
United Textiles owns 45.2% of the outstanding common shares
of Play Co. Toys and Entertainment Corp. ("Play Co."), a company
that sells toys and educational games primarily on a retail
basis. Through its ownership of United Textiles, which still is
considered to have a controlling influence over Play Co., the
Company also effectively maintains control over Play Co.
NOTE 3 - MINORITY INTEREST:
The Company owns a majority interest (78.5%) in United
Textiles, which in turn owns a controlling interest (45.2%) in
Play Co. The minority interest liability represents the minority
shareholders' portion (21.5%) of United Textiles' equity and
(54.8%) of Play Co.'s equity at December 31, 1998.
NOTE 4 - INVESTMENT BY U.S. STORES CORP.:
On January 20, 1998, U.S. Stores Corp. ("U.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 a 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.
NOTE 4 - INVESTMENT BY U.S. STORES CORP. (continued):
On February 28, 1998, American Telecom Corporation
("American Telecom") acquired 100% of the outstanding common
shares of U.S. Stores. American Telecom was incorporated on
November 10, 1997. The Company's President is also President and
a Director of American Telecom. After this transaction, American
Telecom effectively obtained beneficial control of the Company
and its subsidiaries.
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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.
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 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 December 31, 1998 compared to the three months ended
December 31, 1997:
Consolidated sales for the three months ended December 31,
1998 were $15,275,152. The consolidated sales for the three
months ended December 31, 1998 include, in part, sales of Play
Co. in the amount of $14,715,952, and sales reported by U.S.
Apparel amounting to $557,723.
Consolidated cost of sales for the three months ended
December 31, 1998 was $8,907,103, or 58.3% of sales. The
component breakdown of this category was as follows:
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U.S. Apparel $361,767
Play Co. $8,545,336
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Consolidated operating expenses were $4,602,710, or 30.1% of
sales, for the three months ended December 31, 1998.
Consolidated depreciation and amortization expense included
in the consolidated operating expenses for the three months ended
December 31, 1998 was $325,210.
For the three months ended December 31, 1998, subsequent to
the adjustment for the minority interest in the net income of
subsidiaries, the Company reported consolidated net income of
$540,735, or $0.179 per common share.
Nine months ended December 31, 1998 compared to the nine months ended
December 31, 1997:
Consolidated sales for the nine months ended December 31,
1998 were $29,254,456. The consolidated sales for the nine months
ended December 31, 1998 include sales of Play Co. in the amount
of $27,171,662, and sales reported by U.S. Apparel amounting to
$2,076,484.
Consolidated cost of sales for the nine months ended
December 31, 1998 were $17,087,346, or 58.4% of sales. The
component breakdown of this category was as follows:
U.S. Apparel $1,421,625
Play Co. $15,665,721
<PAGE>
Consolidated operating expenses were $10,698,168, or 36.6%
of sales, for the nine months ended December 31, 1998.
Consolidated depreciation and amortization expense included
in the consolidated operating expenses for the nine months ended
December 31, 1998 was $707,891.
For the nine months ended December 31, 1998, subsequent to
the adjustment for the minority interest in the net income of
subsidiaries, the Company reported consolidated net loss of
183,922, or $0.062 per common share.
Liquidity and Capital Resources
At December 31, 1998, the Company reported cash and cash
equivalents of $2,216,918, working capital of $6,137,505, and
stockholders' equity of $1,800,066.
At March 31, 1998, the Company reported cash and cash
equivalents of $1,635,058, working capital of $6,250,401, 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 nine months ended December 31, 1998, operating
activities provided funds in the amount of $1,491,814. The
Company's consolidated net loss was $183,922, after adjustment
for the minority interest in the net income of subsidiaries.
The Company used $2,300,169 in investing activities in the
nine months ended December 31, 1998, primarily as a result of its
subsidiary's (Play Co.) purchase of property and equipment in
relation to new store openings.
The Company provided $1,390,215 in financing activities.
As a result of these operating, investing, and financing
activities, the Company reported a consolidated increase in cash
of $581,860.
Trends Affecting Liquidity, Capital Resources and Operations
As a result of its current merchandise mix, which emphasizes
specialty and educational toys, Play Co. enjoyed significant
sales and gross profits in the nine months ended December 31,
1998.
Play Co.'s current sales efforts focus primarily on a
defined geographic segment consisting of the southern California
area and the Southwestern and Midwestern 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 chose locations for new stores, (iv) Play Co.'s
ability to purchase products at favorable prices and on terms,
and (v) the effects of increased competition.
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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, Walmart, and
K-Mart. Competitors that emphasize specialty and educational toys
include Disney Stores, Warner Brothers 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 an as-needed basis.
U.S. Apparel typically manufactures its products upon receipt of
orders from customers and delivers finished goods within four
weeks of receipt of an order. In anticipation of reorders from
customers, U.S. Apparel generally manufactures 10% more goods
than are ordered by such 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
30-40% of its net sales falling within its 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, which will make its 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.
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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:
On November 10, 1998, the Company held an annual meeting of its
stockholders, at which the Company's stockholders voted to elect four Directors
to the Company's Board of Directors. The results of the election were disclosed
in the Company's Form 10-QSB for the quarter ended September 30, 1998.
Item 5. Other Information: None
Item 6. Exhibits and Reports on Form 8-K:
(a) The following exhibits are filed with this Form 10-QSB for the quarter
ended December 31, 1998 except those designated by an asterisk (*) which shall
be filed by amendment hereto:
27.01 Financial Data Schedule
(b) During the quarter ended December 31, 1998, no reports on Form 8-K were
filed with the Securities and Exchange Commission.
<PAGE>
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, on this 3rd day of March 1999.
MULTIMEDIA CONCEPTS INTERNATIONAL, INC.
By: /s/ Ilan Arbel
Ilan Arbel
President
By: /s/ Allean Goode
Allean Goode
Treasurer
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<ARTICLE> 5
<LEGEND>
EXHIBIT 27.01
FINANCIAL DATA SCHEDULE
ARTICLE 5 OF REGULATION S-X
This schedule contains summary financial information extracted from Balance
Sheet, Statement of Operations, Statement of Cash Flows and Notes thereto
incorporated in Part 1, Item 1, of this Form 10-QSB and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> dec-31-1998
<CASH> 2,216,918
<SECURITIES> 0
<RECEIVABLES> 285,129
<ALLOWANCES> 0
<INVENTORY> 10,913,770
<CURRENT-ASSETS> 15,518,174
<PP&E> 8,534,942
<DEPRECIATION> (4,189,628)
<TOTAL-ASSETS> 22,235,130
<CURRENT-LIABILITIES> 9,380,669
<BONDS> 0
0
0
<COMMON> 3,005
<OTHER-SE> 1,797,061
<TOTAL-LIABILITY-AND-EQUITY> 22,235,130
<SALES> 29,254,456
<TOTAL-REVENUES> 29,318,386
<CGS> 17,087,346
<TOTAL-COSTS> 17,087,346
<OTHER-EXPENSES> 11,927,920
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 644,606
<INCOME-PRETAX> (183,922)
<INCOME-TAX> 0
<INCOME-CONTINUING> (183,922)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (183,922)
<EPS-PRIMARY> (0.062)
<EPS-DILUTED> (0.062)
</TABLE>
