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, 1999
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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1385 Broadway, Suite 814, 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 August 23, 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 June 30, 1999 (unaudited) and
March 31, 1999 3
Consolidated Statements of Operations (unaudited) for the Three
Months Ended June 30, 1999 and 1998 4
Consolidated Statement of Cash Flows (unaudited) for the Three 5
Months Ended June 30, 1999 and 1998
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 June 30, 1999 and March 31, 1999
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June 30, March 31,
1999 1999
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS:
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Cash and cash equivalents ........................................................... $ 1,775,303 $ 1,110,966
Advances to supplier ................................................................ 552,372 474,572
Accounts receivable ................................................................. 273,099 692,266
Inventories ......................................................................... 12,357,019 11,595,284
Prepaid expenses and other current assets ........................................... 1,393,311 1,315,851
Total current assets ...................................................... 16,351,104 15,188,939
PROPERTY AND EQUIPMENT-NET .......................................................... 5,584,910 5,350,285
OTHER ASSETS:
Advances to equity investee ......................................................... 140,000 140,000
Due from affiliates ................................................................. -- 136,662
Deposits and other assets ........................................................... 2,950,841 2,783,430
3,090,841 3,060,092
Total assets .............................................................. $ 25,026,855 $ 23,599,316
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .................................................................... $ 13,319,562 $ 9,653,563
Accrued expenses and other liabilities .............................................. 421,610 689,580
Current portion of notes payable and capital lease obligations ...................... 1,260,530 1,352,197
Due to affiliates ................................................................... 85,000 423,888
Total current liabilities ...................................................... 15,086,702 12,119,228
LONG-TERM LIABILITIES:
Borrowings under financing agreement ................................................ 8,263,713 7,814,666
Note payable and current lease obligations, net of current portion .................. 524,396 585,681
Deferred rent liability ............................................................. 129,533 126,769
Total long-term liabilities ............................................... 8,917,642 8,527,116
Total liabilities ......................................................... 24,004,344 20,646,344
MINORITY INTEREST IN SUBSIDIARIES (Note 3) .......................................... (355,054) 1,003,700
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) ......................................................... (11,727,445) (11,155,738)
1,377,565 1,949,272
Total liabilities and stockholders' equity ................................ $ 25,026,855 $ 23,599,316
============ ============
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MULTIMEDIA CONCEPTS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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For the Three Months Ended
June 30, June 30,
1999 1998
Restated
(Note 6)
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REVENUES, net sales ................................................ $ 7,497,800 $ 7,319,749
COSTS AND EXPENSES:
Cost of sales .................................................... 4,454,009 4,404,422
Operating expenses ............................................... 3,914,295 2,751,073
Depreciation ..................................................... 224,703 188,652
Total operating expenses ................................. 8,593,007 7,344,147
OPERATING INCOME (LOSS) ............................................ (1,095,207) (24,398)
OTHER INCOME
Interest and other income ........................................ 20,613 12,500
INTEREST EXPENSE:
Interest and finance charges ....................................... 284,664 138,452
Amortization of debt issuance costs ................................ 30,730 27,200
Total interest expense ................................... 315,394 165,652
Income (loss) before the effect of non-cash dividends on convertible
preferred stock .................................................. (1,389,988) (177,550)
Effect of non-cash dividends on convertible preferred stock ........ (540,473) (273,806)
INCOME (LOSS) BEFORE MINORITY INTERESTS ............................ (1,930,461) (451,356)
Minority interests (Note 3) ....................................... 1,358,754 267,232
NET INCOME (LOSS) .................................................. $ (571,707) $ (184,124)
=========== ===========
Basic and diluted income and (loss) per common share before
minority interest ................................................ $ (.64) $ (.15)
Minority interest in net income (loss) of consolidated subsidiary .. $ .45 $ .09
Basic and diluted income (loss) per common share ................... $ (.19) $ (.06)
=========== ===========
Weighted average number of common shares outstanding ............... 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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Three Months Ended
June 30, June 30,
1999 1998
Restated
(Note 6)
CASH FLOWS FROM OPERATING ACTIVITIES:
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Net income (loss) ................................................................. $ (571,707) $ (184,124)
Adjustments to reconcile net loss to cash (used) provided for operating activities:
Depreciation and amortization .................................................. 224,703 188,652
Deferred rent .................................................................. 2,765 4,552
Minority interests in net losses of subsidiaries ............................... (1,358,754) (267,232)
Changes in assets and liabilities:
(Increase) decrease in advances to suppliers ...................................... (77,800) --
Decrease in accounts receivable ................................................... 419,167 55,415
(Increase) in merchandise inventories ............................................. (761,735) (1,473,323)
(Increase ) decrease in prepaid expenses and other current assets ................. (77,460) 22,772
(Increase) decrease in deposits and other assets .................................. (167,411) 148,680
Increase in accounts payable ...................................................... 3,665,998 2,319,654
Increase in accrued expenses and other liabilities ................................ (267,970) 230,538
Total adjustments ....................................................... 1,601,503 1,229,708
Net cash provided by operating activities ............................... 1,029,796 1,045,584
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ................................................ (196,653) (461,933)
Net cash provided by (used for) investing activities .................... (196,653) (461,933)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under financing agreement of subsidiary ............................ 449,047 1,076,497
Repayment of notes payable of subsidiary .......................................... (415,627) (1,516,166)
Loans received from (repaid to) affiliate ......................................... (202,226) (90,000)
Net cash provided by (used for) financing activities .................... (168,806) (529,669)
NET INCREASE (DECREASE) IN CASH ................................................... 664,337 53,982
Cash, beginning of period ......................................................... 1,110,966 1,635,058
Cash, end of period ............................................................... $ 1,775,303 $ 1,689,040
===========
Supplemental disclosure of cash flow information:
Interest paid ..................................................................... $ 315,394 $ 165,652
Taxes paid ........................................................................ $ -- $ --
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MULTIMEDIA CONCEPTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
(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
three months ended June 30, 1999 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 year ended March 31, 1999, as filed
with the Securities and Exchange Commission.
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 February 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 and boys.
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 April 1998, United Textiles, having sustained
continuous losses, discontinued operating activities.
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NOTE 2 - DESCRIPTION OF COMPANY (continued):
United Textiles owns 44.9% 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, 44.9%, in
Play Co. The minority interest liability represents the minority
shareholders' portion, 21.5%, of United Textiles' equity and,
55.1%, of Play Co.'s equity at June 30, 1999.
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.
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.
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.
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NOTE 5 - 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 its financial position. Furthermore, the Company
does not believe that it will be required to significantly modify
its internal computer systems. However, if internal systems do
not correctly recognize date information when the year changes to
2000, there could be an adverse impact on the Company's
operations. Furthermore, there can be no assurances that another
entity's failure to ensure year 2000 capability would not have an
adverse effect on the Company and its subsidiaries, United
Textiles and Play Co.
NOTE 6 - RESTATEMENT OF FINANCIAL STATEMENTS - JUNE 30, 1998:
The consolidated financial statements for the three months
ended June 30, 1998 have been restated to reflect a restatement
by Play Co. of its dividend attributable to the beneficial
conversion feature of its Series E preferred stock. This
restatement resulted in an increase of $106,911 in its originally
reported net loss.
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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 June 30, 1999 compared to the three months
ended June 30, 1998
Consolidated sales for the three months ended June 30, 1999 were
$7,497,800. Consolidated sales for the three months ended June 30, 1998 were
$7,319,749. The increase of $178,051 or 2.4% is primarily due to sales
contributions from Play Co.'s new stores.
Consolidated cost of sales for the three months ended June 30, 1999 was
$4,454,009, or 59.4% of sales, as compared to the three months ended June 30,
1998 in which the cost of sales was $4,404,422, or 60.2% of sales. The increase
of $49,587 or 1.2% is primarily associated with the opening of new stores by
Play Co.
Consolidated operating expenses were $4,138,998, or 55.2% of sales, for the
three months ended June 30, 1999 as compared to the three months ended June 30,
1998 in which the operating expenses were $2,939,725, or 40.2% of sales. The
increase of $1,199,273, or 40.8%, is primarily due to an increase in payroll and
related expenses as well as an increase in rent expense associated with the
opening of new retail stores by Play Co.
Consolidated depreciation and amortization expense included in the
operating expenses for the three months ended June 30, 1999 was $224,703. The
consolidated depreciation and amortization expense included in the operating
expenses for the three months ended June 30, 1998 was $188,652.
For the three months ended June 30, 1999, subsequent to the adjustment for
the minority interest in the net loss of subsidiaries, the Company reported a
consolidated net loss of $571,707, or $0.19 per common share. For the three
months ended June 30, 1998, the Company reported a consolidated net loss of
$184,124, or $0.06 per common share.
Liquidity and Capital Resources
At June 30, 1999, the Company reported cash and cash equivalents of
$1,775,303, working capital of $1,264,402, and stockholders' equity of
$1,377,565.
At March 31, 1999, the Company reported cash and cash equivalents of
$1,110,966, working capital of $3,069,711, and stockholders' equity of
$1,949,242.
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.
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During the three months ended June 30, 1999, operating activities provided
funds in the amount of $1,029,796 as compared to $1,045,584 provided by
operating activities in the three months ended June 30, 1998.
The Company used $196,653 in investing activities in the three months ended
June 30, 1999 as compared to a use of $461,933 in the three months ended June
30, 1998. The use is primarily due, in both periods, to the Company's
subsidiary's (Play Co.) purchase of property and equipment in relation to new
store openings.
The Company used $168,806 and $529,669 for the three months ended June 30,
1999 and June 30, 1998, respectively. This reduction is primarily due to a lower
level of loans repayment in the period ended June 30, 1999.
As a result of these operating, investing, and financing activities, the
Company reported a consolidated increase in cash of $644,337 for the three
months ended June 30, 1999 and $53,982 for the three months ended June 30, 1998.
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 fiscal
year 1999.
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)
the general economic condition 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 product 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,
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.
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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.
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 its financial
position. Furthermore, the Company does not believe that it will be required to
significantly modify its internal computer systems. However, if internal systems
do not correctly recognize date information when the year changes to 2000, there
could be an adverse impact on the Company's operations. Furthermore, there can
be no assurance that another entit s failure to ensure year 2000 capability
would not have an adverse effect on the Company and its subsidiaries, United
Textiles and Play. Co.
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 and Use of Proceeds: 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:
(a) The following exhibits are filed with this Form 10-QSB for the quarter ended
June 30, 1999:
27.1 Financial Data Schedule
(b) During the quarter ended June 30, 1999, no reports on Form 8-K were filed
with the Securities and Exchange Commission.
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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, on this 24th day of August 1999.
MULTIMEDIA CONCEPTS INTERNATIONAL, INC.
By: /s/ Ilan Arbel
Ilan Arbel
President
By: /s/ Allean Goode
Allean Goode
Treasurer
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EXHIBIT 27.1
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> 3-mos
<FISCAL-YEAR-END> mar-31-2000
<PERIOD-END> jun-30-1999
<CASH> 1,775,303
<SECURITIES> 273,099
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 12,357,019
<CURRENT-ASSETS> 16,351,104
<PP&E> 9,936,432
<DEPRECIATION> (4,351,522)
<TOTAL-ASSETS> 25,026,855
<CURRENT-LIABILITIES> 15,086,702
<BONDS> 0
0
0
<COMMON> 3,005
<OTHER-SE> 1,374,560
<TOTAL-LIABILITY-AND-EQUITY> 25,026,855
<SALES> 7,497,800
<TOTAL-REVENUES> 7,518,413
<CGS> 4,454,009
<TOTAL-COSTS> 4,454,009
<OTHER-EXPENSES> 4,138,998
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 315,394
<INCOME-PRETAX> (571,707)
<INCOME-TAX> 0
<INCOME-CONTINUING> (571,707)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (571,707)
<EPS-BASIC> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
