-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VKWY0MlmdqhUt/uWEgYpTURIq0hRzbWZAyV5LBg1Pjj5HbZYz+eOrpeNzDQB6s2L 4hQkinrXsUIozInVsR4OkQ== 0000891092-99-000296.txt : 19990519 0000891092-99-000296.hdr.sgml : 19990519 ACCESSION NUMBER: 0000891092-99-000296 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990518 FILER: COMPANY DATA: COMPANY CONFORMED NAME: 4 KIDS ENTERTAINMENT INC CENTRAL INDEX KEY: 0000058592 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 132691380 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-07843 FILM NUMBER: 99629233 BUSINESS ADDRESS: STREET 1: 1414 AVE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2127587666 MAIL ADDRESS: STREET 1: 1414 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10019 FORMER COMPANY: FORMER CONFORMED NAME: LEISURE CONCEPTS INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN LEISURE INDUSTRIES INC DATE OF NAME CHANGE: 19740822 10-Q/A 1 FORM 10-Q/A FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the Quarterly Period Ended March 31, 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 NO. 0-7843 4KIDS ENTERTAINMENT, INC. (Exact name of registrant as specified in its Charter) NEW YORK (State of Incorporation) 13-2691380 (I.R.S. Employer Identification Number) 1414 Avenue of the Americas, New York, New York (Address of Principal Executive Offices) 10019 (Zip Code) (212) 758-7666 (Registrant's Telephone Number, Including Area Code) NOT APPLICABLE (Former Name, Former Address and Former Fiscal Year if changed since last report) Indicate by a check mark whether the registrant: (1) has filed all annual, quarterly and other reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or 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 _______ Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the close of the latest practicable date. Class Outstanding at May 14, 1999 ----- --------------------------- Common Stock, $.01 Par Value 5,343,727 4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES INDEX PAGE NUMBER PART I: FINANCIAL INFORMATION Item 1: Financial Statements Consolidated Balance Sheets 1 March 31, 1999 (Unaudited) and December 31, 1998. Consolidated Statements of Income 2 Three Months Ended March 31, 1999 and 1998 (Unaudited) Consolidated Statements of Cash Flows 3 Three Months Ended March 31, 1999 and 1998 (Unaudited) Notes to Consolidated Financial 4 Statements (Unaudited) Item 2: Management's Discussion and Analysis 6 of Financial Condition and Results of Operations PART II: OTHER INFORMATION 11 4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, DECEMBER 31, 1999 1998 ----------- ------------ ASSETS (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents $16,202,265 $ 9,749,956 Accounts receivable, net 8,532,829 17,694,262 Film inventory-net 1,241,530 1,079,677 Prepaid refundable income taxes 366,095 324,864 Prepaid expenses and other current assets 1,107,840 1,151,974 ----------- ----------- Total current assets 27,450,559 30,000,733 ----------- ----------- FURNITURE, FIXTURES AND COMPUTER EQUIPMENT - (Net) 165,603 174,783 FILM INVENTORY - Noncurrent 1,875,000 1,875,000 ACCOUNTS RECEIVABLE - Noncurrent, net 2,429,442 2,627,680 SECURITY DEPOSITS AND OTHER ASSETS 307,955 282,959 ----------- ----------- TOTAL ASSETS $32,228,559 $34,961,155 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Due to licensors $ 6,850,592 $ 3,690,582 Media payable 3,732,689 11,460,913 Accounts payable and accrued expenses 739,893 1,285,624 Taxes payable 1,195,154 1,750,799 Current Deferred Tax Liability 989,000 989,000 ----------- ----------- Total current liabilities 13,507,328 19,176,918 NONCURRENT DEFERRED TAX LIABILITY 379,012 379,012 ----------- ----------- Total liabilities 13,886,340 19,555,930 ----------- ----------- STOCKHOLDERS' EQUITY Preferred stock, $.01 par value - authorized, 3,000,000 shares; none issued Common stock, $.01 par value - authorized, 20,000,000 shares; issued, 5,027,153 and 4,594,103 shares 50,271 45,941 Additional paid-in capital 7,134,864 4,946,830 Retained earnings 11,157,084 10,412,454 ----------- ----------- Total stockholders' equity 18,342,219 15,405,225 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $32,228,559 $34,961,155 =========== =========== See accompanying notes to consolidated financial statements -1- 4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) THREE MONTHS ENDED MARCH 31, MARCH 31, 1999 1998 ----------- ------------ NET REVENUES: $ 3,251,941 $ 2,403,378 COST AND EXPENSES: Selling, general and administrative cost 2,090,886 1,535,853 Amortization of capitalized film cost 0 455,680 ----------- ----------- TOTAL COST AND EXPENSES 2,090,886 1,991,533 ----------- ----------- 1,161,055 411,845 INTEREST INCOME 145,575 76,458 ----------- ----------- INCOME BEFORE INCOME TAX PROVISION 1,306,630 488,303 INCOME TAX PROVISION (562,000) (210,000) ----------- ----------- NET INCOME $ 744,630 $ 278,303 =========== =========== PER SHARE AMOUNTS Basic Earnings per share $ 0.16 $ 0.06 =========== =========== Diluted Earnings per share $ 0.13 $ 0.05 =========== =========== See accompanying notes to consolidated financial statements. -2- 4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) THREE THREE MONTHS ENDED MONTHS ENDED MARCH 31, MARCH 31, 1999 1998 ------------- ------------ OPERATING ACTIVITIES: Net income $ 744,630 $ 278,303 Adjustments to reconcile net income to net cash (used in)/provided by operating activities: Depreciation and amortization 21,577 19,341 Amortization of capitalized film cost -- 455,680 Changes in assets and liabilities (using)/providing cash: Accounts receivable 9,359,671 18,750,261 Film inventory (161,853) (90,761) Prepaid expenses and other current assets 44,134 (154,636) Prepaid/Refundable income taxes (41,231) (7,461) Security deposits and other assets (24,996) 6,983 Due to licensors 3,160,010 540,105 Accounts payable and accrued expenses (545,731) 259,199 Taxes payable (555,645) 158,672 Media payable (7,728,224) (15,202,669) ------------ ------------ Net cash (used in) provided by operating activities 4,272,342 5,013,017 ------------ ------------ INVESTING ACTIVITIES: Purchase of furniture and fixtures (12,397) (33,561) ------------ ------------ Net cash (used in) investing activities (12,397) (33,561) ------------ ------------ FINANCING ACTIVITIES: Proceeds from exercise of stock options and related tax benefit 2,192,364 -- ------------ ------------ Net cash provided by financing activities 2,192,364 -- ------------ ------------ NET INCREASE IN CASH AND CASH EQUIVALENTS 6,452,309 4,979,456 CASH AND CASH EQUIVALENTS, BEGINNING PERIOD 9,749,956 2,805,573 ------------ ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD $ 16,202,265 $ 7,785,029 ============ ============ See accompanying notes to consolidated financial statements. -3- 4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 1999 Note 1 The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes as required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the interim financial information have been included. Operating results for three months ended March 31, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. For further information, refer to the consolidated financial statements and footnotes thereto included in 4Kids Entertainment, Inc.'s (the "Company") Form 10-K for the year ended December 31, 1998. Note 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: For a summary of significant accounting policies reference is made to the Company's report on Form 10-K previously filed for the year ended December 31, 1998. Note 3 NET INCOME PER SHARE: The Company applies Statement of Accounting Standards("SFAS") No. 128 "Earnings per Share" which requires the computation and presentation of earnings per share ("EPS")to include basic and diluted EPS. Basic EPS is computed based solely on the weighted average number of common shares outstanding during the period. Diluted EPS reflects all potential dilution of common stock. For the three months ended March 31, 1999, the weighted average number of common shares outstanding for basic and diluted EPS was 4,770,213 and 5,679,156 respectively. For the three months ended March 31, 1998, the weighted average number of common shares outstanding for basic and diluted EPS was 4,417,247 and 5,105,912 respectively. -4- Note 4 CREDIT FACILITY: The Company's line of credit (the Credit Facility) from Chase Bank expires June 30, 1999. Under the terms the Company may borrow from time to time for general working capital purposes up to $2 million. Any borrowings under the credit facility would be secured by the Company's receivables. The Credit Facility provides for an interest rate of 1% over the bank's prime rate and an annual commitment fee of 3/4%. As of May 14, 1999 the Company had no borrowings under the Credit Facility. Note 5 STOCK SPLIT On March 29, 1999, the Company's Board of Directors approved the declaration of a 3 for 2 stock split effective for shareholders of record on April 15, 1999. The accompanying financial statements have been retroactively restated to reflect the stock split. Note 6 SEGMENT AND RELATED INFORMATION The Company applies Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"), "Disclosures About Segments of an Enterprise and Related Information". The Company has three reportable segments; Licensing, Media Buying Planning and Television Distribution and Television Production. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company does not have any inter-segment sales or transfers. The Company's reportable segments are strategic business units which, while managed separately, work together as a vertically integrated Entertainment Company.
MEDIA & TELEVISION LICENSING TV DISTRIBUTION PRODUCTION TOTAL --------- --------------- ---------- ----- 3 Months Ended March 31, 1999 Revenues $ 2,567,720 $ 482,575 $ 201,646 $ 3,251,941 Amortization -- -- -- -- Segment Profit (Loss) 1,391,273 (142,195) 57,552 1,306,630 Segment Assets 18,798,490 9,909,421 3,520,648 32,228,559 1998 Revenues $ 1,876,710 $ 320,988 $ 205,680 $ 2,403,378 Amortization -- -- 455,680 455,680 Segment Profit (Loss) 1,039,072 (273,458) (277,311) 488,303 Segment Assets 10,391,489 10,055,234 4,905,965 25,352,688
-5- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS: The Company receives revenues from a number of sources, principally licensing, media buying and television distribution. The Company typically derives a substantial portion of its licensing revenues from a small number of properties, which properties usually generate revenues only for a limited period of time. Because the Company's licensing revenues are highly subject to changing fashion in the toy and entertainment business, its licensing revenues from year to year from particular sources are subject to dramatic increases and decreases. It is not possible to precisely anticipate the length of time a project will be commercially successful, if at all. Popularity of properties can vary from months to years. As a result, the Company's revenues and net income may fluctuate significantly between comparable periods. The Company's revenues have historically been primarily derived from the license of toy and game concepts. Thus a substantial portion of the Company's revenues and net income are subject to the seasonal variations of the toy and game industry. Typically, a majority of toy orders are shipped in the third and fourth calendar quarters. In addition the Company's media buying subsidiary concentrates its activities on the youth oriented market. As a result, most of its revenue is earned in the fourth quarter when the majority of toy and video game advertising occurs. As a result, in the Company's usual experience, its net income during the second half of the year will generally be greater than during the first half of the year. However, the Company has little control over the timing of guarantee and minimum royalty payments, some of which are made upon the execution and delivery of license agreements. Three Months Ended March 31, 1999 Compared to the Three Months Ended March 31, 1998 Consolidated net revenue increased 35% ($848,563)to $3,251,941 for the three month period ended March 31, 1999 as compared to the same period in 1998. The increase in net revenue for the -6- three month period was primarily due to increased revenue related to licensing activities. Increased licensing revenue was recognized in the three month period from the World Championship Wrestling "WCW/NWO" and "Pokemon" properties. The Company's media buying and television distribution division recognized increased revenue over the three month period due to an increase in television distribution activities related to the Pokemon television program. The increase was partially offset by a decrease in media buying activity due to the loss of Tiger Electronics media business. Effective January 1, 1999, the Company will no longer be the media agency for Tiger due to Tiger's acquisition by Hasbro in 1998. Selling, general and administrative expenses increased 36% or $555,033 three month period ended March 31, 1999 when compared to the year ago period. These increases were primarily due to costs associated with an increase in payroll and marketing costs associated with the Company's expanded licensing activities. Additionally, bonus accruals, which are contractually based on pre-tax income levels were higher in 1999 as a result of higher pre-tax income. At March 31, 1999 there were $3,116,530 of capitalized film production costs which primarily relate to 26 episodes of "WMAC Masters" and work related to the adaptation of episodes 53 to 104 of the Pokemon episodes for distribution in the United States. "WMAC Masters" is a weekly syndicated television program produced by the Company's 4Kids Productions subsidiary. The 1998 amortization relates to the "WMAC Masters" television program. At March 31, 1999 the percentage of total unamortized film cost expected to be amortized within the next three years exceeds 70%. -7- The Company periodically evaluates its anticipated revenue from film production and, consequently, amortization rates may change as a result of such estimates. In accordance with this policy, the Company recognized approximately $250,000 in additional amortization expense during the three month period ended March 31, 1998 which all related to the WMAC Masters film inventory. Interest income increased by $69,117 for the three month period ending March 31, 1999 as compared to the same period in 1998. This increase is attributable to higher levels of invested cash during the first three months of the current year as compared to the same period in 1998. LIQUIDITY AND CAPITAL RESOURCES: At March 31, 1999 the Company had working capital of $13,943,231 as compared to working capital of $10,823,815 at December 31, 1998, an increase in working capital of $3,119,416. Cash and cash equivalents increased by $6,452,309 to $16,202,265 from December 31, 1998. The increase in cash and cash equivalents is due primarily to the seasonality of the Company"s business and the timing of advance payments due on new licensing agreements. The Company generates significantly higher receivables and payables during the fourth quarter of the year primarily related to its media buying and licensing activities. Such amounts are collected in the first quarter. Accounts receivable, net (current and noncurrent) decreased from $20,321,942 at December 31, 1998 to $10,962,271 at March 31, 1999. The decrease is primarily due to the Company's media buying activities. When the Company assumes payment obligation for the media it places on behalf of its clients, the Company records a receivable from its clients and a corresponding media payable for the gross amount of the media due. The seasonality of the Company's business tends to generate higher receivables in the fourth quarter which are generally collected in the first quarter. There was a corresponding decrease in media payable of $7,728,224. Amounts due to licensors, which represents the owner's share of royalties collected, increased by $3,160,010 to $6,850,592 from December 31, 1998. The increase is primarily due to higher amounts of royalties and advances collected during the quarter which are payable to licensors after the close of the quarter. -8- In the opinion of management, the Company will be able to satisfy its foreseeable financial obligations from its current working capital and credit facility. As described in Note 4 to the financial statements, the Company has established a $2,000,000 credit facility with Chase Manhattan Bank for general working capital purposes. As of May 14, 1999 there were no borrowings under this facility. Year 2000 Compliance Overview The Year 2000 issue is primarily the result of computer programs only accepting a two digit date code, as opposed to four digits, to indicate the year. Beginning in the Year 2000, and in certain instances prior to the Year 2000, these date code fields will need to accept four digit entries to distinguish 21st century dates from 20th century dates. As a result, the Company"s date critical functions may be adversely affected unless these computer systems and software products are, or become, able to accept four digit entries. -9- Internal systems and equipment The Company has commenced a comprehensive program consisting of identifying, assessing and if necessary, upgrading and/or replacing its systems and equipment that may be vulnerable to Year 2000 problems. The first stage of this program, identifying the systems and equipment, has been substantially completed. The Company has prioritized the identified items as either critical or non-critical to the operations of the Company. The Company has made substantial progress through the second and third stages of this program, assessing and upgrading and/or replacing the equipment it has deemed to be non-compliant. The Company is also in the beginning stage of developing a plan to test its entire system for Year 2000 compliance. The Company believes that it will have completed all of its necessary upgrades and/or replacements and the testing of its systems by June, 1999. Third party relationships The Company has begun to formally communicate with its significant suppliers and customers to determine if those parties have appropriate plans to remedy Year 2000 issues when their systems may impact the operations of the Company. There can be no assurance, however, that the systems of other companies on which the Company"s processes rely will be timely converted, or that a failure to successfully convert by another company, or a conversion that is incompatible with the Company"s systems, would not have an impact on the Company"s operations. The Company believes that by June 1999 it will substantially complete its assessment of the status of its significant customers" and suppliers" compliance with the Year 2000 issues. Contingency plans Based on the assessment effort to date, the Company has focused on three separate contingency plans (1) if the Company"s systems are non-compliant (2) if the Company"s customers are non-compliant and (3) if the Company"s suppliers are non-compliant. The Company is in the early stages of developing these plans and believes that it will be able to fully determine its worst case scenarios by June 1999. There can be no assurance that the Company will be able to have a contingency plan in place for a significant supplier and/or customer that does not become Year 2000 compliant. Costs/Risks Management currently estimates that the cost, in connection with bringing its own systems and equipment into compliance, will be less than $50,000 for fiscal 1999 and does not expect the total cost to exceed $100,000. Although the Company is not aware of any material operational issues or costs associated with preparing its internal systems for the Year 2000, there can be no assurance that there will not be a delay in, or increased costs associated with, the implementation of the necessary systems and changes to address the Year 2000. Potential sources of risk include but are not limited to (1) the inability of principal clients and licensees to be Year 2000 compliant, which could result in delays in product deliveries from such clients and licensees, (2) the inability of the Company"s clients and licensees to become compliant, which could impact their ability to sell product or report royalties in a timely manner resulting in a disruption of the Company"s cash flow, and (3) disruption of television broadcast signals, including satellite distribution and commercial integration vendors as a result of the general failure of systems and necessary infrastructure such as electrical supply. Forward-looking Statements This quarterly report contains forward-looking statements. Due to the fact that the Company faces competition from toy companies, motion picture studios and other licensing companies, and the uncertainty of public"s response to the Company"s properties, actual results or outcomes may differ materially from any such forward-looking statements. -10- PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders None Item 6. Exhibits and Reports on Form 8-K a. Exhibits 27 Financial Data Schedule b. Reports on Form 8-K None 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: May 17, 1999 4KIDS ENTERTAINMENT, INC. By: /s/ Alfred R. Kahn --------------------------- Alfred R. Kahn Chairman of the Board and Chief Executive Officer By: /s/ Joseph P. Garrity --------------------------- Joseph P. Garrity Executive Vice President Chief Financial Officer -11-
EX-27 2 FDS --
5 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE COMPANY'S UNAUDITED FINANCIAL STATEMENTS FOR THE THREE MONTHS END MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1999 MAR-31-1999 16,202,265 0 11,478,942 516,671 0 27,450,559 1,570,253 1,404,650 32,228,559 13,507,328 0 0 0 50,271 18,291,948 32,228,559 0 3,251,941 0 0 0 0 0 1,306,630 562,000 744,630 0 0 0 744,630 0.16 0.13
-----END PRIVACY-ENHANCED MESSAGE-----