-----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, MjtnGUWsFNzfvfclY/QfcF1AKi5QYvhRGGqE0Zj3YTH6z6YPn+zXuYAjD7H3gX/h RWaEYqM1wi3gBts1NVAiKg== 0000891092-99-000493.txt : 19990817 0000891092-99-000493.hdr.sgml : 19990817 ACCESSION NUMBER: 0000891092-99-000493 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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 SEC ACT: SEC FILE NUMBER: 000-07843 FILM NUMBER: 99693316 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 1 FORM 10-Q 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 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 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 August 13, 1999 ----- ------------------------------ Common Stock, $.01 Par Value 5,495,578 4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES INDEX PAGE NUMBER PART I: FINANCIAL INFORMATION Item 1: Financial Statements Consolidated Balance Sheets 1 June 30, 1999 (Unaudited) and December 31, 1998. Consolidated Statements of Income 2 Six Months Ended June 30, 1999 and 1998 (Unaudited) Consolidated Statements of Cash Flows 3 Six Months Ended June 30, 1999 and 1998 (Unaudited) Notes to Consolidated Financial 4 Statements (Unaudited) Item 2: Management's Discussion and Analysis 7 of Financial Condition and Results of Operations PART II: OTHER INFORMATION 11
4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, DECEMBER 31, 1999 1998 ----------- ------------ ASSETS (UNAUDITED) - ------ CURRENT ASSETS: Cash and cash equivalents $19,259,714 $ 9,749,956 Accounts receivable, net 8,661,277 17,694,262 Film inventory-net 1,501,732 1,079,677 Prepaid refundable income taxes 3,737,327 324,864 Prepaid expenses and other current assets 1,140,637 1,151,974 ----------- ----------- Total current assets 34,300,687 30,000,733 ----------- ----------- FURNITURE, FIXTURES AND COMPUTER EQUIPMENT- (Net) 166,524 174,783 FILM INVENTORY - Noncurrent 1,875,000 1,875,000 ACCOUNTS RECEIVABLE - Noncurrent, net 2,144,795 2,627,680 SECURITY DEPOSITS AND OTHER ASSETS 307,955 282,959 ----------- ----------- TOTAL ASSETS $38,794,961 $34,961,155 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Due to licensors $ 8,319,690 $ 3,690,582 Media payable 2,818,956 11,460,913 Accounts payable and accrued expenses 1,182,819 1,285,624 Taxes payable 124,028 1,750,799 Current Deferred Tax Liability 989,000 989,000 ----------- ----------- Total current liabilities 13,434,493 19,176,918 NONCURRENT DEFERRED TAX LIABILITY 379,012 379,012 ----------- ----------- Total liabilities 13,813,505 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, 5,450,978 and 4,594,103 shares 54,510 45,941 Additional paid-in capital 11,841,725 4,946,830 Retained earnings 13,085,221 10,412,454 ----------- ----------- Total stockholders' equity 24,981,456 15,405,225 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $38,794,961 $34,961,155 =========== ===========
See notes to consolidated financial statements -1-
4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, JUNE 30, JUNE 30, 1999 1998 1999 1998 --------- --------- ---------- ----------- NET REVENUES: 5,506,954 2,198,131 $8,758,895 $ 4,601,509 COST AND EXPENSES: Selling, general and administrative cost 2,298,619 1,671,917 4,389,505 3,207,770 Amortization of capitalized film cost 0 390,632 0 846,312 ---------- ---------- ---------- ----------- TOTAL COST AND EXPENSES 2,298,619 2,062,549 4,389,505 4,054,082 ---------- ---------- ---------- ----------- 3,208,335 135,582 4,369,390 547,427 INTEREST INCOME 172,802 66,850 318,377 143,308 ---------- ---------- ---------- ----------- INCOME BEFORE INCOME TAX PROVISION 3,381,137 202,432 4,687,767 690,735 INCOME TAX PROVISION 1,453,000 87,016 2,015,000 297,016 ---------- ---------- ---------- ----------- NET INCOME $1,928,137 $ 115,416 $2,672,767 $ 393,719 ========== ========== ========== =========== PER SHARE AMOUNTS (Notes 3 and 5) Basic Earnings per common share $ 0.36 $ 0.03 $ 0.53 $ 0.09 ========== ========== ========== =========== Diluted Earnings per common share $ 0.31 $ 0.02 $ 0.45 $ 0.07 ========== ========== ========== =========== Pro Forma Earnings per common share - Basic $ 0.18 $ 0.02 $ 0.27 $ 0.05 ========== ========== ========== =========== Pro Forma Earnings per common share - Diluted $ 0.16 $ 0.01 $ 0.23 $ 0.04 ========== ========== ========== =========== Pro Forma Weighted average common shares outstanding - basic 10,574,026 8,853,562 10,057,228 8,844,028 ========== ========== ========== =========== Pro Forma Weighted average common shares outstanding - diluted 12,315,092 11,133,252 11,836,702 10,672,540 ========== ========== ========== ===========
See notes to consolidated financial statements. -2-
4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) SIX SIX MONTHS ENDED MONTHS ENDED JUNE 30, JUNE 30, 1999 1998 ------------ ------------ OPERATING ACTIVITIES: Net income $ 2,672,767 $ 393,719 Adjustments to reconcile net income to net cash (used in)/provided by operating activities: Depreciation and amortization 44,514 48,854 Amortization of capitalized film cost 0 846,312 Changes in assets and liabilities (using)/providing cash: Accounts receivable 9,515,870 19,835,509 Film inventory (422,055) (445,555) Prepaid expenses and other current assets 11,337 (421,605) Prepaid/Refundable income taxes (3,412,463) (136,247) Security deposits and other assets (24,996) 7,249 Due to licensors 4,629,108 853,492 Accounts payable and accrued expenses (102,805) (61,806) Taxes payable (1,626,771) 283,661 Media payable (8,641,957) (17,695,484) ------------ ------------ Net cash provided by operating activities 2,642,549 3,508,099 ------------ ------------ INVESTING ACTIVITIES: Purchase of furniture and fixtures (36,255) (71,664) ------------ ------------ Net cash used in investing activities (36,255) (71,664) ------------ ------------ FINANCING ACTIVITIES: Proceeds from exercise of stock options and related tax benefit 6,903,464 228,036 ------------ ------------ Net cash provided by financing activities 6,903,464 228,036 ------------ ------------ NET INCREASE IN CASH AND CASH EQUIVALENTS 9,509,758 3,664,471 CASH AND CASH EQUIVALENTS, BEGINNING PERIOD 9,749,956 2,805,573 ------------ ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD $ 19,259,714 $ 6,470,044 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: CASH PAID FOR: Interest $ -- $ -- ============ ============ Income Taxes $ 2,707,990 $ 51,327 ============ ============
See notes to consolidated financial statements. -3- 4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) June 30, 1999 Note 1 The accompanying 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 six months ended June 30, 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. The weighted average number of common shares outstanding for basic EPS was 5,287,013 and 5,028,614 for the three and six months ended June 30, 1999. The weighted average number of common shares outstanding for diluted EPS was 6,157,546 and 5,918,351 for the three and six months ended June 30, 1999. For the three and six months ended June 30,1998, the weighted average number of common shares outstanding for basic EPS was 4,426,781 and 4,422,014 respectively. For the three and six months ended June 30,1998, the weighted average number of common shares outstanding for diluted EPS was 5,566,626 and 5,336,270 respectively. The 1998 per share amounts have been restated to reflect the 3 for 2 stock split declared in March 1999. -4- Note 4 CREDIT FACILITY: The Company renegotiated the terms of the its Credit Facility with Chase Manhattan Bank on August 4,1999. Under the renegotiated terms, the Company may borrow, from time to time on an unsecured basis, up to $5 million for general working capital purposes. The Credit Facility, which requires annual renewal, provides for an interest rate equal to the bank's prime rate and an annual commitment fee of 1/2%. The Company's line of credit expires on June 30, 2000. As of August 13, 1999, the Company had no borrowings under the facility. Under the prior terms with the Company's Credit Facility with Chase Manhattan Bank, the Company could borrow, from time to time for general working capital purposes, up to $2 million. Any borrowings under the prior credit facility would be secured by the Company's receivables. The prior terms provided for an interest rate of 1% over the bank's prime rate and an annual commitment fee of 3/4%. Note 5 SUBSEQUENT EVENT AND PRO FORMA INFORMATION On August 12, 1999, the Company's Board of Directors approved the declaration of a 2 for 1 stock split effective for shareholders of record on September 1, 1999. The following table presents a retroactive reconciliation of the pro forma basic and diluted EPS for the three and six month periods ended June 30, 1999 and 1998 assuming that the stock split had occurred:
3 MONTHS JUNE 30, 1999 3 MONTHS JUNE 30, 1998 ---------------------------- ----------------------- BASIC DILUTED BASIC DILUTED Net Income $ 1,928,137 $ 1,928,137 $ 115,416 $ 115,416 ============== =========== ========== ========== Pro forma weighted average common shares outstanding 10,574,026 10,574,026 8,853,562 8,853,562 Pro forma additional shares due to: Assumed conversion of dilutive stock options 0 1,741,066 0 2,279,690 -------------- ----------- ---------- ---------- Pro forma adjusted weighted average common shares outstanding 10,574,026 12,315,092 8,853,562 11,133,252 ============== =========== ========== ========== Pro forma net income per share $ 0.18 $ 0.16 $ 0.02 $ 0.01 ============== =========== ========== ========== 6 MONTHS JUNE 30, 1999 6 MONTHS JUNE 30, 1998 ---------------------------- ----------------------- BASIC DILUTED BASIC DILUTED Net Income $ 2,672,767 $ 2,672,767 $ 393,719 $ 393,719 ================ =========== ========== ========== Pro forma weighted average common shares outstanding 10,057,228 10,057,228 8,844,028 8,844,028 Pro forma additional shares due to: Assumed conversion of dilutive stock options 0 1,779,474 0 1,828,512 -------------- ----------- ---------- ---------- Pro forma adjusted weighted average common shares outstanding 10,057,228 11,836,702 8,844,028 10,672,540 ============== =========== ========== ========== Pro forma net income per share $ 0.27 $ 0.23 $ 0.05 $ 0.04 ============== =========== ========== ==========
-5- 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 Six Months Ended --------- --------------- ---------- ----- June 30, 1999 Revenues $ 7,441,336 $ 1,183,987 $ 133,572 $ 8,758,895 Amortization -- -- -- -- Segment Profit 4,593,039 85,899 8,829 4,687,767 Segment Assets 25,032,035 10,126,719 3,636,207 38,794,961 1998 Revenues $ 3,690,383 $ 571,850 $ 339,276 $ 4,601,509 Amortization -- -- 846,312 846,312 Segment Profit (Loss) 1,847,314 (590,866) (565,713) 690,735 Segment Assets 11,260,430 7,248,770 4,811,495 23,320,695 -6- 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, game and television property 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 and Six Months Ended June 30, 1999 Compared to the three and Six Months Ended June 30, 1998 Consolidated net revenue increased 151% or $3,308,823 for the three month period ended June 30, 1999 as compared to the same period in 1998. The six month period increased 90% or $4,157,386 as compared to the six month period ended June 30, 1998. The increase in net revenue for the three and six month periods was primarily due to increased licensing revenue from the "Pokemon" property and from the World Championship Wrestling "WCW/NWO" property. The Company's media buying and television distribution division recognized increased revenue over the three and six 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 which was partially offset by new clients' advertising spending. -7- Selling, general and administrative expenses increased 37% or $626,702 and 37% or 1,181,735 for the three and six month periods ended June 30, 1999 when compared to the prior year periods. These increases were primarily due to contractually based bonus accruals calculated on pre-tax income levels, which were higher in 1999 as a result of higher pre-tax income. Additionally, the Company incurred increased payroll and marketing costs associated with the Company's expanded licensing activities. At June 30, 1999 there were approximately $3,377,000 of capitalized film production costs. These costs are primarily related to episodes of "WMAC Masters" and work related to the adaptation of episodes 53 to 104 of the Pokemon television series and the Pokemon feature film, "Mewtwo Strikes Back" coupled with a twenty minute short film entitled "Pikachu's Vacation", set for theatrical release in November 1999. "WMAC Masters" is a series of 26 half hour television programs produced by the Company's 4Kids Productions subsidiary. The 1998 amortization relates to the "WMAC Masters" television program. At June 30, 1999 the percentage of total unamortized film cost expected to be amortized within the next three years exceeds 70%. The Company periodically evaluates its anticipated revenue from film productions and, consequently, amortization rates may change as a result of such estimates. Interest income increased by approximately $106,000 and $175,000 for the three and six month periods ending June 30, 1999 as compared to the same periods in 1998. This increase is attributable to higher levels of invested cash compared to the same periods in 1998. LIQUIDITY AND CAPITAL RESOURCES: At June 30, 1999 the Company had working capital of $20,866,194 as compared to working capital of $10,823,815 at December 31, 1998, an increase in working capital of $10,042,379. Cash and cash equivalents increased by $9,509,758 to $19,259,714 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 and royalties due on 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 subsequent to December 31. Additionally, cash also increased due to proceeds from the exercise of stock options during the six month period ended June 30, 1999. Accounts receivable, net (current and noncurrent) decreased from $20,321,942 at December 31, 1998 to $10,806,072 at June 30, 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 $8,641,957. -8- Amounts due to licensors, which represents the owner's share of royalties collected, increased by $4,629,108 to $8,319,690 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. 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 5 to the financial statements, the Company has established a $5,000,000 credit facility with Chase Manhattan Bank for general working capital purposes. As of August 13, 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. 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 September, 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 September 1999 it will substantially complete its assessment of the status of its significant customers' and suppliers' compliance with the Year 2000 issues. -9- 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 complete them by September 1999. However, there can be no assurance that the Company will be able to have an effective contingency plan in place in the event a significant supplier and/or customer 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 1. Legal Proceedings Not Applicable Item 2. Changes in Securities and Use of Proceeds Not Applicable Item 3. Defaults upon Senior Securities Not Applicable Item 4. Submission of Matters to a Vote of Security Holders a. The Company held its Annual Meeting of Shareholders on April 29, 1999. b. The Directors elected at the anuual Meeting were: Alfred R. Kahn Robert Dunn Glick Gerald Rissman c.(i) The shareholders voted on the election of directors as follows: Name For Withheld ---- --- -------- Alfred R. Kahn 3,185,975 5,059 Robert Dunn Glick 3,142,880 48,154 Gerald Rissman 3,141,995 49,039 (ii) The shareholders voted on a proposal to approve the Company's 1999 Stock Option Plan as follows: FOR 2,925,618 --------- AGAINST 259,141 --------- ABSTENTIONS 6,275 --------- -11- (iii) The shareholders voted on a proposal to amend the Company's Certificate of Incorporation to increase the Company's authorized common stock to 20,000,000 shares, par value, $.01 as follows: FOR 2,939,431 --------- AGAINST 244,514 --------- ABSTENTIONS 7,089 --------- (iv) The shareholders voted on a proposal to approve Deloitte & Touche LLP as the Company's independent public accountants as follows: FOR 3,187,125 --------- AGAINST 1,200 --------- ABSTENTIONS 2,709 --------- Item 5. Other Information Not Applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit Number Description ------ ----------- 3(a) Certificate of Incorporation of Registrant, as amended 27 Financial Data Schedule (b) Reports on Form 8-K None -12- 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: August 13, 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 -13- EX-3.A 2 CERTIFICATE OF AMENDMENT EXHIBIT 3(a) CERTIFICATE OF AMENDMENT of CERTIFICATE OF INCORPORATION of 4KIDS ENTERTAINMENT, INC. - - - - - - - - - - - - - - - - - - - - - - - - - Under Section 805 of the Business Corporation Law - - - - - - - - - - - - - - - - - - - - - - - - - Pursuant to the provisions of Section 805 of the Business Corporation Law, the undersigned Executive Vice President and Secretary, respectively, of 4Kids Entertainment, Inc., hereby certify: FIRST: The name of the Corporation is 4Kids Entertainment, INC. SECOND: The Certificate of Incorporation of the Corporation was filed by the Department of State, Albany, New York on April 28, 1970 under the original name of American Leisure Industries, Inc. THIRD: The amendment of the Certificate of Incorporation of the Corporation effected by this Certificate of Amendment is to increase the number of shares of authorized common stock of the corporation. FOURTH: To accomplish the foregoing amendment, the first sentence of Article FOURTH of the Certificate of Incorporation of the Corporation, relating to the number of shares of authorized common stock of the Corporation, is hereby amended to read as follows: "FOURTH: The aggregate number of shares which the Corporation shall have authority to issue is Twenty-Three Million (23,000,000) shares divided into two classes of which Twenty Million (20,000,000) shares shall be designated as Common Stock, $.01 par value per share and Three Million (3,000,000) shares shall be designated as Preferred Stock, $.01 par value per share. FIFTH: The foregoing amendment of the Certificate of Incorporation of the Corporation was authorized by a vote of the Board of Directors of the Corporation, followed by a vote of the holders of a majority of all outstanding shares of the Corporation entitled to vote on the said amendment of the Certificate of Incorporation. IN WITNESS WHEREOF, we have subscribed this document on the date set forth below and do hereby affirm, under the penalties of perjury, that the statements contained herein have been examined by us and are true and correct. __ Date: April 29, 1999 By /s/ Alfred R. Kahn ------------------------ Alfred R. Kahn, Chairman By /s/ Joseph P. Garrity ---------------------------- Joseph P. Garrity, Executive Vice President, Secretary -2- CERTIFICATE OF AMENDMENT of CERTIFICATE OF INCORPORATION of LEISURE CONCEPTS, INC. Under Section 805 of the Business Corporation Law Pursuant to the provisions of Section 805 of the Business Corporation Law, the undersigned Executive Vice President and Secretary, respectively, of Leisure Concepts, Inc., hereby certify: FIRST: The name of the Corporation is LEISURE CONCEPTS, INC. SECOND: The Certificate of Incorporation of the Corporation was filed by the Department of State, Albany, New York on April 28, 1970 under the original name of American Leisure Industries, Inc. THIRD: The amendment of the Certificate of Incorporation of the Corporation effected by this Certificate of Amendment is to change the name of the Corporation. FOURTH: To accomplish the foregoing amendment, Article FIRST of the Certificate of Incorporation of the Corporation, relating to the name of the Corporation, is hereby amended to read as follows: "FIRST: The name of the Corporation is 4Kids Entertainment, INC. FIFTH: The foregoing amendment of the Certificate of Incorporation of the Corporation was authorized by a vote of the Board of Directors of the Corporation, followed by a vote of the holders of a majority of all outstanding shares of the Corporation entitled to vote on the said amendment of the Certificate of Incorporation. IN WITNESS WHEREOF, we have subscribed this document on the date set forth below and do hereby affirm, under the penalties of perjury, that the statements contained herein have been examined by us and are true and correct. Date: November 16, 1995 By /s/ Joseph P. Garrity --------------------------- Joseph P. Garrity, Executive Vice President By /s/ William J. Baron --------------------------- William J. Baron, Secretary -3- CERTIFICATE OF AMENDMENT of CERTIFICATE OF INCORPORATION of LEISURE CONCEPTS, INC. (Under Section 805 of the Business Corporation Law) We, the undersigned, being the Chairman and Secretary of Leisure Concepts, Inc. in accordance with Section 805 of the Business Corporation Law, do hereby certify: FIRST: The name of the Corporation is Leisure Concepts, Inc. SECOND: The Certificate of Incorporation of the Corporation was filed by the Department of State on the 28th day of April, 1970 under the name American Leisure Industries, Inc. THIRD: The Certificate of Incorporation of the Corporation, as amended, is hereby amended pursuant to Section 805 of the Business Corporation Law. FOURTH: A new Article Ninth shall be added to the Certificate of Incorporation to read in its entirety as follows: "NINTH: No director shall be personally liable to the Corporation or any stockholder for damages for breach of fiduciary duty as a director, except for any matter in respect of which such director shall be liable under Section 719 of the New York Business Corporation Law or any amendment thereto or successor provision thereto or shall be liable by reason that, in addition to any and all other requirements for such liability, he (i) shall have breached his duty of loyalty to the Corporation or its stockholders, (ii) shall not have acted in good faith or, in failing to act, shall not have acted in good faith, (iii) shall have acted in a manner involving intentional misconduct or a knowing violation of law or (iv) shall have personally gained a financial profit or other advantage to which he was not legally entitled. Neither the amendment nor repeal of this Article, nor the adoption of any provision of the Certificate of Incorporation inconsistent with the Article, shall eliminate or reduce the effect of this Article in respect of any matter occurring, or any cause of action, suit or claim that but for this Article would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision." FIFTH: The manner in which this Amendment to the Certificate of Incorporation of the Corporation was authorized by the vote at a meeting of all the Directors, followed by the affirmative vote of the holders of at least a majority of the outstanding shares of the Corporation entitled to vote thereon at a meeting of the shareholders of the Corporation duly called and held on the 19th day of July, 1989. -4- IN WITNESS WHEREOF, the undersigned have executed this Certificate this 19th day of July 1989. /s/ Stanley A. Weston --------------------------- Stanley A. Weston, Chairman /s/ Michael Germakian ---------------------------- Michael Germakian, Secretary -5- STATE OF NEW YORK ) : ss: COUNTY OF NEW YORK) Stanley A. Weston, being duly sworn, deposes and says that he is the Chairman of Leisure Concepts, Inc. and is one of the persons who signed the foregoing Certificate of Amendment; that he has read the Certificate of Amendment and knows the contents thereof and that the same is true to his own knowledge. /s/ Stanley A. Weston --------------------- Stanley A. Weston Sworn to before me this 19th day of July, 1989. /s/ Richard Zaroff - ------------------ Notary Public (stamp) RICHARD M. ZAROFF NOTARY PUBLIC, State of New York No. 4748005 Qualified in Nassau County Commission Expires August 31, 1989 -6- CERTIFICATE OF AMENDMENT of CERTIFICATE OF INCORPORATION of LEISURE CONCEPTS, INC. (Under Section 805 of the Business Corporation Law) We, the undersigned, being the President and Secretary of Leisure Concepts, Inc. in accordance with Section 805 of the Business Corporation Law, do hereby certify: FIRST: The name of the corporation is Leisure Concepts, Inc. (hereinafter the "Corporation"). SECOND: The Certificate of Incorporation of the Corporation was filed by the Department of State on the 28th day of April, 1970 under the name American Leisure Industries, Inc. THIRD: The amendment of the Certificate of Incorporation of the Corporation effected by this Certificate of Amendment is as follows: To increase the aggregate number of shares which the Corporation shall have authority to issue by authorizing 5,000,000 additional shares of Common Stock, par value $.01 per share and 1,000,000 additional shares of Preferred Stock, par value $.01 per share. FOURTH: To accomplish the foregoing amendment, article "Fourth" of the Certificate of Incorporation of the Corporation, relating to the authorized number of shares of Common and Preferred Stock is hereby amended in its entirety to read as follows: "FOURTH: The aggregate number of shares which the Corporation shall have authority to issue is Thirteen Million (13,000,000) shares divided into two classes of which Ten Million (10,000,000) shares shall be designated as Common Stock, $.01 par value per share and Three Million (3,000,000) shares shall be designated as Preferred Stock, $.01 par value per share. The Preferred Stock shall be issuable in one or more series in such designations, relative rights and limitations as may be fixed from time to time by the Board of Directors of the Corporation. The designations, preferences and relative, participating, optional and other special rights of the Preferred Stock (unless otherwise fixed by the Board of Directors) and the Common Stock, and the qualifications, limitations and restrictions thereof, are as follows: -7- 1. The shares of Preferred Stock may be divided into and issued in one or more series, and each series shall be so designated so as to distinguish the shares thereof from the shares of all other series. All shares of Preferred Stock shall be identical except in respect of particulars which may be fixed by the Board of Directors as hereinafter provided pursuant to authority which is hereby expressly vested in the Board of Directors. Each share of a series shall be identical in all respects with all other shares of such series, except as to the date from which dividends thereon shall be cumulative on any series as to which dividends are cumulative. Shares of Preferred Stock of any series which have been retired in any manner, including shares redeemed or reacquired by the Corporation and shares which have been converted into or exchanged for shares of any other class, or any series of the same or any other class, shall have the status of authorized but unissued shares of Preferred Stock and may be reissued as shares of the series of which they were originally a part, or any other series. 2. Before any shares of Preferred Stock of any series shall be issued, the Board of Directors, pursuant to authority hereby expressly vested in it, shall fix by resolution or resolutions the following provisions in respect of the shares of each such series so far as the same are not inconsistent with the provisions of this paragraph FOURTH applicable to all series of Preferred Stock: (a) the distinctive designations of such series and the number of shares which shall constitute such series, which number may be increased (or decreased except where otherwise provided by the Board of Directors in creating such series) from time to time by like action of the Board of Directors; (b) the annual rate or amount of dividends payable on shares of such series, whether such dividends shall be cumulative or non-cumulative, the conditions upon which and/or the dates when such dividends shall be payable and the date from which dividends on cumulative series shall accrue and be cumulative on all shares of such series issued prior to the payment date for the first dividend of such series; (c) whether such series shall be redeemable and, if so, the terms and conditions of such redemption, including the time or times when and the price or prices at which shares of such series shall be redeemed; (d) the amount and priority payable on shares of such series in the event of liquidation, dissolution or winding up of the affairs of the Corporation; (e) whether such series shall be convertible into or exchangeable for shares of any other class, and, if so, the terms and conditions thereof, including the date or dates when such shares shall be so convertible or exchangeable, and any adjustments which shall be made, and the circumstances in which any such adjustments shall be made, in such conversion or exchange prices or rates; -8- (f) whether such series shall have any voting rights in addition to those prescribed by law and, if so, the terms and conditions of exercise of such voting rights; and (g) any other designations, preferences and relative, participating, optional or other special rights, and any qualifications, limitations and restrictions thereof. 3. (a) So long as any shares of Preferred Stock of any series shall be outstanding, the Corporation will not declare or pay any dividends on the Common Stock (other than dividends payable solely in shares of Common Stock) or make any distributions of any kind, either directly or indirectly, in respect of shares of Common Stock, or make any payment on account of the purchase, redemption or other acquisition of Common Stock, unless on the payment, distribution or redemption date, as the case may be, all dividends on the then outstanding shares of Preferred Stock of all series for all past dividend periods shall have been paid to the full extent of the preference, if any, to which each series of Preferred Stock is then entitled. (b) When dividends shall have been paid (or declared and set aside for payment) on the Preferred Stock to the full extent of the preference, if any, to which the Preferred Stock is entitled, dividends on the remaining class or classes of stock may then be paid out of the funds of the Corporation which are legally available therefor. (c) Subject to the limitations prescribed in this paragraph FOURTH and any further limitations which may from time to time be prescribed by the Board of Directors in accordance herewith, the holders of Common Stock shall be entitled to receive dividends on the Common Stock, when, as and if declared by the Board of Directors, out of the funds of the Corporation which are legally available therefor. 4. The authorized but unissued shares of Common Stock and the authorized but unissued shares of Preferred Stock may be issued for such consideration, not less than the par value thereof, as may be fixed from time to time by the Board of Directors." FIFTH: The manner in which this Amendment to the Certificate of Incorporation of the Corporation was authorized was by the affirmative vote of the Board of Directors and followed by the affirmative vote of the holders of at least a majority of the outstanding shares of the Corporation entitled to vote thereon at a meeting of the shareholders of the Corporation duly called and held on the 30th day of July, 1986. -9- IN WITNESS WHEREOF, the undersigned have executed this Certificate this 30th day of July, 1986. We have subscribed this document and do hereby affirm, under the penalties of perjury, that the statements contained therein are true and correct. /s/ Stanley A. Weston ---------------------------- Stanley A. Weston, President /s/ Michael Germakian ----------------------------- Michael Germakian, Secretary -10- CERTIFICATE OF AMENDMENT of CERTIFICATE OF INCORPORATION of LEISURE CONCEPTS, INC. (Under Section 805 of the Business Corporation Law) We, the undersigned, being the President and Secretary of Leisure Concepts, Inc. in accordance with Section 805 of the Business Corporation Law, do hereby certify: FIRST: The name of the corporation is Leisure Concepts, Inc. (hereinafter the "Corporation"). SECOND: The Certificate of Incorporation of the Corporation was filed by the Department of State on the 28th day of April, 1970 under the name American Leisure Industries, Inc. THIRD: The amendment of the Certificate of Incorporation of the Corporation effected by this Certificate of Amendment is as follows: To increase the aggregate number of shares which the Corporation shall have authority to issue by authorizing 2,000,000 additional shares of Common Stock, par value $.01 per share and 1,000,000 additional shares of Preferred Stock, par value $.01 per share. FOURTH: To accomplish the foregoing amendment, Article "Fourth" of the Certificate of Incorporation of the Corporation, relating to the authorized number of shares of Common and Preferred Stock is hereby amended in its entirety to read as follows: "FOURTH: The aggregate number of shares which the Corporation shall have authority to issue is Seven Million (7,000,000) shares divided into two classes of which Five Million (5,000,000) shares shall be designated as Common Stock, $.01 par value per share and Two Million (2,000,000) shares shall be designated as Preferred Stock, $.01 par value per share. The Preferred Stock shall be issuable in one or more series in such designations, relative rights and limitations as may be fixed from time to time by the Board of Directors of the Corporation. The designations, preferences and relative, participating, optional and other special rights of the Preferred Stock (unless otherwise fixed by the Board of Directors) and the Common Stock, and the qualifications, limitations and restrictions thereof, are as follows: -11- 1. The shares of Preferred Stock may be divided into and issued in one or more series, and each series shall be so designated so as to distinguish the shares thereof from the shares of all other series. All shares of Preferred Stock shall be identical except in respect of particulars which may be fixed by the Board of Directors as hereinafter provided pursuant to authority which is hereby expressly vested in the Board of Directors. Each share of a series shall be identical in all respects with all other shares of such series, except as to the date from which dividends thereon shall be cumulative on any series as to which dividends are cumulative. Shares of Preferred Stock of any series which have been retired in any manner, including shares redeemed or reacquired by the Corporation and shares which have been converted into or exchanged for shares of any other class, or any series of the same or any other class, shall have the status of authorized but unissued shares of Preferred Stock and may be reissued as shares of the series of which they were originally a part, or any other series. 2. Before any shares of Preferred Stock of any series shall be issued, the Board of Directors, pursuant to authority hereby expressly vested in it, shall fix by resolution or resolutions the following provisions in respect of the shares of each such series so far as the same are not inconsistent with the provisions of this paragraph FOURTH applicable to all series of Preferred Stock: (a) the distinctive designations of such series and the number of shares which shall constitute such series, which number may be increased (or decreased except where otherwise provided by the Board of Directors in creating such series) from time to time by like action of the Board of Directors; (b) the annual rate or amount of dividends payable on shares of such series, whether such dividends shall be cumulative or non-cumulative, the conditions upon which and/or the dates when such dividends shall be payable and the date from which dividends on cumulative series shall accrue and be cumulative on all shares of such series issued prior to the payment date for the first dividend of such series; (c) whether such series shall be redeemable and, if so, the terms and conditions of such redemption, including the time or times when and the price or prices at which shares of such series shall be redeemed; (d) the amount and priority payable on shares of such series in the event of liquidation, dissolution or winding up of the affairs of the Corporation; (e) whether such series shall be convertible into or exchangeable for shares of any other class, and, if so, the terms and conditions thereof, including the date or dates when such shares shall be so convertible or exchangeable, and any adjustments which shall be made, and the circumstances in which any such adjustments shall be made, in such conversion or exchange prices or rates; -12- (f) whether such series shall have any voting rights in addition to those prescribed by law and, if so, the terms and conditions of exercise of such voting rights; and (g) any other designations, preferences and relative, participating, optional or other special rights, and any qualifications, limitations and restrictions thereof. 3. (a) So long as any shares of Preferred Stock of any series shall be outstanding, the Corporation will not declare or pay any dividends on the Common Stock (other than dividends payable solely in shares of Common Stock) or make any distributions of any kind, either directly or indirectly, in respect of shares of Common Stock, or make any payment on account of the purchase, redemption or other acquisition of Common Stock, unless on the payment, distribution or redemption date, as the case may be, all dividends on the then outstanding shares of Preferred Stock of all series for all past dividend periods shall have been paid to the full extent of the preference, if any, to which each series of Preferred Stock is then entitled. (b) When dividends shall have been paid (or declared and set aside for payment) on the Preferred Stock to the full extent of the preference, if any, to which the Preferred Stock is entitled, dividends on the remaining class or classes of stock may then be paid out of the funds of the Corporation which are legally available therefor. (c) Subject to the limitations prescribed in this paragraph FOURTH and any further limitations which may from time to time be prescribed by the Board of Directors in accordance herewith, the holders of Common Stock shall be entitled to receive dividends on the Common Stock, when, as and if declared by the Board of Directors, out of the funds of the Corporation which are legally available therefor. 4. The authorized but unissued shares of Common Stock and the authorized but unissued shares of Preferred Stock may be issued for such consideration, not less than the par value thereof, as may be fixed from time to time by the Board of Directors." FIFTH: The foregoing amendment of the Certificate of Incorporation of the Corporation was authorized by the vote at a meeting of the Board of Directors of the Corporation, followed by the affirmative vote of the holders of at least a majority of the outstanding shares of the Corporation entitled to vote thereon at a meeting of the shareholders of the Corporation duly called and held on the 22nd day of May, 1985. -13- IN WITNESS WHEREOF, the undersigned have executed this Certificate this 22nd day of May, 1985. /s/ Stanley A. Weston - ---------------------------- Stanley A. Weston, President /s/ Michael Germakian - ---------------------------- Michael Germakian, Secretary -14- STATE OF NEW YORK ) :SS.: COUNTY OF NEW YORK) Stanley A. Weston, being duly sworn deposes and says that he is one of the persons who signed the foregoing Certificate of Amendment; that he signed said Certificate in the capacity set opposite or beneath his signature thereon; that he has read the said Certificate and knows the contents thereof; and that the statements contained therein are true to his own knowledge. /s/ Stanley A. Weston ----------------------------- Stanley A. Weston, President Subscribed and sworn to before me on May 21, 1985. /s/ (signature of Notary) - ------------------------- Notary Public -15- CERTIFICATE OF AMENDMENT of CERTIFICATE OF INCORPORATION of LEISURE CONCEPTS, INC. (Under Section 805 of the Business Corporation Law) We, the undersigned, being the President and Secretary of Leisure Concepts, Inc. in accordance with Section 805 of the Business Corporation Law, do hereby certify: FIRST: The name of the Corporation is Leisure Concepts, Inc. SECOND: The Certificate of Incorporation of the Corporation was filed by the Department of State on the 28th day of April, 1970 under the name American Leisure Industries, Inc. THIRD: The Certificate of Incorporation of the Corporation, as amended, is hereby amended pursuant to Section 805 of the Business Corporation Law. FOURTH: Paragraph number "FOURTH" of the Certificate of Incorporation is hereby amended in its entirety to read as follows: "FOURTH: The aggregate number of shares which the Corporation shall have authority to issue is Four Million (4,000,000) shares divided into two classes of which Three Million (3,000,000) shares shall be designated as Common Stock, $.01 par value per share and One Million (1,000,000) shares shall be designated as Preferred Stock, $.01 par value per share. The Preferred Stock shall be issuable in one or more series in such designations, relative rights and limitations as may be fixed from time to time by the Board of Directors of the Corporation. The designations, preferences and relative, participating, optional and other special rights of the Preferred Stock (unless otherwise fixed by the Board of Directors) and the Common Stock, and the qualifications, limitations and restrictions thereof, are as follows: 1. The shares of Preferred Stock may be divided into and issued in one or more series, and each series shall be so designated so as to distinguish the shares thereof from the shares of all other series. All shares of Preferred Stock shall be identical except in respect of particulars which may be fixed by the Board of Directors as hereinafter provided pursuant to authority which is hereby expressly vested in the Board of Directors. Each share of a series shall be identical in all respects with all other shares of such series, except as to the date from which dividends thereon shall be cumulative on any series as to which dividends are cumulative. -16- Shares of Preferred Stock of any series which have been retired in any manner, including shares redeemed or reacquired by the Corporation and shares which have been converted into or exchanged for shares of any other class, or any series of the same or any other class, shall have the status of authorized but unissued shares of Preferred Stock and may be reissued as shares of the series of which they were originally a part, or any other series. 2. Before any shares of Preferred Stock of any series shall be issued, the Board of Directors, pursuant to authority hereby expressly vested in it, shall fix by resolution or resolutions the following provisions in respect of the shares of each such series so far as the same are not inconsistent with the provisions of this paragraph FOURTH applicable to all series of Preferred Stock: (a) the distinctive designations of such series and the number of shares which shall constitute such series, which number may be increased (or decreased except where otherwise provided by the Board of Directors in creating such series) from time to time by like action of the Board of Directors: (b) the annual rate or amount of dividends payable on shares of such series, whether such dividends shall be cumulative or non-cumulative, the conditions upon which and/or the dates when such dividends shall be payable and the date from which dividends on cumulative series shall accrue and be cumulative on all shares of such series issued prior to the payment date for the first dividend of such series; (c) whether such series shall be redeemable and, if so, the terms and conditions of such redemption, including the time or times when and the price or prices at which shares of such series shall be redeemed; (d) the amount and priority payable on shares of such series in the event of liquidation, dissolution or winding up of the affairs of the Corporation; (e) whether such series shall be convertible into or exchangeable for shares of any other class, and, if so, the terms and conditions thereof, including the date or dates when such shares shall be so convertible or exchangeable, and any adjustments which shall be made, and the circumstances in which any such adjustments shall be made, in such conversion or exchange prices or rates; (f) whether such series shall have any voting rights in addition to those prescribed by law and, if so, the terms and conditions of exercise of such voting rights; and (g) any other designations, preferences and relative, participating, optional or other special rights, and any qualifications, limitations and restrictions thereof. -17- 3.(a) So long as any shares of Preferred Stock of any series shall be outstanding, the Corporation will not declare or pay any dividends on the Common Stock (other than dividends payable solely in shares of Common Stock) or make any distributions of any kind, either directly or indirectly, in respect of shares of Common Stock, or make any payment on account of the purchase, redemption or other acquisition of Common Stock, unless on the payment, distribution or redemption date, as the case may be, all dividends on the then outstanding shares of Preferred Stock of all series for all past dividend periods shall have been paid to the full extent of the preference, if any, to which each series of Preferred Stock is then entitled. (b) When dividends shall have been paid (or declared and set aside for payment) on the Preferred Stock to the full extent of the preference, if any, to which the Preferred Stock is entitled, dividends on the remaining class or classes of stock may then be paid out of the funds of the Corporation which are legally available therefor. (c) Subject to the limitations prescribed in this paragraph FOURTH and any further limitations which may from time to time be prescribed by the Board of Directors in accordance herewith, the holders of Common Stock shall be entitled to receive dividends on the Common Stock, when, as and if declared by the Board of Directors, out of the funds of the Corporation which are legally available therefor. 4. The authorized but unissued shares of Common Stock and the authorized but unissued shares of Preferred Stock may be issued for such consideration, not less than the par value thereof, as may be fixed from time to time by the Board of Directors. FIFTH: The manner in which this Amendment to the Certificate of Incorporation of the Corporation was authorized was by the affirmative vote of the holders of at least a majority of the outstanding shares of the Corporation entitled to vote thereon at a meeting of the shareholders of the Corporation duly called and -18- held on the 11th day of July, 1979. IN WITNESS WHEREOF, the undersigned have executed this Certificate this 17th day of July, 1979. /s/ Stanley A. Weston --------------------- Stanley A. Weston President /s/ Milton Kayle ---------------- Milton Kayle Secretary -19- STATE OF NEW YORK ) :SS.: COUNTY OF NEW YORK) Stanley A. Weston, being duly sworn, deposes and says that he is the President of Leisure Concepts, Inc. and is one of the persons who signed the foregoing Certificate of Amendment: that he has read the Certificate of Amendment and knows the contents thereof and that the same is true to his own knowledge. /s/ Stanley A. Weston --------------------- Stanley A. Weston Sworn to before me this 19th day of July, 1979. /s/ Sheri Binder - ---------------- Notary Public -20- CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF AMERICAN LEISURE INDUSTRIES, INC. Under Section 805 of the Business Corporation Law WE, the undersigned, being the President and Assistant Secretary of AMERICAN LEISURE INDUSTRIES, INC., do hereby certify and set forth: FIRST: The name of the corporation is AMERICAN LEISURE INDUSTRIES, INC. SECOND: The Certificate of Incorporation of AMERICAN LEISURE INDUSTRIES, INC. was filed by the Department of State on the 28th day of April, 1970. THIRD: The Certificate of Incorporation of AMERICAN LEISURE INDUSTRIES, INC. is hereby amended pursuant to Section 801(b)(1) of the Business Corporation Law. FOURTH: Paragraph number "FIRST" of the Certificate of Incorporation, the subject matter of which is the name of the Corporation, is hereby eliminated and the following provision is substituted in its place and stead: "FIRST: The name of the Corporation is LEISURE CONCEPTS, INC." FIFTH: The manner in which this amendment to the Certificate of Incorporation of AMERICAN LEISURE INDUSTRIES, INC. was authorized was by the unanimous written consent of the holders of all of the issued and outstanding shares entitled to vote. IN WITNESS WHEREOF, the undersigned have executed this certificate this 21st day of April, 1972. /s/ Stanley A. Weston -------------------------------- Stanley A. Weston, President /s/ Gerald Deutsch --------------------------------------- Gerald Deutsch, Assistant Secretary -21- STATE OF NEW YORK ) ss.: COUNTY OF NEW YORK) STANLEY A. WESTON, being duly sworn, deposes and says: That he is President of AMERICAN LEISURE INDUSTRIES, INC., and is one of the persons who signed the foregoing Certificate of Amendment; that he has read the Certificate of Amendment and knows the contents thereof and that the same is true to his own knowledge. /s/ Stanley A. Weston --------------------- STANLEY A. WESTON Sworn to before me this 21st day of April, 1972. /s/ Gerald S. Deuce - ------------------- Notary Public GERALD S. Deuce Notary Public State of New York No. Qualified in Queens County Term Expires March 30, 1974 -22- CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF AMERICAN LEISURE INDUSTRIES, INC. Under Section 805 of the Business Corporation Law: WE, the undersigned, being the President and Secretary of AMERICAN LEISURE INDUSTRIES, INC., do hereby certify and set forth: FIRST: The name of the corporation as AMERICAN LEISURE INDUSTRIES, INC. SECOND: The Certificate of Incorporation of AMERICAN LEISURE INDUSTRIES, INC. was filed by the Department of State on the 28th day of April, 1970. THIRD: The Certificate of Incorporation of AMERICAN LEISURE INDUSTRIES, INC. is hereby amended pursuant to Section 801 of the Business Corporation Law. FOURTH: Paragraph number "FOURTH" of the Certificate of Incorporation, dealing with the capitalization of the Corporation, is hereby amended to be and read as follows: "FOURTH: The aggregate number of shares which the Corporation shall have the authority to issue is One Million (1,000,000) Common Shares having a par value of One ($.01) Cent per share, aggregating Ten Thousand ($10,000) Dollars." Pursuant to the filing of this Certificate of Amendment and effective on such filing date, the Corporation shall exchange and issue Three Hundred Seventy-Five (375) of the Corporation's Common Shares, One ($.01) Cent par value per share, for each One (1) of the Corporation's One Thousand (1,000) Common Shares, with no par value, outstanding (being all of the authorized shares and the Corporation having no unissued shares) and held by each shareholder, so that there shall be Three Hundred Seventy-Five Thousand (375,000) Common Shares, One ($.01) Cent par value per share, issued and outstanding subsequent to such exchange. FIFTH: Paragraph numbered "FIFTH" of the Certificate of Incorporation dealing with the designation of the Secretary of State as the Agent for service of process is hereby re-numbered and amended and added as a new paragraph numbered "EIGHTH". Paragraph numbered "FIFTH" is now changed to be and read as follows: -23- "FIFTH: Except as may otherwise be specifically provided, no provision of this Certificate of Incorporation is intended by the Corporation to be construed as limiting, prohibiting, denying or abrogating any of the general or specific powers or rights conferred under the Business Corporation Law upon the Corporation, upon its shareholders, bondholders, and security holders, and upon its directors, officers, and other corporate personnel, including, in particular, the power of the Corporation to furnish indemnification to directors and officers in the capacities defined and prescribed by the Business Corporation Law and the defined and prescribed rights of said persons to indemnification as same are conferred by the Business Corporation Law." SIXTH: A new paragraph numbered "SIXTH" is hereby added to the Certificate of Incorporation to be and read as follows: "SIXTH: No holder of any of the shares of the Corporation of any class now or hereafter authorized shall be entitled (other than as the Board of Directors may in its discretion determine), by reason of his holding of such shares, to any pre-emptive right to purchase or subscribe for any share or shares of the Corporation of any class now or hereafter authorized, or any notes, debentures, bonds, certificates of indebtedness or other securities convertible into or carrying any options, warrants or rights to purchase shares of the Corporation, or any warrants or other instruments evidencing rights or options to purchase or subscribe for any such shares. Any unissued shares of the Corporation or any additional shares of any class now or hereafter authorized, or any securities convertible into or carrying any right to purchase shares may be issued and disposed of by the Corporation to such persons, firms, corporations or associations for such consideration and upon such terms as the Board of Directors may, in its discretion, determine without offering the same to holders then of record, of any class thereof, any such shares or securities." SEVENTH: A new paragraph numbered "SEVENTH" is hereby added to the Certificate of Incorporation to be and read as follows: "SEVENTH: At any annual or special meeting of the Board of Directors, it shall have the power and authority, by a majority vote, to add to, repeal or amend, the Corporate By-Laws without prejudice to or limitation of the like statutory power and authority of the stockholders. Any By-Laws adopted by the Board of Directors shall be subject to amendment or repeal by the stockholders." EIGHTH: A new paragraph number "EIGHTH" of the Certificate of Incorporation replacing paragraph numbered "FIFTH", dealing with the designation of the Secretary of State as agent for service of process, is hereby added and amended to be and read as follows: "EIGHTH: The Secretary of State is designated as agent of the Corporation upon whom process against it may be served. The post office address to which the Secretary of State shall mail a copy of any process against the Corporation served upon him is in care of Blackman & Lefrak, 424 Madison Avenue, New York, New York 10017." -24- NINTH: The manner in which this amendment to the Certificate of Incorporation of AMERICAN LEISURE INDUSTRIES, INC. was authorized was by the unanimous vote of the holders of all the issued and outstanding shares entitled to vote thereon at a special meeting of the shareholders, duly called and held on the 12th day of October, 1971. IN WITNESS WHEREOF, the undersigned have executed this certificate this 12th day of October, 1971. /s/ Stanley A. Weston -------------------------------- Stanley A. Weston, President /s/ Arthur Zeiger ----------------------------- Arthur Zeiger, Secretary -25- STATE OF NEW YORK ) SS.: COUNTY OF NEW YORK) STANLEY A. WESTON, being duly sworn, deposes and says that he is President of AMERICAN LEISURE INDUSTRIES, INC. and is one of the persons who signed the foregoing Certificate of Amendment; that he has read the Certificate of Amendment and knows the contents thereof and that the same is true to his own knowledge. DAVID J. MYERSON Notary Public, State of New York /s/ Stanley A. Weston No. 60-2841790 ------------------------------------ Stanley A. Weston Qualified in Westchester County Certificate filed in New York County Commission Expires March 30, 1973 Sworn to before me this 12th day of October, 1971. /s/ David J. Myerson - -------------------- Notary Public -26- CERTIFICATE OF INCORPORATION of AMERICAN LEISURE INDUSTRIES INC. (Pursuant to Section 402 of the Business Corporation Law) The Undersigned, being a natural person of at least twenty-one years of age and acting as the incorporator of the Corporation hereby being formed under the Business Corporation Law certifies that: FIRST: The name of the Corporation shall be AMERICAN LEISURE INDUSTRIES, INC. SECOND: The purposes for which it is to be formed are as follows: (a) To engage in any business or enterprise of any description whatsoever including, but not limited to, business or enterprises involving licensing and merchandising, new product development, geriatrics franchising, toys and games, hobbies and crafts, publishing, communications and entertainment, sports and sporting goods, camping and picnicking, travel and transportation, mobil homes, vacation homes, land development projects, hotels, motels and resorts, photography and photo supplies, health aids, amusement parks, pets and pet centers, gardening and lawn care, swimming pools, home-centered leisure activities, leisure arts, mail order business, toiletries and cosmetics, public relations, advertising, rapid graphic services and other businesses and enterprises. (b) To originate, acquire by purchase, lease, assignment or otherwise own, hold, edit, copyright, present, license the use of sell, assign, transfer and otherwise dispose of stories, scenarios, pictures, dramas, literary compositions, books, musical compositions, musical comedies, musical and pictorial compositions, productions, works, publications and properties of all kinds. (c) To employ actors, singers, designers, directors, conductors, writers, composers, photographers, artists, musicians, arrangers, dancers and any and all other performers for the purpose of creating, devising, producing and presenting television programs, motion pictures, radio programs and all other kinds of products. (d) Directly, or through ownership of stock in any corporation, to purchase or otherwise acquire, hold, manufacture, sell, exchange, mortgage, pledge, hypothecate, underwrite, deal in and dispose of stocks, bonds, notes, debentures, or other evidences of indebtedness and obligations and securities of any corporation, company, association, partnership, syndicate, entity, or person, domestic or foreign, or of any domestic or foreign state, government, or governmental authority or of any political or administrative subdivision or department thereof, -27- and certificates or receipts of any kind representing or evidencing any interest in any such stocks, bonds, notes, debentures, evidences of indebtedness, obligations, or securities; to issue its own shares of stock, bonds, notes, debentures, or other evidences of indebtedness and obligations and securities for the acquisition of any such stocks, bonds, notes, debentures, evidences of indebtedness, obligations, securities, certificates, or receipts purchased or acquired by it; and, while the owner or holder of any such stocks, bonds, notes, debentures, evidences of indebtedness, obligations, securities, certificates or receipts, to exercise all the rights of ownership in respect thereof; and, to the extent now or hereafter permitted by law, to aid by loan, subsidy, guaranty, or otherwise, those issuing, creating, or responsible for any such stocks, bonds, notes, debentures, evidences of indebtedness, obligations, securities, certificates or receipts. (e) To purchase or otherwise acquire, hold, exchange, pledge, hypothecate, sell, deal in, and dispose of mortgages covering any kind of property, tax liens, and transfers of tax liens on real estate. (f) To transact a general real estate agency and brokerage business, buying, selling and dealing in real estate and real property and any interest therein, on commission, or otherwise, and renting and managing real estate; and to act as agent, or attorney-in-fact for any persons or corporations in buying, selling, holding and dealing in real estate and any interest therein and choses in action secured thereby and other personal property collateral thereto and in supervising, managing, and protecting such property and any interest therein and claims affecting same. (g) To enter into, make and perform contracts of every kind and description pertaining to the business of the corporation with any person, firm, corporation, association, municipality, county, state, body politic or government or colony or dependency thereof. (h) To acquire and pay for in cash, stocks or bonds of this corporation, or otherwise, the good will, rights, assets and property and to undertake to assume the whole or any part of the obligations or liabilities of any person, firm, association or corporation, provided such acquisition is related to the purposes stated herein. (i) To carry on, assist, and to participate with others, in the organization, financing (including lending and advancing money), liquidation or reorganization of firms, associations, or corporations engaged in any similar lawful business enterprise, and to lend and advance money and to give credit to individuals, partnerships, corporations, joint stock associations, and trustees, either with or without security; provided, however, nothing herein contained shall be taken to authorize such corporation to engage in the business of banking or to deal in commercial paper in the exercise of the functions of bank discount. -28- (j) To borrow or raise moneys for any of the purposes of the corporation, and from time to time, without limitation as to amount, to draw, make, accept, endorse, execute and issue promissory notes, drafts, bills of exchange, warrants, bonds, debentures and other negotiable or non-negotiable instruments and evidences of indebtedness, in such form and with such provisions as to preference of payment and otherwise as the Board of Directors may prescribe, and to secure the payment of any thereof and of the interest thereon by mortgage upon or pledge, conveyance or assignment in trust of the whole or any part of the property of the corporation, whether at the time owned or thereafter acquired, and to sell, pledge, or otherwise dispose of such bonds or other obligations of the corporation for its corporate purposes. (k) To buy, sell, or otherwise deal in as principal, factor, agent or broker, and upon commission or otherwise, all forms and kinds of securities, shares of stocks, bonds, debentures, warehouse receipts, promissory notes, open accounts, certificates of indebtedness, evidence of indebtedness of every kind, nature or character, commercial paper, mortgages, chattel mortgages and other similar instruments, and rights, whether secured or unsecured, including bills and accounts receivable, choses in action, leases, contracts of conditional sale, and any and all kinds of negotiable or non-negotiable paper (secured as well as unsecured), evidencing or connected with the purchase, sale or exchange of any and all kinds of personal property. (l) To purchase, hold, sell and transfer the shares of its own capital stock, provided it shall not use its funds or property for the purchase of its own shares of capital stock when such use would cause any impairment of its capital except as otherwise permitted by law, and provided further that the shares of its own capital stock belonging to it shall not be voted upon directly or indirectly. (m) To apply for, purchase, or in any manner acquire; to hold, use, own and operate; to sell or in any manner dispose of; to grant or license letters patent, copyrights, chemical formulas, rights of representation, licenses and privileges of any sort, and in any manner deal with, any and all such rights, interests, inventions, improvements and processes used in connection with or secured under such copyrights or under letters patent of the United States or other countries or otherwise, and to work, operate and develop the same. (n) To have one or more offices, to carry on all or any of its operations and business, and to exercise all or any of its corporate powers and rights, in any of the States, Districts, Territories or Colonies of the United States, and in any and all foreign countries, subject to the laws of such State, District, Territory, Colony or Country. (o) In general, to carry on any other business connected with the foregoing, or incidental, appurtenant to or growing out of any of the foregoing, or in any way necessary, suitable or proper for the accomplishment of the aforesaid objects, purposes and powers, and to have and exercise all the powers conferred by the laws of New York upon corporations, formed under the Business Corporation Law of the State of New York. -29- (p) The objects and purposes specified in the foregoing clauses shall, except where otherwise expressed, be in no wise limited or restricted by reference to, or inference from, the terms of any other clause in this Certificate of Incorporation, but the objects and purposes specified in each of the foregoing clauses of this Article shall be regarded as independent objects and purposes. THIRD: The City, incorporated village or town and the county within the State of New York in which the office of the Corporation is to be located are as follows: City County New York New York FOURTH: The aggregate number of shares which the Corporation shall have authority to issue is One Thousand (1000) all of which are without par value, and all of which are of the same class. FIFTH: The Secretary of State is designated as the agent of the Corporation upon whom process against the Corporation may be served. The post office address within or without the State of New York to which the Secretary of State shall mail a copy of any process against the Corporation served upon him is: FRANKLIN & WEINRIB 600 Madison Avenue New York, New York 10022 IN WITNESS WHEREOF, I, being over the age of twenty-one (21) -30- years, have made, signed and acknowledged this Certificate this 22nd day of April, 1970. ------------------------ Leonard Franklin 600 Madison Avenue New York, New York 10022 STATE OF NEW YORK ) )SS.: COUNTY OF NEW YORK) On the date hereinafter set forth, before me came LEONARD FRANKLIN, to me known to be the individual who is described in, and who signed the foregoing Certificate of Incorporation, and he acknowledged to me that he signed the same. Dated: New York, New York /s/ Leola R. Glenn ------------------ Notary Public -31- EX-27 3 FDS --
5 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE COMPANY'S UNAUDITED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-mos Dec-31-1999 Jan-01-1999 Jun-30-1999 19,259,714 0 11,322,743 516,671 0 34,300,687 1,592,498 1,425,974 38,794,961 13,434,493 0 0 0 54,510 24,926,946 38,794,961 0 8,758,895 0 0 0 0 0 4,687,767 2,015,000 2,672,767 0 0 0 2,672,767 0.53 0.45
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