-----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, EzmJAo3GUdkx7cSUZM/b1zAmNv94d4HbgUi2TKVPXhcxEQIzcnxDcXcmF84yVsP6 76FiT19LOmyhGd8mjMHW4w== 0000891092-99-000741.txt : 19991117 0000891092-99-000741.hdr.sgml : 19991117 ACCESSION NUMBER: 0000891092-99-000741 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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: 99753193 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 September 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 November 12, 1999 - ------------------------------------------------------------------------------- Common Stock, $.01 Par Value 11,602,155 4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES INDEX PAGE NUMBER PART I: FINANCIAL INFORMATION Item 1: Financial Statements Consolidated Balance Sheets 1 September 30, 1999 (Unaudited) and December 31, 1998. Consolidated Statements of Income 2 Nine Months Ended September 30, 1999 and 1998 (Unaudited) Consolidated Statements of Cash Flows 3 Nine Months Ended September 30, 1999 and 1998 (Unaudited) Notes to Consolidated Financial 4 Statements (Unaudited) Item 2: Management's Discussion and Analysis 8 of Financial Condition and Results of Operations PART II: OTHER INFORMATION 12 4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31, 1999 1998 ----------------- ------------------- ASSETS (UNAUDITED) - ------ CURRENT ASSETS: Cash and cash equivalents $33,555,842 $ 9,749,956 Accounts receivable, net 19,658,039 17,694,262 Film inventory-net 1,397,134 1,079,677 Prepaid/refundable income taxes 7,580,267 324,864 Prepaid expenses and other current assets 1,247,521 1,151,974 ----------------- ------------------- Total current assets 63,438,803 30,000,733 ----------------- ------------------- FURNITURE, FIXTURES AND COMPUTER EQUIPMENT-(Net) 183,388 174,783 FILM INVENTORY - Noncurrent 1,875,000 1,875,000 ACCOUNTS RECEIVABLE - Noncurrent, net 2,310,132 2,627,680 SECURITY DEPOSITS AND OTHER ASSETS 332,955 282,959 ================= =================== TOTAL ASSETS $68,140,278 $34,961,155 ================= =================== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES: Due to licensors $17,449,821 $3,690,582 Media payable 2,338,098 11,460,913 Accounts payable and accrued expenses 5,745,964 1,285,624 Taxes payable 0 1,750,799 Current Deferred Tax Liability 989,000 989,000 ----------------- ------------------- Total current liabilities 26,522,883 19,176,918 NONCURRENT DEFERRED TAX LIABILITY 379,012 379,012 ----------------- ------------------- Total liabilities 26,901,895 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, 11,592,155 and 9,188,205 shares 115,922 91,882 Additional paid-in capital 21,207,101 4,900,889 Retained earnings 19,915,360 10,412,454 ----------------- ------------------- Total stockholders' equity 41,238,383 15,405,225 ----------------- ------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $68,140,278 $34,961,155 ================= ===================
See notes to consolidated financial statements -1- 4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1999 1998 1999 1998 ---------------- ----------------- ----------------- ------------------ NET REVENUES: 16,833,357 2,756,488 $25,592,252 $7,357,997 COST AND EXPENSES: Selling, general and administrative cost 4,034,272 1,953,682 8,423,777 5,161,452 Amortization of capitalized film cost 1,112,500 171,919 1,112,500 1,018,231 ----------------- ----------------- ----------------- ------------------ TOTAL COST AND EXPENSES 5,146,772 2,125,601 9,536,277 6,179,683 ----------------- ----------------- ----------------- ------------------ 11,686,585 630,887 16,055,975 1,178,314 INTEREST INCOME 297,554 81,665 615,931 224,973 ----------------- ----------------- ----------------- ------------------ INCOME BEFORE INCOME TAX PROVISION 11,984,139 712,552 16,671,906 1,403,287 INCOME TAX PROVISION 5,154,000 306,397 7,169,000 603,413 ----------------- ----------------- ----------------- ------------------ NET INCOME $ 6,830,139 $ 406,155 $ 9,502,906 $ 799,874 ================= ================= ================= ================== PER SHARE AMOUNTS (Notes 3 and 5) Basic Earnings per Common Share $0.61 $0.04 $0.91 $0.09 ================= ================= ================= ================== Diluted Earnings Per Common Share $0.54 $0.04 $0.78 $0.07 ================= ================= ================= ==================
See notes to consolidated financial statements. -2- 4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) NINE NINE MONTHS ENDED MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1999 1998 ---------------- ---------------- OPERATING ACTIVITIES: Net income $ 9,502,906 $ 799,874 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 71,865 82,796 Amortization of capitalized film cost 1,112,500 1,018,231 Changes in assets and liabilities (using)/providing cash: Accounts receivable, net (1,646,229) 19,560,945 Film inventory, net (1,429,957) 78,292 Prepaid expenses and other current assets (95,547) (323,493) Prepaid/refundable income taxes (7,255,403) (217,550) Security deposits and other assets (49,996) 7,815 Due to licensors 13,759,239 486,427 Media payable (9,122,815) (17,234,679) Accounts payable and accrued expenses 4,460,340 (68,434) Taxes payable (1,750,799) 552,332 ----------------- --------------- Net cash provided by operating activities 7,556,104 4,742,556 ----------------- --------------- INVESTING ACTIVITIES: Purchase of furniture and fixtures (80,470) (105,186) ----------------- --------------- Net cash used in investing activities (80,470) (105,186) ----------------- --------------- FINANCING ACTIVITIES: Proceeds from exercise of stock options and related tax benefit 16,330,252 368,579 ----------------- --------------- Net cash provided by financing activities 16,330,252 368,579 ----------------- --------------- NET INCREASE IN CASH AND CASH EQUIVALENTS 23,805,886 5,005,949 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 9,749,956 2,805,573 ----------------- --------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $33,555,842 $7,811,522 ================= =============== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: CASH PAID FOR: Interest $ - $ - ================= =============== Income Taxes $ 3,003,721 $ 51,327 ================= ===============
See notes to consolidated financial statements. -3- 4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) September 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 nine months ended September 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 11,148,828 and 10,421,094 for the three and nine months ended September 30, 1999. The weighted average number of common shares outstanding for diluted EPS was 12,684,357 and 12,119,254 for the three and nine months ended September 30, 1999. For the three and nine months ended September 30,1998, the weighted average number of common shares outstanding for basic EPS was 9,092,805 and 8,926,953 respectively. For the three and nine months ended September 30,1998, the weighted average number of common shares outstanding for diluted EPS was 11,546,070 and 10,963,716 respectively. The 1998 per share amounts have been restated to reflect the 3 for 2 stock split declared in March 1999 and the 2 for 1 stock split declared in August 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 November 12, 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 STOCK SPLITS 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. On August 12, 1999, the Company's Board of Director's approved the declaration of a 2 for 1 stock split effective for shareholders of record on September 1, 1999. The accompanying financial statements have been retroactively restated to reflect the stock splits. 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. -5- 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 Nine Months Ended ------------- --------------- ---------- ------------- September 30, 1999 Revenues $ 23,274,356 $ 1,861,697 $ 456,199 $ 25,592,252 Amortization - - 1,112,500 1,112,500 Segment Profit (Loss) 17,421,811 111,438 (861,343) 16,671,906 Segment Assets 59,165,631 5,825,032 3,149,615 68,140,278 1998 Revenues $ 6,384,353 $ 482,866 $ 490,778 $ 7,357,997 Amortization - - 1,018,231 1,018,231 Segment Profit (Loss) 3,270,714 (1,245,724) (621,703) 1,403,287 Segment Assets 13,084,686 7,094,010 4,044,480 24,223,176
Note 7 COMMITMENTS AND CONTINGENCIES The master toy licensee ("Licensee") for Nintendo's Pokemon property and Nintendo of America Inc. ("Nintendo") have entered into an agreement (the "Agreement") modifying certain terms of their Merchandise License Agreement, dated as of May 14, 1998. Leisure Concepts, Incorporated, a wholly owned subsidiary of the Company, is Nintendo's exclusive Merchandising Licensing Agent for Pokemon outside of Asia. Under the Agreement, the parties have agreed among other things that Licensee will pay a revised minimum guaranteed royalty for the period starting January 1, 2000 and ending December 31, 2001. This revised minimum guaranteed royalty is subject to reduction if certain conditions are not met. Because of the conditions and contingencies contained in the Agreement, the Company will only recognize revenue from the Agreement as royalties are earned and reported by Licensee to the Company over the two year term beginning January 1, 2000. Royalties reported by Licensee for the 1999 calendar year are unaffected by the revised terms. Licensee will report all such royalties under the Agreement. If all of the conditions under the Agreement are met and the full amount of the minimum guaranteed royalty is paid by Licensee, the Company's share would be approximately $30,000,000, which would be paid in two advances, one-half of which would be received on or before April 1, 2000 and one-half of which would be received on or before April 1, 2001. -6- Note 8 LITIGATION In September, the Company announced that it has been named as a defendant in a lawsuit filed in the United States District Court for the Southern District of California. Also named as defendants in this lawsuit are Nintendo of America, Inc. and Wizards of the Coast, Inc. The lawsuit purportedly brought on behalf of a class of all persons who purchased a package of Pokemon trading cards, seeks to challenge longstanding practices in the trading card industry, including the practice of randomly inserting premium cards in packages of Pokemon cards. The lawsuit claims that these practices constitute illegal gambling activity in violation of California and federal law, including the RICO Act, and seeks an award of treble damages. The lawsuit has not specified the amount of damages sought. The Company believes that the practices which are subject of this lawsuit are well accepted business practices in the trading card industry and intends to defend the lawsuit vigorously. Additionally, the Company is indemnified by Wizards of the Coast under the Pokemon license Agreement. Except for this lawsuit, as of November 12, 1999, there were no legal proceedings pending against the Company other than routine litigation incidental to its business. -7- 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 Nine Months Ended September 30, 1999 Compared to the three and Nine Months Ended September 30, 1998 Consolidated net revenue increased 511% or $14,076,869 for the three month period ended September 30, 1999 as compared to the same period in 1998. The nine month period consolidated net revenue increased 248% or $18,234,255 as compared to the nine month period ended September 30, 1998. The increase in net revenue for the three and nine month periods was primarily due to significant growth in licensing revenue from the "Pokemon" property. Additionally, increased licensing revenue was earned from the World Championship Wrestling "WCW" property. The Company's media buying and television distribution division recognized increased revenue over the three and nine month periods 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, as a result of its acquisition by Hasbro, which was partially offset by new clients' advertising spending. -8- Selling, general and administrative expenses increased 106% or $2,080,590 and 63% or $3,262,325 for the three and nine month periods ended September 30, 1999 when compared to the prior year periods. These increases were primarily due to contractually based bonus accruals calculated on the Company's 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 September 30, 1999 there were approximately $3,272,000 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 November 10, 1999. "WMAC Masters" is a series of 26 half hour television programs produced by the Company's 4Kids Productions subsidiary. Amortization of capitalized film cost increased $940,581 and $94,269 for the three and nine months ended September 30, 1999 when compared to 1998. The 1999 amortization relates to the "WMAC Masters" television program. The 1999 charges occurred as a result of the Company's periodic evaluation of net realizable value of its capitalized costs. Amortization rates may change as a result of changes in estimated future revenue. The 1998 amortization relates to the "WMAC Masters" television program. At September 30, 1999 the percentage of total unamortized film cost expected to be amortized within the next three years exceeds 70%. Interest income increased by approximately $216,000 and $391,000 for the three and nine month periods ending September 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 September 30, 1999 the Company had working capital of $36,915,920 as compared to working capital of $10,823,815 at December 31, 1998, or an increase in working capital of $26,092,105. Cash and cash equivalents increased by $23,805,886 to $33,555,842 from December 31, 1998. The increase in cash and cash equivalents is due primarily to the strength of the Company's licensing business and the timing of advance payments and royalties due on licensing agreements. Additionally, cash also increased due to proceeds from the exercise of stock options during the nine month period ended September 30, 1999. -9- Accounts receivable, net (current and noncurrent) increased from $20,321,942 at December 31, 1998 to $21,968,171 at September 30, 1999. The increase is primarily due to the Company's licensing activities. The increase in licensing receivables was offset by a significant decrease in receivables from 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 media 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 $9,122,815 for the nine month period ended September 30, 1999. Amounts due to licensors, which represents the owner's share of royalties collected, increased by $13,759,239 to $17,449,821 from December 31, 1998. The increase is 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. As described in Note 4 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 November 12, 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 final stages of this program, assessing and upgrading and/or replacing the equipment it has deemed to be non-compliant. The Company believes that it has completed all of its necessary upgrades and/or replacements and the testing of its systems as of September 1999. -10- Third party relationships - ------------------------- The Company has formally communicated with substantially all of its significant suppliers and customers to ascertain if those parties had appropriate plans to remedy Year 2000 issues as 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 it has substantially completed its assessment of the status of its significant customers' and suppliers' compliance with the Year 2000 issues as of September 1999. 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. 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 - ----------- The Company has incurred approximately $75,000 in both hardware and software upgrade expenditures in connection with bringing its own systems and equipment into compliance for the Year 2000. The Company expects no material costs to be incurred in the fourth quarter. 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. -11- 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 None Item 5. Other Information Not Applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit Number Description ------- ----------- 27 Financial Data Schedule (b) Reports on Form 8-K Form 8-K filed October 22, 1999 -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: November 12, 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-27 2 FDS --
5 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE COMPANYS UNAUDITED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS Dec-31-1999 Jan-1-1999 Sep-30-1999 33,555,842 0 22,734,842 766,671 0 63,438,803 1,634,376 1,450,988 68,140,278 26,522,883 0 0 0 115,922 41,122,461 68,140,278 0 25,592,252 0 0 0 0 0 16,671,906 7,169,000 9,502,906 0 0 0 9,502,906 0.91 0.78
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