-----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, OeE80mdxx7WwDpDcYfTxRU8kprK4rTyMmOhidVqIb8bLLW2noTVavndRborQJkov ajZ/bV8vsPyr7Tf3iP9Q7A== 0000916641-96-000985.txt : 19961118 0000916641-96-000985.hdr.sgml : 19961118 ACCESSION NUMBER: 0000916641-96-000985 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NASD 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: 1934 Act SEC FILE NUMBER: 000-07843 FILM NUMBER: 96665347 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 4KIDS ENTERTAINMENT, INC. 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, 1996 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, 1996 Common Stock, $.01 Par Value 2,944,831 4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES INDEX PAGE NUMBER PART I: FINANCIAL INFORMATION Item 1: Financial Statements Consolidated Balance Sheets 1 September 30, 1996 (Unaudited) and December 31, 1995. Consolidated Statements of Operations 2 Three and Nine Months Ended September 30, 1996 and 1995 (Unaudited) Consolidated Statements of Cash Flows 3 Nine Months Ended September 30, 1996 and 1995 (Unaudited) Notes to Consolidated Financial 4 Statements (Unaudited) Item 2: Management's Discussion and Analysis 6 of Financial Condition and Results of Operations PART II: OTHER INFORMATION 9 4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31, 1996 1995 ----------------- -------------------- ASSETS (UNAUDITED) - ------ CURRENT ASSETS: Cash and cash equivalents $2,185,327 $3,505,777 Accounts receivable, net 5,835,098 14,668,829 Film inventory-net 3,183,147 1,210,918 Prepaid refundable income taxes 1,519,120 448,442 Prepaid expenses and other current assets 567,761 704,215 Current deferred tax asset 34,445 34,445 ---------------- -------------------- Total current assets 13,324,898 20,572,626 ---------------- -------------------- FURNITURE, FIXTURES AND COMPUTER EQUIPMENT- (Net) 258,474 347,772 FILM INVENTORY - Noncurrent 2,531,703 2,531,703 ACCOUNTS RECEIVABLE - Noncurrent, net 2,455,427 2,317,639 SECURITY DEPOSITS AND OTHER ASSETS 235,226 198,835 ---------------- -------------------- TOTAL ASSETS $18,805,728 $25,968,575 ================ ==================== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES: Due to licensors $1,471,104 $1,613,606 Media payable 6,104,464 11,428,185 Accounts payable and accrued expenses 357,604 636,017 ---------------- -------------------- Total current liabilities 7,933,172 13,677,808 NONCURRENT DEFERRED TAX LIABILITY 661,859 661,859 ---------------- -------------------- Total liabilities 8,595,031 14,339,667 ---------------- -------------------- STOCKHOLDERS' EQUITY Preferred stock, $.01 par value - authorized, 3,000,000 shares; none issued Common stock, $.01 par value - authorized, 10,000,000 shares; issued, 2,944,831 shares 29,448 29,448 Additional paid-in capital 4,429,906 4,429,906 Retained earnings 5,751,343 7,169,554 ---------------- -------------------- Total stockholders' equity 10,210,697 11,628,908 ---------------- -------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $18,805,728 $25,968,575 ================== ====================
See notes to consolidated financial statements -1- 4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1996 1995 1996 1995 --------------- ---------------- ------------- -------------- NET REVENUES: 995,434 $1,283,252 $2,689,498 $2,990,339 COST AND EXPENSES: Selling, general and administrative cost 1,314,138 1,698,438 4,573,488 5,319,911 Amortization of capitalized film cost 171,264 85,025 682,937 148,991 --------------- ---------------- ------------- -------------- TOTAL COST AND EXPENSES 1,485,402 1,783,463 5,256,424 5,468,902 --------------- ---------------- ------------- -------------- (489,968) (500,211) (2,566,927) (2,478,563) INTEREST INCOME 5,443 54,383 78,838 241,380 --------------- ---------------- ------------- -------------- LOSS BEFORE INCOME TAX BENEFIT (484,525) (445,828) (2,488,089) (2,237,183) INCOME TAX BENEFIT (208,378) (192,000) (1,069,878) (962,000) --------------- ---------------- ------------- -------------- NET LOSS ($276,147) ($253,828) ($1,418,211) ($1,275,183) =============== ================ ============= ============== PER SHARE AMOUNTS Loss per common and dilutive common equivalent share ($0.09) ($0.08) ($0.48) ($0.42) =============== ================ ============= ============== Loss per common share- assuming full dilution ($0.09) ($0.08) ($0.48) ($0.42) =============== ================ ============= ============== Weighted average number of common and common equivalent shares outstanding 2,944,831 3,001,555 2,970,627 2,990,702 =============== ================ ============= ==============
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, 1996 1995 ----------------- --------------- OPERATING ACTIVITIES: Net loss ($1,418,211) ($1,275,183) Adjustments to reconcile net loss to net (used in) provided by operating by operating activity Depreciation and amortization 111,334 174,472 Amortization of capitalized film cost 682,937 148,991 Changes in assets and liabilities (using)/providing cash: Accounts receivable 8,695,943 10,982,767 Film inventory (2,655,166) (2,167,744) Prepaid expenses and other current assets 136,454 (184,471) Prepaid/Refundable income taxes (1,070,678) (1,027,718) Security deposits and other assets (36,391) 193,789 Due to licensors (142,502) (175,155) Accounts payable and accrued expenses (278,413) (117,779) Media payable (5,323,721) (10,527,938) ----------------- --------------- Net cash (used in) provided by operating activities (1,298,414) (3,975,969) ----------------- --------------- INVESTING ACTIVITIES: Purchase of furniture and fixtures (22,036) (110,909) ----------------- --------------- Net cash used in investing activities (22,036) (110,909) ----------------- --------------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,320,450) (4,086,878) CASH AND CASH EQUIVALENTS, BEGINNING PERIOD 3,505,777 7,371,311 ----------------- --------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $2,185,327 $3,284,433 ================= ===============
See accompanying notes to consolidated financial statements. -3- 4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) September 30, 1996 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, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. 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, 1995. 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, 1995. Note 3 PER SHARE AMOUNTS: Earnings per common and dilutive common equivalent share are based on the weighted average number of shares and common equivalent shares outstanding during the period. Common shares issuable upon the exercise of options are included as common equivalent shares when their inclusion is dilutive using the treasury stock method. -4- Note 4 STOCK OPTIONS: In accordance with the provisions of the 1994 stock option plan, options to purchase 100,000 shares of the Company's common stock were granted in the first quarter of 1996 to the Chairman and Chief Executive Officer of the Company and options to purchase 50,000 shares were granted to each of the two outside directors. All such options were at an exercise price of $2.3125 the market price of the Company's common stock at the time of grant. Additionally, the Compensation Committee of the Board of Directors granted options on June 5, 1996 to purchase 63,000 shares of the Company's common stock at an exercise price of $2.375, the market price of the Company's common stock at that date, to employees of the Company including four executive officers. Note 5 COMMITMENTS AND CONTINGENCIES: Credit Facility- The Company's line of credit (the "Credit Facility") from Chemical Bank which was scheduled to expire on June 30, 1996 has been renegotiated and renewed through June 30, 1997. Under the new terms the Company may borrow from time to time for general working capital purposes up to $2 million. Any borrowings under the credit facility would be secured by the Company's receivables. The Credit Facility provides for an interest rate of 1% over the bank's prime rate and an annual commitment fee of 3/4%. As of September 30, 1996 the Company had no borrowings under the Credit Facility. -5- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS: 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 revenues are highly subject to changing fashion in the toy and entertainment business, its licensing revenues from year to year from particular sources are subject to dramatic increases and decreases. It is not possible to precisely anticipate the length of time a project will be commercially successful, if at all. Popularity of properties can vary from months to years. As a result, the Company's revenues and net income may fluctuate significantly between comparable periods. The Company's revenues have historically been primarily derived from the license of toy and game concepts. Thus a substantial portion of the Company's revenues and net income are subject to the seasonal variations of the toy and game industry. Typically, a majority of toy orders are shipped in the third and fourth calendar quarters. In addition the Company's media buying subsidiary concentrates its activities on the youth oriented market. As a result, most of its revenue is earned in the third and fourth quarters 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. Furthermore, the Company has little control over the timing of guarantee and minimum payments, some of which are made upon the execution and delivery of license agreements. Three and Nine Months Ended September 30, 1996 Compared to Three and Nine Months Ended September 30, 1995 Consolidated net revenue decreased 22% ($287,818) for the three month period ended September 30, 1996 as compared to the same period in 1995. Revenue levels for the nine month period ended September 30, 1996 decreased approximately 10% ($300,841) as compared to the same period in 1995. The decrease in net revenue for the three and nine month periods was primarily due to decreased revenue related to the Company's licensing activities. The more mature properties and characters represented by the Company for licensing generated lower levels of royalties, while newer properties and characters have not yet developed into mass-market licensing programs. This decrease in licensing revenue was partially offset by an increase in revenue from the Company's media buying activities. -6- Selling, general and administrative expenses decreased by 23% ($384,300) and 14% ($746,423) for the three and nine month periods ended September 30, 1996 when compared to the same periods in 1995. The lower level of expenditures in the three and nine month periods are principally due to the effect of cost reductions in the Company's licensing business. At September 30, 1996 there were approximately $5,714,850 of capitalized film production costs(film inventory). The increase in such costs from December 31, 1995 relates to the production of the second season of the television series "WMAC Masters". "WMAC Masters" is a weekly syndicated television program produced by the Company's 4Kids Productions subsidiary. This weekly half hour TV program is syndicated by the Company's Summit Media subsidiary in over 80% of the Country. Amortization of capitalized film cost increased by $86,239 and $533,946 for the three and nine month periods when compared to the same periods in 1995. The 1996 amortization relates primarily to the Olympic specials produced for the Atlanta Committee for the Olympic games, which ran on the NBC television network, and WMAC Masters. At September 30, 1996 the percentage of unamortized film cost of $5,714,850 expected to be amortized within the next three years exceeds 80%. The Company periodically evaluates its anticipated revenue from film production and, consequently, amortization rates may change as a result of such estimates. Interest income decreased by approximately 90% ($48,940) and 67% ($162,542) for the three and nine month periods ending September 30, 1996 as compared to the same periods in 1995. This decrease is primarily attributable to lower levels of invested cash during the first nine months of the year as compared to the same period in 1995. -7- LIQUIDITY AND CAPITAL RESOURCES: At September 30, 1996 the Company had working capital of $5,391,726 as compared to working capital of $ 6,894,818 at December 31, 1995, a decrease in working capital of $1,503,092. Cash and cash equivalents decreased by $1,320,450 from December 31, 1995. The decrease in working capital and cash and cash equivalents is due primarily to cash expenditures associated with funding the production of season two of "WMAC Masters" which substantially completed production in September 1996. Additional cash expenditures were required to fund the operating losses for the nine month period ended September 30, 1996. The decrease in working capital was offset to some extent by an increase in prepaid taxes. The prepaid taxes primarily reflect the anticipated tax benefit based on the nine month loss. Accounts receivable, net (current and noncurrent) decreased from $16,986,468 at December 31, 1995 to $8,290,525 at September 30, 1996. The decrease is primarily due to the Company's media buying activities. The seasonality of the Company's business tends to generate higher receivables in the fourth quarter which are generally collected in the first quarter. As a result higher receivables at year end are converted to cash during the first quarter. There is a corresponding decrease in media payable of $5,323,721. Amounts due to licensors, which represents the owner's share of royalties collected, decreased by $142,502 to $1,471,104 from December 31, 1995. The decrease is primarily due to lower amounts of royalties collected during the quarter which are payable to the licensor 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 $2,000,000 credit facility with Chemical Bank for general working capital purposes. As of November 13, 1996 there have been no borrowings under this facility. -8- PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K a. Exhibits 27 Financial Data Schedule b. Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: November 14, 1996 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 -9- EX-27 2 EXHIBIT 27
5 3-MOS DEC-31-1996 SEP-30-1996 2,185,327 0 8,727,682 437,157 0 13,324,898 1,405,547 1,147,073 18,805,728 7,933,172 0 0 0 29,448 10,181,249 18,805,728 0 2,689,498 0 0 0 0 0 (2,488,089) (1,069,878) (1,418,211) 0 0 0 (1,418,211) (0.48) (0.48)
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