SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d)
Of the Securities Exchange Act of 1934
For Quarter Ended December 31, 1997 Commission file number 0-6664
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K-TEL INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
Minnesota 41-0946588
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2605 Fernbrook Lane North, Minneapolis, Minnesota 55447-4736
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 559-6888
-----------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such 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 ____
APPLICABLE ONLY TO CORPORATE ISSUERS:
At February 9, 1998 there were outstanding 3,815,609 shares of common stock,
$.01 par value per share, of K-tel International, Inc.
K-TEL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND JUNE 30, 1997
(IN THOUSANDS)
December 31, June 30,
1997 1997
--------- ---------
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents $ 4,330 $ 3,341
Accounts receivable 16,308 16,667
Inventories 5,167 4,287
Royalty and other advances 2,944 1,552
Prepaid expenses and other 3,549 2,587
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Total Current Assets 32,298 $ 28,434
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Property and Equipment 3,409 3,154
Less Accumulated Depreciation and Amortization (2,392) (2,172)
--------- ---------
Property and Equipment, Net 1,017 982
Other Assets 1,279 1,076
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$ 34,594 $ 30,492
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Line of credit $ 2,010 $ 836
Note payable to affiliate -- 1,500
Accounts payable 4,641 3,708
Accrued royalties 8,439 11,296
Reserve for returns 5,971 4,930
Other current liabilities 3,499 3,572
Income taxes payable 124 70
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Total Current Liabilities 24,684 25,912
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Long Term Debt 4,000 --
Shareholders' Equity:
Common stock 37 37
Additional Paid In Capital 8,026 7,969
Deficit (817) (2,462)
Unrealized loss on Investment (332) --
Cumulative translation adjustment (1,004) (964)
--------- ---------
Total Shareholders' Equity 5,910 4,580
--------- ---------
$ 34,594 $ 30,492
========= =========
K-TEL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(IN THOUSANDS - EXCEPT PER SHARE DATA)
Three Months Ended Six Months Ended
December 31, December 31,
------------------------- -------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
NET SALES $ 23,215 $ 17,131 $ 48,350 $ 32,753
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Cost of goods sold 12,502 8,431 27,306 15,909
Advertising 4,451 2,934 8,177 5,718
Selling, general & administrative 5,684 3,969 10,896 8,360
---------- ---------- ---------- ----------
Total Costs and Expenses 22,637 15,334 46,379 29,987
---------- ---------- ---------- ----------
OPERATING INCOME 578 1,797 1,971 2,766
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest income 10 13 26 30
Interest expense (105) (3) (175) (21)
Foreign currency transaction gain (loss) (14) 70 (44) 51
---------- ---------- ---------- ----------
Total Other Income (Expense) (109) 80 (193) 60
---------- ---------- ---------- ----------
INCOME BEFORE PROVISION
FOR INCOME TAXES 469 1,877 1,778 2,826
PROVISION FOR INCOME TAXES (31) (125) (133) (222)
---------- ---------- ---------- ----------
NET INCOME $ 438 $ 1,752 $ 1,645 $ 2,604
========== ========== ========== ==========
INCOME PER SHARE;
BASIC $ .11 $ .47 $ .43 $ .70
DILUTED $ .11 $ .45 $ .40 $ .68
SHARES USED IN THE CALCULATION OF
INCOME PER SHARE;
BASIC 3,816 3,749 3,810 3,746
DILUTED 4,000 3,876 4,107 3,842
K-TEL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(IN THOUSANDS)
Six Months Ended
December 31,
1997 1996
---------- ----------
Cash Flows From Operating Activities:
Net income $ 1,645 $ 2,604
Adjustments to reconcile net income to cash provided by (used for) operating
activities:
Depreciation and amortization 393 262
Changes in current operating items:
Accounts receivable 267 2,446
Inventories (917) (50)
Royalty and other advances (1,395) 85
Prepaid expenses and other (1,299) (828)
Current liabilities (771) 710
---------- ----------
Cash provided by (used for) operating activities (2,077) 5,229
---------- ----------
Cash flows from investing activities:
Property and equipment purchases (287) (311)
Proceeds from sale of property and equipment 3 30
Music catalog additions (321) (122)
Other (33) (42)
---------- ----------
Cash used for investing activities (638) (445)
---------- ----------
Cash flows from financing activities:
Issuance of Long term debt 4,000 --
Borrowings on line of credit, Foothill Capital 7,540 --
Repayments on line of credit, Foothill Capital (5,530) --
Repayments on line of credit (836) (1,864)
Repayments on note payable to affiliate, net (1,500) --
Proceeds from exercise of stock options 57 14
---------- ----------
Cash provided by (used for) financing activities 3,731 (1,850)
---------- ----------
Effect of exchange rates on cash (27) (3)
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Net increase in cash and cash equivalents 989 2,931
Cash and cash equivalents at beginning of year 3,341 3,255
---------- ----------
Cash and cash equivalents at period end $ 4,330 $ 6,186
========== ==========
K-TEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed 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 Rule 10-01 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been
included. Operating results for the three and six month periods ended
December 31, 1997 are not necessarily indicative of the results that
may be expected for the year as a whole. For further information, refer
to the consolidated financial statements and footnotes thereto included
in the Company's annual report on Form 10-K for the year ended June 30,
1997.
2. RECENTLY ISSUED ACCOUNTING STANDARD
During June 1997, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 131 ("SFAS 131"),
"Disclosures about Segments of an Enterprise and Related Information",
which requires a disclosure of business segments in the financial
statements of the Company. The Company expects to adopt SFAS No. 131 in
fiscal 1999 and anticipates a change in segment disclosure at the time
of adoption.
3. COMPUTATION OF NET INCOME PER SHARE
During the second quarter of fiscal 1998, the Company adopted Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share."
As a result, all previously reported earnings per share have been
restated. Basic earnings per share have been computed by dividing net
income by the weighted average number of shares outstanding during the
period. Diluted earnings per share have been computed assuming the
exercise of stock options and their related income tax effect.
For the three-month periods ended December 31, 1997 and 1996, weighted
average shares outstanding included common stock equivalents of
approximately 184,000 shares and 127,000 shares, respectively, related
to stock options. For the six-month periods ended December 31, 1997 and
1996, weighted average shares outstanding included common stock
equivalents of approximately 297,000 shares and 96,000 shares,
respectively, related to stock options.
4. LOAN AND SECURITY AGREEMENT
On November 19, 1997, certain of the Company`s subsidiaries entered
into a new four year $10 million credit facility with a Foothill
Capital Corporation. The credit facility consists of a $4 million term
loan due November 19, 2001, and a $6 million revolving line of credit
facility. Borrowings under the facility bear interest at the prime rate
and are secured by the assets of certain U.S. subsidiaries, including
accounts receivable, inventories, equipment, music library and general
intangibles. The loan agreement contains certain financial and other
covenants or restrictions, including the maintenance of a minimum
tangible net worth by the Company, limitations on capital expenditures,
restrictions on music library acquisitions, limitations on the
incurrence of indebtedness, and restrictions on dividends to the
Company. The Company has guaranteed the obligations of its subsidiaries
under the credit facility and has pledged the stock of those
subsidiaries and its assets to secure the Company's obligations under
its guaranty. The proceeds of
the credit facility were used to repay in full, and terminate, the
previously existing bank revolving credit agreement and the $1,500,000
note payable to affiliate.
5. RECLASSIFICATIONS
Certain June 30, 1997 amounts have been reclassified to conform to the
current period presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General - K-tel International, Inc. is an international marketer and
distributor of entertainment and consumer products and is a leader in
the market niche for pre-recorded music compilations. With more than
twenty-five years of marketing experience in the United States
("U.S."), Canada and Europe, the Company has developed the resources,
knowledgeable personnel, information systems, distribution capabilities
and media buying ability, to launch music, consumer convenience and
video products quickly in the North American and European market
through both retail and direct response.
The Company markets and sells pre-recorded music both from the
Company's owned music master catalog and under licenses from third
party record companies. Sales of albums, cassettes and compact discs
are made to rackjobbers (distributors which stock and manage inventory
within certain music and video departments for some retail stores),
wholesalers and retailers in the U.S. and through subsidiaries and
licensees in the U.K. and Europe. Television direct response marketing
of pre-recorded music and consumer convenience product is a significant
source of revenue for the Company, specifically in Europe. In 1997, the
Company formed an U.S. media buying and infomercial-marketing
subsidiary, which performs media buying services for third parties and
also markets products through infomercials produced by third parties.
A. RESULTS OF OPERATIONS
Consolidated net sales for the six months ended December 31, 1997, were
$48,350,000 with operating income of $1,971,000 and net income of
$1,645,000, or $.40 per diluted share. Consolidated net sales for the
same period in the prior year were $32,753,000 with operating income of
$2,766,000 and net income of $2,604,000, or $.68 per diluted share. The
following tables set forth, for the periods indicated, results of
operations by geographic region as a percentage of net sales. All
amounts are in thousands of dollars.
Six Months Ended December 31, 1997
----------------------------------------------------------------------
North America Europe Total
-------------------- -------------------- --------------------
Net Sales $ 33,360 100% $ 14,990 100% $ 48,350 100%
Costs and expenses
Cost of goods sold 20,581 62% 6,725 45% 27,306 56%
Advertising 5,198 16% 2,979 20% 8,177 17%
Selling, general & administrative 6,174 18% 3,601 24% 9,775 20%
-------- -------- -------- -------- -------- --------
Operating Income $ 1,407 4% $ 1,685 11% $ 3,092 7%
======== ======== ======== ======== ======== ========
Six Months Ended December 31, 1996
----------------------------------------------------------------------
North America Europe Total
-------------------- -------------------- --------------------
Net Sales $ 18,627 100% $ 14,126 100% $ 32,753 100%
Costs and expenses
Cost of goods sold 9,381 50% 6,528 46% 15,909 49%
Advertising 2,843 15% 2,875 20% 5,718 17%
Selling, general & administrative 4,033 22% 3,615 26% 7,648 23%
-------- -------- -------- -------- -------- --------
Operating Income $ 2,370 13% $ 1,108 8% $ 3,478 11%
======== ======== ======== ======== ======== ========
In addition to the operating amounts shown above for the six months
ended December 31, 1997 and 1996, the parent holding company incurred
expenses of $1,121,000 and $712,000, respectively.
Consolidated net sales for the three months ended December 31, 1997,
were $23,215,000 with operating income of $578,000 and net income of
$438,000, or $.11 per diluted share. Consolidated net sales for the
same period in the prior year were $17,131,000 with operating income of
$1,797,000 and net income of $1,752,000 or $.45 per diluted share. The
following tables set forth, for the periods indicated results of
operations by geographic region as a percentage of net sales. All
amounts are in thousands of dollars.
Quarter Ended December 31, 1997
----------------------------------------------------------------------
North America Europe Total
-------------------- -------------------- --------------------
Net Sales $ 15,542 100% $ 7,673 100% $ 23,215 100%
Costs and expenses
Cost of goods sold 9,109 59% 3,393 44% 12,502 54%
Advertising 2,940 19% 1,511 20% 4,451 19%
Selling, general & administrative 3,231 21% 1,881 24% 5,112 22%
-------- -------- -------- -------- -------- --------
Operating Income $ 262 1% $ 888 12% $ 1,150 5%
======== ======== ======== ======== ======== ========
Quarter Ended December 31, 1996
----------------------------------------------------------------------
North America Europe Total
-------------------- -------------------- --------------------
Net Sales $ 8,979 100% $ 8,152 100% $ 17,131 100%
Costs and expenses
Cost of goods sold 4,580 51% 3,851 47% 8,431 49%
Advertising 1,255 14% 1,679 21% 2,934 17%
Selling, general & administrative 1,646 18% 1,815 22% 3,461 20%
-------- -------- -------- -------- -------- --------
Operating Income $ 1,498 17% $ 807 10% $ 2,305 14%
======== ======== ======== ======== ======== ========
In addition to the operating amounts shown above for the quarters ended
December 31, 1997 and 1996, the parent holding company incurred
expenses of $572,000 and $508,000, respectively.
CONSOLIDATED NET SALES for the six months ended December 31, 1997
increased $15,597,000, or 48%, from the comparable period in 1996.
North American sales for the six months ended December 31, 1997
increased $14,733,000, or 79%, from the comparable period in 1996. This
increase was mainly due to $10,964,000 in sales derived from the
Company's media buying and infomercial subsidiary which was not in
existence in 1996, and an increase in approximately $5,000,000 of music
and consumer product sales from the comparable period in 1996. European
sales for the six months ended December 31, 1997 increased $864,000, or
6%, from the comparable period in 1996 due mainly to an increase in
direct response sales made in Germany.
For the quarter ended December 31, 1997 consolidated net sales
increased $6,084,000, or 36%, from the comparable period in 1996. North
American sales for the three months ended December 31, 1997 increased
$6,563,000, or 73%, from the comparable period in 1996. This increase
was mainly due to $5,119,000 in sales derived from the Company's media
buying and infomercial subsidiary which was not in existence in 1996,
and an increase in approximately $1,700,000 of music and consumer
product sales from the comparable period in 1996. European sales for
the three months ended December 31, 1997 decreased $479,000, or 6%,
from the comparable period in 1996 due mainly to a decrease in sales
from the Company's Finland music operation.
CONSOLIDATED COST OF GOODS SOLD AS A PERCENTAGE OF NET SALES for the
six months ended December 31, 1997 were 56% as compared to 49% in the
comparable period in 1996. Costs of goods sold as a percentage of net
sales for North America for the six months ended December 31, 1997 were
62% as compared to 50% in the comparable period in 1996. The increase
is mainly due to the higher costs of goods associated with the
Company's media buying and infomercial subsidiary, which was not in
existence in 1996, and whose cost of goods for the period approximated
63% of sales. Additionally, the Company experienced a slightly higher
cost of goods sold in its U.S. retail music business. European costs of
goods
sold were 45% as compared to 46% in the comparable period in 1996 as
the Company was able to slightly improve its gross margin on
merchandise sold via direct response as compared to the merchandise
sold in the prior period.
For the quarter ended December 31, 1997 cost of goods sold were 54% as
compared to 49% in the comparable period in 1996. Cost of goods sold as
a percentage of net sales for North America for the three months ended
December 31, 1997 were 59% as compared to 51% in the comparable period
in 1996. This increase in the cost of sales percentage was due to the
higher cost of goods sold in the Company's U.S. retail music business,
as well as a high amount of returns on certain of the Company's
consumer product sales. European costs of goods sold were 44% as
compared to 47% in the comparable period in 1996 as the Company was
able to improve its gross margin on merchandise sold via direct
response as compared to the merchandise sold in the prior period.
CONSOLIDATED ADVERTISING COSTS for the six months ended December 31,
1997 increased $2,459,000, or 43%, from the comparable period in 1996.
North American advertising costs for the six months ended December 31,
1997 increased $2,355,000, or 83%, from the comparable period in 1996.
This increase was mainly due to advertising costs incurred by the
Company's media buying and infomercial subsidiary that was not in
existence in 1996. European advertising costs for the six months ended
December 31, 1997 remained fairly consistent with the comparable period
in 1996.
For the quarter ended December 31, 1997 advertising costs increased
$1,517,000, or 52%, from the comparable period in 1996. North American
advertising costs for the three months ended December 31, 1997
increased $1,685,000, or 134% from the comparable period in 1996. This
increase was mainly due to advertising costs incurred by the Company's
media buying and infomercial subsidiary that was not in existence in
1996. European advertising costs for the three months ended December
31, 1997 remained fairly consistent with the comparable period in 1996.
CONSOLIDATED SELLING, GENERAL AND ADMINISTRATIVE EXPENSES for the six
months ended December 31, 1997 increased $2,127,000, or 28%, from the
comparable period in 1996. North American selling, general and
administrative expenses for the six months ended December 31, 1997
increased $2,141,000, or 53%, from the comparable period in 1996. The
difference primarily relates to a reduction of 1996 general and
administrative costs of $850,000 that resulted from the recovery of
certain legal and other costs related to a dispute with a company over
certain music licensing rights. Excluding the settlement amount,
general and administration expenses for the six-month period ended
December 31, 1997 as compared to same period in 1996 increased by
$1,291,000, or 26%. This remaining increase was mainly due to overhead
costs incurred by the Company's media buying and infomercial subsidiary
that was not in existence in 1996. European selling, general and
administrative expenses for the six months ended December 31, 1997
remained consistent with costs incurred in the comparable period in
1996. Additionally, the parent holding company incurred operating costs
of $1,121,000 compared to such expenses of $712,000 in the comparable
period in 1996. The increase of $409,000 was mainly due to legal and
professional fees associated with the proposed sale of certain of the
Company's music business assets (the sale was terminated in September
1997).
For the quarter ended December 31, 1997 selling, general and
administrative expenses increased $1,651,000, or 48%, from the
comparable period in 1996. North American selling, general and
administrative expenses for the three months ended December 31, 1997
increased $1,585,000, or 96%, from the comparable period in 1996. The
difference primarily relates to a reduction of 1996 general and
administrative costs of $850,000 that resulted from the recovery of
certain legal and other costs related to a dispute with a company over
certain music licensing rights. Excluding the settlement amount,
general and administration expenses for the three-month period ending
December 31, 1997 as compared to same period in 1996 increased by
$735,000, or 30%. This increase was mainly due to overhead costs
incurred by the Company's media buying and infomercial subsidiary that
was not in existence in 1996. European selling, general and
administrative expenses for the three months ended December 31, 1997
remained consistent with costs incurred in the comparable period in
1996. Additionally the parent holding company incurred operating costs
of $572,000 compared to $508,000 in the comparable period in 1996.
OPERATING INCOME for the six months ended December 31, 1997 decreased
$795,000 to $1,971,000 from $2,766,000 from the comparable period in
1996. North American operating income decreased $963,000, or 41%, from
the comparable period in 1996. The decrease was primarily due to
$850,000 recognized in the second quarter of 1996 from the recovery of
certain legal and other costs related to a dispute with a company over
certain music licensing rights. European operating income increased
$577,000, or 52% from the comparable period in 1996. The operating
income improvement was due mainly to current year profitability in the
Company's German direct response operations.
For the quarter ended December 31, 1997 operating income decreased to
$578,000 from $1,797,000 from the comparable period in 1996. North
American operating income decreased $1,236,000, or 83%, from the
comparable period in 1996. The decrease was primarily due to; $850,000
recognized in the second quarter of 1996 from the recovery of certain
legal and other costs related to a dispute with a company over certain
music licensing rights and; approximately $400,000 from losses in the
Company's consumer products and direct response subsidiaries during the
current period. European operating income increased $81,000, or 10%,
from the comparable period in 1996 due to increased profit from the
Company's German direct response operations.
INTEREST EXPENSE for the six months ended December 31, 1997, increased
$154,000 to $175,000 as compared to the same period in 1996. For the
three months ended December 31, 1997, interest expense increased
$102,000 to $105,000 as compared to the prior year period. The increase
in interest expense corresponds with the increased borrowings made by
the Company during these periods under its existing credit facilities.
During the six months ended December 31, 1997, the Company experienced
a foreign currency transaction loss of $44,000 compared to a gain of
$51,000 experienced during the comparable period in the prior year. For
the three months ended December 31, 1997, the Company experienced a
foreign currency loss of $14,000 compared to a gain of $70,000 in the
prior year. In the three and six month periods ended December 31, 1997,
foreign exchange rate fluctuations were less favorable to the Company
than in the previous year comparable periods. Most of the Company's
foreign currency transaction exposure is due to its European
subsidiaries' liabilities, which are payable to the Company's U.S.
parent or U.S. Subsidiaries. In accordance with generally accepted
accounting principles the payable balances are adjusted quarterly to
the local currency equivalent of the U.S. dollar. The majority of the
translation losses for the six-month and three-month periods ended
December 31, 1997 were the result of these intercompany liabilities.
Gains or losses resulting from these intercompany liabilities remain
unrealized until such time as the underlying liabilities are settled.
INCOME TAXES for the six months ended December 31, 1997 were $133,000
compared to a provision of $222,000 in the prior year comparable
period. For the three months ended December 31, 1997 the provision for
income tax was $31,000 compared to $125,000 in the prior year period.
Variations in the Company's tax provision are a factor of the country
of origin of profits and the availability of net operating loss
carryforwards.
Operating results for the three and six month periods are not
necessarily indicative of the results that may be expected for the full
year.
B. LIQUIDITY AND CAPITAL RESOURCES
During the six months ended December 31, 1997, the Company experienced
negative cash flow from operations of $2,077,000. This was mainly due
to investments of approximately $1,400,000 in royalties and other
advances for music product, and $1,300,000 for the purchase and
deferment of certain media and advertising costs, the benefit of which
are expected to be realized later in fiscal 1998. The Company's overall
cash and cash equivalents increased by $989,000 that resulted mostly
from increased borrowings under its credit facilities.
Until November 20, 1997, the Company had a revolving credit agreement
with a U.S. bank that provided borrowing up to $2,500,000 based upon a
monthly borrowing base derived from certain of the Company's U.S.
Subsidiary's accounts receivable. The loan was secured by assets of the
Company's U.S.
Subsidiaries, including accounts receivable, inventories, equipment and
owned music master recordings and was guaranteed by the Company
On November 19, 1997, certain of the Company's subsidiaries entered
into a new four year $10 million credit facility with Foothill Capital
Corporation. The credit facility consists of a $4 million term loan due
November 19, 2001, and a $6 million revolving line of credit. Borrowing
under the facility bear interest at the prime rate and are secured by
the assets of certain U.S. subsidiaries, including accounts receivable,
inventories, equipment, music library and general intangibles. The loan
agreement contains certain financial and other covenants or
restrictions, including the maintenance of a minimum tangible net worth
by the Company, limitations on capital expenditures, restrictions on
music library acquisitions, limitations on the incurrence of
indebtedness, and restrictions on dividends to the Company. The Company
has guaranteed the obligations of its subsidiaries under the credit
facility and has pledged the stock of those subsidiaries and its assets
to secure the company's obligations under its guaranty. On November 20,
1997, $7,716,692 was borrowed under the credit facility and a portion
of the proceeds were used to repay in full the bank revolving credit
agreement discussed in the preceding paragraph and such agreement was
terminated. The amount outstanding under this credit facility was
$2,010,000 at December 31, 1997.
As of November 20, 1997, an affiliate controlled by the Company's
Chairman of the Board and Chief Executive Officer, had provided
$1,500,000 in financing to the Company to fund the Company's U.S.
operations. The Company pays interest on this advance, which is due on
demand, at the same rate as the company pays on its bank revolving
credit agreement. The debt was repaid in full on November 20, 1997 from
a portion of the borrowings under the new credit facility discussed
above.
Management considers its cash needs for the current fiscal year to be
adequately covered by its operations and available borrowings under the
new financing arrangement. Additionally, the Company has available to
it funding from a company owned by Mr. Philip Kives, the Company's
Chairman of the Board and Chief Executive Officer. Although management
is not privy to the financial statements of the Chairman's other
companies, he has assured K-tel International, Inc. that he will fund
its operations on an as needed basis consistent with his past practices
which have mainly been by way of giving the Company open ended payment
terms on product purchased for his affiliate companies.
During the first six months of fiscal 1998, the Company purchased
approximately $295,000 of consumer convenience product from an
affiliate controlled by Mr. Philip Kives, the Company's Chairman of the
Board and Chief Executive Officer. The Company owed approximately
$131,000 to the affiliate at December 31, 1997. This same affiliate
purchased approximately $31,000 of consumer convenience products from
the Company during the six months ended December 31, 1997 and owed the
Company $87,000 at December 31, 1997. No interest will be charged on
the related outstanding balances during fiscal 1998.
Important Factors Relating to Forward Looking Statements. - Information
contained in this Form 10-Q contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of
1995, which can be identified by the use of forward-looking terminology
such as "may," "will," "would," "could," "intend," "plan," "expect,"
"anticipate," "estimate," or "continue," or negative variations thereof
or other variations thereon or comparable terminology. Many factors
could cause actual results to differ materially from those in the
forward-looking statements, including overall economic conditions,
consumer purchasing, customer acceptance of products, marketing and
promotion efforts, foreign currency variations and changes in interest
rates.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT INDEX
10.53 Loan and Security Agreement - Foothill Capital Corporation
27 Financial Data Schedule (SEC use)
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the quarter ended
December 31, 1997.
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.
K-TEL INTERNATIONAL, INC.
REGISTRANT
/S/ PHILIP KIVES
----------------------------------------
PHILIP KIVES
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
/S/ DAVID WEINER
----------------------------------------
DAVID WEINER
PRESIDENT
/S/ COREY FISCHER
----------------------------------------
COREY FISCHER
CHIEF FINANCIAL OFFICER
(principal accounting officer)