SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2000 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 number: 0-18613
TRIMARK HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4272695
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4553 GLENCOE AVE., SUITE 200
MARINA DEL REY, CALIFORNIA 90292
(Address of principal executive offices) (Zip code)
(310) 314-2000
(Registrant's telephone number, including area code)
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
--- ---
As of May 8, 2000, 4,657,527 shares of Trimark Holdings, Inc. common stock were
outstanding, excluding shares held by Trimark Holdings, Inc. as treasury stock.
TRIMARK HOLDINGS, INC.
INDEX
Part I. Financial Information Page No.
Item 1. Financial Statements:
Consolidated Balance Sheets at March 31, 2000 and June 30, 1999 3
Consolidated Statements of Operations - Nine months and three months ended 4
March 31, 2000 and 1999
Consolidated Statements of Cash Flows - Nine months ended March 31, 2000 5
and 1999
Notes to Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial Condition and 8-14
Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 15
Part II. Other Information
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 17-18
2
TRIMARK HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
------------------------------------------
(Dollars in Thousands, Except Share Data)
March 31, June 30,
2000 1999
-------------------- ------------
(Unaudited)
ASSETS
------
Cash and cash equivalents $ 3,444 $ 2,121
Accounts receivable, less allowances of
$8,310 and $5,352, respectively 20,799 20,231
Film costs, net (Note 2) 40,579 49,230
Deferred marketing costs 880 1,518
Inventories, net 2,551 1,552
Equity investments 1,028 6,036
Property and equipment at cost, less accumulated
depreciation of $3,202 and $2,872,respectively 774 565
Due from officers 795 792
Other assets 955 1,233
--------------------- ------------
$ 71,805 $ 83,278
===================== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Revolving line of credit $ 34,000 $ 48,330
Accounts payable and accrued expenses 7,010 5,710
Minimum guarantees and royalties payable 9,733 12,204
Deferred income 324 889
Income taxes payable 44 64
--------------------- ------------
Total liabilities 51,111 67,197
--------------------- ------------
Minority interest (Note 7) 2,009 --
--------------------- ------------
Stockholders' equity:
Common stock, $.001 par value. Authorized
20,000,000 shares; 5,657,000, 5,570,000 shares
issued at March 31, 2000 and June 30, 1999, respectively 6 6
Additional paid in capital 18,699 18,617
Preferred stock, $.01 par value. Authorized
2,000,000 shares; no shares issued and
outstanding -- --
Retained earnings 3,664 (1,180)
Accumulated comprehensive income 779 3,101
Less treasury shares, at cost - 965,000 shares (4,463) (4,463)
--------------------- ------------
Stockholders' equity 18,685 16,081
--------------------- ------------
$ 71,805 $ 83,278
===================== ============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
TRIMARK HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Earnings Per Share)
Nine Months Ended Three Months Ended
March 31, March 31,
-------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(Unaudited)
Net revenues $ 67,044 $ 66,270 $ 25,763 $ 19,989
Film costs and distribution expenses 53,644 56,611 21,179 19,323
----------- ----------- ----------- -----------
Gross profit 13,400 9,659 4,584 666
----------- ----------- ----------- -----------
Operating expenses:
Selling 5,029 5,555 1,661 1,867
General and administrative 4,374 4,106 1,610 1,434
Bad debt 357 (162) 2 179
----------- ----------- ----------- -----------
9,760 9,499 3,273 3,480
----------- ----------- ----------- -----------
Operating earnings 3,640 160 1,311 (2,814)
Other (income) expenses:
Interest expense 1,925 3,023 280 871
Interest and investment income (2,969) (57) (44) (40)
Minority interest (121) -- (102) --
----------- ----------- ----------- -----------
(1,165) 2,966 134 831
----------- ----------- ----------- -----------
Earnings before income taxes 4,805 (2,806) 1,177 (3,645)
Income taxes (Note 5) (38) (240) -- --
----------- ----------- ----------- -----------
Net earnings $ 4,843 $ (2,566) $ 1,177 $ (3,645)
----------- ----------- ----------- -----------
Other comprehensive income, net of tax (2,321) 2,485 (270) 2,485
----------- ----------- ----------- -----------
Comprehensive income 2,522 (81) 907 (1,160)
=========== =========== =========== ===========
Weighted average number of common shares
basic and fully diluted (Note 6) 4,634 4,341 4,634 4,341
=========== =========== =========== ===========
Net earnings per common share
basic and fully diluted (Note 6) $ 1.05 $ (0.59) $ 0.25 $ (0.84)
=========== =========== =========== ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
TRIMARK HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Nine Months Ended
March 31,
2000 1999
--------- -----------
(Unaudited)
Operating activities:
Net earnings $ 4,843 $ (2,566)
Adjustments to reconcile net earnings to
Net cash used by operating activities:
Film amortization 31,605 35,231
Depreciation and other amortization 330 326
Provision for returns and bad debt 2,959 (67)
Provision for inventory obsolescence 557 (268)
Change in operating assets and liabilities:
Increase in accounts receivable (3,527) (2,137)
Additions to film costs (22,954) (32,658)
Decrease in deferred marketing costs 638 834
Increase in inventories (1,556) (63)
Increase in notes receivable
from officers (3) (13)
Decrease in other assets 278 295
Increase (decrease) in accounts payable and
accrued expenses 1,300 (2,400)
(Decrease) increase in minimum guarantees and
royalties payable (2,471) 5,684
(Decrease) increase in income taxes payable (20) 6
(Decrease) increase in deferred income (565) 2,140
Decrease in minority interest 121 --
------------- -------------
Net cash provided by operating activities 11,535 4,344
------------- -------------
Investing activities:
Acquisition of property and equipment (539) (187)
Sale of equity investments at cost 2,687 --
------------- -------------
Net cash provided (used) by investing activities 2,148 (187)
------------- -------------
Financing activities:
Net decrease in revolving line of credit (14,330) (3,920)
Exercise of stock options 82 79
Purchase of treasury stock -- (33)
Funds provided by minority shareholders in CinemaNow, Inc. 2,130 --
------------- -------------
Net cash provided by financing activities (12,118) (3,874)
------------- -------------
Increase in cash and cash equivalents 1,323 283
Cash and cash equivalents at beginning of period 2,121 1,159
------------- -------------
Cash and cash equivalents at end of period $ 3,444 $ 1,442
============= =============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
TRIMARK HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - THE COMPANY:
The consolidated financial statements of Trimark Holdings, Inc. and subsidiaries
(the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The accompanying
financial statements should be read in conjunction with the more detailed
financial statements and related footnotes filed with the Form 10-K for the year
ended June 30, 1999. Significant accounting policies used by the Company are
summarized in Note 2 to the June 30, 1999 financial statements.
In the opinion of management, all adjustments required for a fair presentation
of the financial position as of March 31, 2000 and the results of operations and
cash flows for the periods ended March 31, 2000 and March 31, 1999 have been
made and all adjustments were of a normal and recurring nature. Operating
results for the nine and three month periods are not necessarily indicative of
the operating results for the fiscal year.
During the nine month period ended March 31, 2000, Trimark Holdings, Inc.
organized a majority owned subsidiary named CinemaNow, Inc. CinemaNow, Inc.
connects independent film watchers with independent filmmakers through the
business of streaming theatrical and short films over the internet while
providing comprehensive virtual studio resources to independent filmmakers.
6
NOTE 2 - FILM COSTS:
Film costs, net of amortization, consist of the following:
March 31, June 30,
2000 1999
------------------------- ------------------------
(in thousands)
Released $ 27,105 $ 36,352
Completed not released 3,678 3,938
In process and development 9,796 8,940
------------------------- -------------------------
$ 40,579 $ 49,230
------------------------- -------------------------
NOTE 3 - COMMITMENTS & CONTINGENCIES:
The Company has entered into certain agreements, which provide for royalty
advances and promotional and advertising commitments totaling $18 million. If
the conditions to these agreements are not met by the licensors, the Company may
withdraw from the arrangements. These commitments extend to December 2000.
NOTE 4 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the nine month period for:
March 31,
2000 1999
-------------------- ------------------
(in thousands)
Interest $2,554 $3,438
Income taxes 50 155
NOTE 5 - INCOME TAXES:
The $240,000 tax benefit represents a tax receivable from a prior year return
recognized in the fiscal year ended June 30, 1999.
7
NOTE 6 - NET EARNINGS PER COMMON SHARE:
Basic earnings per common share amounts are based on the weighted average number
of common shares outstanding during the respective periods. Diluted earnings per
common share amounts are based on the weighted average common shares outstanding
during the period and shares assumed issued upon conversion of stock options
when the effect of such conversions would have been dilutive to net earnings.
NOTE 7 - MINORITY INTEREST:
In the first quarter of calendar year 2000, pursuant to the terms of a
Securities Purchase Agreement dated as of January 6, 2000, as amended, the
Company's majority-owned subsidiary, CinemaNow, Inc. ("CinemaNow"), completed
a private placement financing to accredited investors of 3,155,552 shares of
CinemaNow Series A Convertible Preferred Stock, yielding proceeds of
approximately $2,130,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NET REVENUES:
Nine months ended Three months ended
March 31, March 31,
----------------------------------- -----------------------------------
2000 1999 2000 1999
--------------- --------------- ---------------- ---------------
(in thousands)
Domestic:
Home video distribution $47,820 $42,256 $19,299 $13,232
Theatrical distribution 1,118 857 319 136
Television distribution 6,301 10,397 1,381 3,665
Foreign:
All media 11,805 12,760 4,764 2,956
--------------- --------------- ---------------- ---------------
$67,044 $66,270 $25,763 $19,989
--------------- --------------- ---------------- ---------------
Net revenue for the nine month and three month period ended March 31, 2000
increased $774,000 or 1.2% and $5.8 million or 29%, respectively, compared with
the same periods in fiscal year 1999. The increase for the nine month period was
primarily due to increases in net revenue from the home video market of $5.6
million offset by a $955,000 decrease in foreign revenue and by a $4.1 million
decrease in television distribution. The increase in home video revenue was
largely due to the distribution of Saturday Night Live "BEST OF" compilations
into the sell-through market as well as the highly successful DVD release of
"NATURAL BORN KILLERS, DIRECTOR'S CUT." The decrease in television revenue was
due to the availability of the wide theatrical release "STAR KID" and the highly
successful theatrical release "EVE'S BAYOU" during the nine month period ended
March 31, 1999. In contrast, "MEET WALLY SPARKS" was the only wide theatrical
release film available in the television market during the same period in fiscal
year 2000. The decrease in foreign revenue resulted from the initial release of
seven films in the foreign market along with the initial release of "EVE'S
BAYOU" in major international territories during the nine months ended March 31,
1999. In contrast, during the same period in fiscal year 2000, only five films
were initially released into the international market.
8
ITEM 2: (CONTINUED)
The increase in net revenue for the quarter ended March 31, 2000 was due
primarily to increases in net revenue from the home video and foreign markets
of $6.1 million and $1.8 million, respectively, partly offset by a $2.3
million decrease in the domestic television market. The increase in the home
video revenue was primarily a result of the release of the Saturday Night
Live titles into the sell-through and DVD market as well as the successful
release of "NATURAL BORN KILLERS, DIRECTOR'S CUT" into the DVD market. The
increase in foreign distribution revenue was primarily due to the release of
four titles in major foreign territories during the quarter ended March 31,
2000; in contrast, there was only one comparable release during the same
period in fiscal year 1999. The decrease in television revenue was primarily
due to the cable premier of "CHAIRMAN OF THE BOARD", the availability of
"GROUND CONTROL" in the domestic television market and the availability of
numerous titles in television syndication during the quarter ended March 31,
1999. There were no comparable releases during the same period in fiscal year
2000.
The Company continues to focus its resources on producing and acquiring films
with specialized theatrical potential, the made for television market and the
home video sell through market. See "Liquidity and Capital Resources."
The Company anticipates that the domestic home video rental market will continue
to be extremely competitive.
GROSS PROFIT: Gross profit as a percentage of net revenues for the nine month
period ended March 31, 2000 and 1999 was 20% and 14.6%, respectively, and for
the quarters ended March 31, 2000 and 1999 was 17.8% and 3.3%, respectively.
The increase in gross profit for the nine month period was primarily due to
the sale of product which require less capital expenditure and carry higher
profit margins. In contrast, during the same period in fiscal year 1999, two
films with no profit margins, "STAR KID" and "CHAIRMAN OF THE BOARD", were
released in the video market. The increase in gross profit during the third
quarter of fiscal year 2000 resulted from the increase in sales of the direct
to sell-through product and DVD product. In contrast, lower sales and a $4.9
million write down to net realizable value of film inventory contributed to
the lower profit margin during the quarter ended March 31, 1999.
SELLING EXPENSES: Selling expenses as a percentage of net revenues for the nine
months ended March 31, 2000 and 1999 were 7.5% and 8.4%, respectively. For the
nine and three months ended March 31, 2000 selling expenses decreased $526,000
or 9.5% and $206,000 or 11% compared with the same period in fiscal 1999. The
decrease in selling expenses resulted from a reduction in travel and
9
ITEM 2: (CONTINUED)
entertainment costs and consulting expenses. The nine month and three month
reductions were partly offset by $287,000 and $126,000, respectively in costs
associated with CinemaNow, Inc.
GENERAL AND ADMINISTRATIVE EXPENSES: For the nine months ended March 31, 2000
general and administrative expenses increased $268,000 or 6.5% compared with the
same period in fiscal 1999. The difference is primarily due to the payment of
corporate bonuses in December 1999 along with administrative costs associated
with CinemaNow, Inc. The $176,000 increase in general and administrative costs
during the three month period ended March 31, 2000 was primarily due to costs
associated with CinemaNow, Inc.
BAD DEBT EXPENSE: Bad debt expense for the nine months ended March 31, 2000
increased $519,000 or 320% compared with the same period in fiscal 1999. Bad
debt expense primarily represents reserves taken against domestic video and
foreign sales. The increase was partially due to $355,000 in collections during
fiscal 1999 on past due video receipts which were previously reserved for during
the prior year. In addition, the reserve was increased due to a number of
international customers' accounts going into arbitration.
INTEREST EXPENSE: Interest expense for the nine month period ended March 31,
2000 decreased $1.1 million or 36%. Interest expense for the quarter ended March
31, 2000 decreased $591,000 or 68% compared with the same period in fiscal 1999.
The decrease in interest expense during fiscal 2000 was primarily due to a lower
average borrowing level from the same period in fiscal 1999. As of March 31,
2000, there was $34 million outstanding under the credit facility as opposed to
$53.3 million on March 31, 1999. The Company has used excess cash flow generated
by theatrical and library product to decrease debt levels. See "Liquidity and
Capital Resources." Furthermore, during the second and third quarter of fiscal
2000, four films were produced by the Company as opposed to only one during the
same period in fiscal 1999 causing increased capitalization of interest costs
during fiscal 2000 as opposed to fiscal 1999.
INTEREST AND INVESTMENT INCOME: Interest and investment income for the nine
months ended March 31, 2000 increased $2.9 million as a result of the sale of
32,411 shares of Yahoo!, Inc.
NET EARNINGS: The Company's net earnings for the nine months ended March 31,
2000 increased $7.4 million or 289% compared with the same period in fiscal
1999. The net earnings for the three months ended March 31, 2000 increased $4.8
million or 132% compared with the same period in fiscal 1999. The increase for
the three month period was primarily attributable to the successful home video
releases of the "SATURDAY NIGHT LIVE" titles and "NATURAL BORN KILLER'S,
DIRECTOR'S CUT" along with the reduction in interest expense. The increase for
the nine month period included the gain on the sale of Yahoo!, Inc. shares.
10
ITEM 2: (CONTINUED)
OTHER COMPREHENSIVE INCOME: The comprehensive income reported during the nine
month period ending March 31, 2000 is a result of the realized and unrealized
gain in Yahoo!, Inc. shares resulting from the sale of the stock during the
period. The comprehensive income reported at March 31, 2000 resulted from the
change in per share price at March 31, 2000.
Nine Months Ended
March 31, 2000
--------------------------------
Unrealized holding gains arising during period $ 541,000
Less: Reclassification adjustment for gains included in net income (2,439,000)
Reversal of unrealized gain (424,000)
--------------------------------
Other comprehensive income, net of tax (2,322,000)
Accumulated comprehensive income @ 6/30/99 3,101,000
================================
Accumulated comprehensive income @ 3/31/00 $ 779,000
================================
11
LIQUIDITY AND CAPITAL RESOURCES
The Company relies on cash generated by operations and borrowings under its
credit facility to finance its operations. The Company's cash flows from
operating, investing and financing activities for the nine months ended March
31, 2000 and 1999 were as follows:
Nine Months Ended
March 31,
------------------------------------------
2000 1999
------------------- ------------------
(in thousands)
Net cash provided by operating activities $ 11,535 $ 4,344
Net cash provided (used) by investing activities 2,148 (187)
Net cash used by financing activities (12,118) (3,874)
Cash provided by operations increased by $7.2 million for the nine month period
ended March 31, 2000 compared to the same period in fiscal 1999 principally as
the result of a $7.4 million increase in net earnings, a $9.7 million decrease
in additions to film costs, and a $3.0 million increase in the provisions for
returns and bad debt. The increase was partially offset by an $8.2 million
decrease in the change in minimum guarantees and royalties payable. The $23
million addition to film costs was primarily used for the production and
acquisition of new product with approximately $3.5 million used for prints and
advertising costs on the specialized theatrical releases of "TWICE UPON A
YESTERDAY," "BETTER THAN CHOCOLATE," "ROMANCE," "JOE THE KING," and "BEAUTIFUL
PEOPLE."
Investing activities for the nine months ended March 31, 2000 consisted of the
sale of some Yahoo!, Inc. stock, as well as expenditures associated with the
development of the CinemaNow, Inc. web site.
Financing activities, consisting primarily of repayments under the Company's
credit facility, decreased $10.4 million in the nine months ended March 31,
2000 as compared to the nine months ended March 31, 1999. The decrease was
primarily the result of the increase in operating cash flows and investing
activities. The Company's cash requirements vary in part with the size and
timing of production advances and minimum guarantee payments along with the
timing of its theatrical, home video, television and international releases.
The combination of steady sales growth in sell through video and DVD product
along with lower investments in prints and advertising costs and the sale of
equity investments has led to the continued reduction in the overall debt
balance.
On December 20, 1996, the Company's principal operating subsidiaries, Trimark
Pictures, Inc. and Trimark Television, Inc., entered into a $75 million
revolving credit facility with a consortium of banks agented and arranged by The
Chase Manhattan Bank
12
ITEM 2: (CONTINUED)
which replaced a $25 million revolving credit facility with
Bank of America NT & SA and Westdeustche Landesbank. The credit facility expires
December 19, 2000. Under the credit agreement, the Company may borrow for
various corporate purposes provided that the aggregate borrowings do not exceed
the Borrowing Base which is derived from specified percentages of approved
accounts receivable and film library. The credit agreement is guaranteed by the
Company and certain of its subsidiaries and is secured by substantially all of
the assets of the Company and its significant subsidiaries. Loans outstanding
under the credit facility bear interest at the rate of 1.5% above Chase
Manhattan's prime rate or 2.5% above Chase Manhattan's London Interbank Market
for Eurodollars for the loan term specified. An unused commitment fee is payable
on the average unused availability under the credit facility, at the rate of
0.3725% per annum. As of March 31, 2000 there was $34 million outstanding under
the credit facility. The Company expects to use excess cash flow generated by
theatrical and library product to decrease current borrowing levels. The credit
agreement contains various financial and other covenants to which the Company
must adhere. These covenants, among other things, require the maintenance of
minimum net worth and various financial ratios which are reported to the bank on
a quarterly basis and include limitations on additional indebtedness, liens,
investments, disposition of assets, guarantees, affiliate transactions and the
use of proceeds. In relation to the release schedule described below, the
Company amended the current credit agreement as of December 31, 1998 and
September 27, 1999. The amended agreement provides for less stringent minimum
net worth ratios and minimum equity requirements. In consideration for the
adjustment of these ratios and minimum equity requirement, the amended credit
facility reduces the borrowing limits over the remaining life of the credit
facility. For the year ended June 30, 1999, the amended borrowing limit was
reduced to $60 million. By January 31, 2000, the borrowing limit was reduced to
$50 million and by June 30, 2000 is reduced to $40 million. The amendments to
the debt covenants and borrowing limits were structured to incorporate the
Company's overall strategy and presently planned productions, acquisitions,
distribution and overhead expenditures. The Company is in compliance with all
debt covenants as of March 31, 2000.
The Company's ability to maintain availability under its Credit Facility is
primarily dependent upon the timing of collections on existing sales during the
next three fiscal quarters and the amount and timing of collection on
anticipated sales of the Company's current library and films which the Company
plans to release or make available during the next three fiscal quarters.
Management believes the existing capital, cash flow from operations and
availability under the Company's amended Credit Facility will be sufficient to
enable the Company to fund its planned productions,
13
ITEM 2: (CONTINUED)
acquisitions, distribution and overhead expenditures for the next three fiscal
quarters.
In the domestic specialized theatrical market the Company plans to release five
motion pictures in fiscal 2000 (of which four were released in the first nine
months of fiscal 2000). Furthermore, the Company plans to release approximately
thirty-six motion pictures into the domestic home video rental market (of which
twenty-eight were released in the first nine months of fiscal 2000) and to
continue to expand distribution in the sell through market. The Company intends
to sell three to four films and "movies of the week" which will premier on major
cable networks or broadcast stations. Also in fiscal 2000, the Company plans to
release approximately ten motion pictures initially into international
distribution (of which seven were released in the first nine months of the
fiscal year).
Technicolor Videocassette, Inc. currently serves as the Company's video cassette
duplicator and fulfillment contractor. Technicolor Videocassette, Inc. has a
general lien on all of the Company's materials and products in its possession.
The Company is currently authorized to spend up to $750,000 to purchase shares
of its outstanding common stock in the open market or otherwise.
The Financial Accounting Standards Board (known as FASB) recently adopted
certain changes that will alter reporting by motion picture companies. FASB
Statement No. 53, which previously allowed wide latitudes for booking movie
revenues and amortization has been rescinded. The new regulations will impose
numerous changes to reporting, and many motion picture companies will take a
one-time, non-cash charge of significant proportions to conform to the new
rules. The Company is currently calculating the financial impact of these new
rules.
IMPACT OF YEAR 2000. No material financial losses were attributed or are
expected in relation to the year 2000 processing issues of time sensitive
information by computerized information systems.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Except for the historical information contained herein, the matters discussed in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievement of the Company, or
14
ITEM 2: (CONTINUED)
industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following: Changes in public
tastes, industry trends and demographic changes, which may influence the
distribution and exhibition of films in certain areas; public reaction to and
acceptance of the Company's video, theatrical and television product, which will
impact the Company's revenues; competition, including competition from major
motion picture studios, which may affect the Company's ability to generate
revenues; reliance on management and key personnel; consolidation in the retail
video industry; whether the Company's current strategy which includes theatrical
releases of only specialized films and production and acquisition of made for
television product is successful; new methods of distributing motion pictures;
the impact of new accounting rules on the Company's results of operations; and
other factors referenced in this Form 10-Q and the Company's other filings with
the Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not consider that the potential loss of future earnings which
could be caused by interest rate volatility would have a material impact on its
financial position.
15
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
In the first quarter of calendar year 2000, pursuant to the terms of a
Securities Purchase Agreement dated as of January 6, 2000, as amended, the
Company's majority-owned subsidiary, CinemaNow, Inc. ("CinemaNow"), completed a
private placement financing to accredited investors of 3,155,552 shares of
CinemaNow Series A Convertible Preferred Stock, yielding proceeds of
approximately $2,130,000. CinemaNow connects independent film watchers with
independent filmmakers through the business of streaming theatrical and short
films over the Internet while providing comprehensive virtual studio resources
to independent filmmakers. The investors, CinemaNow and the Company are parties
to an Investors Rights Agreement and to a Co-Sale Agreement pursuant to which
the investors are granted certain registration rights, board representation
rights and rights of first opportunity relating to CinemaNow and future equity
offerings by it, and the founders of CinemaNow (who include the Company) grant
the investors, subject to certain exceptions, the right to participate in sales
by the founders and a right of first opportunity with respect to future sales of
CinemaNow stock held by the founders. In connection with the foregoing
transactions, CinemaNow has issued to the Company's wholly-owned subsidiary,
Trimark Pictures, Inc. ("Trimark Pictures") a $215,000 convertible subordinated
debenture due June 30, 2001 relating to debt CinemaNow owes Trimark Pictures.
CinemaNow and Trimark Pictures are also parties to a five-year exclusive output
agreement (except with respect to an existing agreement between Trimark Pictures
and a third party) with respect to the Internet rights to all of Trimark
Pictures' motion pictures in the U.S. and Canada to the extent Trimark Pictures
controls such rights.
Under CinemaNow's stock option plan, Mark Amin, Chairman of the Board and Chief
Executive Officer of the Company and Chairman of the Board of CinemaNow, was
granted stock options at varying exercise prices (each in excess of current fair
market value) and vesting over a three-year term, to acquire up to 2,100,000
shares of CinemaNow common stock, or 8.9% of such common stock on a
fully-diluted basis. On a fully diluted basis, the Company as of March 31, 2000
owns approximately 78% of the common stock of CinemaNow.
16
PART II. OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBIT NO DESCRIPTION
- ---------- -------------------------------------------------------
10.112 Non-Qualified Stock Option Certificate dated January 8,
2000 by and between the Registrant and Gordon Stulberg.
10.113 Non-Qualified Stock Option Certificate dated January 8,
2000 by and between the Registrant and Matthew H. Saver.
10.114 Non-Qualified Stock Option Certificate dated January 8,
2000 by and between the Registrant and Tofigh Shirazi.
10.115 Non-Qualified Stock Option Certificate dated January 8,
2000 by and between the Registrant and Peter Dekom.
10.116 Securities Purchase Agreement dated as of January 6,
2000 among CinemaNow, Inc. and the investors names
therein (the schedules are omitted and the Registrant
agrees to furnish supplementally a copy to the
Commission upon request)
10.117 Co-Sale Agreement dated as of January 6, 2000 among
CinemaNow, Inc., the investors named therein and the
founders named therein (including the Registrant)
10.118 Investors' Rights Agreement dated as of January 6, 2000
among CinemaNow, Inc., the investors named therein and
the founders named therein (including the Registrant)
10.119 Convertible Subordinated Debenture dated February 2,
2000 issued by CinemaNow, Inc. to Trimark Pictures, Inc.
10.120 Agreement dated as of December 10, 1999 between Trimark
Pictures, Inc. and CinemaNow, Inc.
10.121 Stock Option Agreement (#1) dated March 1, 2000 between
CinemaNow, Inc. and Mark Amin.
17
PART II. OTHER INFORMATION (CONTINUED)
10.122 Stock Option Agreement (#2) dated March 1, 2000 between
CinemaNow, Inc. and Mark Amin.
10.123 Stock Option Agreement (#3) dated March 1, 2000 between
CinemaNow, Inc. and Mark Amin.
10.124 Amendment of Employment Agreement, dated as of March 23, 2000,
by and between Trimark Pictures, Inc., a California
corporation and Cami Winikoff.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
None.
18
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.
TRIMARK HOLDINGS, INC.
By: /s/ JEFF GONZALEZ
------------------------------------
Jeff Gonzalez
Chief Financial Officer
(PRINCIPAL FINANCIAL
OFFICER AND AUTHORIZED TO SIGN
ON BEHALF OF THE REGISTRANT)
Date: MAY 15, 2000
------------
19
INDEX TO EXHIBITS
EXHIBIT NO DESCRIPTION METHOD OF FILING
- ---------- ------------------------------------------------------ ----------------
10.112 Non-Qualified Stock Option Certificate dated January 8, filed herewith electronically
2000 by and between the Registrant and Gordon Stulberg.
10.113 Non-Qualified Stock Option Certificate dated January 8, filed herewith electronically
2000 by and between the Registrant and Matthew H. Saver.
10.114 Non-Qualified Stock Option Certificate dated January 8, filed herewith electronically
2000 by and between the Registrant and Tofigh Shirazi.
10.115 Non-Qualified Stock Option Certificate dated January 8, filed herewith electronically
2000 by and between the Registrant and Peter Dekom.
10.116 Securities Purchase Agreement dated as of January 6, 2000 filed herewith electronically
among CinemaNow, Inc. and the investors names therein (the
schedules are omitted and the Registrant agrees to furnish
supplementally a copy to the Commission upon request)
10.117 Co-Sale Agreement dated as of January 6, 2000 among filed herewith electronically
CinemaNow, Inc., the investors named therein and the
founders named therein (including the Registrant)
10.118 Investors' Rights Agreement dated as of January 6, 2000 filed herewith electronically
among CinemaNow, Inc., the investors named therein and the
founders named therein (including the Registrant)
10.119 Convertible Subordinated Debenture dated February 2, 2000 filed herewith electronically
issued by CinemaNow, Inc. to Trimark Pictures, Inc.
20
INDEX TO EXHIBITS (CONTINUED)
EXHIBIT NO DESCRIPTION METHOD OF FILING
- ---------- ------------------------------------------------------ ----------------
10.120 Agreement dated as of December 10, 1999 between Trimark filed herewith electronically
Pictures, Inc. and CinemaNow, Inc.
10.121 Stock Option Agreement (#1) dated March 1, 2000 between filed herewith electronically
CinemaNow, Inc. and Mark Amin.
10.122 Stock Option Agreement (#2) dated March 1, 2000 between filed herewith electronically
CinemaNow, Inc. and Mark Amin.
10.123 Stock Option Agreement (#3) dated March 1, 2000 between filed herewith electronically
CinemaNow, Inc. and Mark Amin.
10.124 Amendment of Employment Agreement, dated as of March 23, filed herewith electronically
2000, by and between Trimark Pictures, Inc., a California
corporation and Cami Winikoff.
27 Financial Data Schedule. filed herewith electronically
21