1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
----------------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-24984
NEWSTAR MEDIA INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
CALIFORNIA 95-4015834
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
8955 BEVERLY BOULEVARD
LOS ANGELES, CALIFORNIA 90048
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (310) 786-1600.
FORMER NAME: DOVE ENTERTAINMENT, INC.
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
----------------
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
State the numbers of shares outstanding of each of the registrant's classes
of common equity, as of the latest practicable date: 6,715,442 as of July 24,
1998.
Transitional Small Business Disclosure Format (Check one):
Yes_______ No X
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PART I -- FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
NEWSTAR MEDIA INC.
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 364,000
Accounts receivable, net of allowances of $851,000 4,088,000
Inventory 2,752,000
Film costs 2,844,000
Prepaid expenses and other assets 732,000
------------
Total current assets 10,780,000
NON-CURRENT ASSETS
Production masters 1,438,000
Film costs, net 3,289,000
Property and equipment, net 3,765,000
Goodwill and other assets 5,918,000
------------
Total non-current assets 14,410,000
------------
Total assets $ 25,190,000
============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 7,438,000
Notes payable 2,659,000
Due to related party 8,000
Royalties payable 497,000
Advances and deferred income 2,246,000
Accrued dividends 589,000
------------
Total current liabilities 13,437,000
NON-CURRENT LIABILITIES
Notes payable, less current portion 10,174,000
Accrued liabilities 710,000
------------
Total non-current liabilities 10,884,000
------------
Total liabilities 24,321,000
SHAREHOLDERS' EQUITY
Preferred stock $.01 par value; 2,000,000 shares authorized and
220,087 shares issued and outstanding, liquidation preference $7,419,000 2,000
Common stock $.01 par value; 20,000,000 shares authorized and
6,715,442 shares issued and outstanding 67,000
Additional paid-in capital 28,556,000
Accumulated deficit (27,756,000)
------------
Total shareholders' equity 869,000
------------
Total liabilities and shareholders' equity $ 25,190,000
============
See accompanying notes to consolidated financial statements
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NEWSTAR MEDIA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Quarter Ended June 30,
---------------------------------
1998 1997
----------- -----------
Revenues
Publishing, net $ 1,966,000 $ 2,678,000
Film 5,654,000 1,081,000
----------- -----------
7,620,000 3,759,000
Less: Cost of sales
Publishing 1,318,000 3,019,000
Film 3,910,000 1,084,000
----------- -----------
5,228,000 4,103,000
----------- -----------
Gross profit / (loss) 2,392,000 (344,000)
Less: Selling, general and administrative expenses 2,734,000 2,860,000
Employee separation costs -- 1,614,000
----------- -----------
2,734,000 4,474,000
----------- -----------
Loss from operations (342,000) (4,818,000)
Less: Interest expense, net 155,000 57,000
----------- -----------
Loss before income taxes (497,000) (4,875,000)
Less: Income tax expense 2,000 14,000
----------- -----------
Net loss $ (499,000) $(4,889,000)
=========== ===========
Basic and diluted loss attributable to common shareholders $ (606,000) $(5,918,000)
=========== ===========
Basic and diluted loss per common share $ (0.09) $ (1.07)
=========== ===========
Weighted average number of common shares outstanding 6,664,000 5,550,000
=========== ===========
See accompanying notes to consolidated financial statements
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NEWSTAR MEDIA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended June 30,
-----------------------------------
1998 1997
------------ ------------
Revenues
Publishing, net $ 3,515,000 $ 3,746,000
Film 6,798,000 2,674,000
------------ ------------
10,313,000 6,420,000
Less: Cost of sales
Publishing 2,504,000 4,629,000
Film 4,854,000 3,227,000
------------ ------------
7,358,000 7,856,000
------------ ------------
Gross profit / (loss) 2,955,000 (1,436,000)
Less: Selling, general and administrative expenses 4,913,000 5,047,000
Employee separation costs -- 1,614,000
------------ ------------
4,913,000 6,661,000
------------ ------------
Loss from operations (1,958,000) (8,097,000)
Less: Interest expense, net 302,000 193,000
------------ ------------
Loss before income taxes (2,260,000) (8,290,000)
Less: Income tax expense 2,000 23,000
------------ ------------
Net loss $ (2,262,000) $ (8,313,000)
============ ============
Basic and diluted loss attributable to common shareholders $ (2,475,000) $ (9,464,000)
============ ============
Basic and diluted loss per common share $ (0.37) $ (1.75)
============ ============
Weighted average number of common shares outstanding 6,669,000 5,414,000
============ ============
See accompanying notes to consolidated financial statements
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NEWSTAR MEDIA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30,
---------------------------------
1998 1997
----------- -----------
OPERATING ACTIVITIES
Net loss $(2,262,000) $(8,313,000)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 269,000 273,000
Amortization of goodwill 126,000 126,000
Amortization of production masters 794,000 2,359,000
Amortization of film costs 4,022,000 3,227,000
Changes in operating assets and liabilities
Accounts receivable (2,015,000) 1,095,000
Inventory 285,000 (147,000)
Prepaid expenses (228,000) 144,000
Income taxes -- 172,000
Expenditures for production masters (705,000) (1,557,000)
Film costs (8,511,000) (6,519,000)
Accounts payable and accrued expenses 892,000 1,650,000
Advances and deferred revenue 1,722,000 2,881,000
Other 19,000 16,000
----------- -----------
Net cash used in operating activities (5,592,000) (4,593,000)
----------- -----------
INVESTING ACTIVITIES
Purchases of property and equipment (99,000) (9,000)
----------- -----------
Net cash used in investing activities (99,000) (9,000)
----------- -----------
FINANCING ACTIVITIES
Proceeds from sale of preferred stock -- 4,879,000
Proceeds of bank borrowings 5,753,000 --
Proceeds from exercise of options -- 3,000
Repayments of bank borrowings and notes payable -- (462,000)
----------- -----------
Net cash provided by financing activities 5,753,000 4,420,000
----------- -----------
Net decrease in cash and cash equivalents 62,000 (182,000)
Cash and cash equivalents at beginning of the period 302,000 390,000
----------- -----------
Cash and cash equivalents at end of the period $ 364,000 $ 208,000
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 113,000 $ 195,000
Refunds received for income taxes $ -- 162,000
NON-CASH TRANSACTIONS
Common stock issued as payment for consulting fees
to related party $ 300,000 $ --
Preferred stock dividends accrued $ 213,000 $ 100,000
See accompanying notes to consolidated financial statements
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NEWSTAR MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION, ORGANIZATION AND BUSINESS
The accompanying consolidated financial statements of NewStar Media Inc.,
formerly known as Dove Entertainment, Inc. (the "Company"), are unaudited and
have been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission regarding interim financial reporting.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements
and should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-KSB, for the
fiscal year ended December 31, 1997. In the opinion of management, the
accompanying consolidated financial statements include all adjustments
(consisting only of normal recurring adjustments) which are necessary for a fair
presentation. The results of operations for the six months ended June 30, 1998
are not necessarily indicative of results to be expected for the full year.
The Company is a diversified entertainment company primarily engaged in
publication of audio and printed books, the production of television programming
through its wholly-owned subsidiary Dove Four Point, Inc. ("NewStar
Television"), and the distribution of feature films and television product, both
domestically and internationally.
The Company acquires audio publishing rights for specific titles or groups of
titles for audio production and distribution, primarily in the United States of
America.
NewStar Television is an independent production company which develops and
produces television productions for which rights are controlled by NewStar
Television. In addition, NewStar Television is a producer-for-hire in connection
with a creative concept and literary property owned by another party to produce
all forms of television productions, including pilots, series, telefilms,
miniseries, talk shows and game shows for network, cable and syndicated
production.
At the Company's Annual Meeting of Shareholders held on April 30, 1998,
shareholders approved a change of the Company's name to NewStar Media Inc.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NET LOSS PER COMMON SHARE
SFAS No. 128, "Earnings per Share", is effective for financial statements issued
for periods ending after December 15, 1997. SFAS No. 128 replaces Accounting
Principles Board Opinion ("APB") No. 15 and simplifies the computation of
earnings per share ("EPS") by replacing the presentation of primary EPS with a
presentation of basic EPS. Basic EPS includes no dilution and is computed by
dividing income available to common stockholders by the weighted average number
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution from securities that could share in the earnings of the Company,
similar to fully diluted EPS under APB No. 15. The statement requires dual
presentation of basic and diluted EPS by entities with complex capital
structures. The Company adopted SFAS No. 128 for the financial statements ended
June 30, 1998. SFAS No. 128 had no impact on the previously reported loss per
share. Dilutive securities have been omitted from the diluted calculation since
they are anti-dilutive.
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The net loss utilized in the calculation of net loss per common share is
increased by the following:
1998 1997
---------- ----------
Quarter ended June 30,
Accrued dividends on Preferred Stock $ 107,000 $ 84,000
Imputed dividends on Preferred Stock -- 945,000
---------- ----------
Total $ 107,000 1,029,000
---------- ----------
Six months ended June 30,
Accrued dividends on Preferred Stock $ 213,000 $ 100,000
Imputed dividends on Preferred Stock -- 987,000
---------- ----------
Total $ 213,000 1,087,000
---------- ----------
The imputed dividends on Preferred Stock have been treated as an increase and
decrease to Additional Paid-in Capital.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and disclosure of contingent
assets and liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from those
estimates. Significant estimates include those related to ultimate revenues and
expenses related to film and television productions, the net realizability of
inventory and production masters and the allowance for returns on publishing
sales.
RECLASSIFICATION
Certain prior year accounts have been reclassified to conform to the current
year's presentation.
NOTE 3 - PROPERTY AND EQUIPMENT
A summary of property and equipment at June 30, 1998 is as follows:
Land $ 502,000
Building 2,161,000
Furniture, fixtures and equipment 2,511,000
Leasehold improvements 6,000
----------
Total 5,180,000
Less: Accumulated depreciation and amortization 1,415,000
----------
$3,765,000
==========
NOTE 4 - PRODUCTION MASTERS
Production masters, net of accumulated amortization at June 30, 1998 consist of
the following:
Released titles $ 905,000
Unreleased titles 533,000
----------
Total $1,438,000
==========
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NOTE 5 - FILM COSTS
Film costs, net of accumulated amortization at June 30, 1998 consist of the
following:
Current: Television projects in development and production $2,844,000
Non-current: Television and theatrical projects released less accumulated
amortization 3,289,000
----------
Total $6,133,000
==========
As of June 30, 1998 approximately 90% of the unamortized balance of film costs
will be amortized within the next three-year period based upon the Company's
revenue estimates at that date.
NOTE 6 - INCOME TAXES
Income taxes are computed in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". The Company provides for
income taxes during interim reporting periods based upon an estimate of its
annual effective tax rate. This estimate includes all anticipated federal, state
and foreign income taxes.
SFAS No. 109 requires that a valuation allowance be recorded against tax assets
which are not likely to be realized. Due to the uncertainty of their ultimate
realization based upon past earnings performance and the expiration dates of
carryforwards, the Company has established a valuation allowance against these
tax assets except to the extent that they are realizable through carrybacks.
Realization of additional amounts is entirely dependent upon future earnings in
specific tax jurisdictions. While the need for this valuation allowance is
subject to periodic review, if the allowance is reduced, the tax benefits of the
carryforwards will be recorded in future operations as a reduction of the
Company's income tax expense. At June 30, 1998, the Company had net deferred tax
assets of approximately $10,342,000 against which a valuation allowance had been
fully recorded.
NOTE 7 - NOTES PAYABLE
Notes payable at June 30, 1998 consist of the following:
Current portion of notes payable:
Long term mortgage note payable $ 48,000
Capitalized leases 16,000
Chase Manhattan Bank "Futuresport" production loan 2,595,000
-----------
Total current portion of notes payable 2,659,000
Non-current notes payable:
Chase Manhattan Bank revolving credit loan 8,389,000
Long-term mortgage note payable, less current portion 1,758,000
Capitalized leases 27,000
-----------
Total non-current notes payable 10,174,000
-----------
Total notes payable $12,833,000
===========
The long term mortgage note payable to Asahi Bank of California is secured by a
deed of trust on the Company's principal office building, 8955 Beverly
Boulevard, Los Angeles, CA 90048, and bears interest at a fixed rate of 8% per
annum. The loan matures in April 2001 and provides for a 20 year maturity
amortization payment rate through April 2001 with a repayment of the remaining
outstanding principal amount at that time.
On November 12, 1997, the Company entered into an agreement with The Chase
Manhattan Bank ("Chase Bank") providing the Company with an $8,000,000 loan
facility for working capital purposes ("Chase Loan"), increased in July 1998 to
$10,000,000. The Chase Loan is secured by substantially all of the Company's
assets, other than the Company's building. The Chase Loan runs for three years
until November 4, 2000. The Chase Loan establishes a "Borrowing Base" comprised
of: (1) 35% of an independent valuation of the Company's audio library, (2) 85%
of the Company's eligible receivables and (3) 30% of the Company's finished
goods audio and book inventory. At
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any time, the Company may borrow or have letters of credit issued up to the
Borrowing Base. In addition, the Company may borrow or have letters of credit
issued for an additional $4,000,000 (provided the aggregate amount borrowed does
not exceed $10,000,000) with the consent and guarantee of Media Equities
International L.L.C. ("MEI"). The Chase Loan provides for interest at the bank
prime rate (8-1/2% at June 30, 1998) plus 2% per annum or the bank's LIBOR rate
(5.7 % six month rate at June 30, 1998) plus 3% per annum, at the option of the
Company. Both rates are applicable to draw-downs on the Chase Loan at June 30,
1998. In addition, unused commitment fees are payable at 1/2% per annum. The
Chase Loan contains various covenants to which the Company must adhere including
limitations on additional indebtedness, investments, acquisitions, capital
expenditures and sale of assets, restrictions on the payment of dividends and
distributions to shareholders, and various financial compliance tests. The
Company was not in compliance with certain of the financial compliance tests at
December 31, 1997 and June 30, 1998 but received waiver and amendment from Chase
Bank. At June 30, 1998, the Company had borrowed $8,389,000 against the
facility. In addition, Chase Bank has provided letters of credit for $816,000.
In February 1998, the Company entered into an agreement with Chase Bank
providing the Company with an additional loan of a maximum of $3,289,000 for the
purpose of partly financing the made for television motion picture "Futuresport"
("Futuresport Loan"). The Futuresport Loan is incorporated into the Chase Loan
under the same terms and conditions as the Chase Loan. The Futuresport Loan is
secured by "Futuresport" and related license agreements. The Futuresport Loan is
repayable in September 1998.
On July 14, 1998, the Company entered into an agreement with Apollo Partners
LLC, whereby the Company borrowed $1,500,000 secured by a second mortgage on the
Company's principal office building, 8955 Beverly Boulevard, Los Angeles
("Apollo Loan"). The Apollo Loan provides for interest at the bank prime rate
(8-1/2% at June 30, 1998) plus 2% per annum. The Apollo Loan is required to be
repaid on the earlier of 180 days following July 21, 1998 or the sale of the
Company's principal office building or earlier at the option of the Company.
NOTE 8 - RELATED PARTY TRANSACTIONS
Pursuant to an employment termination agreement entered into in 1997
("Termination Agreement") with then principal shareholders and officers of the
Company ("Former Principals"), the Company paid such Former Principals $81,000
during the quarter ended June 30, 1998 of which $54,000 was in the form of
Series E Preferred Stock. The Termination Agreement provides for the Former
Principals to receive combined monthly payments (the "Payments") of
approximately $27,000, and medical insurance for 60 months from June 1997. In
addition, they are entitled to each receive a car allowance for 24 months from
June 1997 and reimbursement for certain medical and business expenses. Certain
payments under, and other provisions of, the Termination Agreement are subject
to arbitration proceedings.
To secure the Payments, the Company has issued into escrow 1,500 shares of its
Series E Preferred Stock, convertible into shares of Common Stock to the extent
set forth in the Certificate of Determination for the Series E Preferred Stock.
The Series E Preferred Stock will be held in escrow and will not be released to
the Former Principals except in the event of a default in the Payments by the
Company. In the event of a default in the Payments by the Company, the Series E
Preferred Stock will be released to the Former Principals, as the case may be,
in an amount equal to the portion of the Payments unpaid as a result of default
divided by the stated value of the Series E Preferred Stock. The Former
Principals have registration rights pursuant to a registration rights agreement,
dated June 10, 1997, among the Company and the Former Principals with respect to
common stock into which Series E Preferred Stock received by them may be
converted.
During the six months ended June 30, 1997, the Company made certain payments and
entered into other transactions with the Former Principals and former directors
as more fully described in the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1997.
During the quarter ended June 30, 1998, the Company paid directors fees of
$1,000 to each of two independent directors.
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The Company accrued the following fees payable to MEI:
1998 1997
-------- --------
Quarter ended June 30,
Consulting fees pursuant to consulting agreement $ 75,000 $ 75,000
Guarantee fees pursuant to Chase Loan guarantee 7,000 --
-------- --------
Total $ 82,000 75,000
-------- --------
Six months ended June 30,
Consulting fees pursuant to consulting agreement $150,000 $ 75,000
Guarantee fees pursuant to Chase Loan guarantee 13,000 --
-------- --------
Total $163,000 75,000
-------- --------
On January 2, 1998, the Company issued MEI 240,000 shares of Common Stock in
payment of accrued and prepaid consulting fees amounting to $300,000. These
shares were issued at fair market value.
Pursuant to guarantee agreements dated November 4, 1997, each of the principals
of MEI (i.e. Messrs. Elkes, Gorman, Healy, Maggin and Lightstone) collectively
guaranteed $ 3,035,000 borrowed under the Chase Loan. In order to secure the
repayment of any amounts the MEI principals may be required to pay to Chase Bank
under the guarantees, MEI has been granted a security interest in substantially
all of the assets of the Company, other than the Company's building. Such
security interest is junior to the security interest of Chase Bank which secures
the Company's obligations under the Chase Loan.
On July 21, 1998, the Company entered into an agreement with Apollo Partners
LLC, a partnership controlled by Messrs. Elkes and Gorman, whereby the Company
borrowed $1,500,000 secured by a second mortgage on the Company's principal
office building, 8955 Beverly Boulevard, Los Angeles ("Apollo Loan"). The Apollo
Loan provides for interest at the bank prime rate (8-1/2% at June 30, 1998) plus
2% per annum. The Apollo Loan is required to be repaid on the earlier of 180
days following July 21, 1998 or the sale of the Company's principal office
building or earlier at the option of the Company.
In January 1998, the Company and Mr. Ronald Ziskin, President of Dove
Television, agreed to cancel an option to purchase 300,000 shares of Common
Stock at an exercise price of $11.00 and in lieu thereof, the Company will grant
Mr. Ziskin the option to purchase 150,000 shares of Common Stock at an exercise
price of $1.50 per share. On May 6, 1998, the Company issued 107,407 shares of
Common Stock to Mr. Ronald Lightstone, President and Chief Executive Officer
representing vested shares pursuant to his Employment Agreement.
NOTE 9 - CAPITAL ACTIVITIES
COMMON STOCK
In March 1998, the Company issued 240,000 shares of Common Stock to MEI in
payment of consulting fees. These shares were issued at fair market value.
STOCK OPTIONS AND WARRANTS
Options outstanding under the Company's stock incentive plan (the "Plan") at
June 30, 1998 were as follows:
Weighted
Average
Number of Exercise Exercise
Shares Price Price
------ ----- -----
88,000 $2.50-$6.00 $3.05
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At June 30, 1998, options to acquire 77,998 shares of Common Stock under the
Plan were exercisable.
In addition to the above options issued under the Plan, at June 30, 1998, the
following options to acquire shares of Common Stock were outstanding:
(1) 300,000 options at $11.00 per share issued in 1996 to one of the
principals of Four Point Entertainment, Inc. as part of an employment
agreement. None of these options were exercisable at June 30, 1998. In
January 1998, the Company agreed with the holder of such options to cancel
such options and in lieu thereof issue 150,000 options at $1.50 per share
under the Plan fully vested.
(2) 80,000 options issued in 1996 under the Plan, with an exercise price of
$3.50 per share to the Company's public relations firm. The Company has
terminated the agreement with the public relations firm.
On January 6, 1998, the Board approved the issuance of 601,500 options under the
Plan to employees which were issued in July 1998.
Warrants outstanding as of December 31, 1997 and June 30, 1998 were as follows:
Number of Weighted
Number of Equivalent Common Average
Warrants Shares Exercise Price Exercise Price
--------- ----------------- -------------- --------------
4,712,763 4,664,013 $2.00-$12.00 $5.06
At June 30, 1998 warrants to acquire 4,664,013 Shares of common stock were
exercisable.
NOTE 10 - MAJOR CUSTOMERS AND SUPPLIERS
Revenues, net of returns from Customers exceeding 10% of Company revenues were:
1998 1997
---- ----
Quarter ended June 30, 68% 20%
Six months ended June 30, 60% 28%
A significant quantity of audio inventory is supplied by two manufacturers. The
Company believes there are other suppliers and accordingly, the Company is not
dependent on these manufacturers as its sole source of product.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion and analysis below should be read in conjunction with the
Consolidated Financial Statements of the Company and the Notes to the
Consolidated Financial Statements included elsewhere in this report.
FORWARD LOOKING STATEMENTS
Certain statements in this report, including those utilizing the phrases "will",
"expects", "intends", "estimates", "contemplates", and similar phrases, are
"forward-looking" statements (as such term is defined in Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended), including statements regarding, among other items, (i)
the Company's growth strategy, (ii) the Company's intention to acquire or
develop additional audio book, printed book and television product, (iii) the
Company's intention to enter or broaden distribution markets, and (iv) the
Company's ability to successfully implement its business strategy. Certain, but
not necessarily all, of such forward-looking statements can be identified by the
use of forward-looking terminology such as "believes", "expects", "may", "will",
"should", or "anticipates" or the negative thereof or other variations thereon
or comparable terminology, or be discussions of strategy that involve risks and
uncertainties. Such forward- looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
and achievements of the Company and its subsidiaries to be materially different
from any future results, performance or achievements expressed or implied by
such forward-
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looking statements. Such factors include, but are not limited to, the
following: uncertainty as to future operating results; growth and acquisition
risks; certain risks relating to the entertainment industry; dependence on a
limited number of projects; possible need for additional financing; potential
for liability claims; dependence on certain outlets for publishing product;
competition and legal proceedings and claims. Other factors which may materially
affect actual results include, among others, the following: general economic and
business conditions, industry capacity, changes in political, social and
economic conditions and various other factors beyond the Company's control. The
Company does not undertake and specifically declines any obligation to publicly
release the results of any revisions which may be made to any forward-looking
statements to reflect events or circumstances after the date of such statements
or to reflect the occurrence of anticipated or unanticipated events. See the
relevant discussions elsewhere herein, in the Company's registration statement
on Form S-3 (Registration No. 333-43527) and in the Company's periodic reports
and other documents filed with the Securities and Exchange Commission for
further discussions of these and other risks and uncertainties applicable to the
Company and its business.
OVERVIEW
The Company commenced business in 1985 as one of the pioneers of the audio book
industry and has become one of the leading independent producers (i.e.,
unaffiliated with any single book publisher) of audio books in the United
States. The Company produces and distributes approximately 100 to 120 new titles
annually and has built a library of approximately 1000 titles currently offered
for sale. Through NewStar Television, the Company is engaged in the production
and development of television programming. Other activities of the Company
include a limited printed book publishing program and the distribution of
feature films and television programming.
Revenues for the quarter ended June 30, 1998 were $7,620,000 compared with
$3,759,000 for the same period in 1997. The Company incurred a net loss of
$499,000 for the quarter compared to a net loss of $4,889,000 for the same
period in 1997.
Revenues for the six months ended June 30, 1998 were $10,313,000 compared with
$6,420,000 for the same period in 1997. The Company incurred a net loss of
$2,262,000 for the six months compared to a net loss of $8,313,000 for the same
period in 1997.
The increase in revenues was attributable to delivery of the television motion
picture, "Futuresport", partly offset by lower publishing revenues due to a
curtailed book publishing program. The reduced net loss was primarily
attributable to (i) increased publishing margins due to lower production and
distribution costs and reduced returns, (ii) profit from the delivery of
"Futuresport" and (iii) the expensing of employee separation costs of $1,614,000
in 1997.
"Futuresport", starring Wesley Snipes, Dean Cain and Vanessa L. Williams was
delivered to ABC Television in June 1998. NewStar Television has also entered
into an agreement for the license of home video rights and is currently
marketing international rights.
The demand for audio books is seasonal, with the majority of shipments taking
place in the third and fourth quarters of the year. The Company believes that
demand for audio books will remain seasonal, and this may adversely affect
results of operations for the first and second quarters. Because a significant
portion of the Company's expenses are relatively fixed, below-expectation sales
in any quarter could adversely affect operating results for that quarter.
Substantially all of the Company's sales of audio and printed book products are
and will continue to be subject to potential returns by distributors and
retailers if not sold to the public. Although the Company makes allowances and
reserves for returned product that it believes are adequate, significant
increases in return rates can materially and adversely impact the Company's
financial condition or results of operations.
From time to time, the Company may have several television projects in
development and generally seeks to limit its financial risk in the production of
television motion pictures and mini-series by pre-sales and licensing to third
parties. The production of television programming has been sporadic over the
last several years and significant variances in operating results from
year-to-year and quarter-to-quarter can be expected for television programming
revenues.
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RESULTS OF OPERATIONS
The following table sets forth divisional revenues and operating expenses as a
percentage of total revenues:
Three Months Ended June 30, Six Months Ended June 30,
1998 1997 1998 1997
---- ---- ---- ----
REVENUES
Publishing 26% 71% 34% 58%
Television and Film 74 29 66 42
--- --- --- ---
Total 100% 100% 100% 100%
--- --- --- ---
OPERATING EXPENSES
Publishing 17% 80% 24% 72%
Television and Film 51 29 47 50
Selling, general & administrative 36 76 48 79
Employee separation costs -- 43 -- 25
--- --- --- ---
Total 104% 228% 119% 226%
--- --- --- ---
QUARTER ENDED JUNE 30, 1998 COMPARED TO QUARTER ENDED JUNE 30, 1997
Publishing
Revenues. Net publishing revenues for the quarter ended June 30, 1998 decreased
$712,000 to $1,966,000 compared with $2,678,000 for the quarter ended June 30,
1997. The decrease in net publishing revenues was primarily attributable to a
curtailed book publishing program compared with the same period in the prior
year. Leading audio book publications during the current quarter included Flight
of Eagles by Jack Higgins, Double Image by David Morrell, The Predators by
Harold Robbins and Fortunes of War by Stephen Coonts.
Cost of Sales. Cost of sales for the quarter ended June 30, 1998 decreased
$1,701,000 to $1,318,000 compared with $3,019,000 for the quarter ended June 30,
1997. The decrease was attributable to the lower revenues as described above,
the decrease in returns of printed books, and lower production and distribution
costs of audio books. Furthermore, cost of sales in 1997 included a one-time
charge of $564,000 in respect of discontinued product. Cost of sales as a
percentage of net publishing revenues decreased from 113% in the quarter ended
June 30, 1997 to 67% for the quarter ended June 30, 1998.
Film and Television
Revenues. Film and television revenues for the quarter ended June 30, 1998
increased $4,573,000 to $5,654,000, compared with $1,081,000 for the quarter
ended June 30, 1997. The increase was due to delivery of the television motion
picture "Futuresport", delivered to ABC Television in June 1998.
Cost of sales. Film and television amortization for the quarter ended June 30,
1998 increased $2,826,000 to $3,910,000 compared with $1,084,000 for the quarter
ended June 30, 1997. The increase was attributable to the cost of production of
"Futuresport". In addition, cost of sales in 1997 included a one-time charge of
$590,000 arising from a review of the film library. Cost of sales as a
percentage of net film and television revenues decreased from 100% in the
quarter ended June 30, 1997 to 69% for the quarter ended June 30, 1998.
General
Gross Profit / (Loss). The Company experienced a gross profit of $2,392,000 for
the quarter ended June 30, 1998 versus a gross loss of $344,000 for the quarter
ended June 30, 1997, resulting from the matters previously discussed regarding
publishing and film revenues and cost of sales.
Selling, General and Administrative ("SG&A"). SG&A includes costs associated
with selling, marketing and promoting the Company's products, as well as general
corporate expenses including salaries, occupancy costs, professional fees,
travel and entertainment. SG&A decreased to $2,734,000 for the quarter ended
June 30, 1998 compared to $2,860,000 for the quarter ended June 30, 1997.
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Net Interest Expense. Net interest expense for the quarter ended June 30, 1998
was $155,000 compared with $57,000 for the quarter ended June 30, 1997. The
interest expense is primarily the result of increased utilization of the Chase
Loan.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Publishing
Revenues. Net publishing revenues for the six months ended June 30, 1998
decreased $231,000 to $3,515,000 compared with $3,746,000 for the six months
ended June 30, 1997. The decrease in net publishing revenues was primarily
attributable to a curtailed book publishing program compared with the same
period in the prior year. Leading audio book publications during the current six
months included Sudden Death by Robert B. Parker, Perfect Witness by Barry
Siegel, The Last Hostage by John J. Nance, Irish Whiskey by Andrew M. Greeley,
Flight of Eagles by Jack Higgins, Double Image by David Morrell, The Predators
by Harold Robbins and Fortunes of War by Stephen Coonts.
Cost of Sales. Cost of sales for the six months ended June 30, 1998 decreased
$2,125,000 to $2,504,000 compared with $4,629,000 for the six months ended June
30, 1997. The decrease was attributable to the decrease in returns of printed
books during the six months ended June 30, 1998 together with lower production
and distribution costs of audio books. Furthermore, cost of sales in 1997
included a one-time charge of $564,000 in respect of discontinued product. Cost
of sales as a percentage of net publishing revenues decreased from 124% in the
six months ended June 30, 1997 to 71% for the six months ended June 30, 1998.
Film and Television
Revenues. Film and television revenues for the six months ended June 30, 1998
increased $4,124,000 to $6,798,000, compared with $2,674,000 for the six months
ended June 30, 1997. The increase primarily was due to delivery of the
television movie "Futuresport" in June 1998. Revenues for the six months ended
June 30, 1998 were also derived from completion of the second series of the
syndicated production "Make Me Laugh" distributed by Buena Vista Television for
the cable network Comedy Central.
Cost of sales. Film and television amortization for the six months ended June
30, 1998 increased $1,627,000 to $4,854,000 compared with $3,227,000 for the six
months ended June 30, 1997 due primarily to the cost of production of
"Futuresport". In addition, cost of sales in 1997 included a one-time charge of
$590,000 arising from a review of the Company film library. Cost of sales as a
percentage of net film and television revenues decreased from 121% in the six
months ended June 30, 1997 to 71% for the six months ended June 30, 1998.
General
Gross Profit / (Loss). The Company experienced a gross profit of $2,955,000 for
the six months ended June 30, 1998 versus a gross loss of $1,436,000 for the six
months ended June 30, 1997, resulting from the matters previously discussed
regarding publishing and film revenues and cost of sales.
Selling, General and Administrative. SG&A decreased to $4,913,000 for the six
months ended June 30, 1998 compared to $5,047,000 for the six months ended June
30, 1997.
Net Interest Expense. Net interest expense for the six months ended June 30,
1998 was $302,000 compared with $193,000 for the six months ended June 30, 1997.
The interest expense is primarily the result of increased utilization of the
Chase Loan.
LIQUIDITY AND CAPITAL RESOURCES
On November 12, 1997, the Company entered into an agreement with Chase Bank
providing the Company with an $8,000,000 loan facility for working capital
purposes ("Chase Loan"). This facility was increased in July 1998 to
$10,000,000. The Chase Loan is secured by substantially all of the Company's
assets, other than the Company's
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building. The Chase Loan runs for three years until November 4, 2000. The Chase
Loan establishes a "Borrowing Base" comprising: (1) 35% of an independent
valuation of the Company's audio library, (2) 85% of the Company's eligible
receivables and (3) 30% of the Company's finished goods audio and book
inventory. At any time, the Company may borrow or have letters of credit issued
up to the Borrowing Base. In addition, the Company may borrow or have letters of
credit issued for a further $4,000,000 (provided the aggregate amount borrowed
does not exceed $10,000,000) with the consent and guarantee of MEI. The Chase
Loan provides for interest at the bank prime rate plus 2% per annum or the
bank's LIBOR rate plus 3% per annum, at the option of the Company. In addition,
unused commitment fees are payable at 1/2% per annum. The Chase Loan contains
various covenants to which the Company must adhere including limitations on
additional indebtedness, investments, acquisitions, capital expenditures and
sale of assets, restrictions on the payment of dividends and distributions to
shareholders, and various financial compliance tests. The Company was not in
compliance with certain of the financial compliance tests at December 31, 1997
and June 30, 1998 but received waiver and amendment from Chase Bank. At June 30,
1998, the Company had borrowed $8,389,000 against the facility. In addition,
Chase Bank has provided letters of credit for $816,000.
In February 1998, the Company entered into an agreement with Chase Bank
providing the Company with an additional loan of a maximum of $3,289,000 for the
purpose of partly financing the made for television motion picture "Futuresport"
("Futuresport Loan"). The Futuresport Loan is incorporated into the Chase Loan
under the same terms and conditions as the Chase Loan. The Futuresport Loan is
secured by "Futuresport" and related license agreements. The Futuresport Loan is
repayable in September 1998 but the Company has entered into discussions with
Chase Bank with a view to deferring repayment in accordance with expected cash
receipts from the sale of home video and international rights for Futuresport.
At June 30, 1998, $2,595,000 was outstanding against the facility.
On July 14, 1998, the Company entered into an agreement with Apollo Partners
LLC, whereby the Company borrowed $1,500,000 secured by a second mortgage on the
Company's principal office building, 8955 Beverly Boulevard, Los Angeles
("Apollo Loan"). The Apollo Loan provides for interest at the bank prime rate
(8-1/2% at June 30, 1998) plus 2% per annum. The Apollo Loan is required to be
repaid on the earlier of 180 days following July 21, 1998 or the sale of the
Company's principal office building or earlier at the option of the Company.
The Company has historically experienced significant negative cash flows from
operations, including $8,546,000 for the year ended December 31, 1997 and
$5,601,000 for the six months ended June 30, 1998 - see "Financial Statements of
the Company - Consolidated Statements of Cash Flows". Such negative cash flows
have resulted from, among other things, use of working capital for expansion of
audio and printed book publishing, development of television programming and the
acquisition of theatrical motion picture product. The Company plans to
significantly increase the level of activity in both its audio book and
television production operations. In addition, the Company will consider
acquisitions of properties or libraries or companies in related lines of
business. It will be necessary to obtain additional capital in order to
accomplish its growth objective. Such additional capital may be obtained through
sales of equity securities, by obtaining debt financing or through the sale of
assets. Even if the Company does not pursue its growth objective, if the Company
is unable to realize anticipated revenues or if the Company incurs costs
inconsistent with anticipated levels, the Company would need to obtain
additional financing (through the sale of debt or equity securities, by
obtaining additional bank financing or through the sale of certain assets),
limit its commitments to new projects or possibly curtail its current
operations. There is no assurance that any such additional financing will be
available on acceptable terms.
The Company's television production activities can affect its capital needs in
that the revenues from the initial licensing of television programming may be
less than the associated production costs. The ability of the Company to cover
the production costs of particular programming is dependent upon the
availability, timing and the amount of fees obtained from distributors and other
third parties, including revenues from foreign or ancillary markets where
available. In any event, the Company from time to time is required to fund at
least a portion of its production costs, pending receipt of programming
revenues, out of its working capital. Although the Company's strategy generally
is not to commence principal photography without first obtaining commitments
which cover all or substantially all of the budgeted production costs, from time
to time the Company may commence principal photography without having obtained
commitments equal to or in excess of such costs. In such circumstances, the
Company will be required to fund at least a portion of production and
distribution costs, pending receipt of anticipated future revenues, from working
capital, from additional debt or equity financings from outside sources or from
other
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financing arrangements, including bank financing. There is no assurance that any
such additional financing will be available on acceptable terms. If the Company
is unable to obtain such financing, it may be required to reduce or curtail
certain operations. In order to obtain rights to certain properties for the
Company's publishing and television operations, the Company may be required to
make advance cash payments to sources of such properties, including book authors
and publishers. While the Company generally attempts to minimize the magnitude
of such payments and to obtain advance commitments to offset such payments, the
Company is not always able to do so and there is no assurance it will be able to
do so in the future.
The Company's operations in general, and its publishing and television
operations in particular, are capital intensive. The Company anticipates, based
on currently proposed plans and assumptions relating to its operations and
anticipated outcomes of current litigation, that the projected cash flow from
operations and available cash resources, including its existing financing
arrangements, will be sufficient to satisfy its anticipated cash requirements
for the next twelve months. In the event that the Company's plans change, its
assumptions change or prove to be inaccurate or the cash flow proves to be
insufficient to fund operations (due to unanticipated expenses, delays,
problems, difficulties or otherwise), the Company would be required to seek
additional financing sooner than anticipated or to curtail its activities.
As of July 30, 1998 the Company's unused sources of funds consisted primarily of
approximately $417,000 in cash and $701,000 available under the Chase Loan. Any
draw-downs of such currently available amounts under the Chase Loan are subject
to approval and guarantee by MEI.
INFLATION
The Company does not believe its business and operations have been materially
affected by inflation.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In June 1997, the Company was served with a complaint in an action entitled
Michael Bass v. Penguin USA Inc., et al. (New York Superior Court Case No.
97-111143) (the "New York Bass Action"). The complaint alleged among other
things that the contribution of Liza Greer (one of the authors) to the book
"You'll Never Make Love In This Town Again" defamed Mr. Bass and violated his
rights of publicity under New York statutes. The complaint sought damages of
$70,000,000 for defamation and $20,000,000 for violation of the New York right
of publicity statutes and an injunction taking the book out of circulation and
prohibiting the use of Mr. Bass' name. The New York Bass Action was voluntarily
stayed after Mr. Bass filed a similar action in the State of California entitled
Michael Bass v. Penguin USA et. al. (California Superior Court Case No.
SC049191) seeking essentially the same damages as in the New York Bass Action
(the "California Bass Action"). The California Bass Action was dismissed with
prejudice on July 6, 1998. However, there is no assurance that the plaintiff
thereunder will not appeal the dismissal, or in the event of such an appeal,
that the Company will prevail.
In July 1997, Michael Viner and Deborah Raffin Viner (the "Former Principals")
commenced an arbitration against the Company. In their arbitration demand, the
Former Principals claimed that they were owed in excess of $1 million by the
Company relating to the motion picture entitled "Morning Glory". The Former
Principals claimed that they were also entitled to the repayment of certain
deferred amounts for producing and acting services rendered by them in
connection with "Morning Glory" and to 50% of the profits. They claimed that a
former director of the Company, Gerald Leider, is entitled to the other 50% of
the profits. The Former Principals also asserted that from any recovery of a
judgment confirming an arbitration award against Steven Stern and/or Sharmhill
Productions relating to "Morning Glory" (the "Stern Judgment"), they are
entitled to receive $1 million, as well as the deferred amounts and 50% of the
profits. The Company asked the arbitrator to determine that the Former
Principals are not entitled to any moneys or rights with respect to "Morning
Glory", including from the proceeds of the Stern Judgment. On June 17, 1998, the
arbitrator issued an order in which he ruled that the Former Principals were not
entitled to repayment of such deferred amounts, to any percentage of the profits
or to the $1,000,000 claimed by the Former Principals. The arbitrator also ruled
that the Former Principals were not entitled to any proceeds from the Stern
Judgment. The Former Principals requested that the arbitrator reconsider his
ruling. The arbitrator
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determined on July 15, 1998 that there was no basis for reconsideration. The
Company is not aware of any appeal by the Former Principals. In the event of
such an appeal, there is no assurance that the Company will prevail.
In August 1997, the Former Principals commenced an arbitration against the
Company seeking specific performance of, and alleging breach of, a termination
agreement to which they and the Company are a party (the "Termination
Agreement"), and claimed damages in excess of $165,000 and additional
reimbursements allegedly due for other items. The Company believed that, with
the exception of certain immaterial amounts which it expected to pay, it had
good and meritorious defenses to the claims by the Former Principals and it
filed its own claims against the Former Principals. On July 17, 1998, the
arbitrator ruled in favor of the Company on some issues and in favor of the
Former Principals on other issues, resulting in a net recovery by the Former
Principals of approximately $30,000. The arbitrator also confirmed an earlier
ruling that a provision of the Termination Agreement prohibiting the Former
Principals from competing with the Company in the audio book business for a
period of four years from June 10, 1997 is valid and enforceable, and enjoined
and restrained the Former Principals from engaging in the audio book business
during that period. The Former Principals have asserted that the arbitrator
lacked jurisdiction to render the award and have objected to the arbitrator's
rendering of the award. Notwithstanding such objection, the Former Principals
have requested the arbitrator to reconsider portions of the award in which the
arbitrator ruled in favor of the Company. The Company has requested the
arbitrator to reconsider portions of the award in which the arbitrator ruled in
favor of the Former Principals. There is no assurance that the Company will be
successful in its request for reconsideration or that the Former Principals will
not be successful in their request for reconsideration or their challenge to the
arbitrator's jurisdiction to render the award, or that the Former Principals
will not appeal, or in the event of such an appeal that the Company will
prevail.
A settlement has been reached in the securities class action lawsuits pending
against the Company and two former officers and directors and a Stipulation of
Settlement was filed with the Los Angeles Superior Court in July 1998. The
settlement has received preliminary court approval and is conditioned on certain
contingencies and final court approval following notice to be provided to the
plaintiff classes. Under the terms of the Stipulation of Settlement, all of the
pending class actions will be dismissed and a settlement fund of $3.75 million
will be created for the members of the proposed classes. The Stipulation of
Settlement provides that the settlement does not constitute an admission of
liability by the Company or any other party with respect to the matters alleged
in the class actions. The full amount of the settlement and associated legal
costs incurred by the Company to date have either been previously reserved for
or covered by the Company's insurance carriers. The pending class actions
consisted of three separate cases, Alan Field v. Dove Entertainment, Inc., et
al. (Los Angeles Superior Court No. BC174659), Global Asset Allocation
Consultants, L.L.C. v. Dove Entertainment, Inc., et al. (United States District
Court for the Central District of California Civil Action No. 97-6253-WDK) and
George, et al. v. Dove Entertainment, Inc. et al. (United States District Court
for the Central District of California Civil Action No. 97-7482-R). Although the
Company anticipates that the settlement will receive final court approval or
that members of the plaintiff classes will not opt out of the settlement and
pursue their own actions.
The Company has filed an appeal in the action entitled Greer v. Dove (Los
Angeles Superior Court Case No. BC 160871) (the "Greer Action"). In order to
file the appeal, the Company was required to post a bond in the amount of
approximately $179,000 (i.e., 150% of the judgment amount). There is no
assurance that the Company will prevail in such appeal. In June 1998, the
Company was served with a complaint filed in Los Angeles Superior Court (Case
No. BC193089) entitled Liza Greer v. NewStar Media Inc. for breach of contract,
breach of fiduciary duty, breach of agreement, breach of the implied covenant of
good faith and fair dealing and fraud, in connection with the book "You'll Never
Make Love in this Town Again" and circumstances relating to the Greer Action.
Ms. Greer claims, among other things, that she has suffered damages in excess of
$1,000,000. The Company believes it has good and meritorious defenses to the
action. Nevertheless, there is no assurance that the Company will prevail.
In May 1997, the Company was served with a complaint in an action entitled
Kenneth Raskoff v. Dove (Los Angeles Superior Court Case No. BC171355) (the
"Raskoff Action"). In June, 1998 the parties entered into a settlement agreement
and the action was dismissed.
In July 1997, the Company was served with a complaint in an action entitled
Steven A. Soloway v. Dove Entertainment, Inc., etc. et al. (Los Angeles Superior
Court Case No. BC 175516) (the "Soloway Action"). Mr. Soloway is a former
director and employee of the Company and sought damages of approximately
$350,000 for breach of contract. Mr. Soloway claimed that he was entitled to
declare his employment agreement terminated
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without cause and to receive has base salary through September 1999. In
September 1997, Mr. Soloway obtained a writ of attachment for $350,000 in
respect of his claims, for which the Company substituted an undertaking for the
amount of the attachment. The Company filed a cross-complaint against Mr.
Soloway for breach of fiduciary duty and legal malpractice asserting that Mr.
Soloway fabricated a version of his employment agreement, submitted the
fabricated version for inclusion in the Company's public documents, without
authorization or approval drafted and signed on behalf of the Company an
occupancy agreement pursuant to which the Former Principals unrightfully
occupied the Company's offices, fabricated minutes of the Board and disclosed
confidential information that he obtained as an officer. On July 21, 1998 a
Judgment Pursuant to Terms of Settlement was filed with the Los Angeles Superior
Court. Pursuant to the terms of the Settlement, Mr. Soloway received a cash
payment of $150,000 and common stock of the Company valued at $38,000.
In addition to the above claims, the Company is a party to claims previously
reported in its public filings and to various routine legal proceedings and
claims incidental to its business.
During the quarter ended June 30, 1998, there have been no other material
developments in legal proceedings pending against the Company or its properties
and no other material legal proceedings against the Company or its properties
were instituted or terminated (other than routine litigation that is incidental
to the Company's business).
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In May 1998, the Company issued 26,492 shares of common stock to the Dove
Entertainment, Inc. Cash or Deferred Profit Sharing Plan as the Company's
required contribution for the period from August 1, 1997 to March 31, 1998.
Also in May 1998, the Company issued 107,407 shares of Common Stock to Ronald
Lightstone, the Company's President and Chief Financial Officer, pursuant to the
vesting schedule in Mr. Lightstone's employment agreement with the Company.
All of the shares issued were issued in reliance on Section 4(2) of the
Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An Annual Meeting of Shareholders was held on April 30, 1998. The following
matters were submitted to shareholders and received the following vote
tabulation.
Amendment of the Company's Articles of Incorporation to change the name of the
Company from Dove Entertainment, Inc. to NewStar Media Inc.:
5,588,201 votes for 1,950 votes against 0 votes abstaining 0 broker non-votes
Election of Directors to serve until the next Annual Meeting of Shareholders:
Terrence Elkes 5,589,001 votes for 0 votes against 1,150 votes abstaining 0 broker non-votes
Ronald Lightstone 5,589,001 votes for 0 votes against 1,150 votes abstaining 0 broker non-votes
Bruce Maggin 5,589,001 votes for 0 votes against 1,150 votes abstaining 0 broker non-votes
Lee Masters 5,589,001 votes for 0 votes against 1,150 votes abstaining 0 broker non-votes
Steven Mayer 5,589,001 votes for 0 votes against 1,150 votes abstaining 0 broker non-votes
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Series B Director Nominees
Ken Gorman 2,000,000 votes for 0 votes against 0 votes abstaining 0 broker non-votes
John T. Healy 2,000,000 votes for 0 votes against 0 votes abstaining 0 broker non-votes
Ratification of KPMG Peat Marwick as the Company's auditors for fiscal years
1996 and 1997:
5,589,001 votes for 1,150 votes against 0 votes abstaining 0 Broker non-votes
ITEM 5. OTHER INFORMATION
On May 4, 1998, the Company filed with the California Secretary of State an
amendment to its Articles of Incorporation, changing the name of the Company to
NewStar Media Inc.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
3.9 Certificate of Amendment of Articles of Incorporation of the
Company filed with the Secretary of State of the State of
California on May 4, 1998
10.65 Loan Agreement, dated as of July 21, 1998, between NewStar Media
Inc. and Dove Four Point, Inc. and Apollo Partners, LLC
10.66 Deed of Trust, dated July 21, 1998, among NewStar Media Inc.,
Apollo Partners, LLC and North American Title Company
27 Financial Data Schedule
(B) Reports on Form 8-K
A report on Form 8-K (dated June 9, 1998) was filed on June 19, 1998 reporting
under Item 5 the notification by The Nasdaq Stock Market, Inc. of its
determination that the Company's common stock would be delisted from the Nasdaq
SmallCap Market on June 18, 1998, and the stay of such delisting pending the
Company's requested hearing.
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SIGNATURES
In accordance with Section 13 or 15(d) 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.
Date: August 3, 1998 NEWSTAR MEDIA INC.
By /s/ RONALD LIGHTSTONE
---------------------------------------
Ronald Lightstone, President,
Chief Executive Officer and Director
Date: August 3, 1998 By /s/ NEIL TOPHAM
---------------------------------------
Neil Topham
Chief Financial Officer
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NEWSTAR MEDIA, INC.
INDEX TO EXHIBITS
Exhibit
Number
3.9 Certificate of Amendment of Articles of Incorporation of the
Company filed with the Secretary of State of the State of
California on May 4, 1998
10.65 Loan Agreement, dated as of July 21, 1998, between NewStar Media
Inc. and Dove Four Point, Inc. and Apollo Partners, LLC
10.66 Deed of Trust, dated July 21, 1998, among NewStar Media Inc.,
Apollo Partners, LLC and North American Title Company
27 Financial Data Schedule