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, 1999 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________________ to __________________
Commission file 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)
2644 30TH STREET
SANTA MONICA, CALIFORNIA 90405
(Address of principal executive offices) (Zip code)
(310) 314-2000
(Registrant's telephone number, including area code)
NO CHANGE
(Former name, former address and former fiscal year,
if changed since last report)
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 13, 1999, 4,599,077 shares of Trimark Holdings, Inc. common stock
were outstanding, excluding shares held by Trimark Holdings, Inc. as treasury
stock.
TRIMARK HOLDINGS, INC.
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets at March 31, 1999 and June 30, 1998 3
Consolidated Statements of Operations - Nine months and three months ended
March 31, 1999 and 1998 4
Consolidated Statements of Cash Flows - Nine months ended March 31, 1999 and
1998 5
Notes to Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9-17
Item 3. Quantitative and Qualitative Disclosures about Market Risk 17
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 19-93
TRIMARK HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Share Data)
March 31, June 30,
1999 1998
------------ ----------
(Unaudited)
Assets
------
Cash and cash equivalents $ 1,442 $ 1,159
Accounts receivable, less allowances of
$5,938 and $6,005, respectively 18,772 16,568
Film costs, net (Note 2) 62,491 65,064
Deferred marketing costs 1,129 1,963
Inventories, net 1,521 1,190
Investments 5,420 --
Property and equipment at cost, less accumulated
depreciation of $2,759 and $2,433 respectively 602 741
Due from officers 793 780
Other assets 1,460 1,755
----------- ----------
$ 93,630 $ 89,220
=========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Revolving line of credit $ 53,330 $ 57,250
Accounts payable and accrued expenses 5,660 8,060
Minimum guarantees and royalties payable 13,307 7,623
Deferred income 3,240 1,100
Income taxes payable 49 43
----------- ----------
Total liabilities 75,586 74,076
----------- ----------
Stockholders' equity:
Common stock, $.001 par value. Authorized
20,000,000 shares; 5,564,492 shares issued
at March 31, 1999 and 5,134,827 6 5
shares issued at June 30, 1998
Additional paid in capital 18,601 15,588
Preferred stock, $.01 par value. Authorized
2,000,000 shares; no shares issued and
outstanding -- --
Retained earnings 1,415 3,981
Accumulated comprehensive income 2,485 --
Less treasury shares, at cost - 965,415 shares
and 952,200 shares (4,463) (4,430)
----------- ----------
Stockholders' equity 18,044 15,144
----------- ----------
$ 93,630 $ 89,220
=========== ==========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
TRIMARK HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except earnings (loss) Per Share)
Nine Months Ended Three Months Ended
March 31, March 31,
------------------------- -------------------------
1999 1998 1999 1998
---------- --------- --------- ---------
(Unaudited)
Net revenues $ 66,270 $ 62,163 $ 19,989 $ 24,618
Film costs and distribution expenses 56,611 53,200 19,323 19,284
---------- --------- --------- ---------
Gross Profit 9,659 8,963 666 5,334
---------- --------- --------- ---------
Operating expenses:
Selling 5,555 5,536 1,867 2,005
General and administrative 4,106 3,660 1,434 1,193
Bad debt (162) 1,000 179 852
---------- --------- --------- ---------
9,499 10,196 3,480 4,050
---------- --------- --------- ---------
Operating earnings (loss) 160 (1,233) (2,814) 1,284
Other (income) expenses:
Interest expense 3,023 3,257 871 1,166
Interest and investment income (57) (115) (40) (35)
---------- --------- --------- ---------
2,966 3,142 831 1,131
---------- --------- --------- ---------
Earnings (loss) before income taxes (2,806) (4,375) (3,645) 153
Income taxes (Note 5) (240) -- -- --
---------- --------- --------- ---------
Net earnings (loss) $ (2,566) $ (4,375) $ (3,645) $ 153
---------- --------- --------- ---------
Other comprehensive income, net of tax (Note 6) 2,485 -- 2,485 --
---------- --------- --------- ---------
Comprehensive income (81) (4,375) (1,160) 153
========== ========= ========= =========
Weighted average number of common shares
basic and fully diluted (Note 7) 4,341 4,183 4,341 4,183
========== ========= ========= =========
Net earnings (loss) per common share
basic and fully diluted (Note 7) $ (0.59) $ (1.05) $ (0.84) $ 0.04
========== ========= ========= =========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
TRIMARK HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Nine Months Ended
March 31,
1999 1998
--------- -----------
(Unaudited)
Operating activities:
Net earnings (loss) $ (2,566) $ (4,375)
Adjustments to reconcile net earnings (loss) to
Net cash used by operating activities:
Film amortization 35,231 37,304
Depreciation and other amortization 326 276
Provision for returns and bad debt (67) 2,048
Provision for inventory obsolescence (268) 3
Change in operating assets and liabilities:
Increase in accounts receivable (2,137) (3,637)
Additions to film costs (32,658) (42,072)
Decrease (increase) in deferred marketing costs 834 (248)
Increase in inventories (63) (251)
Increase in notes receivable from officers (13) (319)
Decrease in other assets 295 16
(Decrease) increase in accounts payable and
accrued expenses (2,400) 3,294
Increase in minimum guarantees and
royalties payable 5,684 2,422
Increase (decrease) in income taxes payable 6 (22)
Increase (decrease) in deferred income 2,140 (17)
---------- ---------
Net cash provided (used) by operating activities 4,344 (5,578)
---------- ---------
Investing activities:
Acquisition of property and equipment (187) (258)
---------- ---------
Net cash used by investing activities (187) (258)
---------- ---------
Financing activities:
Net (decrease) increase in revolving line of credit (3,920) 4,050
Exercise of stock options 79 114
Purchase of treasury stock (33) --
---------- ---------
Net cash (used) provided by financing activities (3,874) 4,164
---------- ---------
Increase (decrease) in cash and cash equivalents 283 (1,672)
Cash and cash equivalents at beginning of period 1,159 3,665
---------- ---------
Cash and cash equivalents at end of period $ 1,442 $ 1,993
========== =========
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 its
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, 1998. Significant
accounting policies used by the Company are summarized in Note 2 to the June
30, 1998 financial statements.
In the opinion of management, all adjustments required for a fair
presentation of the financial position as of March 31, 1999 and the results
of operations and cash flows for the periods ended March 31, 1999 and March
31, 1998 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 a full year.
NOTE 2 - FILM COSTS:
Film costs, net of amortization, consist of the following:
March 31, June 30,
1999 1998
------------- -------------
(in thousands)
Released $ 35,695 $ 50,541
Completed not released 7,621 3,419
In process and development 19,175 11,104
-------------- -------------
$ 62,491 $ 65,064
-------------- -------------
6
NOTE 3 - COMMITMENTS & CONTINGENCIES:
The Company has entered into certain agreements, which provide for royalty
advances and promotional and advertising commitments totaling $7.5 million.
If the conditions to these agreements are not met by the licensors, the
Company may withdraw from the arrangements. These commitments extend to
November 1999.
NOTE 4 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the nine month period for:
March 31,
1999 1998
------------- -------------
(in thousands)
Interest $3,438 $3,662
Income taxes 155 279
NOTE 5 - INCOME TAXES
The $240,000 tax benefit represents a tax receivable from a prior year return
recognized in the nine month period ended March 31, 1999.
NOTE 6 - OTHER COMPREHENSIVE INCOME
The $2,485,000 other comprehensive income, net of tax, represents the
unrealized gain on investment in broadcast.com common stock.
NOTE 7 - NET EARNINGS (LOSS) PER COMMON SHARE:
Basic earnings (loss) per common share amounts are based on the weighted
average number of common shares outstanding during the respective periods.
There is no assumed conversion of stock options for the nine months ended
March 31, 1999 and 1998 as the effect would be anti-dilutive. Fully 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 diluted to net earnings (loss).
7
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,
----------------------------------- -----------------------------------
1999 1998 1999 1998
--------------- --------------- ---------------- ---------------
(in thousands)
Domestic:
Home video distribution $42,256 $37,019 $13,232 $15,172
Theatrical distribution 857 7,687 136 2,664
Television distribution 10,397 7,743 3,665 3,222
Foreign:
All media 12,760 9,714 2,956 3,560
--------------- --------------- ---------------- ---------------
$66,270 $62,163 $19,989 $24,618
--------------- --------------- ---------------- ---------------
Net revenue for the nine months ended March 31, 1999 increased $4.1 million or
7% compared with the same period in fiscal year 1998. Net revenue for the
quarter ended March 31, 1999 decreased $4.6 million or 19% compared with the
same period in fiscal year 1998. The increase for the nine month period was due
to increases in net revenue from the home video, television and foreign markets
of $5.2 million, $2.7 million, and $3 million, respectively, partially offset by
a decrease in theatrical revenue of $6.8 million. The increase in domestic home
video revenue was primarily due to increased distribution and emphasis on
sell-through titles and DVD titles. Sell-through revenue increased due to the
straight to video title "A Kid in Aladdin's Palace" without any comparable
straight to sell-through release in the nine months ended March 31, 1998. The
Company also released forty two (42) DVD titles during the nine months ended
March 31, 1999 as compared to the release of only one (1) title in the same
period in fiscal year 1998. The overall home video revenue increase was
partially offset by a decrease in gross home video rental revenue due to the
release of "Eve's Bayou" in the third quarter of fiscal year 1998. The increase
in television revenue was primarily due to the availability of "Star Kid,"
"Eve's Bayou" and "The Dentist 2" in the cable market and "Ground Control" in
the network television market during the nine month period ended March 31, 1999.
In contrast, only the made for pay television film "Trucks" and the theatrically
released "Meet Wally Sparks" were released during the same period in fiscal year
1998. The increase in foreign distribution revenue was primarily due to the
release of seven (7) films in the foreign market including "Eve's Bayou" in many
major foreign territories for the nine months ended March 31, 1999; in contrast,
six (6) films were released in the same period for fiscal year 1998 and none
with the commercial success of "Eve's Bayou". The decrease in theatrical
8
ITEM 2: (CONTINUED)
distribution was due to the release of "Eve's Bayou" during the nine month
period ended March 31, 1998. No comparable title was released in the same
period for fiscal year 1999.
The decrease in net revenues for the quarter ended March 31, 1999 was
primarily due to decreases in home video and theatrical distribution of $1.9
million and $2.5 million, respectively. The decrease in home video revenue
was primarily due to the release of the theatrical film "Eve's Bayou" in the
third quarter of fiscal year 1998 with no comparable release in the same
period in fiscal year 1999. The decrease in theatrical revenue was due to the
wide theatrical release of "Star Kid" in January 1998; in contrast, there
were no wide theatrical releases in the third quarter of fiscal year 1999.
The Company continues to focus its resources on producing and acquiring films
with specialized theatrical potential and those that are made for initial
release on network and cable television. See "Liquidity and Capital
Resources."
The Company anticipates that the domestic home video market will continue to be
extremely competitive.
The Company recently announced a multi year agreement with NBC Enterprises in
which the Company will distribute in retail certain NBC Home Video
entertainment titles.
GROSS PROFIT: Gross profit as a percentage of net revenues for the nine month
periods ended March 31, 1999 and 1998 was 14.6% and 14.4%, respectively, and
for the quarters ended March 31, 1999 and 1998 was 3.3% and 21.7%,
respectively.
The Company's gross profit for the nine months ended March 31, 1999 increased
$696,000 or 8% compared with the same period in fiscal year 1998. The
Company's gross profit for the quarter ended March 31, 1999 decreased $4.7
million or 88% from the same quarter in fiscal 1998. The gross profit for the
quarter ended March 31, 1999 included approximately $4.9 million in write
downs to net realizable value of film inventory. These write downs primarily
related to a charge associated with the lower than anticipated video
sell-through performance of "Chairman of the Board" and a write down
associated with management's decision to limit the marketing campaign on the
video sell-through release of "Star Kid". There were no comparable write
downs during the quarter ended March 31, 1998.
GENERAL AND ADMINISTRATIVE EXPENSES: For the nine months ended March 31, 1999,
general and administrative expenses increased $446,000 or 12.2% compared with
the same period in fiscal 1998. For the three months ended March 31, 1999,
general and administrative expenses increased $241,000 or 20.2% compared with
9
ITEM 2: (CONTINUED)
the same period in fiscal year 1998. The nine month and three month period
increase in general and administrative expenses in fiscal 1999 as compared to
fiscal 1998 resulted from increases in medical benefits and consulting and
accounting fees.
BAD DEBT EXPENSE: Bad debt expense for the nine months ended March 31, 1999
decreased $1,162,000 or 116% compared with the same period in fiscal 1998. For
the three months ended March 31, 1999, bad debt expense decreased $673,000 or
79% compared to the same period in fiscal year 1998. Bad debt expense primarily
represents reserves taken against domestic video and foreign sales. The decrease
was partially due to $355,000 in collections on past due video and international
receipts. The Company also took $852,000 in reserves during the third quarter of
fiscal year 1998 due to the Asian currency crisis. No comparable reserves were
taken during the most recent fiscal quarter.
INTEREST EXPENSE: Interest expense for the nine month period ended March 31,
1999 decreased $234,000 or 7.2% compared with the same period in fiscal year
1998. Interest expense for the quarter ended March 31, 1999 decreased $295,000
or 25.3% compared with the same period in fiscal 1998. The decrease in interest
expense in the third quarter of fiscal 1999 was primarily due to a lower average
borrowing level from the same period in fiscal 1998. As of March 31, 1999, there
was $53.3 million outstanding under the credit facility. The Company expects to
use excess cash flow generated by theatrical and library product to decrease
current debt levels. See "Liquidity and Capital Resources."
NET EARNINGS (LOSS): The Company's net loss for the nine months ended March
31, 1999 decreased $1.8 million and increased $3.8 million for the three
months ended March 31, 1999 as compared with the same periods in fiscal 1998.
The decrease in net loss during the nine month period ended March 31, 1999 as
compared to the prior year is primarily due to the $696,000 increase in gross
profits coupled with the $1.2 million decrease in bad debt. The decrease in
the quarterly earnings compared to the prior year was a result of the $4.9
million film inventory write down taken in the third quarter of 1999 without
any comparable write down in the same period of fiscal 1998. This was
partially offset by decreases in operating and other expenses in the most
recent quarter.
OTHER COMPREHENSIVE INCOME: Pursuant to an agreement reached on February 22,
1999, the Company exchanged 412,363 of its shares; or 9% of its outstanding
shares, for 45,858 shares of broadcast.com. See Part II, Item 2 herein. The
resulting other comprehensive income reported in the third quarter of 1999
represents the unrealized gain, net of taxes, on the broadcast.com shares
based on the market price of the shares on March 31, 1999. As a result of
this new business venture, the Company and broadcast.com will work together
to distribute movies on the internet under a variety of new revenue models
including pay-per-view, electronic commerce, integrated advertising,
personalized marketing and user
10
ITEM 2: (CONTINUED)
interactive content. Under this agreement, which terminates on January 31,
2001 unless extended, the Company will use its best efforts on future titles
to give broadcast.com streaming rights or in certain circumstances rights of
first refusal in connection therewith.
11
ITEM 2: (CONTINUED)
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, 1999 and 1998 were as follows:
Nine Months Ended
March 31,
------------------------------------
1999 1998
---------------- ----------------
(in thousands)
Net cash provided (used) by operating activities $ 4,344 $ (5,578)
Net cash used by investing activities (187) (258)
Net cash (used) provided by financing activities (3,874) 4,164
Cash provided by operations increased by $9.9 million for the nine month
period ended March 31, 1999 compared to the same period in fiscal 1998. The
most significant change from the prior period was the decrease in additions
to film costs of $9.4 million. The decrease was primarily due to the wide
theatrical release of "Star Kid", in January 1998. There were no comparable
or wide theatrical releases in the nine months ended March 31, 1999. The
$32.7 million addition to film costs was primarily used for the production
and acquisition of new product with approximately $4.7 million used for
prints and advertising costs on the specialized theatrical releases of
"Billy's Hollywood Screen Kiss," "Cube," "Slam" and "Another Day in Paradise."
Two principal factors have increased the length of time from investment in film
costs to recoupment, which generally has increased the Company's cash
requirements. The first factor is the terms of the Company's current credit
facility entered into in December 1996, as amended December 31, 1998. Under the
current credit facility, described below, the Company directly pays production
costs that generally were previously paid by off balance sheet production
company financing. This change in financing has accelerated certain film
acquisition payments that were previously made at the time of film delivery and
are now made periodically throughout the production process. The production
process often takes from nine months to a year or more. Commitments to purchase
films from production companies upon delivery are included in contingent
contractual obligations. Theatrical films generally require significant
marketing expenditures for prints and advertising which are capitalized as film
costs. Theatrical marketing campaigns begin well in advance of the theatrical
release to generate the maximum level of awareness for the film. The opening
date must be carefully selected and is often changed to
12
ITEM 2: (CONTINUED)
address competition, screen availability and other factors. In addition, the
decision to release a film theatrically is often not made until a theatrical
test is conducted which can take several months. The home video release and
other ancillary market revenues are also not realized for several months to
years after the theatrical release. For further information see "Results of
Operations."
Investing activities for the nine months ended March 31, 1999 and 1998 have
primarily consisted of expenditures on production equipment improvements and
computer hardware and software.
Financing activities, consisting primarily of borrowings under the Company's
credit facility, decreased in the nine months ended March 31, 1999 as
compared to the nine months ended March 31, 1998, primarily as the result of
the increase in operating cash flows. The Company is no longer financing the
prints and advertising costs associated with wide theatrical releases as in
the prior year. 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. In the nine months ended March 31, 1999 and 1998, the principal
sources of funds have been provided by the Company's credit facility and
available cash. During the three month period ended March 31, 1999, the
outstanding debt balance has decreased $6.3 million or 11%.
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 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 1.25% above Chase
Manhattan's prime rate or 2.25% 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
0.375% per annum. As of March 31, 1999 there was $53.3 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
13
ITEM 2: (CONTINUED)
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
management's strategic review and release schedule described below, the
Company amended the current credit agreement as of December 31, 1998. The
amended agreement provides for less stringent minimum net worth ratios. In
consideration for the adjustment of these ratios, the amended credit facility
reduces the borrowing limits over the remaining life of the credit facility.
For the quarter ended March 31, 1999, the amended borrowing limit was $60
million. By January 31, 2000, the borrowing limit is 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, 1999.
Management of the Company conducted a strategic review of the Company's
theatrical operations in fiscal 1998. This strategic review focused on the
increase in the theatrical exhibition of specialized films, with which the
Company has demonstrated past successes including "Eve's Bayou" and "Kama Sutra:
A Tale of Love," and a reduction in the distribution of wide mainstream features
with wide releases to greater than 1,000 screens and which require substantial
print and advertising commitments. The Company does not plan to release any wide
theatrical releases in fiscal 1999.
In the domestic specialized theatrical market, the Company plans to release
five (5) to seven (7) motion pictures in fiscal 1999(of which four (4) were
released in the first nine months of fiscal 1999). Furthermore, the Company
plans to release approximately thirty-five (35) motion pictures into the
domestic home video rental market (of which twenty four (24) were released in
the first nine months of fiscal 1999) and to continue to expand distribution
in the sell-through market. The Company intends to distribute four (4) to six
(6) films and "movies of the week" which will premiere on major cable
networks or broadcast stations. Also in fiscal 1999, the Company plans to
release approximately seven (7) to nine (9) motion pictures initially into
international distribution (of which four (4) 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.
14
ITEM 2: (CONTINUED)
The Company is currently authorized to spend up to $150,000 in fiscal 1999 to
purchase shares of its outstanding common stock in the open market or
otherwise. The amended debt covenant at December 31, 1998 limits the purchase
of outstanding common stock to $50,000 per fiscal year. During the first
quarter of fiscal 1999, the Company purchased 13,215 shares at an average
price of $2.39 per share. No shares were purchased during the third quarter
of the fiscal year.
As previously announced by the Company, a hearing was held on October 16,
1998 with a panel authorized by the National Association of Securities
Dealers Inc. Board of Governors regarding the public float requirements of
the Company's common stock and its continued listing on the NASDAQ National
Market. On November 16, 1998, the panel determined to move the listing of the
Company's common stock from the NASDAQ National Market to the NASDAQ Small
Cap Market.
IMPACT OF YEAR 2000. The Company is currently working to resolve the
potential impact of the year 2000 on the processing of time-sensitive
information by computerized information systems. Year 2000 issues may arise
if computer programs have been written using two digits (rather than four) to
define the applicable year. In such case, programs that have time-sensitive
logic may recognize a date using "00" as the year 1900 rather than the year
2000, which could result in miscalculations or system failures. Management
completed a review of all significant software and equipment used in the
Company's operations and, to the extent practical, in the operations of its
key business partners, in order to determine if any year 2000 risks exist
that may be material to the Company as a whole. The Company estimates that
repairing all time sensitive hardware and software will cost the Company
approximately $240,000. As of the nine months ended March 31, 1999, the
Company has purchased approximately $165,000 in new computer hardware and
software through its normal upgrading of old computer hardware and software
as well as a direct result of year 2000 issues. The Company also entered into
a licensing agreement on February 6, 1999 for the implementation of a new
general ledger software system. The Company anticipates the system to be
fully operational by July 1, 1999. If the Company, its customers or vendors
are unable to resolve the year 2000 processing issues in a timely manner, it
could result in a material financial risk.
PROPERTIES. The Company leases its corporate office space in Santa Monica,
California for a term of seven years expiring April 30, 1999. The Company
negotiated an extension of its current lease until May 31, 1999 and is currently
in negotiations to extend the lease term until August 1, 1999. In April 1999,
the Company signed a ten (10) year lease agreement for new office space
beginning August 1, 1999 at which time the Company will move its corporate
15
ITEM 2: (CONTINUED)
offices to Marina del Rey, California. The Company believes the new rent and
moving costs will not represent a material increase in the Company's expenses.
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 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;
entertainment market, 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 potential success of its transaction with broadcast.com; the
costs and risks associated with the year 2000 issue; 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.
16
PART II. OTHER INFORMATION
ITEM 4. CHANGES IN SECURITIES AND USE OF PROCEEDS
On March 29, 1999, pursuant to the terms of a February 22, 1999 agreement
between the Company and broadcast.com inc. to jointly market certain of the
Company's movies by streaming them on the broadcast.com web site, the Company
issued and sold to broadcast.com 412,363 shares of the Company's common stock
in exchange for 45,858 shares of common stock of broadcast.com. The shares of
common stock of the Company were issued pursuant to exemptions from
registration requirements under Section 4(2) of the Securities Act of 1933,
as amended (the "Act"), and Regulation D promulgated thereunder, on the basis
that the transaction did not involve any public offering, and accordingly
such shares were not registered under the Act and may not be offered or sold
absent registration or an applicable exemption from registration
requirements. The shares of broadcast.com issued to the Company are subject
to the same restrictions.
ITEM 5. OTHER INFORMATION
Roger A. Burlage recently resigned as a Director of the Company to become
Chairman and Chief Executive Officer of The Harvey Entertainment Company.
17
PART II: OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No Description
- ---------- ----------------------------------------------------------------------------------
10.98 Non-Qualified Stock Option Agreement dated February 2, 1999 between the Company
and Cami Winikoff
10.99 Employment Agreement dated February 1, 1999 between Trimark Pictures, Inc.
and Cami Winikoff
10.100 Trimark Holdings, Inc. 1999 Directors' Option Plan
10.101 Non-Qualified Stock Option Certificate dated January 8, 1999 between the Company and
Gordon Stulberg
10.102 Non-Qualified Stock Option Certificate dated January 8, 1999 between the Company and
Matthew H. Saver
10.103 Non-Qualified Stock Option Certificate dated January 8, 1999 between the Company and
Tofigh Shirazi
10.104 Non-Qualified Stock Option Certificate dated January 8, 1999 between the Company
and Roger Burlage
10.105 Agreement dated February 22, 1999 among broadcast.com inc., the Company, Trimark
Pictures, Inc., Trimark Television, Inc. and Trimark Music, and amendment thereto
dated March 15, 1999 (as indicated by asterisk, portions of the February 22, 1999
agreement have been redacted pursuant to a confidentiality request)
10.106 Waiver letter dated as of March 15, 1999 regarding the Credit, Security, Guaranty and
Pledge Agreement dated as of December 20, 1996, as amended, among Trimark Pictures, Inc.,
Trimark Television, Inc., the Guarantors referred to therein, the Lenders referred to
therein, and The Chase Manhattan Bank, as Administrative Agent and Fronting Bank
27 Financial Data Schedule.
18
PART II: OTHER INFORMATION (CONTINUED)
(b) Reports on Form 8-K:
On March 5, 1999, the Company filed a Report on Form 8-K,
under item 5 thereof, regarding its agreement with broadcast.com inc. The date
of the report (date of earliest event reported) was February 22, 1999.
19
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 17, 1999
20
INDEX TO EXHIBITS
EXHIBIT NO DESCRIPTION METHOD OF FILING
- ---------- ----------- ----------------
10.98 Non-Qualified Stock Option Agreement Filed herewith
dated February 2, 1999 between the electronically
Company and Cami Winikoff
10.99 Employment Agreement dated February 1, Filed herewith
1999 between Trimark Pictures, Inc. and electronically
Cami Winikoff
10.100 Trimark Holdings, Inc. 1999 Directors' Filed herewith
Option Plan electronically
10.101 Non-Qualified Stock Option Certificate Filed herewith
dated January 8, 1999 between the electronically
Company and Gordon Stulberg
10.102 Non-Qualified Stock Option Certificate Filed herewith
dated January 8, 1999 between the electronically
Company and Matthew H. Saver
10.103 Non-Qualified Stock Option Certificate Filed herewith
dated January 8, 1999 between the electronically
Company and Tofigh Shirazi
10.104 Non-Qualified Stock Option Certificate Filed herewith
dated January 8, 1999 between the electronically
Company and Roger Burlage
10.105 Agreement dated February 22, 1999 among Filed herewith
broadcast.com inc., the Company, Trimark electronically
Pictures, Inc., Trimark Television, Inc.
and Trimark Music, and amendment thereto
dated March 15, 1999 (as indicated by
asterisk, portions of the February 22,
1999 agreement have been redacted
pursuant to a confidentiality request)
EXHIBIT NO DESCRIPTION METHOD OF FILING
- ---------- ----------- ----------------
10.106 Waiver letter dated as of March 15, 1999 Filed herewith
regarding the Credit, Security, Guaranty electronically
and Pledge Agreement dated as of
December 20, 1996, as amended, among
Trimark Pictures, Inc., Trimark
Television, Inc., the Guarantors
referred to therein, the Lenders
referred to therein, and The Chase
Manhattan Bank, as Administrative Agent
and Fronting Bank
Financial Data Schedule. filed herewith
27 electronically