K-TEL INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
--------- ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 4,330 $ 3,341
Accounts receivable 16,308 16,667
Inventories 5,167 4,287
Royalty and other advances 2,944 1,552
Prepaid expenses and other 3,549 2,587
--------- ---------
Total Current Assets 32,298 $ 28,434
--------- ---------
Property and Equipment 3,409 3,154
Less Accumulated Depreciation and Amortization (2,392) (2,172)
--------- ---------
Property and Equipment, Net 1,017 982
Other Assets 1,279 1,076
--------- ---------
$ 34,594 $ 30,492
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Line of credit $ 2,010 $ 836
Note payable to affiliate -- 1,500
Accounts payable 4,641 3,708
Accrued royalties 8,439 11,296
Reserve for returns 5,971 4,930
Other current liabilities 3,499 3,572
Income taxes payable 124 70
--------- ---------
Total Current Liabilities 24,684 25,912
--------- ---------
Long Term Debt 4,000 --
Shareholders' Equity:
Common stock 37 37
Additional Paid In Capital 8,026 7,969
Deficit (817) (2,462)
Unrealized loss on Investment (332) --
Cumulative translation adjustment (1,004) (964)
--------- ---------
Total Shareholders' Equity 5,910 4,580
--------- ---------
$ 34,594 $ 30,492
========= =========
</TABLE>
<PAGE>
K-TEL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(IN THOUSANDS - EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------------- -------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES $ 23,215 $ 17,131 $ 48,350 $ 32,753
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Cost of goods sold 12,502 8,431 27,306 15,909
Advertising 4,451 2,934 8,177 5,718
Selling, general & administrative 5,684 3,969 10,896 8,360
---------- ---------- ---------- ----------
Total Costs and Expenses 22,637 15,334 46,379 29,987
---------- ---------- ---------- ----------
OPERATING INCOME 578 1,797 1,971 2,766
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest income 10 13 26 30
Interest expense (105) (3) (175) (21)
Foreign currency transaction gain (loss) (14) 70 (44) 51
---------- ---------- ---------- ----------
Total Other Income (Expense) (109) 80 (193) 60
---------- ---------- ---------- ----------
INCOME BEFORE PROVISION
FOR INCOME TAXES 469 1,877 1,778 2,826
PROVISION FOR INCOME TAXES (31) (125) (133) (222)
---------- ---------- ---------- ----------
NET INCOME $ 438 $ 1,752 $ 1,645 $ 2,604
========== ========== ========== ==========
INCOME PER SHARE;
BASIC $ .11 $ .47 $ .43 $ .70
DILUTED $ .11 $ .45 $ .40 $ .68
SHARES USED IN THE CALCULATION OF
INCOME PER SHARE;
BASIC 3,816 3,749 3,810 3,746
DILUTED 4,000 3,876 4,107 3,842
</TABLE>
<PAGE>
K-TEL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1997 1996
---------- ----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 1,645 $ 2,604
Adjustments to reconcile net income to cash provided by (used for) operating
activities:
Depreciation and amortization 393 262
Changes in current operating items:
Accounts receivable 267 2,446
Inventories (917) (50)
Royalty and other advances (1,395) 85
Prepaid expenses and other (1,299) (828)
Current liabilities (771) 710
---------- ----------
Cash provided by (used for) operating activities (2,077) 5,229
---------- ----------
Cash flows from investing activities:
Property and equipment purchases (287) (311)
Proceeds from sale of property and equipment 3 30
Music catalog additions (321) (122)
Other (33) (42)
---------- ----------
Cash used for investing activities (638) (445)
---------- ----------
Cash flows from financing activities:
Issuance of Long term debt 4,000 --
Borrowings on line of credit, Foothill Capital 7,540 --
Repayments on line of credit, Foothill Capital (5,530) --
Repayments on line of credit (836) (1,864)
Repayments on note payable to affiliate, net (1,500) --
Proceeds from exercise of stock options 57 14
---------- ----------
Cash provided by (used for) financing activities 3,731 (1,850)
---------- ----------
Effect of exchange rates on cash (27) (3)
---------- ----------
Net increase in cash and cash equivalents 989 2,931
Cash and cash equivalents at beginning of year 3,341 3,255
---------- ----------
Cash and cash equivalents at period end $ 4,330 $ 6,186
========== ==========
</TABLE>
<PAGE>
K-TEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been
included. Operating results for the three and six month periods ended
December 31, 1997 are not necessarily indicative of the results that
may be expected for the year as a whole. For further information, refer
to the consolidated financial statements and footnotes thereto included
in the Company's annual report on Form 10-K for the year ended June 30,
1997.
2. RECENTLY ISSUED ACCOUNTING STANDARD
During June 1997, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 131 ("SFAS 131"),
"Disclosures about Segments of an Enterprise and Related Information",
which requires a disclosure of business segments in the financial
statements of the Company. The Company expects to adopt SFAS No. 131 in
fiscal 1999 and anticipates a change in segment disclosure at the time
of adoption.
3. COMPUTATION OF NET INCOME PER SHARE
During the second quarter of fiscal 1998, the Company adopted Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share."
As a result, all previously reported earnings per share have been
restated. Basic earnings per share have been computed by dividing net
income by the weighted average number of shares outstanding during the
period. Diluted earnings per share have been computed assuming the
exercise of stock options and their related income tax effect.
For the three-month periods ended December 31, 1997 and 1996, weighted
average shares outstanding included common stock equivalents of
approximately 184,000 shares and 127,000 shares, respectively, related
to stock options. For the six-month periods ended December 31, 1997 and
1996, weighted average shares outstanding included common stock
equivalents of approximately 297,000 shares and 96,000 shares,
respectively, related to stock options.
4. LOAN AND SECURITY AGREEMENT
On November 19, 1997, certain of the Company's subsidiaries entered
into a new four year $10 million credit facility with a Foothill
Capital Corporation. The credit facility consists of a $4 million term
loan due November 19, 2001, and a $6 million revolving line of credit
facility. Borrowings under the facility bear interest at the prime rate
and are secured by the assets of certain U.S. subsidiaries, including
accounts receivable, inventories, equipment, music library and general
intangibles. The loan agreement contains certain financial and other
covenants or restrictions, including the maintenance of a minimum
tangible net worth by the Company, limitations on capital expenditures,
restrictions on music library acquisitions, limitations on the
incurrence of indebtedness, and restrictions on dividends to the
Company. The Company has guaranteed the obligations of |
