DeLaurentiis Entertainment Group said Monday that it lost $15.5 million in the quarter ended May 31 and that it has retained two investment banking firms to explore ways out of its financial quandary.
The alternatives "could include a possible recapitalization, restructuring or combination with a third party," the Beverly Hills-based company said. At present, less than 21% of the shares trade publicly, with nearly 68% held by company founder Dino DeLauretiis.
In a document filed Monday at the Securities and Exchange Commission, the company disclosed that its bankers can require the sale of its library of more than 300 films by Dec. 31 if DeLaurentiis fails to increase its net worth (assets minus liabilities) by $20 million by Nov. 15. Under an agreement reached last week, the banks now have "a security interest in substantially all of the company's film inventory and trade receivables" as well as a pledge of stock from subsidiaries such as its film studio in Wilmington, N.C.
As of May 31, the company's net worth was $32.6 million, down from $47.9 million three months earlier, said its Chief Financial Officer James A. Parsons in a telephone interview.
As previously reported, the company blamed a good portion of its first-quarter woes on the poor performance of "Million Dollar Mystery," a film released last month. DEG said that it will not release any other movie in North America during the current quarter, and as a result, anticipates another operating loss for the quarter ending Aug. 31.
Parsons noted that the company has scheduled five films for theatrical release before the Nov. 15 deadline, with a total of 13 films "ready for release from September through late spring.
"We spent our money to make movies," said Parsons, who headed Bank of America's entertainment lending division until he joined DEG last year.
Bank of America is the agent bank for the film company's $75-million credit, of which DEG has borrowed about $52 million, Parsons said.
The price of the company's shares closed Monday on the American Stock Exchange at $5.25, down 25 cents. The stock, which has traded publicly for less than 14 months, has traded as high as $17.75.
DEG was formed in October, 1985, by veteran film maker Dino DeLaurentiis to acquire many of the assets of Embassy Pictures--including its film library--from Coca-Cola Co., which holds a 10% stake in DEG. The library includes such classic films as "The Graduate," "The Lion in Winter" and "Carnal Knowledge."
DeLaurentiis, the 67-year-old chairman who has produced 49 movies since moving to the United States in 1973, is regarded as one of the industry's most persuasive salesmen, and took a measure of pride in pre-selling certain "ancillary" rights such as home-video and pay-television to minimize his company's exposure.
Additional financing was put in place in March, when a public offering was completed by a film partnership called DeLaurentiis Film Partners. The partnership raised about $31.4 million--included $11 million contributed by DEG. DeLaurentiis Film Partners, which also trades on the American Stock Exchange, closed Monday at $6.625 a share, down 25 cents.
The film partnership has not tapped its borrowing capacity of $30 million, Parsons said in response to a question.
"The pre-sale strategy works well in covering your (production) costs," said one Wall Street securities analyst, but if the movie fails to recover its print and advertising costs at the box-office, "you will lose money."