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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: Commission File Number:
March 31, 1996 0-13141
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MARTIN LAWRENCE LIMITED EDITIONS, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 95-4103583
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(State or other jurisdiction (IRS Employer Identification
of incorporation or organization) Number)
16250 Stagg Street
Van Nuys, California 91406
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(Address and zip code of principal executive offices)
(818) 988-0630
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to the
filing requirements for at least the past 90 days.
YES X NO
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Number of Shares Outstanding
Class at May 10, 1996
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Common Stock, $.01 par value 5,893,748
This Form 10-Q/A amends the third paragraph of "Results of Operations" for the
three months ended March 31, 1996 under Item 2 of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996 as filed with the
Securities and Exchange Commission on May 20, 1996.
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MARTIN LAWRENCE LIMITED EDITIONS, INC.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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1. LIQUIDITY AND CAPITAL RESOURCES
Several key components affect the Company's ability to meet its
financial needs, including funds generated from operations, levels of accounts
receivable and inventories, capital expenditures, short-term borrowing capacity
and the ability to obtain long-term capital on satisfactory terms. For the
three months ended March 31, 1996, the Company experienced negative cash flow
from operating activities of $704,000, compared with a negative cash flow from
operating activities of $1,105,000 during the same period last year. This
change is due to increased sales and the reduction in Company owned inventory.
Overall, cash decreased $581,000 in the first quarter of 1996, compared
with an increase of $653,000 for the comparable period last year. The
principal reason for this difference is the Company's receipt during the first
quarter of 1995 of net proceeds of $1,787,000 from the private placement
discussed below compared to $325,000 in the first quarter of 1996.
On February 6, 1995, the Company issued 200,000 shares of its 10%
Cumulative Convertible Preferred Stock, $.01 par value per share (the "Preferred
Stock"), pursuant to a private placement commenced in October 1994. The shares
of Preferred Stock were sold at $10 per share. The Company received net
proceeds of $1,786,000 from the offering. In three additional closings of the
private placement on September 18, 1995, January 3, 1996 and February 8, 1996,
the Company received additional net proceeds of $232,500, $139,500 and $186,000,
respectively, and issued an aggregate of 60,000 shares of Preferred Stock.
As a result of the Southern California earthquake in January 1994, in
1995, the Company received an aggregate of $206,200 of proceeds under a
disaster assistance loan with the Small Business Administration (the "SBA
Loan"). The SBA Loan accrues interest at the rate of 4% per annum. Principal
and interest payments of $1,965 per month began on March 10, 1996 and the
balance is due on February 10, 2007. The SBA loan is secured by the Company's
equipment and machinery.
Due to the Company's net losses, the Company's cash flow has been
severely restricted. In order to alleviate some of the constraints on the
Company's cash flow, in March 1996, the Company took a series of measures to
reduce its overhead costs. The Company has reduced its staff at corporate
headquarters by approximately 15% through layoffs and attrition. The Company
has also terminated its full-time security staff at its corporate headquarters
and instituted alternative internal safeguards. In addition, on May 1, 1996,
the Company began reducing certain selling costs within its control including
sales commissions.
In April 1996, the Company signed a lease for a new distribution
facility to replace its present facility. The new location is 12,000 square
feet smaller and will be occupied on September 1, 1996. This
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Martin Lawrence Limited Editions, Inc.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
1. Liquidity and Capital Resources (Contd.)
relocation will significantly reduce corporate rent. In addition, the Company
continues to evaluate its other leases.
On April 1, 1996, the Company entered into a Loan and Security
Agreement with four individuals (the "Lenders") to borrow an aggregate of
$500,000 (the "Loan"). The Loan has a maturity of six months and bears
interest at the rate of 24% per annum (with a default rate of 36% per annum).
All portions of the Loan funded between April 1 and April 3, 1996. The Loan is
secured by the Company's inventory with a cost of approximately $5,500,000. In
connection with the Loan, the Company issued to the Lenders five-year warrants
to purchase an aggregate of 50,000 shares at $1.00 per share. Thomas Green
Securities, Inc. ("TGI") arranged the Loan on behalf of the Company and, for
those services, the Company paid TGI a fee of $20,000.
On April 17, 1996, Woodfield Associates filed a lawsuit against the
Company in Circuit Court for the Sixth Judicial Circuit for the State of
Michigan alleging, among other things, the Company's failure to satisfy its
lease obligations, including the payment of rent. On August 15, 1995, after
receiving a notice of forcible detainer action from the landlord for failure to
pay several months' rent, the Company vacated its premises in the Woodfield
Mall prior to the expiration of the lease. The term of the lease as set forth
in the lease agreement extended until January 31, 2001. The lawsuit demands
payment of $1,943,602.90 in damages for rent and other charges through the end
of the lease term. The Company believes that the damages sought by Woodfield
Associates are far in excess of any damages the landlord may have suffered.
The Company believes that it will be able to reach a settlement of the action
with Woodfield Associates which may involve leasing of a new, smaller space in
the Woodfield Mall.
At April 30, 1996, the Company owed approximately $600,000 to its major
supplier of non-published artwork for the purchase of various artwork. The
Company is currently negotiating repayment terms and continuing payment terms
for new purchases of artwork with such supplier.
The Company believes that, based on its current projections, its cash
and capital resources should be sufficient to meet its financing requirements
throughout the balance of 1996. The Company will continue its efforts to
increase sales, maintain margins, reduce inventory levels and minimize
operational costs. However, the Company can make no assurances that it will
meet its current projections. The Company is exploring alternative sources of
liquidity, including other sources of financing and reductions of inventory
levels. Notwithstanding the foregoing, in the event that additional financing
is not available, the Company may elect to undertake such other actions as may
be appropriate in light of the circumstances at the time.
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MARTIN LAWRENCE LIMITED EDITIONS, INC.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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2. RESULTS OF OPERATIONS
a. THREE MONTHS ENDED MARCH 31, 1996
Net sales for the three months ended March 31, 1996 were $5,382,000, an
increase of $1,212,000 or 29.1%, compared with the same period in 1995. The
Company believes that this increase was due to its promotional activities
coupled with sales of artwork published by the Company's newest artist,
increased consumer confidence in the economy and the opening of two new gallery
locations and five frame shops.
Retail sales were $4,042,000, an increase of 40.8%, compared with the
same period last year. Retail operations provided 75.1% of total net sales
through the full-period operation of 21 galleries and the full-period operation
of four frame shops. During the same quarter last year, retail operations
provided 68.9% of the total net sales through the full-period operation of 20
galleries.
Retail sales on a same-store basis (17 stores) increased 29.9%,
compared with the same period last year. The Company believes that this
increase is due, in part, to sales of artwork published by the Company's newest
artist, promotional activities and increased consumer confidence in the economy.
Additionally, during the period October 1995 to January 1996, the
Company opened five Martin Lawrence Frame Shops to provide custom framing
services. While adding to the sales increase, these stores had not yet reached
their break-even point by the end of the quarter.
The Company opened five Masterpieces of the World retail stores between
May and July 1995 in regional shopping malls in California. All of these
locations were taken on a temporary basis in order to test a new concept in art
retailing. Masterpieces of the World sold framed oil paintings at affordable
prices, primarily under $500. The results of operations of Masterpieces of the
World did not meet the Company's expectations and, accordingly, the Company
began closing the stores in January 1996 and completed the closings in March.
Although the Company has ceased operating Masterpieces of the World retail
stores, management believes that the concept may be viable in other venues.
The Company currently offers Masterpieces of the World inventory in its Frame
Shops locations and gallery outlet store.
Wholesale sales provided 10.8% of net sales, compared with 17.8% of net
sales for the same quarter last year. Wholesale sales for the first quarter of
1996 were $582,000, a decrease of 21.9%, compared with the same period last
year. The Company believes that this decrease is primarily due to two large
sales made last year in the amount of $165,000.
Auction sales for the first quarter of 1996 were $758,000, or 14.1% of
net sales, compared with $554,000, or 13.3%, of net sales for the same period
in 1994. The Company believes that this increase is due to increased frequency
of auctions during the quarter.
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Martin Lawrence Limited Editions, Inc.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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2. RESULTS OF OPERATIONS (Cont.)
a. THREE MONTHS ENDED MARCH 31, 1996 (Cont.)
Auctions which are conducted in geographical areas where the Company
has retail galleries tend to reduce the retail sales per square foot in those
galleries. However, the Company believes that the combination of its retail
galleries and auctions have increased its overall sales in those areas.
Historically, a majority of the Company's net sales have been generated
by the works of only a few of the Company's published artists. The Company
expects the mix of these artists to change over time, due to factors such as
changing customer preference and the expiration or termination of publishing
agreements with artists. As a result of these factors, the Company maintains
an extensive inventory of the works of popular artists and constantly seeks to
attract new promising artists and to promote their works. The works of two of
the Company's published artists accounted for approximately 12.9% and 6.1% of
the Company's net sales during the first three months of 1996. Two of the
Company's non-published artists accounted for approximately 13.4% and 8.1%,
respectively, of the Company's net sales during the first three months of 1996.
Cost of sales as a percentage of net sales was 39.4% and 38.8% for the
three months ended March 31, 1996 and 1995, respectively. The increase in the
cost of sales percentage from 1995 to 1996 was primarily the result of lower
margins on selected works of art.
Selling expenses as a percentage of net sales were 56.0% and 58.4% for
the three months ended March 31, 1996 and 1995, respectively. Selling expenses
include such items as retail sales location occupancy costs, advertising, sales
commissions, brochures and other promotional material costs, freight and
certain salary expenses. The percentage decrease is primarily due to the
increase in sales.
Selling expenses increased $576,000 in the first quarter of 1996,
compared with the first quarter of 1995. The increase is primarily due to
increased promotional costs and fixed and variable compensation in the amount
of $442,000 associated with the increase in sales. Sales location occupancy
costs increased $103,000 over the same period last year. This increase is due
to the opening of new locations and increased percentage rent under certain
leases. Depreciation expense increased $10,000 over the same period last
year. All other selling expenses increased $21,000 compared with the comparable
period last year.
On May 1, 1996, the Company began reducing certain selling costs within
its control including sales commissions. In addition, the Company continues to
evaluate its leases.
General and administrative expenses as a percentage of net sales were
29.0% and 32.0% for the three months ended March 31, 1996 and 1995,
respectively. General and administrative expenses include all
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MARTIN LAWRENCE LIMITED EDITIONS, INC.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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2. RESULTS OF OPERATIONS (Contd.)
a. THREE MONTHS ENDED MARCH 31, 1996 (Contd.)
corporate overhead costs. General and administrative expenses increased
$224,000, compared with the same period in 1995. For the three months ended
March 31, 1996, occupancy costs increased $9,000 over the same period last
year. Depreciation and amortization expense decreased $12,000, compared with
the same period last year. All other general and administrative expenses
increased $221,000, compared with the same period last year, due in part to
additional operational and support personnel required for the sales volume
increase and the increased level of credit card sales resulting in higher
finance costs.
The Company had a net loss applicable to common stock of $1,280,000 for
the three months ended March 31, 1996, compared with a net loss applicable to
common stock of $960,000 in the same period last year. The increase in the net
loss is due to higher cost of sales and higher selling and general and
administrative expenses associated with increased sales volume and additional
retail locations. Additionally, in the first quarter of 1995, the Company
realized a $91,000 gain on gallery closings and $46,000 tax benefit. There
were no comparable items in the first quarter of 1996.
The Company's strategy in this cost-conscious environment is to
continue to conduct art auctions and sales and other promotions at its retail
galleries. The Company will also continue to test the viability of factory
outlet stores. In addition, with respect to new artists published by the
Company, the Company intends to provide the collector with tremendous value at
moderate prices. The Company is also offering custom framing services through
its new Martin Lawrence Frame Shops stores. Significant improvement in the
Company's operating results is, to a large extent, dependent upon increased
consumer spending of discretionary income and the Company's ability to publish
artists that are appealing to consumers.
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SIGNATURE(S)
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MARTIN LAWRENCE LIMITED EDITIONS, INC.
(Registrant)
DATED: May 31, 1996 BY: /s/ Allen A. Baron
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ALLEN A. BARON
Chief Financial Officer and Treasurer
(Duly Authorized Officer)
